CORDILLERA CAREER DEVELOPMENT COLLEGE

POBLACION, BUYAGAN, LA TRINIDAD, BENGUET

COLLEGE OF LAW

A COMPILATION OF CASES IN PARTIAL

FULFILLMENT OF THE REQUIREMENT ON
OBLIGATIONS AND CONTRACT

SUBMITTED TO: ATTY. ALEXIS AGMATA

SUBMITTED BY: APRIL JASPER JILL D. CELESTINO

GATEWAY ELECTRONICS CORPORATION vs. LAND BANK OF THE PHILIPPINES
G.R. 155217, July 30, 2003

FACTS:

ACE FOODS, INC., vs. MICRO PACIFIC TECHNOLOGIES CO.,LTD.1

G.R. No. 200602, December 11, 2013

FACTS: ACE Foods is a domestic company involved in the wholesale and retail trade and
distribution of consumer products, while MTCL is involved in the supply of hardware and
equipment for computers. MTCL sent a letter-proposal for the supply and sale of the subject
items to be installed at the various offices of ACEFoods. ACE Foods accepted the proposal by
MTCL and accordingly issued a PurchaseOrder. MTCL subsequently delivered the said items to
ACE Foods, as reflected in the Invoice Receipt. The fine print of the invoice states that
'MICROPACIFICTECHNOLOGIES CO., LTD. retains the right to sell the property until complete
compliance with the above conditions and payment of the price' (stipulation of the title
reservation). The subject items were then assembled and configured at ACEFoods' premises
after delivery. Instead of paying the purchase price, ACE Foods sent a letter to MTNL stating
that it was returning the subject products to MTCL through its sales
representative, Mr. Mark Anteola, who agreed to withdraw the said products but had not yet
done so. ACE Foods lodged a complaint against MTCL before the RTC demanding that the
latter to remove the subject products from its premises as MTCL violated its "after delivery
services” obligations to it. ACE Foods also claimed that the MTCL products delivered were
defective and not working whichMTCL counter claimed that it has duly complied with its
obligations and that the products are delivered in good condition. MTCL, however, reported that
there was actually no agreement on the supposed "after delivery services''. "The RTC released
a judgment ordering MTCL to remove the subject products from the premises of ACE Foods
and to pay actual damages and attorneys 'fees. However, the CA reversed and set aside the
RTC’s ruling, ordering ACEFoods to pay MTCL the amount of purchase price, legal interest and
attorney's fees.

ISSUE: Whether or not ACE Foods should pay MTCL the purchase price for the subject
products.

HELD: YES. In this case, the Court concurs with the CA that the parties have agreed to a
contract of sale and not to a contract to sell as adjudged by the RTC.In view of its consensual
nature, the contract of sale was finalized at the precise moment when ACE Foods, as evidenced
by its act of sending the PurchaseOrder to MTCL, approved the latter's proposal to sell the
subject matter, taking into account the purchase price of 646,464.00. From that point in time, the
reciprocal obligations of the parties already arose and consequently may be demanded. Article
1475 of the Civil Code makes this clear:Art. 1475. The contract of sale is perfected at the
moment there is a meeting of minds upon the thing which is the object of the contract and upon
the price.From that moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts.Thus, in the absence of any reasonable
indication that the conditions on the reservation of title were actually decided, the Court must
regard the same as amere unilateral imposition on the part of MTCL which has no bearing on
the essence of the original agreement of the parties as a contract of sale. Perforce,the
responsibilities resulting from, inter alia, the duty of ACE Foods to pay the purchase price as
well as to recognize the delivery of the products remains enforceable and subsisting.

Hur Tin Yang vs. People of the Philippines

G.R. No. 195117, August 14, 2013

FACTS: On various occasions in April, May, July, August, September, October and November,
Metrobank extended several commercial letters of credits (LC) to Supermax, a corporation
engaged in construction business. These LCs will be used to pay for the delivery of construction
materials which will be used by Supermax in its business. Metrobank, required herein petitioner,
as the vice president of the company to sign 24 Trust Receipts. These Trust receipts will serve
as security for the construction materials and to hold the materials or the proceeds of the sales
in trust for Metrobank to the extent of the amount stated in the trust receipts. The 24 Trust
Receipts fell due however Supermax failed to pay or deliver the goods or proceeds to
Metrobank. Metrobank sent demand letters but instead of complying, it requested for the
restructuring of the loan which was denied by the Metrobank. After the denial, Metrobank sent
another letter of demand which was unheeded. This prompted the bank to file a complaint
against the petitioner. In his defense, petitioner said that these trust receipts are made as an
additional security for the loans extended for the purchase of materials. He also claimed that
Metrobank knew all along that the said materials were not intended for resale but for personal
use of Supermax. Trial Court found the petitioner guilty of Estafa under the Revised Penal
Code. An appeal was made by the Petitioner but the Court of Appeals affirmed the decision of
the trial court. Petitioner filed a Motion for Reconsideration, but it was denied in a Resolution
dated December 20, 2010. Not satisfied, petitioner filed a petition for review under Rule 45 of
the Rules of Court. The Office of the Solicitor General (OSG) filed its Comment dated November
28, 2011, stressing that the pieces of evidence adduced from the testimony and documents
submitted before the trial court are sufficient to establish the guilt of petitioner. OSG dismissed
the petition.

ISSUE: Whether or not the dealing between the parties in this case is covered by Trust Receipt
Law which makes the Petitioner liable for Estafa under Art.315, par. 1(b) of the RPC in relation
to PD 115?

RULING:
NO. In the instant case, the factual findings of the trial and appellate courts reveal that the
dealing between petitioner and Metrobank was not a trust receipt transaction but one of simple
loan. Petitioner's admission that he signed the trust receipts on behalf of Supermax, which failed
to pay the loan or turn over the proceeds of the sale or the goods to Metrobank upon demand
does not conclusively prove that the transaction was, indeed, a trust receipts transaction. In
contrast to the nomenclature of the transaction, the parties really intended a contract of loan.
Simply stated, a trust receipt transaction is one where the entrustee has the obligation to deliver
to the entruster the price of the sale, or if the merchandise is not sold, to return the merchandise
to the entruster. There are, therefore, two obligations in a trust receipt transaction: the first
refers to money received under the obligation involving the duty to turn it over (entregarla) to the
owner of the merchandise sold, while the second refers to the merchandise received under the
obligation to "return" it (devolvera) to the owner. Nonetheless, when both parties enter into an
agreement knowing fully well that the return of the goods subject to the trust receipt is not
possible even without any fault on the part of the trustee, it is not a trust receipt transaction
penalized under Sec. 13 of PD 115 in relation to Art. 315, par. 1(b) of the RPC, as the only
obligation actually agreed upon by the parties would be the return of the proceeds of the sale
transaction. This transaction becomes a mere loan, where the borrower is obligated to pay the
bank the amount spent for the purchase of the goods. Considering that the goods in this case
were never intended for sale but for use in the fabrication of steel communication towers, the
trial court erred in ruling that the agreement is a trust receipt transaction. In concluding that the
transaction was a loan and not a trust receipt, we noted in Colinares that the industry or line of
work that the borrowers were engaged in was construction. We pointed out that the borrowers
were not importers acquiring goods for resale. Indeed, goods sold in retail are often within the
custody or control of the trustee until they are purchased. In the case of materials used in the
manufacture of finished products, these finished products if not the raw materials or their
components similarly remain in the possession of the trustee until they are sold. But the goods
and the materials that are used for a construction project are often placed under the control and
custody of the clients employing the contractor, who can only be compelled to return the
materials if they fail to pay the contractor and often only after the requisite legal proceedings.
The contractor's difficulty and uncertainty in claiming these materials (or the buildings and
structures which they become part of), as soon as the bank demands them, disqualify them
from being covered by trust receipt agreements.

Rodolfo Cruz and Esperanza Ibias v. Atty. Delfin Gruspe,

GR No. 191431, March 13, 2013

FACTS:

The claim arose from an accident when the mini bus owned and operated by Cruz and driven by
one Arturo Davin collided with the Toyota Corolla car ofGruspe; Gruspe’s car was a total
wreck.The next day,Cruz, along with Leonardo Q. Ibias went to Gruspe’s office, apologized for
the incident, and executed a Joint Affidavit of Undertaking promising jointly and severally to
replace the Gruspe’s damaged car in 20 days, or until November 15, 1999, of the same model
and of at least the same quality; or, alternatively, they would pay the cost of Gruspe’s car
amounting to P350,000.00, with interest at 12% per month for any delayed payment after
November 15, 1999, until fully paid.When Cruz andLeonardo failed to comply with their
undertaking, Gruspe filed a complaint for collection of sum of money against them.Cruz and
Leonardo denied Gruspe’s allegation, claiming that Gruspe, alawyer, prepared the Joint Affidavit
of Undertaking and forced them to affixtheir signatures thereon, without explaining and
informing them of its contents.
ISSUE: WON the Joint Affidavit of Undertaking is a contract that can be the basis of an
obligation to pay a sum of money.

RULING:

A simple reading of the terms of the Joint Affidavit of Undertaking readily discloses that it
contains stipulations characteristic of a contract. Contracts Are obligatory no matter what their
forms may be, whenever the essential requisites for their validity are present. In determining
whether a document isan affidavit or a contract, the Court looks beyond the title of the
document,since the denomination or title given by the parties in their document is not conclusive
of the nature of its contents.In the construction or interpretation of an instrument, the intention of
the parties is primordial and is to be pursued.If the terms of the document are clear and leave
no doubt on the intention of the contracting parties, the literal meaning of its stipulations shall
control. If the words appear to be contrary to the parties’ evident intention, the latter shall prevail
over the former. The Joint Affidavit of Undertaking contained a stipulation where Cruz and
Leonardo promised to replace the damaged car of Gruspe for the same model and of at least
the same quality. An allegation of vitiated consent must be proved by preponderance of
evidence in which Cruz and Leonardo failed to support their allegation.

SM Land, Inc. v. Bases Conversion and Development Authority

GR No. 203655, March 18, 2015

FACTS:

When BCDA opened for disposition its Bonifacio South Property pursuant to RA 7227, SMLI
offered to undertake the development of said property by submitting a succession of unsolicited
proposals to BCDA. BCDA then entered into negotiations with SMLI until the BCDA finally
accepted the terms of the final unsolicited proposal. Their agreement was thereafter reduced
into writing through the issuance of the Certification of Successful Negotiations in 2010. It was
agreed that BCDA accepted SMLI’s unsolicited proposal and declared SMLI eligible to enter into
the proposed Joint Venture activity. It also “agreed to subject SMLI’s Original Proposal to
Competitive Challenge pursuant to NEDA Joint Venture Guidelines, which competitive
challenge process shall be immediately implemented following the Terms of Reference.
Moreover, said Certification provides that the BCDA shall commence the activities for the
solicitation for comparative proposals. Years later however, the BCDA through the issuance of
Supplemental Notice No. 5 terminated the competitive challenge for the selection of BCDA’s
joint venture partner for the development of a portion of Fort Bonifacio. SMLI, through a petition
for CPM, argued that BCDA’s unilateral termination of the competitive challenge is a violation of
SMLI’s rights as an original proponent and constitutes abandonment of BCDA’s contractual
obligations. BCDA, on the other hand, responded that it is justifiable since NEDA JV Guidelines
is a mere guideline and not a law, and that the Government has a right to terminate the
competitive challenge when the terms are disadvantageous to public interest.

ISSUES:
1. W/N the NEDA JV Guidelines has the binding effect and force of law
2: W/N BCDA committed grave abuse of discretion in issuing Supplemental Notice No. 5
3: W/N the BCDA is in estoppel

RULING:

1. Yes. Administrative issuances, such as the NEDA JV Guidelines, duly promulgated pursuant
to the rule-making power granted by statute, have the force and effect of law. Being an issuance
in compliance with an executive edict, the NEDA JV Guidelines has the same binding effect as if
it were issued by the President himself, who parenthetically is a member of NEDA. As such, no
agency or instrumentality covered by the JV Guidelines can validly deviate from the mandatory
procedures set forth therein, even if the other party acquiesced therewith or not. Under the
Administrative Code of 1987, acts of the President providing for rules of a general or permanent
character in implementation or execution of constitutional or statutory powers shall be
promulgated in Executive Orders. It is through these orders that the President ensures that laws
are faithfully executed, by handing out instructions to subordinate executive officials and the
public, in the form of implementing rules and regulations, on how the law should be executed by
subordinate officials and complied with by the public. For government contracts and
procurement in the Philippines, then President Gloria MacapagalArroyo, adopting the
recommendation of the NEDA, issued EO 10918 on May 27, 2002. As its title indicates, EO 109
streamlined the rules and procedures on the review and approval of all contracts of
departments, bureaus, offices and agencies of the government, including GOCCs and their
subsidiaries. This executive issuance was, however, later amended by EO 109-A, to conform to
RA 9184 which was enacted barely two months after the issuance of EO 109. Two years later,
on April 30, 2005, EO 42321 was issued, repealing EO 109-A and simplifying the procurement
process. Section 4 of EO 423 was later amended by EO 645. Amidst the changes effected on
procurement rules, the NEDA’s duty to issue a JV Guidelines under the said executive orders
remained unaffected. Through Section 5 of EO 109, Section 8 of EO 109-A and now Section 8
of EO 423, the President effectively delegated her inherent executive power to issue rules and
regulations on procurement to her subordinate executive officials, her alter egos. Pursuant to
said repeated directives from no less than the Chief Executive, the NEDA issued the JV
Guidelines providing the procedures for the coagulation of joint ventures between the
government and a private entity.

2. Yes. Being an instrumentality of the government, it is incumbent upon the BCDA to abide by
the laws, rules and regulations, and perform its obligations with utmost good faith. It cannot,
under the guise of protecting the public interest, disregard the clear mandate of the NEDA JV
Guidelines and unceremoniously disregard the very commitments it made to the prejudice of the
SMLI that innocently relied on such promises. It is in instances such as this––where an agency,
instrumentality or officer of the government evades the performance of a positive duty enjoined
by law–wherein the exercise of judicial power is warranted. Consistent with the Court’s solemn
obligation to afford protection by ensuring that grave abuses of discretion on the part of a
branch or instrumentality of the government do not go unchecked, the Petition for Certiorari
must be granted and the corresponding injunctive relief be made permanent.
3. Yes. Although as a general rule, the government cannot be estopped by the mistakes or
errors of its officials or agents, such will not apply if injustice is perpetrated. To allow BCDA to
renege on its statutory and contractual obligations would cause grave prejudice to petitioner,
who already invested time, effort, and resources in the study and formulation of the proposal, in
the adjustment thereof, as well as in the negotiations. To permit BCDA to suddenly cancel the
procurement process and strip SMLI of its earlier-enumerated rights as an Original Proponent at
this point––after the former has already benefited from SMLI’s proposal through the acquisition
of information and ideas for the development of the subject property––would unjustly enrich the
agency through the efforts of petitioner. What is worse, to do so would be contrary to BCDA’s
representations and assurances that it will respect SMLI’s earlier acquired rights, which
statements SMLI reasonably and innocently believed. All told, the BCDA’s acceptance of the
unsolicited proposal and the successful in-depth negotiation cannot be written off as mere
mistake or error that respondents claim to be reversible and not susceptible to the legal bar of
estoppel. The subsequent cancellation of the Competitive Challenge on grounds that infringe
the contractual rights of SMLI and violate the NEDA JV Guidelines cannot be shrouded with
legitimacy by invoking the estoppel rule.

Consolidated Industrial Gases, Inc. v. Alabang Medical Center

GR No. 181983, November 13, 2013

FACTS:

Consolidated Industrial Gases, Inc. (CIGI) is a domestic corporation engaged in the business of
selling industrial gases (i.e., oxygen, hydrogen and acetylene) and installing a centralized
medical and vacuum pipeline system. Respondent Alabang Medical Center (AMC), on the other
hand, is a domestic corporation operating a hospital business. On August 14, 1995, CIGI, as
contractor and AMC, as owner, entered into a contract whereby the former bound itself to
provide labor and materials for the installation of a medical gas pipeline system for the first,
second and third floors (Phase 1 installation project) of the hospital for the contract price of Nine
Million Eight Hundred Fifty-Six Thousand Seven Hundred Twenty-Five Pesos and 18/100
(P9,856,725.18) which AMC duly paid in full.

The herein legal controversy arose after the parties entered into another agreement on October
3, 1996 this time for the continuation of the centralized medical oxygen and vacuum pipeline
system in the hospital’s fourth & fifth floors (Phase 2 installation project) at the cost of Two
Million Two Hundred Sixty-Seven Thousand Three Hundred Forty-Four Pesos and 42/100
(P2,267,344.42). This second contract followed the same terms and conditions of the contract
for the Phase 1 installation project. CIGI forthwith commenced installation works for Phase 2
while AMC paid the partial amount of One Million Pesos (P1,000,000.00) with the agreement
that the balance shall be paid through progress billing and within fifteen (15) days from the date
of receipt of the original invoice sent by CIGI.
On August 4, 1997, CIGI sent AMC Charge Sales Invoice No. 125847 as completion billing for
the unpaid balance of P1,267,344.42 for the Phase 2 installation project. When the sales invoice
was left unheeded, CIGI sent a demand letter to AMC on January 7, 1998. AMC, however, still
failed to pay, thus prompting CIGI to file a collection suit before the RTC on September 15,
1998.

CIGI claimed that AMC’s obligation to pay the outstanding balance of the contract price for the
Phase 2 installation project is already due and demandable pursuant to Article II, page 4 of the
contract stating that the project shall be paid through progress billing within fifteen (15) days
from the date of receipt of original invoice. In its Answer with Counterclaim, AMC averred that its
obligation to pay the balance of the contract price has not yet accrued because CIGI still has not
turned over a complete and functional medical oxygen and vacuum pipeline system. AMC
alleged that CIGI has not yet tested Phases 1 and 2 which constitute one centralized medical
oxygen and vacuum pipeline system of the hospital despite substantial payments already made.

ISSUE: Whether or not CIGI’s demand for payment upon AMC is proper

HELD:

Under the subject contracts, CIGI as contractor bound itself to install a centralized medical
oxygen and vacuum pipeline system for the first to fifth floors of AMC, which in turn, undertook
to pay the contract price therefore in the manner prescribed in the contract. Being reciprocal in
nature, the respective obligations of AMC and CIGI are dependent upon the performance of the
other at the end of the deal such that any claim of delay or non-performance can only prosper if
the complaining party has faithfully complied with its own obligation.

The Court has painstakingly evaluated the records of the case and based thereon, there can be
no other conclusion than that CIGI’s allegations failed to muster merit. The Court finds that CIGI
did not faithfully complete its prestations and hence, its demand for payment cannot prosper
based on the following grounds: (a) under the two installation contracts, CIGI was bound to
perform more prestations than merely supplying labor and materials; and (b) CIGI failed to
prove by substantial evidence that it requested AMC for electrical facilities as such, its failure to
conduct a test run and orientation/seminar is unjustified.

Both of the installation contracts clearly show that CIGI undertook to carry out more prestations
than merely supplying labor and materials for the medical oxygen and vacuum pipeline system.
CIGI agreed also: (a) to perform a pressure drop, leak testing, test run, painting/color coding of
the installed centralized medical oxygen, vacuum and nitrous oxide pipeline system; and (b) to
conduct orientation, seminars and training for the AMC employees who will be involved in the
operation of the centralized pipeline system before the formal turnover of the project. This is
evident from the herein reproduced provisions of the installation contracts.

For failure to prove that it requested for electrical facilities from AMC, the undisputed matter
remains – CIGI failed to conduct the stipulated test run and seminar/orientation. Consequently,
the dismissal of CIGI’s collection suit is imperative as the balance of the contract price is not yet
demandable. For having failed to perform its correlative obligation to AMC under their reciprocal
contract, CIGI cannot unilaterally demand for the payment of the remaining balance by simply
sending an invoice and billing statement to the former. Its right to demand for and collect
payment will only arise upon its completion of ALL its prestations under the subject contracts.

In reciprocal obligations, before a party can demand the performance of the obligation of the
other, the former must also perform its own obligation. For its failure to turn over a complete
project in accordance with the terms and conditions of the installation contracts, CIGI cannot
demand for the payment of the contract price balance from AMC, which, in turn, cannot legally
be ordered to pay. Otherwise, AMC will be effectively forced to accept an incomplete
performance contrary to Article 1248 of the Civil Code which states that "unless there is an
express stipulation to that effect, the creditor cannot be compelled partially to receive the
prestations in which the obligation consists."

ROLANDO M. MENDIOLA VS. COMMERZ TRADING INT'L., INC.

G.R. NO. 200895, JULY 31, 2013

FACTS:

Genicon, Inc. (Genicon) is a foreign corporation based in Florida, United States of America,
which designs, produces, and distributes "patented surgical instrumentation focused exclusively
on laparoscopic surgery. Petitioner, a physician by profession, entered into a contract with
Genicon to be its exclusive distributor of Genicon laparoscopic instruments in the Philippines, as
evidenced by a Distribution Agreement dated 18 July 2007.6Petitioner, in turn, entered into a
Memorandum of Agreement (MOA) with respondent to facilitate the marketing and sale of
Genicon laparoscopic instruments in the Philippines. Under the MOA, respondent would be
compensated for ₱100,000.00 "for the use of respondent’s name, office, secretary, invoices,
official receipts and facilities x x x for every sale of a complete set of Genicon laparoscopic
instruments x x x." Respondent sent a price quotation to Pampanga Medical Specialist Hospital,
Inc. (PMSHI), which thereafter agreed to purchase a Genicon laparoscopic instrument for Two
Million Six Hundred Thousand Pesos (₱2,600,000.00).

Then, petitioner ordered the laparoscopic instrument from Genicon, which in turn shipped the
medical equipment to the Philippines. Respondent undertook the release of the laparoscopic
instrument from the Bureau of Customs and subsequently delivered the same to PMSHI.
PMSHI made the following payments to respondent: (1) ₱520,000.00 per PMSHI Check
Voucher No. 2448 dated 1 February 2007, and to which respondent issued Official Receipt No.
11148; and (2) ₱2,080,000.00 per PMSHI Check Voucher No. 2419 dated 6 February 2007.
From the total amount of ₱2,600,000.00 paid by PMSHI to respondent, the latter’s president
Joaquin Ortega deducted ₱100,000.00 as respondent’s compensation for its services pursuant
to the MOA. Respondent remitted to petitioner ₱2,430,000.00 only, instead of ₱2,500,000.00.
Despite petitioner’s repeated demands, respondent failed to remit the remaining balance of
₱70,000.00 from the proceeds of the sale of the laparoscopic instrument.
Consequently, petitioner filed a collection suit against respondent with the Metropolitan Trial
Court, Branch 79, Las Piñas City (MeTC). In its Answer, respondent countered that petitioner
had no cause of action because it did not owe petitioner any amount. Respondent alleged that
the case was a pre-emptive measure taken by petitioner in anticipation of the collection suit
respondent would file for overpayment of the purchase price of the laparoscopic instrument.
Respondent claimed that the unremitted amount of ₱70,000.00 represented a portion of the
₱267,857.14 Expanded Value Added Tax (EVAT) which was erroneously and inadvertently
credited or remitted by respondent to petitioner’s account. The MeTC rendered its Decision of 6
October 2008 in favor of petitioner. The MeTC held that "respondent has no right to retain the
₱70,000.00 x x x. Respondent had been duly Page 75 of 178 compensated for its work done. It
is not its duty to pay any government taxes in whatever form because it is clearly a responsibility
of the buyer."

ISSUE: Whether or not the respondent is authorized under the MOA to withhold a specific
amount from the proceeds of the sale of the Genicon laparoscopic instrument as tax due from
petitioner.

HELD: The MOA is silent on this matter. The MOA does not expressly allow respondent to
collect or withhold from petitioner any amount from the sale of the Genicon laparoscopic
instrument for taxation purposes. However, the same agreement (1) allows respondent to issue
official receipts on which VAT should have been computed and included in the purchase price,
and (2) obligates petitioner to pay any tax due on the sale. since respondent, as the seller on
record, will be liable for the payment of the VAT based on the official receipt it issued, we shall
allow respondent to retain the ₱70,000.00 only for the purpose of paying forthwith, if it has not
done so yet, this amount to the BIR as the estimated tax due on the subject sale. There remains
a dispute on the computation of the correct amount of VAT because respondent allegedly
issued an official receipt25 only in the amount of ₱520,000.00, instead of the ₱2,600,000.00
purchase price. Considering this, and the foregoing findings, the BIR must be informed of this
Decision for its appropriate action.

THE METROPOLITAN BANK AND TRUST COMPANY VS ANA GRACE ROSALES

G.R. NO. 183204, JANUARY 13, 2014

FACTS:

Petitioner Metrobank is a domestic banking corporation duly organized and existing under the
laws of the Philippines. Respondent Rosales is the owner of a travel agency while Yo Yuk To is
her mother. In 2000, respondents opened a Joint Peso Account10 with petitioner’s Pritil-Tondo
Branch. In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese
National applying for a retiree’s visa from the Philippine Leisure and Retirement Authority
(PLRA), to petitioner’s branch in Escolta to open a savings account. Since Liu Chiu Fang could
speak only in Mandarin, respondent Rosales acted as an interpreter for her. On March 3, 2003,
respondents opened with petitioner’s Pritil-Tondo Branch a Joint Dollar Account with an initial
deposit of US$14,000.00. On July 31, 2003, petitioner issued a “Hold Out” order against
respondents’ accounts. On September 3, 2003, petitioner, through its Special Audit Department
Head Antonio Ivan Aguirre, filed before the Office of the Prosecutor of Manila a criminal case for
Estafa through False Pretences, Misrepresentation, Deceit, and Use of Falsified Documents.
Respondent Rosales, however, denied taking part in the fraudulent and unauthorized
withdrawal from the dollar account of Liu Chiu Fang. On December 15, 2003, the Office of the
City Prosecutor of Manila issued a Resolution dismissing the criminal case for lack of probable
cause. On September 10, 2004, respondents filed before the RTC of Manila a complaint for
Breach of Obligation and Contract with Damages.

ISSUE: Whether Metrobank breached its contract with respondents.

HELD: YES. The Court held that Metrobank’s reliance on the “Hold Out” clause in the
Application and Agreement for Deposit Account is misplaced. Bank deposits, which are in the
nature of a simple loan or mutuum, must be paid upon demand by the depositor. The “Hold Out”
clause applies only if there is a valid and existing obligation arising from any of the sources of
obligation enumerated in Article 1157 of the Civil Code, to wit: law, contracts, quasi-contracts,
delict, and quasi-delict. In this case, petitioner failed to show that respondents have an
obligation to it under any law, contract, quasi-contract, delict, or quasi delict. And although a
criminal case was filed by petitioner against respondent Rosales, this is not enough reason for
petitioner to issue a “Hold Out” order as the case is still pending and no final judgment of
conviction has been rendered against respondent Rosales. Page 73 of 178 In fact, it is
significant to note that at the time petitioner issued the “Hold Out” order, the criminal complaint
had not yet been filed. Thus, considering that respondent Rosales is not liable under any of the
five sources of obligation, there was no legal basis for petitioner to issue the “Hold Out” order.
Accordingly, we agree with the findings of the RTC and the CA that the “Hold Out” clause does
not apply in the instant case. In view of the foregoing, the Court found that petitioner is guilty of
breach of contract when it unjustifiably refused to release respondents’ deposit despite demand.
Having breached its contract with respondents, petitioner is liable for damages.

Professional Academic Plans, Inc. Francisco Colayco and Benjamin Dino v. Crisostomo
G.R. No. 148599, 14 March 2005

FACTS:

Respondent is an employee of petitioner. It was initially agreed in a MOA that respondent was
to receive 10% commission on remittances of clients negotiated by her. Thereafter respondent
negotiated a scholarship program between AFSLAI and PAPI. Sometime later, a series of new
MOAs negotiated between AFSLAI and PAPI at the exclusion of the respondent resulted into
agreements that lowered and eventually removed respondent’s commissions. After exhausting
administrative remedies and termination from PAPI, respondent filed a complaint in court which
was ruled favorably by RTC and CA. Hence, petition.
ISSUE: WON Crisostomo is entitled to the franchise commission under the new memorandum
of agreements under which she had no participation whatsoever in the negotiation and
execution.

RULING:

Yes. She is entitled to the commissions. SC ruled that abandonment of contract rights requires
proof of actual intent to abandon. Once a contract is entered into, no party can renounce it
unilaterally or without the consent of the other. This is the essence of the principle of mutuality
of contracts entombed in Article 1308 of the Civil Code which states that: “The contracts must
bind both contracting parties; its validity or compliance cannot be left to the will of one of them”.
To effectuate abandonment of a contract, mutual assent is always required. The mere fact that
one has made a poor bargain may not be a ground for setting aside the agreement.

There is no evidence in the case that the respondent agreed to the cancellation of the original
MOA that entitled her to receive the commissions. The fact that subsequent MOAs were
executed between AFPSLAI and PAPI does not invalidate the original MOA contracted by
respondent. Petition is dismissed.

SPOUSES IGNACIO F. JUICO AND ALICE P. JUICO VS. CHINA BANKING CORPORATION
G.R. NO. 187678, APRIL 10, 2013

FACTS:

Spouses Ignacio F. Juico and Alice P. Juico (petitioners) obtained a loan from China Banking
Corporation (respondent) as evidenced by two Promissory Notes both dated October 6, 1998
and numbered 507-001051-34and 507-001052-0,5 for the sums of !!6,216,000 and P4,
139,000, respectively. The loan was secured by a Real Estate Mortgage (REM) over petitioners’
property located at 49 Greenville St., White Plains, Quezon City respondent demanded the full
payment of the outstanding balance with accrued monthly interests. As of February 23, 2001,
the amount due on the two promissory notes totaled P19,201,776. On the same day, the
mortgaged property was sold at public auction, with respondent China bank as highest bidder
for the amount of P10,300,000.

Petitioners received a demand letter dated May 2, 2001 from respondent for the payment of
P8,901,776.63, the amount of deficiency after applying the proceeds of the foreclosure sale
respondent prayed that judgment be rendered ordering the petitioners to pay jointly and
severally: (1)P8,901,776.63 representing the amount of deficiency, plus interests at the legal
rate, from February 23, 2001 until fully paid; (2) an additional amount equivalent to 1/10 of 1%
per day of the total amount, until fully paid, as penalty; (3) an amount equivalent to 10% of the
foregoing amounts as attorney’s fees; and (4) expenses of litigation and costs of suit. Ms.
Annabelle Cokai Yu, its Senior Loans Assistant stated that as of now the outstanding balance of
petitioners was P15,190,961.48. Yu reiterated that the interest rate changes every month based
on the prevailing market rate. She notified petitioners of the prevailing rate by calling them
monthly .It was increased unilaterally.

RTC ordered Spouses to pay the bank 9M plus the interest which amounted to 15M. CA
affirmed petitioner: They insist that the increase in interest rates were unilaterally imposed by
the bank and thus violate the principle of mutuality of contracts.

ISSUE: Whether or not the increase in interest rates is void for violating the mutuality of
contracts

HELD: Yes. Article 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them. Article 1956 of the Civil Code likewise
ordains that "no interest shall be due unless it has been expressly stipulated in writing." The
binding effect of any agreement between parties to a contract is premised on xxx (2) that there
must be mutuality between the parties based on their essential equality. Any contract which
appears to be heavily weighted in favor of one of the parties so as to lead to an unconscionable
result is void. Any stipulation regarding the validity or compliance of the contract which is left
solely to the will of one of the parties, is likewise, invalid. Escalation clauses refer to stipulations
allowing an increase in the interest rate agreed upon by the contracting parties.

This Court has long recognized that there is nothing inherently wrong with escalation clauses
Nevertheless, an escalation clause "which grants the creditor an unbridled right to adjust the
interest independently and upwardly, completely depriving the debtor of the right to assent to an
important modification in the agreement" is void. A stipulation of such nature violates the
principle of mutuality of contracts. In a case, SC said that petitioner’s assent to the modifications
in the interest rates cannot be implied from their lack of response to the memos sent by
respondent It is now settled that an escalation clause is void where the creditor unilaterally
determines and imposes an increase in the stipulated rate of interest without the express
conformity of the debtor. Such unbridled right given to creditors to adjust the interest
independently and upwardly would completely take away from the debtors the right to assent to
an important modification in their agreement and would also negate the element of mutuality in
their contracts.

SPOUSES EDUARDO AND LYDIA SILOS VS. PHILIPPINE NATIONAL BANK

G.R. NO. 181045, JULY 2, 2014

FACTS:

Spouses Eduardo and Lydia Silos have been in business of operating a department store and
buying and selling ready-to-wear apparel. Respondent Philippine National Bank (PNB) is a
banking corporation organized and existing under Philippine laws. To secure a one year
revolving credit line of P150, 000.00 obtained from PNB, petitioners constituted in August 1987
a Real Estate Mortgage over a 370-square meter lot in Kalibo, Aklan. In July 1988, the credit
line was increased to P1.8 million and the mortgage was correspondingly increased to P1.8
million. In July 1989, a Supplement to the Existing Real Estate Mortgage was executed to cover
the same credit line, which was increased to P2.5 million, and additional security was given in
the form of a lot covered. In addition, petitioners issued eight Promissory Notes and signed a
Credit Agreement. This July 1989 Credit Agreement contained a stipulation on interest which
provided that the Loan shall be subject to interest at the rate of 19.5% per annum. Interest shall
be payable in advance every one hundred twenty days at the rate prevailing at the time of the
renewal and the Borrower agrees that the Bank may modify the interest rate in the Loan
depending on whatever policy the Bank may adopt in the future, including without limitation, the
shifting from the floating interest rate system to the fixed interest rate system, or vice versa.
Where the Bank has imposed on the Loan interest at a rate per annum, which is equal to the
Bank’s spread over the current floating interest rate, the Borrower hereby agrees that the Bank
may, without need of notice to the Borrower, increase or decrease its spread over the floating
interest rate at any time depending on whatever policy it may adopt in the future. The eight
Promissory Notes, on the other hand, contained a stipulation granting PNB the right to increase
or reduce interest rates "within the limits allowed by law or by the Monetary Board." The Real
Estate Mortgage agreement provided the same right to increase or reduce interest rates "at any
time depending on whatever policy PNB may adopt in the future." Petitioners religiously paid
interest until the eighth month.

In August 1991, an Amendment to Credit Agreement was executed by the parties, with the
following stipulation regarding interest that the Borrowers agree to pay interest on each
Availment from date of each Availment up to but not including the date of full payment thereof at
the rate per annum which is determined by the Bank to be prime rate plus applicable spread in
effect as of the date of each Availment. Despite demand, petitioners failed to pay the foregoing
amount. Thus, PNB foreclosed on the mortgage, and on January 14, 1999, TCTs T-14250 and
T-16208 were sold to it at auction for the amount of P4,324,172.96.

ISSUEs:

1) Whether or not the interest rate to be applied after the expiration of the first 30-day interest
period for PN 9707237 should be 12% per annum

2) Whether or not the PNB should reimburse petitioners the excess in the bid price of
P377,505.99 which is the difference between the total amount due to PNB and the amount of its
bid price. Page 92 of 178

HELD:

1) The Promissory Note, in turn, authorized the PNB to raise the rate of interest, at any time
without notice, beyond the stipulated rate of 12% but only "within the limits allowed by law." P.D.
No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate freely
regarding any subsequent adjustment in the interest rate that shall accrue on a loan or
forbearance of money, goods or credits. In fine, they can agree to adjust, upward or downward,
the interest previously stipulated. However, contrary to the stubborn insistence of petitioner
bank, the said law and circular did not authorize either party to unilaterally raise the interest rate
without the other’s consent. Similarly, contract changes must be made with the consent of the
contracting parties. The minds of all the parties must meet as to the proposed modification,
especially when it affects an important aspect of the agreement. In the case of loan contracts, it
cannot be gainsaid that the rate of interest is always a vital component, for it can make or break
a capital venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of any
binding effect. The interest rates imposed and indicated in the 2nd up to the 26th Promissory
Notes are DECLARED NULL AND VOID, and such notes shall instead be subject to interest at
the rate of twelve percent (12%) per annum up to June 30, 2013, and starting July 1, 2013, six
percent (6%) per annum until full satisfaction The case is ordered REMANDED to the Regional
Trial Court, Branch 6 of Kalibo, Aklan for the computation of overpayments made by petitioners
spouses Eduardo and Lydia Silos to respondent Philippine National Bank, taking into
consideration the foregoing dispositions, and applying the procedure hereinabove set forth. The
reimbursement of the excess in the bid price of P377,505.99, which respondent Philippine
National Bank is ordered to reimburse petitioners, should be held in abeyance until the true
amount owing to or owed by the parties as against each other is determined.

DKC HOLDINGS CORPORATION VS COURT OF APPEALS

G.R. NO. 118248. APRIL 5, 2000

FACTS:

The subject of the controversy is a 14,021 square meter parcel of land located in Malinta,
Valenzuela, Metro Manila which was originally owned by private respondent Victor U.
Bartolome’s deceased mother, Encarnacion Bartolome, under Transfer Certificate of Title No. B-
37615 of the Register of Deeds of Metro Manila, District III. This lot was in front of one of the
textile plants of petitioner and, as such, was seen by the latter as a potential warehouse site.

March 16, 1988. DKC entered a contract of lease with option to buy with Encarnacion Bartolome
(Victor’s deceased mom). DKC was given the option to lease or lease with purchase the subject
land, which option must be exercised within a period of two years counted from the signing of
the Contract. In turn, DKC undertook to pay P3,000.00 a month as consideration for the
reservation of its option. Within the two-year period, DKC shall serve formal written notice upon
the lessor Encarnacion Bartolome of its desire to exercise its option. The contract also provided
that in case DKC chose to lease the property, it may take actual possession of the premises. In
such an event, the lease shall be for a period of six years, renewable for another six years, and
the monthly rental fee shall be P15,000.00 for the first six years and P18,000.00 for the next six
years, in case of renewal.

DKC regularly paid Encarnacion until her death in January 1990. DKC then directed its payment
to the son of Enacarnacion who is the sole heir but Victor (Encarnacion’s son) refused the
payment. January 10, 1990. Victor executed an affidavit of Self Adjudication all over her
deceased mom’s properties, including the subject lot. Victor the dick then cancelled the deed of
transfer of DKC and then issued a transfer certificate under his name, what a dick. March 14,
1990. DKC sent a notice to Victor the royal douche, stating that they are going to exercise their
option to lease, tendering the amount of P15,000 as rent. Victor the douche, being a dick as he
is, refused payment. DKC then opened a savings account with the China Banking Corp. under
the name of Victor and deposited the P15,000 as rental fee while also adding another P6000 for
reservation fees DKC also tried to register and annotate the Contract on the title of Victor the
dick to the property. Although respondent Register of Deeds accepted the required fees, he
nevertheless refused to register or annotate the same or even enter it in the day book or primary
register.

April 23, 1990. DKC filed a complaint for specific performance and damages against Victor and
the Register of Deeds. DKC prayed for the surrender and delivery of possession of the subject
land in accordance with the Contract terms; the surrender of title for registration and annotation
thereon of the Contract; and the payment of P500,000.00 as actual damages, Page 107 of 178
P500,000.00 as moral damages, P500,000.00 as exemplary damages and P300,000.00 as
attorney’s fees. During the May of 1990, some guy named Andres Lonzano filed a motion for
intervention with motion to dismiss for he was a tenant-tiller of the subject property, dude is
under the Comprehensive Agrarian Reform Law, the motion was denied by the court, poor guy.
The lower court then rendered its decision, it dismissed the complaint and ordered DKC to pay
Victor for P30,000 as attorney’s fee. On appeal, the CA affirmed the decision of the lower court

ISSUE: Whether or not the Contract of Lease with Option to Buy entered into by the late
Encarnacion Bartolome with petitioner was terminated upon her death or whether it binds her
sole heir, Victor, even after her demise.

HELD: No. Article 1311 of the Civil Code and jurisprudence, Victor is bound by the subject
Contract of Lease with Option to buy executed by his predecessor-in-interest. It is futile for
Victor to insist that he is not a party to the contract because of the clear provision of Article 1311
of the Civil Code. Indeed, being an heir of Encarnacion, there is privity of interest between him
and his deceased mother. He only succeeds to what rights his mother had and what is valid and
binding against her is also valid and binding as against him. The general rule, therefore, is that
heirs are bound by contracts entered into by their predecessors-in-interest except when the
rights and obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation
or (3) provision of law.

ANALITA P. INOCENCIO VS. HOSPICIO DE SAN JOSE

G.R. NO. 201787, 25 SEPTEMBER 2013

FACTS: Hospicio de San Jose (HDSJ) leased a parcel of land to German Inocencio (German).
German then constructed two buildings over the land which he subleased. Ramon, his son, was
designated to administer the properties. German died but Ramon did not inform HDSJ.
Nonetheless, Ramon collected rentals from the sublessees and paid rent to HDSJ. HDSJ
acknowledged the existence of an implied lease between Ramon and HDSJ, as the latter has
been receiving rental payments from the former. HDSJ informed Ramon that the contract shall
expire on 31 March 2001 and it has no intention of renewing the same since Ramon did not
inform HDSJ of the sublease. HDSJ then demanded Ramon to vacate the property within 30
days. HDSJ also entered into lease agreements with other parties. HDSJ now filed a complaint
for unlawful detainer. While pending, Ramon passed away and was substituted now by Analita
Inocencio, his wife.

ISSUE: Whether the sublease is valid

HELD: Despite the non-transferability of the contract without the consent of the lessor, HDSJ
nonetheless acknowledged that Ramon is its month-to-month lessee. Thus, German’s death did
not terminate the lease. (Validity of the lease to Ramon). Ramon likewise had the right to
sublease the property since the lease contract did not contain any prohibitions on sublease,
pursuant to Article 1650. Thus, the sublease contracts entered into by Ramon were valid.
(Validity of sublease). Inocencios claim ownership over the property since they claim that these
are separate and distinct from the land on which they were built. Thus, they argue that they
have a right to lease the buildings to 3rd-parties, even after the termination of the lease. Further,
the Inocencios argue that when they entered into lease contracts with tenants for the lease of
portions of the said buildings, these contracts were independent contracts of lease over their
own building and not subleases of the parcel of land which they leased from Respondent. The
Court DISAGREES with the Inocencios by stating the ruling in the case of Duellome v. Gotico:
The lease of a building includes the lease of the lot and consequently, the rentals of the building
include the rentals of the lot. Accordingly, they pointed out that the ARGUMENT of HDSJ is
CORRECT when they stated the following: When the Inocencios leased the buildings to third
parties, they also "leased" to the third parties the plot of land on which the buildings stood —
either by implied transfer of the lease covering the plot of the land, or by sublease. Either way, x
x x the Inocencios themselves must have a valid lease contract with [HDSJ] over the land.
However, when the lease contract x x x with HDSJ ended on 31March 2001, Ramon lost his
status as lessee of the land, and therefore, had no authority to transfer the lease or sublease
the land.

SPS. MAMARIL VS. BOY SCOUT OF THE PHILIPPINES

G.R. NO. 179382, JANUARY 14, 2013

FACTS: PUJ operators Sps. Mamaril would park their 6 passenger jeepneys every night at
BSP’s compound in Malate, Manila for a fee of P300.00 per month for each unit. One day, one
of the vehicles was missing and was never recovered. According to the security guards Peña
and Gaddi of AIB Security Agency with whom BSP had contracted for its security and
protection, a male person who looked familiar to them took the subject vehicle out of the
compound. Sps. Mamaril prayed that Peña and Gaddi, together with AIB and BSP, be held
liable for: (a) the value of the subject vehicle; (b) amount representing daily loss of
income/boundary reckoned from the day the vehicle was lost; (c) exemplary damages; (d) moral
damages; (e) attorney's fees; and (f) cost of suit.

BSP denied any liability contending that not only did Sps. Mamaril directly deal with AIB with
respect to the manner by which the parked vehicles would be handled, but the parking ticket
itself expressly stated that the "Management shall not be responsible for loss of vehicle or any
of its accessories or articles left therein." It also claimed that Sps. Mamaril erroneously relied on
the Guard Service Contract. Apart from not being parties thereto, its provisions cover only the
protection of BSP's properties, its officers, and employees.

ISSUE: Whether or not BSP may be held liable for the loss of the vehicle caused by the
negligence of its security guards.

HELD: The proximate cause of the loss of Sps. Mamaril's vehicle was the negligent act of
security guards Peña and Gaddi in allowing an unidentified person to drive out the subject
vehicle. The records are bereft of any finding of negligence on the part of BSP. Neither will the
vicarious liability of an employer under Article 2180 of the Civil Code apply in this case. Peña
and Gaddi were assigned as security guards by AIB to BSP pursuant to the Guard Service
Contract. No employer-employee relationship existed between BSP and the security guards
assigned in its premises. Sps. Mamaril are not parties to the Guard Service Contract. Guard
Service Contract between defendant-appellant BSP and defendant AIB Security Agency is
purely between the parties therein.

Contracts take effect only between the parties, their assigns and heirs, except in case where the
rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the value of the property he
received from the decedent. If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not Page 105 of 178
sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a
third person.

Thus, in order that a third person benefited by the second paragraph of Article 1311, referred to
as a stipulation pour autrui, may demand its fulfillment, the following requisites must concur: (1)
There is a stipulation in favor of a third person; (2) The stipulation is a part, not the whole, of the
contract; (3) The contracting parties clearly and deliberately conferred a favor to the third person
- the favor is not merely incidental; (4) The favor is unconditional and uncompensated; (5) The
third person communicated his or her acceptance of the favor before its revocation; and (6) The
contracting parties do not represent, or are not authorized, by the third party. However, none of
the foregoing elements obtains in this case.There is absolutely nothing in the said contract that
would indicate any obligation and/or liability on the part of the parties therein in favor of third
persons such as herein plaintiffs-appellees.

Moreover, the Court concurs with the finding of the CA that the contract between the parties
herein was one of lease as defined under Article 1643 of the Civil Code. It has been held that
the act of parking a vehicle in a garage, upon payment of a fixed amount, is a lease. The
agreement with respect to the ingress and egress of Sps. Mamaril's vehicles were coordinated
only with AIB and its security guards, without the knowledge and consent of BSP. Accordingly,
the mishandling of the parked vehicles that resulted in herein complained loss should be
recovered only from the tort feasors (Peña and Gaddi) and their employer, AIB; and not against
the lessor, BSP.

STAR TWO (SPV-AMC), INC., VS PAPER CITY CORPORATION OF THE PHILIPPINES

G.R. NO. 169211, MARCH 6, 2013

FACTS: From 1990-1991, Paper City applied for and was granted four (4) loans and credit
accommodations by Rizal Commercial Banking Corporation (RCBC), now substituted by Star
Two (SPV-AMC), Inc by virtue of Republic Act No. 9182. The loans were secured by four (4)
Deeds of Continuing Chattel Mortgages on its machineries and equipment found inside its paper
plants. However, RCBC eventually executed a unilateral Cancellation of Deed of Continuing
Chattel Mortgage. In 1992, RCBC, as the trustee bank, together with Metrobank and Union
Bank, entered into a Mortgage Trust Indenture (MTI), with Paper City. In the said MTI, Paper
City acquired additional loans secured by five (5) Deed of Real Estate Mortgage, plus real and
personal properties in an annex to the MTI, which covered the machineries and equipment of
Paper City.

The MTI was later on amended and supplemented three (3) times, wherein the loan was
increased and included the same mortgages with an additional building and other improvements
in the plant site. Paper City was able to comply with the loans but only until 1997 due to an
economic crisis. RCBC filed a petition for extrajudicial foreclosure against the real estate
executed by Paper City including all the improvements because of payment default. The
property was foreclosed and subjected to public auction. The three banks and the highest
bidder were issued a Certificate of Sale. Paper City filed a complaint alleging that the sale was
null and void due to lack of prior notice. During the pendency of the complaint, Paper City filed a
motion to remove machinery out of the foreclosed land and building, that the same were not
included in the foreclosure of the real estate mortgage.

The trial court denied the motion, ruling that the machineries and equipment were included.
Thereafter, Paper City's Motion for Reconsideration, the trial court granted the same and
justified the reversal by finding that the machineries and equipment are chattels by agreement
thru the four Deeds of Continuing Chattel Mortgages; and that the deed of cancellation executed
by RCBC of said mortgage was not valid because it was one unilaterally. RCBC's Motion for
Reconsideration was denied. The case was petitioned at CA.

The CA affirmed the orders of the trial court because it relied on the plain language of the MTI's
stating that nowhere from any of the MTIs executed by the parties can we find the alleged
"express" agreement adverted to by petitioner. There is no provision in any of the parties’ MTI,
which expressly states to the effect that the parties shall treat the equipments and machineries
as real property. On the contrary, the plain and unambiguous language of the aforecited MTIs,
which described the same as personal properties, contradicts petitioner’s claims.

ISSUES:
1. Whether the subsequent contracts of the parties such as Mortgage Trust Indenture as well as
the subsequent supplementary amendments included in its coverage of mortgaged properties
the subject machineries and equipment.

2. Whether or not the subject machineries and equipment were considered real properties and
should therefore be included in the extra-judicial foreclosure which in turn were sold to the
banks.

HELD:

Repeatedly, the parties stipulated that the properties mortgaged by Paper City to RCBC are
various parcels of land including the buildings and existing improvements thereon as well as the
machineries and equipments, which as stated in the granting clause of the original mortgage,
are "more particularly described and listed that is to say, the real and personal properties listed
in Annexes ‘A’ and ‘B’ x x x of which the Paper City is the lawful and registered owner."
Significantly, Annexes "A" and "B" are itemized listings of the buildings, machineries and
equipment typed single spaced in twenty-seven pages of the document made part of the
records. As held in Gateway Electronics Corp. v. Land Bank of the Philippines,49 the rule in this
jurisdiction is that the contracting parties may establish any agreement, term, and condition they
may deem advisable, provided they are not contrary to law, morals or public policy. The right to
enter into lawful contracts constitutes one of the liberties guaranteed by the Constitution.

Law and jurisprudence provide and guide that even if not expressly so stated, the mortgage
extends to the improvements Art. 2127. The mortgage extends to the natural accessions, to the
improvements, growing fruits, and the rents or income not yet received when the obligation
becomes due, and to the amount of the indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law, whether the estate remains in the
possession of the mortgagor, or it passes into the hands of a third person.

Contrary to the finding of the CA, the Extra-Judicial Foreclosure of Mortgage includes the
machinery and equipment of respondent. Considering that the Indenture which is the instrument
of the mortgage that was foreclosed exactly states through the Deed of Amendment that the
machineries and equipments listed in Annexes "A" and "B" form part of the improvements listed
and located on the parcels of land subject of the mortgage, such machineries and equipments
are surely part of the foreclosure of the "real estate properties, including all improvements
thereon" as prayed for in the petition. The real estate mortgages which specifically included the
machinery and equipment were subsequent to the chattel mortgages. Without doubt, the real
estate mortgages superseded the earlier chattel mortgages.

Gabriel v. Monte de Piedad and CA

G.R. No. L-47806, 14 April1941

FACTS:
Petitioner Gabriel was employed as an appraiser of jewels in the pawnshop of Monte de Piedad.
He executed a chattel mortgage to secure the payment of the deficiencies which resulted from
his erroneous appraisal of the jewels pawned to the appellee, amounting to P14,679.07, with six
percent (6%) interest from said date. In this chattel mortgage, Gabriel promised to pay Monte de
Piedad P300 per month until the sum of P14,679.07, with interest, is fully paid. In case of default
to effectuate the chattel mortgage, an action was instituted against Gabriel by Monte de Piedad
in the CFI. Gabriel denied the genuineness of the execution of the said chattel mortgage. By
way of special defense, he alleged:(1) the chattel mortgage was void because a) it is contrary to
law, morals and public policy; (b) he was made to sign it against his will and through
misrepresentation where E. Marco(Director-General) signed in behalf of Monte de Piedad
without the latter’s authority,(c) the subject matter and considerations of the mortgage do not
exist, and(d) the payments already made allegedly for the mortgage were in fact his salaries;(2)
his acquittal in a criminal case that used the chattel mortgage as evidence of his liability was a
bar to the present civil case.

ISSUE:

Whether or not, the chattel mortgage executed by Gabriel is against public policy, law, or
morals?

RULING:

No. The Chattel Mortgage does not violate the law, morals or public policy.

A contract is to be judged by its character, and courts will look to the substances and not to the
mere form of the transaction. The freedom of contract is both a constitutional and statutory right
and to uphold this right, courts should move with all the necessary caution and prudence in
holding contracts void. The term “public policy” is vague and uncertain in meaning, floating and
changeable in connotation. It may be said, however, that, in general, a contract which is neither
prohibited by law nor condemned by judicial decision, nor contrary to public morals, contravenes
no public policy. In the absence of express legislation or constitutional prohibition, a court, in
order to declare a contract void as against public policy, must find that the contract as to the
consideration or thing to be done, has a tendency to injure the public, is against the public good,
or contravenes some established interests of society, or is inconsistent with sound policy and
good morals, or tends clearly to undermine the security of individual rights, whether of personal
liability or of private property.

Petitioner also contends that the chattel mortgage in question is void because it lacks
consideration. A consideration, in the legal sense of the word, is some right, interest, benefit, or
advantage conferred upon the promisor, to which he is otherwise not lawfully entitled, or any
detriment, prejudice, loss, or disadvantage suffered or undertaken by the promisee other than to
such as he is at the time of consent bound to suffer.
Examining the contract at bar, it was executed voluntarily to guarantee the deficiencies resulting
from the erroneous appraisals of the petitioner. A pre-existing admitted liability is a good
consideration for a promise. The fact that the bargain is a hard one will not deprived it of validity.
The exception to this rule in modern legislation is where the inadequacy is so gross as to
amount to fraud, oppression or undue influence, or when statutes require the consideration to
be adequate. The instant case does not fall within the exception.

Pakistan International Airlines v. Ople

G.R. No. 61594, 28 September 1990

FACTS:

Pakistan International Airlines Corporation (“PIA”), a foreign corporation licensed to do business

in the Philippines, executed in Manila two (2) separate contracts of employment, one with
private respondent Ethelynne B. Farrales and the other with private respondent Ma. M.C.
Mamasig.

The contracts provided that (1) the Duration of Employment is for a period of 3 years, (2) PIA
reserves the right to terminate this agreement at any time by giving the EMPLOYEE notice in
writing in advance one month before the intended termination or in lieu thereof, by paying the
EMPLOYEE wages equivalent to one month’s salary; and (3) the agreement shall be construed
and governed under and by the laws of Pakistan, and only the Courts of Karachi, Pakistan shall
have the jurisdiction to consider any matter arising out of or under this agreement.

Farrales and Mamasig then commenced training in Pakistan and after such, they began
discharging their job functions as flight attendants with the base station in Manila and flying
assignments to different parts of the Middle East and Europe.

Roughly one (1) year and four (4) months prior to the expiration of the contracts of employment,
PIA sent separate letters to private respondents advising both that their services as flight
stewardesses would be terminated. PIA claimed that both were habitual absentees, were in the
habit of bringing in from abroad sizeable quantities of “personal effects”.

Prior Proceedings: Regional Director of MOLE ordered the reinstatement of private

respondents with full back wages or, in the alternative, the payment to them of the amounts
equivalent to their salaries for the remainder of the fixed three-year period of their employment
contracts having attained the status of regular employees.

On appeal, the Deputy Minister of MOLE adopted the findings of fact and conclusions of the
Regional Director and affirmed the latter’s award save for the portion thereof giving PIA the
option, in lieu of reinstatement, “to pay each of the complainants [private respondents] their
salaries corresponding to the unexpired portion of the contract[s] [of employment] . . .”

Hence, this instant Petition for Certiorari by PIA.

ISSUE:

Whether or not the provisions of the contract superseded the general provisions of the Labor
Code

RULING:

No. The principle of freedom to contract is not absolute. Art. 1306 provides that stipulations by
the parties may be allowed provided they are not contrary to law, morals, good customs, public
order & policy. Thus, the principle of autonomy of contracting parties must be counterbalanced
with the general rule that provisions of the applicable law are deemed written into the contract.

In this case, the law relating to labor and employment is an area in which the parties are not at
liberty to insulate themselves and their relationship by simply contracting with each other.

Rivera v. Solidbank
G.R. No. 163269, 19 April 2006

FACTS:

Petitioner had been working for Solidbank Corporation since July 1, 1977. In December 1994,
Solidbank offered two retirement programs to its employees, the ORP and SRP. Petitioner
applied for retirement under the SRP. Solidbank approved the application and gave petitioner
the amount due to him. Rivera received the amount and confirmed his separation from
Solidbank on February 25, 1995. Subsequently, Solidbank required Rivera to sign an undated
Release, Waiver and Quitclaim, which was notarized on March 1, 1995. It stipulated that
petitioner cannot “seek employment with any competitor bank or financial institution within one
(1) year from February 28, 1995.” Furthermore, the bank was entitled to go after the petitioner
for the amount he received, in case of breach. On May 1, 1995, the Equitable Banking
Corporation. Solidbank, then, demanded the benefits received by the petitioner to be returned.

ISSUE:

WON the undated Release, Waiver and Quitclaim is void for being contrary to the Constitution,
the law and public policy, because it was unreasonable, arbitrary, oppressive, discriminatory,
cruel, unjust, inhuman, and violative of his human rights.

RULING:

Yes. The stipulation in the contract is against public policy, in that it is injurious to the public or
against the public good. Generally, the law does not relieve a party from the effects of an
unwise, foolish or disastrous contract, entered into with full awareness of what he was doing
and entered into and carried out in good faith. Such a contract will not be discarded even if there
was a mistake of law or fact. On the other hand, retirement plans, in light of the constitutional
mandate of affording full protection to labor, must be liberally construed in favor of the
employee, it is the general rule that pension or retirement plans formulated by the employer are
to be construed against it. Retirement benefits, after all, are intended to help the employee
enjoy the remaining years of his life, releasing him from the burden of worrying for his financial
support, and are a form of reward for being loyal to the employer. Respondent, as an employer,
is burdened to establish that a restrictive covenant barring an employee from accepting a
competitive employment after retirement or resignation is not an unreasonable or oppressive, or
in undue or unreasonable restraint of trade, thus, unenforceable for being repugnant to public
policy.

Thus, in determining whether the contract is reasonable or not, the trial court should consider
the following factors: (a) whether the covenant protects a legitimate business interest of the
employer; (b) whether the covenant creates an undue burden on the employee; (c) whether the
covenant is injurious to the public welfare; (d) whether the time and territorial limitations
contained in the covenant are reasonable; and (e) whether the restraint is reasonable from the
standpoint of public policy.

Cui v. Arellano University

G.R. No. L-15127, 30 May 1961

FACTS:

Emetrio Cui took his preparatory law course at Arellano University. He then enrolled in its
College of Law from the first year until the first semester of his 4th year. During these years, he
was awarded scholarship grants of the said university amounting to a total of P1,033.87. He
then transferred and took his last semester as a law student at Abad Santos University. To
secure permission to take the bar, he needed his transcript of records from Arellano University.
The defendant refused to issue the TOR until he had paid back the P1,033.87 scholarship grant
which Emetrio refunded as he could not take the bar without Arellano’s issuance of his TOR.

On August 16, 1949, the Director of Private Schools issued Memorandum No. 38 addressing all
heads of private schools, colleges, and universities. Part of the memorandum states that “the
amount in tuition and other fees corresponding to these scholarships should not be
subsequently charged to the recipient students when they decide to quit school or to transfer to
another institution. Scholarships should not be offered merely to attract and keep students in a
school”.

ISSUE:

Whether the provision of the contract between plaintiff and defendant, whereby the former
waived his right to transfer to another school without refunding to the latter the equivalent of his
scholarship in cash, is valid or not.
RULING:

Not valid. Memorandum No. 38 issued by the Director of Private Schools provides that “When
students are given a full or partial scholarship, it is understood that such scholarship is merited
and earned. The amount in tuition and other fees corresponding to these scholarships should
not be subsequently charged to recipient students when they decide to quit school or to transfer
to another institution.” Scholarship should not be offered merely to attract and keep students in
a school.

Memorandum No. 38 merely incorporates a sound principle of public policy. The defendant uses
the scholarship as a business scheme designed to increase the business potential of an
educational institution. Thus, conceived, it is not only inconsistent with sound policy but also,
good morals. The practice of awarding the scholarship to attract students and keep them in
school is not a good custom nor has it received some kind of social and practical confirmation
except in some private institutions as in Arellano University. Any contract entered into between
parties which is against the law, morals, good custom, public policy, or public order is void.

Arroyo v. Berwin
G.R. No. L-10551, 3 March 1917

FACTS:

Defendant represented Marcela Juanesa in the justice of the peace court of Iloilo in proceeding
for theft prosecuted by the plaintiff Ignacio Arroyo. The defendant requested the plaintiff to
agree to dismiss the said criminal proceeding, that his client Marcela Juaneza would recognize
the plaintiff’s ownership in the land situated on Calle San Juan, suburb of Molo, municipality of
Iloilo, Province of Iloil and the defendant furthermore agreed that the plaintiff should obtain a
Torrens title to the said land during the next term of the court for the trial of cadastral cases, and
that the defendant’s client, Marcela Juaneza, would not oppose the application for registration to
be filed by the said applicant; provided that the plaintiff would ask the prosecuting attorney to
dismiss the said proceedings filed against Marcela Juaneza and Alejandro Castro for the crime
of thecause.

Plaintiff on his part complied with the agreement and requested the prosecuting attorney to
dismiss the above-mentioned criminal cause; that the latter petitioned the court and the court
did dismiss the said cause. Plaintiff delivered to the defendant for the signature of the said
Marcela Juaneza a written agreement stating that the defendant’s said client recognized the
plaintiff’s ownership in the described land and that she would not oppose the plaintiff’s
application for registration; and that up to the present time, the defendant has not returned to
the plaintiff the said written agreement, notwithstanding the plaintiff’s many demands.

ISSUE:

Whether or not the consideration of the contract is illegal?

RULING:

The trial judge dismissed this complaint on the ground of the illegality of the consideration of the
alleged contract. An agreement by the owner of stolen goods to stifle the prosecution of the
person charged with the theft, for a pecuniary or other valuable consideration, is manifestly
contrary to public policy and the due administration of justice. In the interest of the public it is of
the utmost importance that criminals should be prosecuted and that all criminal proceedings
should be instituted and maintained in the form and manner prescribed by law; and to permit an
offender to escape the penalties prescribed by law by the purchase of immunity from private
individuals would result in a manifest perversion of justice.

FILIPINAS COMPANIA DE SEGUROS vs. CHRISTERN HUENEFELD and CO., INC.

G.R. No. L-19638, June 20, 1966

FACTS:

On October 1, 1941, the respondent corporation, Christern Huenefeld and Co., Inc., after
payment of corresponding premium, obtained from the petitioner, Filipinas Cia de Seguros fire
policy covering merchandise contained in a building located at Binondo, Manila. On February
27, 1942 or during the Japanese military occupation, the building and insured merchandise
were burned. In due time, the respondent submitted to the petitioner its claim under the policy.
The petitioner refused to pay the claim on the ground that the policy in favor of the respondent
that ceased to be a force on the date the United States declared war against Germany, the
respondent corporation (through organized under and by virtue of the laws of Philippines) being
controlled by German subjects and the petitioner being a company under American jurisdiction
when said policy was issued on October 1, 1941. The theory of the petitioner is that the insured
merchandise was burned after the policy issued in 1941 had ceased to be effective because the
outbreak of the war between United States and Germany on December 10, 1941, and that the
payment made by the petitioner to the respondent corporation during the Japanese military
occupation was under pressure.

ISSUE:

Whether or not the respondent corporation is a corporation of public enemy.

RULING:

Since the majority of stockholders of the respondent corporation were German subjects, the
respondent became an enemy of the state upon the outbreak of the war between US and
Germany. The English and American cases relied upon by the Court of Appeals lost in force
upon the latest decision of the Supreme Court of US in which the control test has adopted.
Since World War I, the determination of enemy nationality of corporations has been discussed
in many countries, belligerent and neutral. A corporation was subject to enemy legislation when
it was controlled by enemies, namely managed under the influence of individuals or
corporations themselves considered as enemies…

The Philippine Insurance Law (Act No 2427, as amended), in Section 8, provides that “anyone
except a public enemy may be insured”. It stands to reason that an insurance policy ceases to
be allowable as soon as an insured becomes a public enemy.

The respondent having an enemy corporation on December 10, 1941, the insurance policy
issued in its favor on October 1, 1941, by the petitioner had ceased to be valid and enforceable,
and since the insured good were burned during the war, the respondent was not entitled to any
indemnity under said policy from the petitioner. However, elementary rule of justice (in the
absence of specific provisions in the Insurance Law) require that the premium paid by the
respondent for the period covered by its policy from December 11, 1941, should be returned by
the petitioner.

Bustamante v. Rosel
G.R. No. 126800, 29 November 1999

FACTS:

Petitioner entered into a loan agreement with the respondent wherein the former as the
borrower and the latter as the lender. The loan was secured by a parcel of land of the petitioner
as a collateral. In their agreement, it was stated that in the event that if petitioner herein fails to
pay, the respondent has the option to buy or purchase the collateral. When the loan was about
to mature, respondents proposed to buy the collateral land on the amount stated in the loan
agreement. Petitioner herein refuse to sell and to execute a Deed of Absolute sale. When
petitioner tendered payment on the loan, respondent refuse to receive and demand the sale of
the land. Rosel filed a complaint in the RTC which rendered a decision denying the prayer for
the issuance of the deed sale. However, upon appeal to the Court of Appeals, the said decision
was reversed. Hence, this petition.

ISSUE:

Whether or not the stipulation in the loan contract was valid and enforceable.

RULING:

No.Contracts have the force of law between the contracting parties and must be complied with
in good faith. However, certain exceptions to the rule, specifically Article 1306 of the Civil Code,
which provides that “The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.”
A scrutiny of the stipulation of the parties reveals a subtle intention of the creditor to acquire the
property given as security for the loan. This is embraced in the concept of pactum
commissorium, which is proscribed by law. The elements of pactum commissorium are as
follows: (1) there should be a property mortgaged by way of security for the payment of the
principal obligation, and (2) there should be a stipulation for automatic appropriation by the
creditor of the thing mortgaged in case of non-payment of the principal obligation within the
stipulated period.

In this case, the intent to appropriate the property given as collateral in favor of the creditor
appears to be evident, for the debtor is obliged to dispose of the collateral at the pre-agreed
consideration amounting to practically the same amount as the loan. In effect, the creditor
acquires the collateral in the event of non-payment of the loan. This is within the concept of
pactum commissorium. Such stipulation is void.

Dizon vs. Gaborro

G.R. No. L-36821, June 22, 1978

FACTS:

Petitioner, Jose P. Dizon, was the owner of the three parcels of land, situated in Mabalacat,
Pampanga. He constituted a first mortgage to DBP to secure a loan of P38,000.00 and a
second mortgage to PNB amounting P93,831.91.

Petitioner defaulted in the payment of his debt, therefore, the Development Bank of the
Philippines foreclosed the mortgage extrajudicially. Gaborro became interested in the lands of
Dizon. But since the property was already foreclosed by the DPB. They then entered into a
contract captioned as “Deed of sale with assumption of mortgage” and the second contract
executed the same day, is called “Option to Purchase Real Estate” After the execution of said
contracts, Alfredo G. Gaborro took possession of the three parcels of land.

After the execution of the contract and its conditions to him, Gaborro made several payments to
the DBP and PNB. He improved, cultivated the kinds raised in sugarcane and other crops.

Jose P. Dizon, through his lawyer, wrote a letter to Gaborro informing him that he is formally
offering to reimburse Gaborro of what he paid to the banks. Gaborro did not agreed to the
demands of the petitioner, hence, Jose P. Dizon instituted a complaint in the Court of First
Instance of Pampanga, alleging that the documents Deed of Sale With Assumption of Mortgage
and the Option to Purchase Real Estate did not express the true intention and agreement
between the parties. Petitioner, contended that the two deeds constitute in fact a single
transaction that their real agreement was not an absolute sale of the land but merely an
equitable mortgage or conveyance by way of security for the reimbursement or refund by Dizon
to Gaborro of any and all sums which the latter may have paid on account of the mortgage
debts in favor of the DBP and the PNB.
ISSUE:

Whether or not the contract showed the true agreement between the parties.

RULING:

No. The court held that the true agreement between the plaintiff and defendant is that the
defendant would assume and pay the indebtedness of the plaintiff to DBP and PNB, and in
consideration therefore, the defendant was given the possession and enjoyment of the
properties in question until the plaintiff shall have reimbursed to defendant fully the amount of
P131,831.91 plus 8% interest per annum from October 6, 1959 until full payment, said right to
be exercised within one year from the date the judgment becomes final, if he fails to do so within
the said period, then he is deemed to have lost his right over the lands forever.

Corpuz v. CA and David

G.R. No. L-40424, 30 June 1980

FACTS:

The defendant was charged administratively by several employees of the Central Bank Export
Department of which the defendant is the director. Pending the investigation, he was suspended
from office. After the investigating committee found the administrative charges to be without
merit, and subsequently recommended the immediate reinstatement of the defendant, the then
Governor of Central Bank, recommended that the defendant be considered resigned as on the
ground that he had lost confidence in him.

The defendant filed the CFI of Manila a petition for certiorari, mandamus and quo warranto with
preliminary mandatory injunction and damages against Miguel Cuaderno, Sr., the Central Bank
and Mario Marcos who was appointed to the position of the defendant. Judge Lantin dismissed
a case for failure to exhaust the administrative remedies available to the herein defendant. After
they talked about the defendants having lost his case before Judge Lantin, and knowing that the
plaintiff and the defendant were both members of the Civil Liberties Union, Rafael Corpus
requested the plaintiff to go over the case and further said that he would send his son, the
herein defendant, to the plaintiff to find out what could be done about the case. The defendant
called up the plaintiff for an appointment, and the plaintiff agreed to meet him in the latter’s
office. At said conference, the defendant requested the plaintiff to handle the case because of
Atty. Alvarez had already been disenchanted and wanted to give up the case. Although at first
reluctant to handle the case, the plaintiff finally agreed on the condition that he and Atty. Alverez
would collaborate in the case.

ISSUE:

Whether or not private respondent Atty. Juan T. David is entitled to attorney’s fees.
RULING:

YES. While there was an express agreement between petitioner Corpus and respondent David
as regards attorney’s fees, the facts of the case support the position of respondent David that
there was at least an implied agreement for the payment of attorney’s fees. Petitioner’s act of
giving the check to respondent David indicates petitioner’s commitment to pay the former
attorney’s fees. It is patent then that respondent David agreed to render professional services to
petitioner Corpus secondarily for a professional fee. Thereafter, respondent David continued to
render legal services to petitioner Corpus, in collaboration with Atty. Alverez until he and Atty.
Alvarez secured the decision directing petitioner’s reinstatement with back salaries.

Moreover, the payment of attorney’s fees to respondent David may also be justified by virtue of
the innominate contract of facio ut des (I do and you give which is based on the principle that
“no one shall unjustly enrich himself at the expense of another.” innominate contracts have been
elevated to a codal provision in the New Civil Code by providing under Article 1307 that such
contracts shall be regulated by the stipulations of the parties, by the general provisions or
principles of obligations and contracts, by the rules governing the most analogous nominate
contracts, and by the customs of the people.

It does not appear that any written contract was entered into between the parties for the
employment of the plaintiff as interpreter, or that any other innominate contract was entered into
but whether the plaintiffs services were solicited or whether they were offered to the defendant
for his assistance, inasmuch as these services were accepted and made use of by the latter, we
must consider that there was a tacit and mutual consent as to the rendition of the services. This
gives rise to the obligation upon the person benefited by the services to make compensation
therefor, since the bilateral obligation to render service as interpreter, on the one hand, and on
the other to pay for the service rendered, is thereby incurred.

HILLTOP MARKET FISH VENDORS' ASSOCIATION, INC. vs. HON. BRAULIO YARANON
G.R. No. 188057, July 12, 2017

Facts
Hilltop and respondent City of Baguio, entered into a Contract of Lease over a lot owned by the
City of Baguio. The contract provided that the period of lease is 25 years, renewable for the
same period at the option of both parties and the annual lease rental is P25,000, with the first
payment commencing upon the issuance by the City Engineer's Office of the Certificate of
full occupancy of the building to be constructed by Hilltop on the lot. Sometime in 1975, Hilltop
constructed the building even though the City Engineer's Office did not issue a Certificate,
Hilltop's members occupied the Rillera building and conducted business in it.

The City Council of Baguio issued a resolution rescinding the contract of lease with
Hilltop, for its continued failure to comply with its obligation to complete the Rillera
building and ordered the closure of the two upper floors of the Rillera building based on the City
Council's Resolution that the Rillera building failed to comply with the minimum sanitary
standards. City Mayor Yaranon issued AO No. 30 to immediately close the Rillera building to
have it cleaned, sanitized and enclosed; to prevent illegal activities in it; and for its completion
and preparation for commercial use. Hilltop filed with the RTC a complaint and praying the
concerned office to issue the Certificate to make the contract of lease effective. Yaranon and
respondent Galo Weygan alleged that the Certificate was not issued to Hilltop because the
Rillera building was not completed, and there were no provisions for electrical and plumbing
systems or facilities for conduct of regular business. In any case, they argued that the issuance
of the Certificate shall only signal the start of payment of annual lease rental and not the
effectivity of the contract.

The RTC found that the contract of lease automatically expired on 22 June 1999, because the
lease period of 25 years was expressly provided in the contract of lease dated 22 June 1974.
The RTC did not give weight to Hilltop's contention that the Certificate authorized it to occupy
the lot because even without the Certificate, Hilltop already occupied the lot as early as 22 June
1974 up to the present, which is beyond the 25 year period provided in the contract of lease.
The RTC further found the Rillera building unsanitary and dangerous to those occupying it.

The CA affirmed the decision of the RTC and ruled that there was already a perfected
contract of lease: the issuance of the Certificate was imposed only on the performance of the
obligations contained in it. The CA held that Hilltop is estopped from claiming that the period of
lease has not begun, since it already occupied the Rillera building and conducted business in it
even without the Certificate.

ISSUE:
:
Whether or not the issuance of certificate of full occupancy by the City Engineer’s Office
makes the contract of lease effective.

RULING

No, in a contract of lease, one of the parties binds himself to give to another the enjoyment or
use of a thing for a price certain, and for a period which may be definite or indefinite. Being a
consensual contract, a lease is perfected at the moment there is a meeting of the minds upon
the thing and the cause or consideration which are to constitute the contract. Thereafter,
the lessor is obliged to deliver the thing which is the object of the contract in such a
condition as to render it fit for the use intended, and the lessee is obliged to use the thing leased
as a diligent father of a family, devoting it to the use stipulated or that which may be inferred
from the nature of the thing leased.

In a contract of lease, the cause or essential purpose is the use and enjoyment of the thing.
The thing or subject matter of the contract in this case was clearly identified and agreed upon as
the lot where the building would be constructed by Hilltop. The considerations were the annual
lease rental and the ownership of the building upon the termination of the lease period.
Considering that Hilltop and the City of Baguio agreed upon the essential elements of the
contract, the contract of lease had been perfected. From the moment that the contract is
perfected, the parties are bound to fulfill what they have expressly stipulated. Thus, the City of
Baguio gave the use and enjoyment of its lot to Hilltop. Both the RTC and the CA found that
upon the execution of the contract on 22 June 1974, Hilltop took possession of the lot and
constructed the Rillera building on it. Thereafter, Hilltop's members occupied the Rillera
building and conducted business in it up to the present.

The findings of fact of the RTC and the CA are final and conclusive and cannot be reviewed on
appeal by this Court. Since Hilltop exercised its right as lessee based on the contract of lease
and the law, it has no basis in claiming that the contract of lease did not commence.

Heirs of Ignacio vs. Home Bankers Savings and Trust Co.

G.R. No. 177783, January 23, 2013

FACTS:

The case sprang from a real estate mortgage of two parcels of land in August 1981. Fausto C.
Ignacio mortgaged the properties to Home Bankers Savings and Trust Company (Bank) as
security for a loan extended by the Bank. After Ignacio defaulted in the payment of the loan, the
property was foreclosed and subsequently sold to the Bank in a public auction.Ignacio offered to
repurchase the property. Universal Properties Inc. (UPI), the bank’s collecting agent sent
Ignacio a letter on March 22, 1984 which contained the terms of the repurchase. However,
Ignacio annotated in the letter new terms and conditions. He claimed that these were verbal
agreements between himself and the Bank’s collection agent, UPI.No repurchase agreement
was finalized between Ignacio and the Bank. Thereafter the Bank sold the property to third
parties. Ignacio then filed an action for specific performance against the Bank for the
reconveyance of the properties after payment of the balance of the purchase price. He argued
that there was implied acceptance of the counter-offer of the sale through the receipt of the
terms by representatives of UPI. The Bank denied that it gave its consent to the counter-offer of
Ignacio. It countered that it did not approve the unilateral amendments placed by Ignacio.

ISSUE:
Whether or not the negotiations between Ignacio and UPI is binding on the Bank.

RULING:

A contract of sale is perfected only when there is consent validly given. There is no consent
when a party merely negotiates a qualified acceptance or a counter-offer. An acceptance must
reflect all aspects of the offer to amount to a meeting of the minds between the parties.In this
case, while it is apparent that Ignacio proposed new terms and conditions to the repurchase
agreement, there was no showing that the Bank approved the modified offer.

The negotiations between Ignacio and UPI, the collection agent, were merely preparatory to the
repurchase agreement and, therefore, was not binding on the Bank. Ignacio could not compel
the Bank to accede to the repurchase of the property.

A corporation may only give valid acceptance of an offer of sale through its authorized officers
or agents. Specifically, a counter-offer to repurchase a property will not bind a corporation by
mere acceptance of an agent in the absence of evidence of authority from the corporation’s
board of directors.

ROBERN DEVELOPMENT CORPORATION v. PEOPLE'S LANDLESS ASSOCIATION G.R.

No. 173622 March 11, 2013

FACTS:
Al-Amanah owned a 2000-square meter lot. On December 12, 1992, Al-Amanah Davao Branch,
through its officer-in-charge Febe O. Dalig (OIC Dalig), asked some of the members of PELA to
desist from building their houses on the lot and to vacate the same, unless they are interested to
buy it. The informal settlers thus expressed their interest to buy the lot at P100.00 per square
meter, which Al-Amanah turned down for being far below its asking price. Consequently, Al-
Amanah reiterated its demand to the informal settlers to vacate the lot. In a letter dated March
18, 1993, the informal settlers together with other members comprising PELA offered to
purchase the lot for P300,000.00, half of which shall be paid as down payment and the
remaining half to be paid within one year. In the lower portion of the said letter, Al-Amanah
made the following annotation:

Note:
Subject offer has been acknowledged/received but processing to take effect upon putting up of
the partial amt. of P150,000.00 on or before April 15, 1993.

By May 3, 1993, PELA had deposited P150,000.00 as evidenced by four bank receipts. For the
first three receipts, the bank labelled the payments as "Partial deposit on sale of TCT No.
138914", while it noted the 4th receipt as "Partial/Full payment on deposit on sale of A/asset
TCT No. 138914."

In the meantime, the PELA members remained in the property and introduced further
improvements. On November 29, 1993, Al-Amanah, thru Davao Branch Manager Abraham D.
Ututalum-Al Haj, wrote then PELA President Bonifacio Cuizon, Sr. informing him of the Head
Office’s disapproval of PELA’s offer to buy the said 2,000-square meter lot. On the other hand,
PELA members claimed there was already a sale based on the bank’s offer.

ISSUE:

Whether or not there was a perfected contract of sale.

RULING:

There was no perfected sale between Al- Amanah and PELA. In sale, "When there is merely an
offer by one party without acceptance of the other, there is no contract." The decision to accept
a bidder’s proposal must be communicated to the bidder. However, a binding contract may exist
between the parties whose minds have met, although they did not affix their signatures to any
written document, as acceptance may be expressed or implied. It "can be inferred from the
contemporaneous and subsequent acts of the contracting parties."

It is thus undisputed, and PELA even acknowledges, that OIC Dalig made it clear that the
acceptance of the offer, notwithstanding the deposit, is subject to the approval of the Head
Office. Recognizing the corporate nature of the bank and that the power to sell its real
properties is lodged in the higher authorities,65 she never falsely represented to the bidders that
she has authority to sell the bank’s property. And regardless of PELA’s insistence that she
execute a written agreement of the sale, she refused and told PELA to wait for the decision of
the Head Office, making it clear that she has no authority to execute any deed of sale.

Contracts undergo three stages: "a) negotiation which begins from the time the prospective
contracting parties indicate interest in the contract and ends at the moment of their agreement;
b) perfection or birth, which takes place when the parties agree upon all the essential elements
of the contract; and c) consummation, which occurs when the parties fulfill or perform the terms
agreed upon, culminating in the extinguishment thereof."

In the case at bench, the transaction between Al-Amanah and PELA remained in the negotiation
stage. The offer never materialized into a perfected sale, for no oral or documentary evidence
categorically proves that Al-Amanah expressed amenability to the offered P300,000.00
purchase price. Before the lapse of the 1-year period PELA had set to pay the remaining
‘balance,’ Al-Amanah expressly rejected its offered purchase price, although it took the latter
around seven months to inform the former and this entitled PELA to award of damages. Al-
Amanah’s act of selling the lot to another buyer is the final nail in the coffin of the negotiation
with PELA. Clearly, there is no double sale, thus, we find no reason to disturb the consummated
sale between AlAmanah and Robern.

METRO RAIL TRANSIT DEVELOPMENT CORP V. GAMMON PHILIPPINES, INC

G.R. No. 200401, January 17, 2018

FACTS:

MRTDC was awarded a government contract by way of a Build Lease and Transfer
Agreementto undertake the MRT 3 North Triangle Development Project. Among the major
components of the Project was the construction of a four level podium structure.

MRTDC, through its Project Manager, Parsons Inter Pro Joint Venture, give notice to
theGammon, of the award to it of the contract for the construction of the podium
superstructure.Shortly thereafter, MRTDC sent a letter to Gammon, notifying the latter of the
suspension of all the undertakings because of the currency crisis at that time.According to
Gammon, however, it proceeded to de-water and clean up the Project site. On the other hand,
MRTDC claims that before any construction activity could proceed, it formally served Gammon
a notice confirming the "temporary suspension of all requirements under the terms of the
contract until such time as clarification of scope has been received from the owner.The only
exception to this suspension is the redesign of the projects floor slabs and the site de-watering
and clean up. As a result of its analysis of the impact of the currency crisis, MTDC decided to
downsize the podium structure to two levels. Gammon then submitted a proposal reducing the
contract price. This proposal was accepted by MTDC.Gammon qualifiedly accepted the offer but
manifested its willingness to consider revisions to the terms and conditions of the NOA/NTP.
MRTDC notified Gammon that it was awarding the contract to Filsystems since Gammon did not
accept the terms and conditions of the NOA/NTP.Consequently, Gammon sought
reimbursement of the direct and indirect costs it incurred in relation to the Project.
MRTDC signified its willingness to reimburse Gammon but rejected the latter’s computation and
instead offered a fixed cap of five percent of Gammon’s total claims.

Dissatisfied with this figure, Gammon filed its claim with the CIAC invoking the arbitration clause
of the General Conditions of Contract which provides that the arbitration of all disputes,claims or
questions under the contract shall be in accordance with CIAC rules.

ISSUE:
Whether the CIAC decision over the case cannot be disturb by the court.

RULING:
As a rule, findings of fact of administrative agencies and quasi-judicial bodies, which have
acquired expertise because their jurisdiction is confined to specific matters, are generally
accorded not only respect, but also finality, especially when affirmed by the Court of Appeals. In
particular, factual findings of construction arbitrators are final and conclusive and not reviewable
by this Court on appeal. This rule, however, admits of certain exceptions.

In David v. Construction Industry and Arbitration Commission, we ruled that, as

exceptions,factual findings of construction arbitrators may be reviewed by this Court when the
petitioner proves affirmatively that: (1) the award was procured by corruption, fraud or other
undue means;(2) there was evident partiality or corruption of the arbitrators or of any of them;
(3) the arbitrators were guilty of misconduct in refusing to hear evidence pertinent and material
to the controversy; (4) one or more of the arbitrators were disqualified to act as such under
Section nine of Republic Act No. 876 and willfully refrained from disclosing such
disqualifications or of another misbehavior by which the rights of any party have been materially
prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject matter submitted to them was not made.Other
recognized exceptions are as follows: (1) when there is a very clear showing of grave abuse of
discretion resulting in lack or loss of jurisdiction as when a party was deprived of a fair
opportunity to present its position before the Arbitral Tribunal or when an award is obtained
through fraud or the corruption of arbitrators, (2) when the findings of the Court of Appeals are
contrary to those of the CIAC, and (3) when a party is deprived of administrative due process.

However, petitioner failed to prove that any of these exceptions are present in the case at
bar.Thus, this Court will no longer disturb CIAC's factual findings, which were affirmed by
theCourt of Appeals.
SPOUSES FRANCISCO ONG ET AL V. BPI FAMILY SAVINGS BANK, INC.,
G.R. No. 208638, January 24, 2018

FACTS:

Petitioners are engaged in the business of printing under the name and style"Melbros Printing
Center”. Sometime in December 1996, Bank of Southeast Asia's (BSA) managers visited
petitioners' office and discussed the various loan and credit facilities offered by their bank. In
view of petitioners' business expansion plans and the assurances made by BSA's managers,
they applied for the credit facilities offered by the latter.Sometime 1997, they executed a real
estate mortgage over their property in favor of BSAas security for a P15M term loan and P5M
credit line or a total of P20M. Thus, with regard to the term loan, only P10,444,271.49 was
released by BSA, while with regard to the P5M credit line, only P3M was released. BSA
promised to release the remaining P2M conditioned upon the payment of the P3M initially
released to petitioners.Petitioners acceded to the condition and paid the P3M in full. However,
BSA still refused to release the P2M. Petitioners then refused to pay the amortizations due on
their term loan.Later on, BPI Family Savings Bank (BPI) merged with BSA, thus, acquired all the
latter's rights and assumed its obligations. BPI filed a petition for extrajudicial foreclosure of the
REM for petitioners' default in the payment of their term loan.

n order to enjoin the foreclosure, petitioners instituted an action for damages with Temporary
Restraining Order and Preliminary Injunction against BPI praying for P23,570,881.32 as actual
damages; P1,000,000.00 as moral damages; P500,000.00 as attorney's fees, litigation
expenses and costs of suit.The RTC ruled in favor of the petitioners, however BPI appeal before
the CA.The CA reversed the decision of the lower court and ruled in favor of BPI.

ISSUES:

1. Whether there was already an existing and binding contract between Petitioner And BSA with
regard to the Omnibus Credit Line.

2. Whether the BPI can foreclose the mortgage on the land of herein petitioners

RULING:

1. YES. As a rule, a contract is perfected upon the meeting of the minds of the two parties. It is
perfected by mere consent, that is, from the moment that there is a meeting of the offer and
acceptance upon the thing and the cause that constitute the contract.In the case of Spouses
Palada v. Solidbank Corporation, et al. This Court held that under Article 1934 of the Civil Code,
a loan contract is perfected only upon the delivery of the object of the contract. In that case,
although therein petitioners applied for aP3,000,000.00 loan, only the amount of P1,000,000.00
was approved by the respondent bank because petitioners became collaterally deficient.
Nonetheless, the loan contract was deemed perfected on March 17, 1997, the date when
petitioners received the P1,000,000.00 loan, which was the object of the contract and the date
when the REM was constituted over the property. Applying this to the case at bench, there is no
iota of doubt that when BSA approved and released the P3,000,000.00 out of the original
P5,000,000.00 credit facility, the contract is perfected.

2. NO. The Articles of Merger dated November 21, 2001 provides that all liabilities and
obligations of BSA shall be transferred to and become the liabilities and obligations of BPIin the
same manner as if it had itself incurred such liabilities or obligations.Pursuant to such merger
and consolidation, BPI's right to foreclose the mortgage on petitioner's property depends on the
status of the contract and the corresponding obligations of the parties originally involved, that is,
the agreement between its predecessor BSA and petitioner.Since BSA incurred delay in the
performance of its obligations and subsequently cancelled the omnibus line without petitioners'
consent, its successor BPI cannot be permitted to foreclose the loan for the reason that its
successor BSA violated the terms of the contract even prior to petitioners' justified refusal to
continue paying the amortizations.

Florentino v. Encarnacion
G.R. No. L-27696, 30 September 1977

FACTS:

On May 22, 1964, the petitioners-appellants and the petitioner-appellee filed with CFI an
application for the registration under Act 496 of a parcel of agricultural land located at Cabugao,
Ilocos Sur. The application alleged among other things that the applicants are the common and
pro-indiviso owners in fee simple of the said land with the improvements existing thereon; that to
the best of the knowledge and belief; there is no mortgage, hen or encumbrance of any kind
whatsoever affecting said land, nor any other person having any estate or interest thereon, legal
or equitable, remainder, reservation at in expectancy; that said applicants had acquired the
aforesaid land thru and by inheritance from their predecessors in interest, their aunt, Doña
Encarnacion Florentino, and Angel Encarnacion acquire their respective shares of the land thru
purchase from the original heirs, Jesus, Caridad, Lourdes and Dolores, all surnamed Singson,
on one hand and from Asuncion Florentino on the other. After due notice and publication, the
Court set the application for hearing. Only the Director of Lands filed an opposition but was later
withdrawn so an order of general default was issued. Upon application of the applicants, the
Clerk of Court was commissioned and authorized to receive the evidence of the applicants and
ordered to submit the same for the Court’s proper resolution.

Exhibit O-1 embodied in the deed of extrajudicial partition (Exhibit O), which states that with
respect to the land situated in Barrio Lubong, Dacquel, Cabugao, Ilocos Sur, the fruits thereof
shall serve to defray the religious expenses, was the source of contention in this case (Spanish
text). Florentino wanted to include ExhibitO-1 on the title but the Encarnacion supposedly and
subsequently withdrew their application on their shares, which was opposed by the former.
The Court after hearing the motion for withdrawal and the opposition issued an order and for the
purpose of ascertaining and implying that the products of the land made subject matter of this
land registration case had been used in answering for the payment of expenses for the religious
functions specified in the Deed of Extrajudicial Partition which was no registered in the office of
the Register of Deeds from time immemorial; and that the applicants knew of this arrangement
and the Deed of Extrajudicial Partition of August 24,1947, was not signed by Angel Encarnacion
or Salvador Encarnacion, Jr.-CFI: The self-imposed arrangement in favor of the Church is a
simple donation, but is void since the done has not accepted the donation and Salvador
Encarnacion, Jr. and Angel Encarnacion had not made any oral or written grant at all so the
court allowed the religious expenses to be made and entered on the undivided shares, interests
and participations of all the applicants in this case, except that of Salvador Encarnacion, Sr.,
Salvador Encarnacion, Jr. and Angel Encarnacion.”-the petitioners-appellants filed their Reply to
the Opposition reiterating their previous arguments, and also attacking the jurisdiction of the
registration court to pass upon the validity or invalidity of the agreement Exhibit O-1, alleging
that such is litigable only in an ordinary action and not proper in a land registration proceeding.

The Motion for Reconsideration and of New Trial was denied for lack of merit, but the court
modified in highlighting that the donee Church has not shown its clear acceptance of the
donation, and is the real party of this case, not the petitioners-appellants.

ISSUE:

Whether or Not the court erred in concluding that the stipulation is just an arrangement
stipulation.

RULING:

YES, the court erred in concluding that the stipulation is just an arrangement stipulation. It
cannot be revoked unilaterally.

The contract must bind both parties, based on the principles (1) that obligation wising from
contracts has the force of law between the contracting parties; and (2) that they must be
mutuality between the parties band on their essential equality, to which is repugnant to have
one party bound by the contract leaving the other free therefrom. The stipulation (Exhibit O-1) is
part of an extrajudicial partition (Exh. O) duly agreed and signed by the parties, hence the same
must bind the contracting parties thereto and its validity or compliance cannot be left to the will
of one of them. The said stipulation is a Stipulation pour autrui. A stipulation pour autrui is a
stipulation in favor of a third person conferring a clear and deliberate favor upon him, and which
stipulation is merely a part of a contract entered into by the parties, neither of whom acted as
agent of the third person, and such third person may demand its fulfillment provided that he
communicates his acceptance to the obligor before it is revoked.

Coquia v. Fieldmen’s Insurance Co.

G.R. No. L-23276, 29 November 1968
FACTS:

The Fieldmen’s Company (company) issued a common carrier accident insurance policy to
Manila Yellow Taxicab Co. Inc. (insured). In the policy it stipulated that accident arising from a
motor vehicle shall be insured with respect to the death or bodily injured driver, conductor
and/or inspector riding in the motor vehicle.

Carlito Coquia met an accident while driving resulting in his death. The insured asked the
company for the insurance of Carlito. The company refused to give insurance to the said
insured, the paaboutts of Carlito filed a complaint about a sum of money for the insurance of
their dead child. The company contends that parents had no contractual relation with the
company, thus they are not the proper parties in the said case.

ISSUE:

Whether or not the policy in question belongs to such class of contracts pour autrui.

RULING:

Yes.Pursuant to these stipulations, the Company “will indemnify any authorized Driver who is
driving the Motor Vehicle” of the Insured and, in the event of death of said driver, the Company
shall, likewise, “indemnify his personal representatives.” In fact, the Company “may, at its
option, make indemnity payable directly to the claimants or heirs of claimants … it being the true
intention of this Policy to protect … the liabilities of the Insured towards the passengers of the
Motor Vehicle and the Public” — in other words, third parties.

Thus, the policy under consideration is typical of contracts pour autrui, this character being
made more manifest by the fact that the deceased driver paid fifty per cent (50%) of the
corresponding premiums, which were deducted from his weekly commissions. Under these
conditions, it is clear that the Coquias — who, admittedly, are the sole heirs of the deceased —
have a direct cause of action against the Company, and, since they could have maintained this
action by themselves, without the assistance of the Insured, it goes without saying that they
could and did properly join the latter in filing the complaint herein.

Constantino v. Espiritu
G.R. No. L-22404, 31 May 1971

FACTS:

The deed of absolute sale as the binding contract between appellant and appellee conveyed the
two storey house in favor of the appellee. The appellee is entrusted with the properties of the
appellant’s illegitimate son. The appellee mortgaged the said property to Republic Savings Bank
for the payment of the appellee’s loan and thereafter the appellee offered them for sale. The
appellant then prayed for the issuance of a writ of execution restraining the appellee and her
agents to further alienate or disposed of the said property. The appellant wanted to execute a
deed of absolute sale in favor of his son who is the beneficiary.

ISSUE:

Whether or not the contract between appellant and appellee was a contract pour autrui.

RULING:

Yes. It appears then that, upon the facts alleged by appellant, the contract between him and
appellee was a contract pour autrui, although couched in the form of a deed of absolute sale,
and that appellant’s action was, in effect, one for specific performance. That one of the parties
to a contract is entitled to bring an action for its enforcement or to prevent its breach is too clear
to need any extensive discussion. Upon the other hand, that the contract involved contained a
stipulation pour autrui amplifies this settled rule only in the sense that the third person for whose
benefit the contract was entered into may also demand its fulfillment provided he had
communicated his acceptance thereof to the obligor before the stipulation in his favor is
revoked.

It appears that the amended complaint submitted by appellant to the lower court impleaded the
beneficiary under the contract as a party co-plaintiff, it seems clear that the three parties
concerned therewith would, as a result, be before the court and the latter’s adjudication would
be complete and binding upon them.

INTEGRATED PACKAGING CORP. vs. CA and FIL-ANCHOR PAPER CO., INC

G.R. No. 115117. June 8, 2000

FACTS:

Parties executed an order agreement where respondents would deliver 3,450 reams of printing
paper. Materials were to be paid within a minimum of 30 days and maximum of 90 days from
delivery.

Petitioner entered into a contract with Philippine Appliance Corporation (Philacor) to print three
volumes of “Philacor Cultural Books” for delivery. Respondent delivered 1,097 reams of printing
paper out of the 3,450 reams stated in the agreement. Petitioner wrote to respondent to
immediately deliver the balance because further delay would greatly prejudice the petitioner.

Respondent delivered again to petitioner various quantities of printing paper. Petitioner

encountered difficulties paying private respondent. Respondent made a formal demand upon
petitioner to settle the outstanding account. Petitioner made partial payments of P97,200.00
which was applied to its back accounts. It entered into an additional printing contract with
Philacor. Unfortunately, it failed to fully comply with its contract with Philacor for the printing of
books VIII, IX, X and XI.

Philacor demanded compensation from petitioner for the delay and damage it suffered on
account of petitioner’s failure. Respondent filed with the RTC a collection suit against petitioner
for the sum of P766,101.70,representing the unpaid purchase price of printing paper. Petitioner
denied the material allegations of the complaint. Alleged that respondent was able to deliver
only 1,097 reams of printing paper. Respondent replied that petitioner made additional
purchases amounting to P94,200.00. Petitioner failed and refused to pay its outstanding
obligation. (total debt: P763,101.70). RTC held that Petitioner should pay the P763,101.70
representing the value of printing paper delivered. However, since the respondent was delayed
in delivering the paper petitioner lost profit (P790,324.30). It further ruled that the petitioner
suffered a dislocation of business, for which the award of moral damages was justified.

CA reversed and ordered petitioner to pay respondent. Deleted the award of P790,324.30 as
compensatory damages as well as the award of moral damages and attorney’s fees, for lack of
factual and legal basis.

ISSUE:

Whether private respondent is liable for a petitioner's breach of contract with Philacor.

RULING: NO. The rule on compensatory damages is well established. True, indemnification for
damages comprehends not only the loss suffered, that is to say actual damages (damnum
emergens), but also profits which the obligee failed to obtain, referred to as compensatory
damages (lucrum cessans). However, to justify a grant of actual or compensatory damages, it is
necessary to prove with a reasonable degree of certainty, premised upon competent proof and
on the best evidence obtainable by the injured party, the actual amount of loss. In the case at
bar, the trial court erroneously concluded that petitioner could have sold books to Philacor at the
quoted selling price of P1,850,750.55 and by deducting the production cost of P1,060,426.20,
petitioner could have earned profit of P790,324.30. Admittedly, the evidence relied upon by the
trial court in arriving at the amount are mere estimates prepared by petitioner. Said evidence is
highly speculative and manifestly hypothetical. It could not provide sufficient legal and factual
basis for the award of P790,324.30 as compensatory damages representing petitioner’s self -
serving claim of unrealized profit.

The deletion of the award of moral damages is proper, since private respondent could not be
held liable for breach of contract. Moral damages may be awarded when in a breach of contract
the defendant acted in bad faith, or was guilty of gross negligence amounting to bad faith, or
wanton disregard of his contractual obligation. Finally, since the award of moral damages is
eliminated, so must the award for attorney’s fees be also deleted.

Daywalt v. Corp.
G.R. No. L-13505, 4 February 1919
FACTS:
Teoderica Endencia obligated herself to convey to Geo W. Daywalt a tract of land. The deed
should be executed as soon as the title of the land is perfected. There was a decree recognizing
Teoderica as the owner of land but the Torrens certificate was not issued until later. The parties
met immediately upon the entering of the decree and made a new contract.

There was a development of Teoderica’s land as the Torrens title was issued and in view of this
development she became reluctant to transfer the whole tract of land asserting that she never
intended to sell the large amount of land and that she was misinformed by the area of the land.

After the Torrens title was issued to Teoderica she gave it to the defendant company for
safekeeping in which the defendant did so. As Teodorica still retained possession of said
property Father Sanz entered into an arrangement with her whereby large numbers of cattle
belonging to the defendant corporation were pastured upon said land.

ISSUE:

Whether a person who is not a party to a contract for the sale of land makes himself liable for
damages to the vendee, beyond the value of the use and occupation, by colluding with the
vendor and maintaining him in the effort to resist an action for specific performance.

RULING:

The Supreme Court held that the members of the defendant’s corporation, in advising and
prompting Teodorica Endencia not to comply with the contract of sale, were actuated by
improper and malicious motives.

In a fair conclusion on this feature of the case is that father Juan Labarga and his associates
believed in good faith that the contract could not be enforced and that Teodorica would be
wronged if it should be carried into effect. Any advice or assistance which they may have given
was, therefore, prompted by no mean or improper motive.

In the case at bar, as Teodorica Endencia was the party directly bound by the contract, it is
obvious that the liability of the defendant corporation, even admitting that it has made itself co
participant in the breach of the contract, can in no even exceed hers.

This leads us to consider at this point the extent of the liability of Teodorica Endencia to the
plaintiff by reason of her failure to surrender the certificate of title and to place the plaintiff in
possession.

So Ping Bun vs Court of Appeals

314 SCRA 752, September 21, 1999
FACTS:
Tek Hua Trading Co. entered into a lease agreement with the lessor Dee C. Chuan and Sons
Inc. (DCCSI). When Tek Hua Trading Co. was later dissolved and the original members built
Tek Hua Trading Corp. The grandson of the partners named So Ping Bun, after the death of his
grandfather, continued occupying the warehouse for his own textile business.

In a letter to petitioner, the owner of Tek Hua Trading Corp. informed the petitioner to vacate the
warehouse. Petitioner refused and requested formal contracts of lease with DCCSI to which it
acceded and a new lease of contract in favor of Trendsetter was executed.

Tek Hua Enterprises Corp. then petitioned the court for injunction, nullification of the lease
contract between DCCSI and So Ping Bun and damages, to which the Regional Trial Court of
Manila Branch 35 granted and was affirmed by the Court of Appeals.

Hence, this petition for certiorari.

ISSUE:

Whether or not So Ping Bun acted as an intermeddler in violation of Article 1314 of the New
Civil Code.

RULING:

Yes. Damage is the loss, hurt or harm which results from injury and damages are the
recompense or compensation for the damage suffered.

A duty which the law of torts is concerned with is respect for the property of others, and a cause
of action ex delicto may be predicated upon unlawful interference by one person of the
enjoyment by the other of his private property. This may pertain to a situation where a third
person induces a party to renege on or violate his undertaking under a contract. Such is a
violation of Article 1314 which states:

Jose Lagon v. CA and Lapuz

G.R. No. 119107, 18 March 2005

FACTS:

Petitioner Jose Lagon purchased from the estate of Bai Tonina Sepi, through an intestate court,
two parcels of land located at Tacurong, Sultan Kudarat. A few months after the sale, private
respondent Menandro Lapuz filed a complaint for torts and damages against petitioner before
the Regional Trial Court (RTC) of Sultan Kudarat.

Private respondent claimed that he entered into a contract of lease with the late Bai Tonina Sepi
Mengelen Guiabar over three parcels of land (the property) in Sultan Kudarat, Maguindanao
beginning 1964. One of the provisions agreed upon was for private respondent to put up
commercial buildings which would, in turn, be leased to new tenants. The rentals to be paid by
those tenants would answer for the rent private respondent was obligated to pay Bai Tonina
Sepi for the lease of the land. The lease contract ended but since the construction of the
commercial buildings had yet to be completed, the lease contract was allegedly renewed.

When Bai Tonina Sepi died, private respondent started remitting his rent to the court-appointed
administrator of her estate. But when the administrator advised him to stop collecting rentals
from the tenants of the buildings he constructed, he discovered that petitioner, representing
himself as the new owner of the property, had been collecting rentals from the tenants. He thus
filed a complaint against the latter, accusing petitioner of inducing the heirs of Bai Tonina Sepi
to sell the property to him, thereby violating his leasehold rights over it.

In his answer to the complaint, petitioner denied that he induced the heirs of Bai Tonina to sell
the property to him, contending that the heirs were in dire need of money to pay off the
obligations of the deceased. He also denied interfering with private respondents leasehold rights
as there was no lease contract covering the property when he purchased it; that his personal
investigation and inquiry revealed no claims or encumbrances on the subject lots

ISSUE:

Whether or not the purchase by Lagon of the subject property, during the supposed existence of
the private respondent’s lease contract with the late Bai Tonina Sepi, constitutes tortious
interference for which Lagon should be held liable for damages.

RULING:

No, the interference of Lagon was with a legal justification (in furtherance of a personal financial
interest) and without bad faith

The elements of Tortious Interference with contractual relation are: (1) Existence of a valid
contract; (2) Knowledge on the part of the third person of the existence of the contract; (3)
Interference of the third person without legal justification or excuse.

As regard to the first element, the existence of a valid contract must be duly established. In the
given case the Court ruled that the notarized copy of lease contract presented in court appeared
to be an incontestable proof that Bai Tonin Sepi and private respondent renewed their contract.
The second element on the other hand, requires that there be knowledge on the part of the
interferer that the contract exists. In this case, Lagon had no knowledge of the lease contract as
he even conducted his own personal investigation and inquiry, and unearthed no suspicious
circumstance that would have made a cautious man probe deeper and watch out for any
conflicting claim over the property; that an examination of the entire property title bore no
indication of the leasehold interest of private respondent and that even the registry of property
had no record of the same. As to the third element, a party may be held liable only when there
was no legal justification or excuse for his action or when his conduct was stirred by a wrongful
motive. To sustain a case for tortious interference, the other party must have acted with malice
or must have been driven by purely impious reasons to injure the other. In the case, even
assuming that private respondent was able to prove the renewal of his lease contract with Bai
Tonina Sepi, the fact was that he was unable to prove malice or bad faith on the part of
petitioner in purchasing the property. Therefore, the claim of tortious interference was never
established.

Rosenstock v. Burke
G.R. No. 20732, September 26, 1924

FACTS:

A letter began as follows: “In connection with the yacht Bonzewing, I am in position and am
willing to entertain the purchase of it under the following terms.”

ISSUE:

Was there an offer here that was certain, an offer which, if accepted, could compel the writer to
really buy the yacht?

HELD:

No, because here the offer was neither definite nor certain. Said the Supreme Court: “To convey
the idea of a resolution to purchase, a man of ordinary intelligence and common culture would
use these clear and simple words: ‘I offer to purchase,’ I want to purchase,’ ‘I am in position to
purchase…’ It must be presumed that a man in his transactions in good faith used the best
means of expressing his mind that his intelligence and culture so permit as to convey and
exteriorize his will faithfully and unequivocally. The word ‘entertain’ applied to an act does not
mean the resolution to perform said act. It was not a definite or certain offer, but a mere
invitation to a proposal being made to him, which might be accepted by him or not.”

Note: if two are offered, but they are independent of each other (such as a sale of a parcel of
land, and the lease of an automobile), acceptance of one does not imply acceptance of the
other. BUT if one contract depends upon another, like a contract of loan provided it is secured
by a contract or mortgage, it is essential that there be an agreement on BOTH transactions.
Otherwise, there can be as yet no meeting of the minds.

MALBAROSA V. CA & S.E.A. DEVELOPMENT CORP.

G. R. No. 125761, April 30, 2003

FACTS:
Petitioner Malbarosa was the president and general manager of Philtectic Corporation, and an
officer of other corporations belonging to the SEADC group of companies. The respondent
assigned to the petitioner one of its vehicles described as a 1982 model Mitsubishi Gallant
Super Saloon. He was also issued membership certificates in the Architectural Center, Inc. Da
Costa was the president of the Respondent and Commonwealth Insurance Co., Inc., while
Valero was the Vice-Chairman of the Board of Directors of the respondent and Vice-Chairman
of the Board of Directors of Philtectic Corporation. On January 8, 1990, the petitioner sent a
letter to Valero tendering his resignation, effective February 28, 1990 from all his positions in the
SEADC group of companies and reiterating therein his request for the payment of his incentive
compensation for 1989. Da Costa met with the petitioner on two occasions & ventured that the
petitioner would be entitled to an incentive compensation in the amount of around P395,000.

On March 14, 1990, respondent, through Valero, signed a letter-offer addressed to the petitioner
stating therein that petitioners resignation had been accepted by the respondent, and that he
was entitled to an incentive compensation in the amount of P251,057.67, and proposing that the
amount be satisfied, thus:

The 1982 Mitsubishi Super saloon car assigned to you by the company shall be
transferred to you at a value of P220,000.00. The membership share of our subsidiary,
Tradestar International, Inc. in the Architectural Center, Inc. will be transferred to you.

The respondent required that if the petitioner agreed to the offer, he had to affix his conformity
on the space provided therefor and the date thereof on the right bottom portion of the letter.

On MARCH 16, 1990, Da Costa met with the petitioner and handed to him the original copy of
the March 14, 1990 Letter-offer. The petitioner was dismayed when he read the letter. The
petitioner refused to sign the letter-offer on the space provided therefor. Despite the lapse of
more than two weeks, the petitioner had not returned the original copy with his conformity. Thus,
the respondent decided to withdraw the offer.

On APRIL 4, 1990, as authorized by respondent, Philtectic Corporation wrote the petitioner

withdrawing the Letter-offer of the respondent and demanding that the petitioner return the car
and his membership certificate in the Architectural Center, Inc. within 24 hours from his receipt
thereof. On, APRIL 7, 1990, petitioner answered that he cannot comply with said demand as he
already accepted the Letter-offer of the respondent when he affixed on March 28, 1990 his
signature on the original copy of the letter-offer. With the refusal of the petitioner to return the
vehicle, the respondent filed a complaint against the petitioner for recovery of personal property
with replevin with damages and attorneys fees.

ISSUES:
1. W/N there was a valid acceptance by the petitioner of the March 14, 1990 Letter-offer of the
respondent?
2. W/N there was an effective withdrawal by the respondent of said letter-offer?

RULING:
1. NO, THERE WAS NO VALID ACCEPTANCE BY PETITIONER OF THE LETTER-OFFER.
Art. 1318 provides that there is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

ART. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter-offer.

The acceptance of an offer must be made known to the offeror, otherwise the contract is not
perfected. The offeror may withdraw its offer & revoke the same before acceptance by the
offeree. If an offeror prescribes the exclusive manner in which acceptance of his offer shall be
indicated by the offeree, an acceptance of the offer in the manner prescribed will bind the
offeror. An acceptance which is not made in the manner prescribed by the offeror is not effective
but constitutes a counter-offer which the offeror may accept or reject. The acceptance by the
offeree of the offer AFTER knowledge of the revocation or withdrawal of the offer is
inefficacious.

The petitioner claims that he had affixed his conformity to the letter-offer on March 28, 1990,
BUT he failed to transmit the said copy to the respondent. Indubitably, there was no contract
perfected by the parties on the March 14, 1990 Letter-offer of the respondent. Even if it is
assumed that the petitioner was given a reasonable period to accept or reject the offer of the
respondent, the petitioner had more than two weeks which was more than sufficient for the
petitioner to accept the offer of the respondent.

2. YES, THERE WAS AN EFFECTIVE WITHDRAWAL BY THE RESPONDENT OF SAID

LETTER-OFFER.
Implicit in the authority given to Philtectic Corporation to demand for and recover from the
petitioner the subject car and to institute the appropriate action against him to recover
possession of the car is the authority to withdraw the respondent's March 14, 1990 Letter-offer.

INSURANCE LIFE ASSURANCE COMPANY, LTD. VS. ASSET BUILDERS CORPORATION

G.R. No. 147410, February 5, 2004

FACTS:
Insular Life Insurance Company, Limited invited companies to participate in the bidding of the
proposed Insular Life building. The Instruction to Bidders prepared by Insular Life expressly
required a formal acceptance and a period within which such acceptance was to be made
known to the winner. Asset Builders Corporation submitted a bid proposal secured by bid bonds
valid for 60 days. Under its proposal form, Asset Builders bound and obliged itself to enter into a
contract with Insular Life within 10 days from the notice of the award, with good and sufficient
securities. The project was awarded to the Asset Builders and a notice to proceed with the
construction was sent by Insular Life to the former. However, Asset Builders project. Neither did
it execute any construction agreement. It informed Insular Life that it will not proceed with the
project.

ISSUE: Whether or not there is a perfected contract between Insular Life and Asset Builders.

RULING:

There was indeed no acceptance of the offer by Asset Builders. Such failure to comply with the
condition imposed for the perfection of the contract resulted in the failure of the contract. It is
elementary that, being consensual, a contract is perfected by mere consent. From the moment
of a meeting of the offer and the acceptance upon the object and the cause that would
constitute the contract, consent arises. However, "the offer must be certain" and "the
acceptance seasonable and absolute; if qualified, the acceptance would merely constitute a
counter-offer."
There are three distinct stages of a contract- preparation or negotiation, perfection or
consummation. Negotiation begins when the prospective contracting parties manifest their
interest in the contract and ends at the moment of their agreement. Perfection occurs when they
agree upon the essential elements thereof. The last stage is the consummation where they fulfill
the terms agreed upon culminating in the extinguishment of the contract.
In the case at bar, the parties did not get past the negotiation stage.
In fact, there was only an offer and a counteroffer that did not sum up to any final arrangement
containing the elements of a contract. Clearly, no meeting of minds was established.

Lavarez v. Guevarra
GR No. 206103, March 29, 2017

FACTS:
On June 7, 1996, Rebecca died intestate and without any issue, leaving several properties to be
settled among her nearest kins – the sons and daughters of her siblings – who later became the
parties in this case. On October 16, 1996, the petitioners filed an action for reconveyance,
partition, accounting, and nullification of documents, with damages, against respondents.

For their defense, respondents alleged that there was nothing to partition since they were not
aware of any real or personal properties which their aunt Rebecca had left behind. Said
properties which were included in the complaint had already been validly donated to them by
Rebecca, resulting in new Certificates of Title being issued in their names. It is the contention of
respondents that Rebecca still had full control of her mind during the execution of the deeds.
The fact that she was already of advanced age at that time or that she had to rely on
respondents’ care did not necessarily prove that she could no longer give consent to a contract.

On May 26, 2010, the Lucena RTC granted the complaint in favor of defendants-appellants are
declared valid. Respondents elevated the case to the CA. The appellate court partly granted the
appeal and sustained the validity of the subject Deeds of Donation. Hence, this petition.
ISSUE: Whether or not Rebecca possessed sufficient mentality to effect consent.

RULING:

No. Rebecca did not possess sufficient mentality to effect the contract of donation. Putting
together the above mentioned circumstances, that at the time of the execution of the Deeds of
Donation covering numerous properties, Rebecca was already at an advanced age of 75,
afflicted with dementia, not necessarily in the pinkest of health since she was then, in fact,
admitted to the hospital, it can be reasonably assumed that the same had the effects of
impairing her brain or mental faculties so as to considerably affect her consent, and that fraud or
undue influence would have been employed in order to procure her signature on the questioned
deeds. The correctness of the trial court’s findings therefore stands untouched, since
respondents never provided any plausible argument to have it reversed, the issue of the validity
of donation being fully litigated and passed upon by the trial court.

Petitioners claim, as confirmed by Dr. Conde, that the unsoundness of the mind of the donor
was the result of senile dementia. This is the form of mental decay of the aged upon which wills
or donations are most often contested. Senile dementia, usually called childishness, has various
forms and stages. To constitute complete senile dementia, there must be such failure of the
mind as to deprive the donor of intelligent action. In the first stages of the disease, a person may
still possess reason and have will power. It is a form of mental disorder in which cognitive and
intellectual functions of the mind are prominently affected; impairment of memory is an early
sign. Total recovery is not possible since organic cerebral disease is involved. It is likewise the
loss, usually progressive, of cognitive and intellectual functions, without impairment of
perception or consciousness, caused by a variety of disorders including severe infections and
toxins, but most commonly associated with structural brain disease. It is characterized by
disorientation, impaired memory, judgment and intellect, and a shallow labile effect.

Thus, after an extensive examination of the records of the instant case, the Court finds no
cogent reason to depart from the lower court’s conclusion that Rebecca Zaballero, on May 12,
1993, could not have had full control over her mental faculties so as to render her completely
capable of executing a valid Deed of Donation.

Sanchez v. Rigos
G.R. No. L-25494, 14 June 1972

FACTS:
Nicolas Sanchez and Severina Rigos executed an instrument entitled “Option toPurchase”
wherein Mrs. Rigos agreed, promised and committed to sell to Mr. Sancheza a parcel of land for
the amount of P1, 510. 00 within two years from the date of the instrument, with the
understanding that the said option shall be deemed terminated and elapsed if Mr. Sanchez shall
fail to exercise his right to buy the property within the stipulated period.
Mrs. Rigos agreed and committed to sell and Mr. Sanchez agreed and committed to buy. But
there is nothing in the contract to indicate that her agreement, promise and undertaking is
supported by a consideration distinct from the price stipulated for the sale of the land. Mr.
Sanchez has made several tenders of payment in the said amount within the period before any
withdrawal from the contract has been made by Mrs. Rigos, but were rejected nevertheless.

ISSUE: Can an accepted unilateral promise to sell without consideration distinct from the price
be withdrawn arbitrarily?

RULING:

No. An accepted promise to sell is an offer to sell when accepted becomes a contract of sale.
Since there may be no valid contract without a cause or consideration, the promisor is not
bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his
accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results
in a perfected contract of sale. This view has the advantage of avoiding a conflict between
Articles 1324 – on the general principles on contracts – and 1479 – on sales – of the Civil Code.

Article 1324 – When the offeror has allowed the offeree a certain period to accept, the offer may
be withdrawn at any time before acceptance by communicating such withdrawal, except when
the option is founded upon a consideration, as something paid or promised.

Tuazon v. Del Rosario-Suarez

G.R. No. 168325, 13 December 2010

FACTS:
Petitioner and respondent entered into a Contract of Lease, wherein petitioner, Tuazon, will
occupy the parcel of land owned by respondent, Del Rosario-Suarez, for a period of three years.
During the effectivity of the lease, respondent sent a letter to the petitioner offering to sell the
parcel of land. She pegged the price at P37,541,000.00 and gave him two years from January
2, 1995 to decide on the said offer. On June 19, 1997, four months after the expiration of the
Contract of Lease, respondent sold the land to Catalina Suarez-De Leon, et al. The new owners
notified the petitioner to vacate the premises on the grounds of non-payment of rentals and
expiration of the Contract of Lease. Petitioner claims that respondent violated his right to buy
subject property under the principle of right of first refusal by not giving him notice and the
opportunity to buy the property. Respondent contended that the principle of right of first refusal
is unavailing in this case. It is a contract of option which was not perfected due to the failure of
acceptance on the part of the respondent.

ISSUE: WON a lessee loses his right to buy the property upon failure to accept an offer or to
purchase on time within the period stipulated.

RULING:
Yes. The case indeed involves an option contract and not a contract of a right of first refusal.
What is involved here is a separate and distinct offer made by Lourdes through a letter dated
January 2, 1995 wherein she is selling the leased property to Roberto for a definite price and
which gave the latter a definite period for acceptance. Roberto was not given a right of first
refusal. The letter-offer of Lourdes did not form part of the Lease Contract because it was made
more than six months after the commencement of the lease. It is an option contract, the rules
applicable are found in Articles 1324 and 1479 of the Civil Code which provides:

Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the
option is founded upon a consideration, as something paid or promised.

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price.

It is clear from the provision of Article 1324 that there is a great difference between the effect of
an option which is without a consideration from one which is founded upon a consideration. If
the option is without any consideration, the offeror may withdraw his offer by communicating
such withdrawal to the offeree at any time before acceptance; if it is founded upon a
consideration, the offeror cannot withdraw his offer before the lapse of the period agreed upon.

Adelfa Properties Inc. v. Court of Appeals

G.R. No. 111238; January 25, 1995

FACTS:
Private respondents were the co-owners of a parcel of land with their two brothers, Jose and
Dominador Jimenez. Jose and Dominador Jimenez sold the east portion of the lot to petitioner
accompanied by an extrajudicial partition of the property with the west portion allotted to private
respondents. After the sale, Petitioner and private respondents entered into an “Exclusive
Option to Purchase” in favor of the former over the west portion of the land. In the said contract,
petitioner paid Php50,000.00 as option money, but the stipulation states that it would form part
of the purchase price.

The owner’s duplicate of private respondents were lost so they initiated reconstitution
proceedings represented by the petitioner's lawyer. Pursuant to this, the reconstituted title
remained in the possession of the lawyer.

The nieces and nephews of the Jimenezes filed an action to annul the sale of the east portion of
the land to petitioner. Pursuant to this, petitioner suspended the payment of the full purchase
price because of the vindicatory action filed by the niece and nephews which it duly informed
the private respondents.
The suit however was dismissed. After the dismissal, the petitioner sent a letter to private
respondents conveying its intention to pay the full price. However, the private respondents
ignored the offer since it already sold the said lot to another person. The private respondents
sought the recovery of the title of the land from the petitioner but the latter did not comply, the
former filed an action to recover the same.

The Petitioner alleged that they were justified to suspend the payment of the price since there
was a valid vindicatory action under Art 1590 of the Civil Code. On the other hand, private
respondents countered, saying that the contract was a mere option contract and thus Art 1590
is not applicable.

ISSUES:
1. Whether or not the contract was a mere option contract
2. Whether or not the suspension of payment was justified

HELD:
1. No. Although the title of the contract was “Exclusive Option to Purchase” the SC finds that the
real nature of the contract was a contract to sell. It did not clearly explain why it just said that it
was evident that the real intention of the parties was that the contract of sale will be only
executed upon the full payment of the price.

2. Pursuant to the finding of the SC that the contract was a contract to sell, it said that Art 1590
was applicable and the suspension of payment made by petitioner was justified. It is because
the vindicatory action does not only cover the east portion of the land that was the subject of the
contract of sale between petitioner and Jose and Dominador. The niece and nephews also
sought their rights over the west part of the land.

Although the suspension of payment was justified, private respondents cannot anymore be
compelled to sell the land petitioner. This is because the mere conveyance of the intention to
pay is not a valid mode of payment. The petitioner was not able to consign the price to the court.
A tender of payment not accompanied by the payment of the purchase price does not extinguish
an obligation contemplated by the Civil Code.

Luis Aisain vs Benjamin Jalandoni

G.R. No. L-20435, 23 October 1923

FACTS:
Asiain said to Jalandoni that he was willing to sell a portion of his hacienda for the sum of
P55,000. With a wave of his hand, Asiain indicated the tract of land in question, affirming that it
contained between 25 and 30 hectares, and that the crop of sugar cane then planted would
produce not less than 2,000 piculs of sugar. But Jalandoni, remaining doubtful as to the extent
of the land and as to the amount of crop on it. Once in possession of the land, Jalandoni did two
things. He had the sugar cane ground in La Carlota Sugar Central with the result that it gave an
output of P800 piculs and 23 cates of centrifugal sugar. When opportunity was offered, he
secured the certificate of title of Asiain and produced a surveyor to survey the land. According to
his survey, the parcel in question contained an area of 118 hectares, 54 acres, and 22
centiares.

Of the purchase price of P55,000, Jalandoni had paid P30,000, leaving a balance unpaid of
P25,000. To recover the sum of P25,000 from Jalandoni or to obtain the certificate of title and
the rent from him, action was begun by Asiain in the Court of First Instance of Occidental
Negros. Defendant interposed that the contract be annulled, both parties to return whatever they
had received, and that he recover from the plaintiff the sum of P3,600 annually as damages.

ISSUE: Whether or not the contract can be rescinded?

RULING:

The memorandum-agreement between Asiain and Jalandoni contains the phrase “more or
less.” It is the general view that this phrase or others of like import, added to a statement of
quantity, can only be considered as covering inconsiderable or small differences one way or the
other, and do not in themselves determine the character of the sale as one in gross or by the
acre. The use of this phrase in designating quantity covers only a reasonable excess or
deficiency. Such words may indeed relieve from exactness but not from gross deficiency.

Coordinating more closely the law and the facts in the instant case, we reach the following
conclusions: This was not a contract of hazard. It was a sale in gross in which there was a
mutual mistake as to the quantity of land sold and as to the amount of the standing crop. The
mistake of fact as disclosed not alone by the terms of the contract but by the attendant
circumstances, which it is proper to consider in order to throw light upon the intention of the
parties, is, as it is sometimes expressed, the efficient cause of the concoction. The mistake with
reference to the subject-matter of the contract is such that, at the option of the purchaser, it is
rescindable. Without such mistakes the agreement would not have been made and since this is
true, the agreement is inoperative and void. It is not exactly a case of over reaching on the
plaintiff’s part, or of misrepresentation and deception, or of fraud, but is more nearly akin to a
bilateral mistake for which relief should be granted. Specific performance of the contract can
therefore not be allowed at the instance of the vendor.

The ultimate result is to put the parties back in exactly their respective positions before they
became involved in the negotiations and before the accomplishment of the agreement. This was
the decision of the trial judge and we think that decision conforms to the facts, the law, and the
principles of equity.

Judgment is affirmed, without prejudice to the right of the plaintiff to establish in this action in the
lower court the amount of the rent of the land pursuant to the terms of the complaint during the
time the land was in the possession of the defendant.
Heirs of William Sevilla vs. Sevilla
G.R. No. 150179. April 30, 2003

FACTS:
On December 10, 1973, Filomena Almirol de Sevilla died intestate leaving 8 children, namely:
William, Peter, Leopoldo, Felipe, Rosa, Maria, Luzvilla and Jimmy, all surnamed Sevilla.
Filomena left the following properties; Parcel I, Parcel II, Parcel III, Parcel IV. Parcel I wasco-
owned with Filomena’s siblings, Honorata and Felisa Almirol, meanwhile, the remaining parcels
were the conjugal properties of Filomena and her late-husband. During their lifetime, Honorata
and Felisa lived in the house of Filomena, together with and in the care of their nephew, the
respondent, Leopoldo Sevilla and his family.

In 1982, Honorata died and transmitted her ⅓ share over Parcel I to her heirs, Felisa Almirol
and the heirs of Filomena, who thereby acquired the property in the proportion of ½ share each.
In 1985, Felisa executed a last will and testament devising her ½ share over Parcel I to the
spouses Leopoldo Sevilla and Belen Leysen. Additionally, in 1986, Felisa executed another
document “Donation Inter Vivos” ceding to Leopoldo Sevilla her share over Parcel I, it was
accepted by Leopoldoin the same document.

In 1986, Felisa and Peter Sevilla, in his behalf and in behalf of the heirs of Filomena, executed a
Deed of Extrajudicial Partition, identifying and adjudicating the ⅓ share of Honorato to the heirs
of Filomena and to Felisa. In 1990, the children of Filomena and the heirs of William, Jimmy and
Maria Sevilla filed the instant case against Leopoldo, Peter and Luzvilla Sevilla, for annulment of
the Deed of Donation and the Deed of Extrajudicial Partition, Accounting, Damages, with prayer
for Receivership and for Partition of the properties of the late Filomena.

In their complaint, the petitioners alleged that the Deed of Donation was tainted with fraud since
Felisa was of unsound mind and that the Deed of Extrajudicial Partition was void since it was
executed without their knowledge and consent. In 1994, the Regional Trial Court of Dipolog City
rendered a decision upholding the validity of the Deed of Donation and declaring the Deed of
Extrajudicial Partition unenforceable. In 2000, the Court Of Appeals affirmed in toto the decision
of the trial court. Hence, the present petition.

ISSUE:
1.Whether or not the Deed of Donation executed by Felisa Almirol in favor of Leopoldo
Sevillawas valid?
2.Whether or not the Deed of Extrajudicial Partition was valid?

RULING:
1.YES, it was valid. There is fraud when, through the insidious words or machinations of one of
the contracting parties, the other is induced to enter into a contract which, without them, he
would not have agreed to. There is undue influence when a person takes advantage of his
power over the will of another, depriving the latter of a reasonable freedom of choice.
a. There is a presumption of consent when one enters into a contract. Fraud,
committed in any of the means enumerated, must be established full, clear and
convincing evidence by the party that alleges its existence.

In the present case at bar, the testimony of the notary public that notarized the Deed of
Donationthat Felisa was of sound mind is controlling, especially since the petitioners did not
even attempt to overcome such a claim and only offered vague testimonies to prove their claim.

2. NO, it is void ab initio due to the lack of authority of Felisa to partition the properties. In the
case at bar, at the time Felisa executed the Deed of Extrajudicial Partition she was no longer
the owner of ½ ofthe share of Parcel I since she already donated her share to Leopoldo. A
donation inter vivos is immediately operative and final. Felisa no longer had the capacity to give
consent to or execute the deed of partition inasmuch she was neither the owner or authorized
representative of Leopoldo, the owner.

Sps. Theis vs. CA et. al.

G.R. No. 126013. 12 Feb 1997

FACTS:
Private respondent Calsons Development Corporation is the owner of three (3) adjacent parcels
of land (parcel nos.1, 2 and 3). All three parcels of land are situated in Tagaytay City. Adjacent
to parcel no.3 is a vacant lot denominated as parcel no. 4. In 1985, Private respondent
constructed a two-storey house on parcel no. 3 and the two other lots remained idle. In a survey
conducted in 1985, parcel no. 3 was erroneously indicated to be covered by the TCT of parcel
no. 1, while the parcel no. 1 and parcel no. 2 were mistakenly surveyed to be located on parcel
no. 4 instead. Unaware of the mistake, private respondent sold said parcel no. 4 to petitioners.

In 1990, petitioners discovered that parcel no. 4 was owned by another person. They also
discovered that the lots actually sold to them were parcel nos. 2 and 3. To remedy the mistake,
private respondents offered parcel nos. 1 and 2 as these two were precisely the two vacant lots
which private respondent owned and intended to sell. Petitioners rejected the good faith offer.
Private respondent made another offer, this time the return of an amount double the price paid
by petitioners. Petitioners still refused. Private respondent was then compelled to file an action
for annulment of deed of sale and reconveyance of the properties subject thereof in the RTC
which ruled on their favor and on appeal, the CA affirmed the same.

Issue: WON petitioners should be allowed to take parcel no. 3.

Ruling:
NO. The SC held that private respondent obviously committed an honest mistake in selling
parcel no. 4. The good faith of the private respondent is evident in the fact that when the
mistake was discovered, it immediately offered two other vacant lots to the petitioners or to
reimburse them with twice the amount paid. That petitioners refused either option left the private
respondent with no other choice but to file an action for the annulment of the deed of sale on the
ground of mistake. To allow the petitioners to take parcel no. 3 would be to countenance unjust
enrichment. Considering that petitioners intended at the outset to purchase a vacant lot, their
refusal to accept the offer of the private respondent to give them two (2) other vacant lots in
exchange, as well as their insistence on parcel no. 3, which is a house and lot, is manifestly
unreasonable.

Dumasug v. Modelo
G.R. No. L-10462, 16 March 1916

FACTS:
Petitioner Andrea Dumasug alleged that respondent Felix Modelo persuaded her to sign a
document by falsely and maliciously making her believe that it contained an engagement on
petitioner`s obligation to pay a certain sum of money. Such obligation pertains to the advances
and expenses incurred by the respondent in protecting and aiding her in the proceeding of her
case wherein the petitioner was the plaintiff. Petitioner does not know how to write, hence, she
only affixed her mark as her signature believing in good faith that respondent herein was telling
her the truth.

Three months after the execution of such document, the respondent took possession of a
carabao and of two parcels of land owned by the petitioner on the ground that the latter had
conveyed such properties to him by an Absolute Sale in consideration to the expenses he
incurred in aiding the petitioner on the proceedings of her case. Petitioner herein seeks for the
recovery of the above properties.

ISSUE: Whether or not the instrument of purchase and sale of two parcels of land and a plow
carabao is null and void.

RULING:

Yes. In the case at bar, it was inconceivable that respondent herein incurs such big amount as
he allegedly spent in the proceedings of the lawsuit involving petitioner. The evidence discloses
that the only great expense which Andrea Dumasug could have incurred was the sum that as
fees she had to pay the attorney Andres Jayme for filing a demurrer in the Court of First
Instance. Said attorney testified that he received from Andrea Dumasug only P80 or P90, the
only large sum which the latter had to expend.

The lower court held that the statements of Andrea Dumasug were well worthy of credence,
and, taking into consideration the merits of the case, reached the conclusion that the sole
document which plaintiff signed which she acknowledged she was owing to Felix Modelo, and
not to the sale of all her properties. The record shows plaintiff to have stated that she received
an offer to sell her carabao, but that she did not wish to sell the animal as she only rented it and
it is her only means of livelihood.

It is, then, perfectly evident that the document, by means of which defendant made himself the
owner of the properties in question is not the instrument of debt which Andrea Dumasug had
signed, and if it is the same one its contents were not duly and faithfully explained to plaintiff in
the act of its execution. In either case, the consent said to have been given by Andrea Dumasug
in said document is null and void, as it was given by mistake. This error invalidates the contract,
because it goes to the very substance of the thing which was the subject matter of said contract,
for, had the maker thereof truly understood the contents of said document, she would neither
have accepted nor authenticated it by her mark.

The consent given by plaintiff being null and void, the document is consequently also null, void,
and of no value or effect. Article 1303 of the Civil Code is therefore, applicable, which prescribes
that: “When the nullity of an obligation has been declared, the contracting parties shall restore to
each other the things which have been the object of the contract with their fruits, and the value
with its interest.”

For the foregoing reasons, whereby the errors assigned to the judgment appealed from are
deemed to have been refuted, petition granted.

MAXIMA HEMEDES v. CA
G.R. No. 107132, October 8, 1999

FACTS:
Jose Hemedes executed a document entitled “Donation Inter Vivos With Resolutory Conditions”
conveying ownership a parcel of land, together with all its improvements, in favor of his third
wife, Justa Kauapin, subject to the resolutory condition that upon the latter’s death or
remarriage, the title to the property donated shall revert to any of the children, or heirs, of the
DONOR expressly designated by the DONEE.

Pursuant to said condition, Justa Kausapin executed a “Deed of Conveyance of Unregistered

Real Property by Reversion” conveying to Maxima Hemedes the subject property. Maxima
Hemedes and her husband Raul Rodriguez constituted a real estate mortgage over the subject
property in favor of R & B Insurance to serve as security for a loan which they obtained.

R & B Insurance extrajudicially foreclosed the mortgage since Maxima Hemedes failed to pay
the loan even. The land was sold at a public auction with R & B Insurance as the highest
bidder. A new title was subsequently issued in favor of R & R&B. The annotation of usufruct in
favor of Justa Kausapin was maintained in the new title. Despite the earlier conveyance of the
subject land in favor of Maxima Hemedes, Justa Kausapin executed a “Kasunduan” whereby
she transferred the same land to her stepson Enrique D. Hemedes, pursuant to the resolutory
condition in the deed of donation executed in her favor by her late husband Jose Hemedes.
Enrique D. Hemedes obtained two declarations of real property, when the assessed value of the
property was raised. Also, he has been paying the realty taxes on the property from the time
Justa Kausapin conveyed the property to him. In the cadastral survey, the property was
assigned in the name of Enrique Hemedes. Enrique Hemedes is also the named owner of the
property in the records of the Ministry of Agrarian Reform office at Calamba, Laguna.

Enriques D. Hemedes sold the property to Dominium Realty and Construction Corporation
(Dominium). Dominium leased the property to its sister corporation Asia Brewery, Inc. (Asia
Brewery) who made constructions therein. Upon learning of Asia Brewery’s constructions, R &
B Insurance sent it a letter informing the former of its ownership of the property. A conference
was held between R & B Insurance and Asia Brewery but they failed to arrive at an amicable
settlement.

Maxima Hemedes also wrote a letter addressed to Asia Brewery asserting that she is the
rightful owner of the subject property and denying the execution of any real estate mortgage in
favor of R&B. Dominium and Enrique D. Hemedes filed a complaint with the CFI for the
annulment of TCT issued in favor of R & B Insurance and/or the reconveyance to Dominium of
the subject property alleging that Dominion was the absolute owner of the land. The trial court
ruled in favor of Dominium and Enrique Hemedes.

ISSUE: W/N the donation in favor of Enrique Hemedes was valid?

RULING:

NO. Enrique D. Hemedes and his transferee, Dominium, did not acquire any rights over the
subject property. Justa Kausapin sought to transfer to her stepson exactly what she had earlier
transferred to Maxima Hemedes – the ownership of the subject property pursuant to the first
condition stipulated in the deed of donation executed by her husband. Thus, the donation in
favor of Enrique D. Hemedes is null and void for the purported object thereof did not exist at the
time of the transfer, having already been transferred to his sister. Similarly, the sale of the
subject property by Enrique D. Hemedes to Dominium is also a nullity for the latter cannot
acquire more rights than its predecessor-in-interest and is definitely not an innocent purchaser
for value since Enrique D. Hemedes did not present any certificate of title upon which it relied.

The declarations of real property by Enrique D. Hemedes, his payment of realty taxes, and his
being designated as owner of the subject property in the cadastral survey of Cabuyao, Laguna
and in the records of the Ministry of Agrarian Reform office in Calamba, Laguna cannot defeat a
certificate of title, which is an absolute and indefeasible evidence of ownership of the property in
favor of the person whose name appears therein. Particularly, with regard to tax declarations
and tax receipts, this Court has held on several occasions that the same do not by themselves
conclusively prove title to land.

Katipunan v. Katipunan
G.R. No. 132415, January 30, 2002
FACTS:
Braulio Katipunan, Jr. owns a 203 square meter lot and a five-door apartment in San Miguel,
Manila and is registered under his name in the Registry of Deeds in Manila. Braulio, herein
respondent, was assisted by his brother, petitioner – Miguel Katipunan, into entering a Deed of
Absolute Sale with brothers Edgardo Balguma, Leopoldo Balguma, Jr., represented by Atty.
Leopoldo Balguma, Sr. – for the subject property for a consideration of 187,000PHP.

Respondent filed a complaint for the annulment of the Deed of Absolute Sale and averred that
the petitioners convinced him to work abroad and that through insidious words and
machinations, they made him sign a document that he thought was a contract of employment.
This document turned out to be the Deed of Absolute Sale. He also claimed that he did not
receive the consideration stated in the contract. He argued that the petitioners, with evident bad
faith, conspired with one another in taking advantage of his ignorance. The RTC dismissed this
complaint on grounds that the respondent failed to prove his causes of action since he admitted
that he obtained loans from the Balgumas, he signed the Deed of Absolute sale and he
acknowledged selling the property and that he stopped collecting rentals.

On the other hand, the CA gave credit to the testimony of Dr. Ana Marie Revilla, a psychiatrist at
the UP-PGH, as an expert witness – explaining that the respondent is slow in comprehension
and has a very low IQ. They ruled that the contract entered into by respondent and petitioners
was voidable pursuant to the provisions of Article 1390 of the NCC. The petitioners filed a MFR
but was denied. Hence, this petition.

ISSUE: Whether the contract entered into by Braulio Katipunan, Jr. and Atty Leopoldo Balguma,
Jr. is voidable.

RULING:

Yes. The contract entered into by respondent and petitioners was voidable pursuant to the
provisions of Article 1390 of the NCC.

A contract of sale is born from the moment there is a meeting of minds upon the thing which is
the object of the contract and upon the price. This meeting of the minds speaks of the intent of
the parties in entering into the contract respecting the subject matter and the consideration
thereof. Thus, the elements of a contract of sale are consent, object, and price in money or its
equivalent. Under Article 1330 of the Civil Code, consent may be vitiated by any of the following:
(a) mistake, (2) violence, (3) intimidation, (4) undue influence, and (5) fraud. The presence of
any of these vices renders the contract voidable.

The circumstances surrounding the execution of the contract manifest a vitiated consent on the
part of respondent. Undue influence was exerted upon him by his brother Miguel and Inocencio
Valdez (petitioners) and Atty. Balguma. It was his brother Miguel who negotiated with Atty.
Balguma. However, they did not explain to him the nature and contents of the document.
Worse, they deprived him of a reasonable freedom of choice. It bears stressing that he reached
only grade three. Thus, it was impossible for him to understand the contents of the contract
written in English and embellished in legal jargon.

Leonardo v. CA
G.R. No. 125485, 13 September 2004

FACTS:
Petitioner Restituta Leonardo is the only legitimate child of the late Sps. Tomasina Paul and
Balbino Leonardo. Private respondents Teodoro, Victor, Corazon, Piedad, et. al, all surnamed
Sebastian, are the illegitimate children of Tomasina with Jose Sebastian after she separated
from Balbino Leonardo. In 1988, private respondent Corazon Sebastian with her niece and a
certain Bitang, came to Restituta’s house to persuade her to sign a deed of extrajudicial partition
of the estate of Tomasina Paul and Jose Sebastian. Before signing the document, Restituta
allegedly insisted that they wait for her husband Jose Ramos so he could translate the
document which was written in English. Subsequently, she proceeded to sign the document
even without her husband and without reading the document, on the assurance of private
respondent Corazon that she will get her share as a legitimate daughter. Petitioner then asked
private respondent Corazon and her companions to wait for her husband so he could read the
document. When petitioner’s husband arrived, however, private respondent Corazon and her
companions had left without leaving a copy of the document. It was only when petitioner hired a
lawyer that they were able to secure a copy and read the contents thereof.

Petitioner refuted private respondents’ claim that they were the legitimate children and sole
heirs of Jose Sebastian and Tomasina Paul since the latter were never married to each other,
thus, the extrajudicial partition was therefore unlawful and illegal. Petitioner also claimed that
her consent was vitiated because she was deceived into signing the extrajudicial settlement.
She further denied having appeared before a Judge of MTC of Urbiztondo, Pangasinan to
acknowledge the execution of the extrajudicial partition.

ISSUE:

Whether the consent given by petitioner to the extrajudicial settlement of the estate was given
voluntarily.

RULING:

No. Contracts where consent is given by mistake or because of violence, intimidation, undue
influence or fraud are voidable. These circumstances are defects of the will, the existence of
which impairs the freedom, intelligence, spontaneity, and voluntariness of the party in giving
consent to the agreement. In determining whether consent is vitiated, Courts are given a wide
latitude in weighing the facts considering the age, physical infirmity, intelligence, relationship
and the conduct of the parties at the time of making the contract and subsequent thereto,
irrespective of whether the contract is in a public or private writing.
In this case, private respondents failed to offer any evidence to prove that the extrajudicial
settlement of the estate was explained in a language known to the petitioner, i.e. the
Pangasinan dialect. Clearly, petitioner, who only finished Grade 3, was not in a position to give
her free, voluntary and spontaneous consent without having the document, which was in
English, explained to her in the Pangasinan dialect.

Domingo Realty v. CA
G.R. No. 126236, 26 January 2007

FACTS:
Petitioner Domingo Realty filed a complaint against Antonio M. Acero, who conducted business
under the firm name A.M. Acero Trading, David Victorio, John Doe, and Peter Doe, for recovery
of possession of three (3) parcels of land. Defendants Acero and Victorio filed an answer,
alleging that they merely leased the land from his co-defendant David Victorio, who, in turn,
claimed to own the property on which the hollow blocks factory of Acero stood. In the Answer,
Victorio assailed the validity of the TCTs of Domingo Realty, alleging that the said TCTs
emanated from spurious deeds of sale, and claimed that he and his predecessors-in-interest
had been in possession of the property for more than 70 years.

Mariano Yu representing Domingo Realty, Luis Recato Dy[6], and Antonio M. Acero, all assisted
by counsels, executed a Compromise Agreement which contains the following:

1. That defendants admit and recognize the ownership of the plaintiff over the property
subject of this case;
2. That defendant Luis Recato Dy admits and recognizes that his title has been proven not
to be genuine and that the area indicated therein is inside the property of the plaintiff;
3. That defendant Acero admits that the property he is presently occupying by way of lease
is encroaching on a portion of the property of the plaintiff and assume[s] and undertakes
to vacate, remove and clear any and all structures erected inside the property of the
plaintiff by himself and other third parties, duly authorized and/or who have an existing
agreement with defendant Acero, and shall deliver said portion of the property of the
plaintiff free and clear of any unauthorized structures, shanties, occupants, squatters or
lessees within a period of sixty (60) days from date of signing of this compromise
agreement. Should defendant Acero fail in his obligation to vacate, remove and clear the
structures erected inside the property of the plaintiff within the period of 60 days afore-
mentioned, plaintiff shall be entitled to a writ of execution for the immediate demolition or
removal of said structure to fully implement this agreement; and ejectment of all
squatters and occupants and lessees, including the dependents to fully implement this
agreement;
4. That plaintiff admits and recognizes that defendant Luis Recato Dy bought and occupied
the property in good faith and for value whereas defendant Acero leased the portion of
said property likewise in good faith and for value hereby waives absolutely and
unconditionally all claims including attorneys fees against both defendants in all cases
 pending in any court whether by virtue of any judgment or under the present complaint
and undertake to withdraw and/or move to dismiss the same under the spirit of this
agreement;
5. That defendants likewise waive all claims for damages including attorneys fees against
the plaintiff;
6. That plaintiff acknowledges the benefit done by defendant Luis Recato Dy on the
property by incurring expenses in protecting and preserving the property by way of
construction of perimeter fence and maintaining a caretaker therein and plaintiff has
agreed to pay Luis Recato Dy the amount of P100,000.00 upon approval of this
agreement by this Honorable Court.

ISSUE: WHETHER OR NOT the judgment on compromise agreement should be set aside due
to mistake.

RULING:

Yes. Respondent Acero gave his consent to the Compromise Agreement in good faith that he
would only vacate a portion of his lot in favor of petitioner Domingo Realty.

Prior to the execution of the Compromise Agreement, respondent Acero was already aware of
the technical description of the titled lots of petitioner Domingo Realty and more so, of the
boundaries and area of the lot he leased from David Victorio. Before consenting to the
agreement, he could have simply hired a geodetic engineer to conduct a verification survey and
determine the actual encroachment of the area he was leasing on the titled lot of petitioner
Domingo Realty. Had he undertaken such a precautionary measure, he would have known that
the entire area he was occupying intruded into the titled lot of petitioners and possibly, he would
not have signed the agreement.

In this factual milieu, respondent Acero could have easily averted the alleged mistake in the
contract; but through palpable neglect, he failed to undertake the measures expected of a
person of ordinary prudence. Without doubt, this kind of mistake cannot be resorted to by
respondent Acero as a ground to nullify an otherwise clear, legal, and valid agreement, even
though the document may become adverse and even ruinous to his business.

Moreover, respondent failed to state in the Compromise Agreement that he intended to vacate
only a portion of the property he was leasing. Such provision being beneficial to respondent, he,
in the exercise of the proper diligence required, should have made sure that such matter was
specified in the Compromise Agreement. Respondent Aceros failure to have the said stipulation
incorporated in the Compromise Agreement is negligence on his part and insufficient to
abrogate the said agreement.

Martinez v. Hongkong and Shanghai Bank

G.R. No. L-5496, 19 February 1910
FACTS:

Plaintiff seeks to annul a contract on the ground that her consent was obtained under duress.
Under the contract, she agreed to convey several properties to Aldecoa & Co. and HSBC as a
settlement of their claims against her and her husband, who fled the country. It was established
at the trial that during the period of negotiation, representations were made to her by the
defendants and concurred in by her lawyers, that if she assented to the requirements of the
defendants, the civil suit against herself and her husband would be dismissed and the criminal
charges against the latter withdrawn, but if she refused, her husband must either spend the rest
of his life abroad or be criminally prosecuted.

ISSUE: WON there was duress which would invalidate the contract.

RULING:

No. There is no duress that will invalidate the contract. Article 1335 of the Civil Code in its last
paragraph provides that: “A threat to enforce one’s claim through competent authority, if the
claim is just or legal does not vitiate consent”.

In order that this contract can be annulled it must be shown that the plaintiff never gave her
consent to the execution thereof. It is, however, necessary to distinguish between real duress
and the motive which is present when one gives his consent reluctantly. A contract is valid even
though one of the parties entered into it against his wishes and desires or even against his
better judgment. Contracts are also valid even though they are entered into by one of the parties
without hope of advantage or profit. A contract whereby reparation is made by one party for
injuries which he has willfully inflicted upon another is one which from its inherent nature is
entered into reluctantly by the party making the reparation. He is confronted with a situation in
which he finds the necessity of making reparation or of taking the consequences, civil or
criminal, of his unlawful acts. He makes the contract of reparation with extreme reluctance and
only by the compelling force of the punishment threatened. Nevertheless, such contract is
binding and enforceable. Petition is dismissed.

Lee v. Court of Appeals

G.R. No. 93695, 4 February 1992

FACTS:
A complaint was filed and the trial court issued an order requiring the issuance of an alias
summons upon ALFA through the DBP as a consequence of the petitioner’s letter informing the
court that the summons for ALFA was erroneously served upon them considering that the
management of ALFA had been transferred to the DBP. The DBP claimed that it was not
authorized to receive summons on behalf of ALFA since the DBP had not taken over the
company which has a separate and distinct corporate personality and existence. Subsequently,
the trial court issued an order advising the private respondents to take the appropriate steps to
serve the summons to ALFA.
The petitioners filed a motion for reconsideration submitting that since they were no longer
officers of ALFA, the private respondents should have availed of another mode of service which
is through publication to effect proper service upon ALFA. The private respondents argued that
the voting trust agreement did not divest the petitioners of their positions as president and
executive vice-president of ALFA so that service of summons upon ALFA through the
petitioners as corporate officers was proper. The trial court upheld the validity of the service of
summons on ALFA through the petitioners.

A second motion for reconsideration was filed reiterating their stand that by virtue of the voting
trust agreement they ceased to be officers and directors of ALFA, hence, they could no longer
receive summons or any court processes for or on behalf of ALFA and in support thereof, they
attached a copy of the voting trust agreement between all the stockholders of ALFA and the
DBP whereby the management and control of ALFA became vested upon the DBP. The trial
court then reversed itself and declared that service upon the petitioners cannot be considered
as proper service of summons on ALFA. The case was elevated to the CA which reversed the
Orders holding that there was proper service of summons on ALFA through the petitioners.

ISSUES:

1. Whether the execution of the voting trust agreement by a stockholder, whereby all his shares
to the corporation have been transferred to the trustee, deprives the stockholder of his position
as director of the corporation.
2. Whether the service of summons on ALFA, effected through the petitioners as president and
vice-president of the subject corporation, after the execution of the voting trust agreement is
valid and effective.

RULING:

1. Yes. Under Sec. 59 of the Corporation Code and by its very nature, a voting trust agreement
results in the separation of the voting rights of a stockholder from his other rights. The execution
of a voting trust agreement, therefore, may create a dichotomy between the equitable or
beneficial ownership of the corporate shares of stockholders, on the one hand, and the legal title
thereto on the other hand. In the instant case, the petitioners maintain that with the execution of
the voting trust agreement between them and the other stockholders of ALFA, as one party, and
the DBP, as the other party, the former assigned and transferred all their shares in ALFA to
DBP, as trustee and thus, they can no longer be considered directors of ALFA.

The facts of this case show that the petitioners, by virtue of the voting trust agreement executed
in 1981 disposed of all their shares through assignment and delivery in favor of the DBP, as
trustee. Consequently, the petitioners ceased to own at least one share standing in their names
on the books of ALFA as required under Section 23 of the new Corporation Code. They also
ceased to have anything to do with the management of the enterprise. The petitioners ceased to
be directors. Hence, the transfer of the petitioners’ shares to the DBP created vacancies in their
respective positions as directors of ALFA. Considering that the voting trust agreement between
ALFA and the DBP transferred legal ownership of the stock covered by the agreement to the
DBP as trustee, the latter became the stockholder of record with respect to the said shares of
stocks. Both parties, ALFA and the DBP, were aware at the time of the execution of the
agreement that by virtue of the transfer of shares of ALFA to the DBP, all the directors of ALFA
were stripped of their positions as such.

There can be no reliance on the inference that the five-year period of the voting trust agreement
in question had lapsed in 1986 so that the legal title to the stocks covered by the said voting
trust agreement ipso facto reverted to the petitioners as beneficial owners pursuant to the 6th
paragraph of section 59 of the new Corporation Code which reads:

“Unless expressly renewed, all rights granted in a voting trust agreement shall automatically
expire at the end of the agreed period, and the voting trust certificate as well as the certificates
of stock in the name of the trustee or trustees shall thereby be deemed cancelled and new
certificates of stock shall be reissued in the name of the transferors.”

On the contrary, it is manifestly clear from the terms of the voting trust agreement between
ALFA and the DBP that the duration of the agreement is contingent upon the fulfillment of
certain obligations of ALFA with the DBP. There is evidence on record that at the time of the
service of summons on ALFA through the petitioners on August 21, 1987, the voting trust
agreement in question was not yet terminated so that the legal title to the stocks of ALFA, then,
still belonged to the DBP.

2. No. Under section 13, Rule 14 of the Revised Rules of Court, it is provided that:

“Sec. 13. Service upon private domestic corporation or partnership. — If the defendant is a
corporation organized under the laws of the Philippines or a partnership duly registered, service
may be made on the president, manager, secretary, cashier, agent or any of its directors.”

It is a basic principle in Corporation Law that a corporation has a personality separate and
distinct from the officers or members who compose it. Thus, the above rule on service of
processes of a corporation enumerates the representatives of a corporation who can validly
receive court processes on its behalf. Not every stockholder or officer can bind the corporation
considering the existence of a corporate entity separate from those who compose it. The
petitioners in this case do not fall under any of the enumerated officers. The service of
summons upon ALFA, through the petitioners, therefore, is not valid. To rule otherwise, as
correctly argued by the petitioners, will contravene the general principle that a corporation can
only be bound by such acts which are within the scope of the officer’s or agent’s authority.

SPOUSES VICTOR AND EDNA BINUA VS. LUCIA P. ONG

G.R. No. 207176, June 18, 2014

FACTS:
From the decision of RTC Davao, petitioner Edna was found guilty of Estafaand sentenced 6-30
years imprisonment. Also, petitioner was ordered to pay the respondent an amount of
P2,285,000. In order to avoid criminal liability, Edna executed a real estate mortgage over their
property with her spouse amounting to P7,000,000 in favour of the respondent. Petitioner Edna,
however, failed to settle her obligation, forcing the respondent to foreclose the mortgage on the
properties, with the latter as the highest bidder during the public sale. Petitioners then filed for
an action for the nullity of mortgage because according to them, they “were still suffering from
the effect of the conviction of [petitioner] Edna, and could not have been freely entered into said
contracts.”

The petitioners also allege that the respondent subsequently “rammed the two (2) mortgage
contracts involving two (2) prime properties on [petitioner Victor’s] throat, so to speak just so to
make him sign the said documents,” and that the respondent took advantage of the misfortune
of the petitioners and was able to secure in her favor the real estate mortgages.

ISSUE: Whether the mortgage contracts were executed under duress.

RULING:

NO. Article 1390 (2) of the Civil Code provides that contracts where the consent is vitiated by
mistake, violence, intimidation, undue influence or fraud are voidable or annullable. Article 1335
of the Civil Code, meanwhile, states that “[t]here is intimidation when one of the contracting
parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil
upon his person or property, or upon the person or property of his spouse, descendants or
ascendants, to give his consent.” The same article, however, further states that “[a] threat to
enforce one’s claim through competent authority, if the claim is just or legal, does not vitiate
consent.”

Based on the petitioners’ own allegations, what the respondent did was merely inform them of
petitioner Edna’s conviction in the criminal cases for estafa. It might have evoked a sense of
fear or dread on the petitioners’ part, but certainly there is nothing unjust, unlawful or evil in the
respondent’s act. The petitioners also failed to show how such information was used by the
respondent in coercing them into signing the mortgages. The petitioners must remember that
petitioner Edna’s conviction was a result of a valid judicial process and even without the
respondent allegedly “ramming it into petitioner Victor’s throat,” petitioner Edna’s imprisonment
would be a legal consequence of such conviction.

Loyola v. CA
G.R. No. 115734, 23 February 2000

FACTS:
Gaudencia Zarraga allegedly sold to private respondents her share in Lot 115-A-1. The sale
was evidenced by a notarized document denominated as “Bilihang Tuluyan ng Kalahati (1/2) ng
Isang Lagay na Lupa.”
Private respondents, are the children of Mariano Zarraga, the brother of Gaudencia, alleged that
they were the lawful owners of Lot 115-A-1, the one-half share inherited by their father and the
other half purchased from their deceased aunt, Gaudencia.

Petitioners, all surnamed Loyola, are first cousins of private respondents, assailed the validity of
the deed of absolute sale citing that it is a simulated contract since the notary public who
prepared the questioned Bilihan did not personally know Gaudencia, thus, the deed of sale is
questionable.

ISSUE: Whether fraud or undue influence was exercised to obtain Gaudencia’s consent to the
sale.

RULING:

NO. Article 1337 of the Civil Code states: There is undue influence when a person takes
improper advantage of his power over the will of another, depriving the latter of a reasonable
freedom of choice. The following circumstances shall be considered: confidential, family,
spiritual, and other relations between the parties, or the fact that the person alleged to have
been unduly influenced was suffering from mental weakness, or was ignorant or in financial
distress.

For undue influence to be established to justify the cancellation of an instrument, three elements
must be present:

a. a person who can be influenced;

b. the fact that improper influence was exerted;
c. submission to the overwhelming effect of such unlawful conduct.

To prove a confidential relationship from which undue influence may arise, the relationship must
reflect a dominant, overmastering influence which controls over the dependent person. In the
present case, petitioners failed to show that Romana used her aunt’s reliance upon her to take
advantage or dominate her and dictate that she sell her land. Undue influence is not to be
inferred from age, sickness, or debility of the body, if sufficient intelligence remains.

HILL vs. VELOSO

G.R. No. L-9421, July 24, 1915

FACTS :
On July 24, 1915 Maximina Veloso claimed that she was tricked by her son-in-law Domingo
Franco into signing a blank document, unknowingly binding her to a debt of P6,319 to Michael &
Co. She thought, according to her, she was made to sign to acknowledge an obligation to pay
for the guardianship of the minor children of Potenciano Veloso (her brother). And that she
learned of the true nature of the document (a promissory note to Michael & Co.) only after
Franco’s death. But, clearly her signatures on the promissory note were obtained by means of
fraud.

ISSUE: Whether or not deceit by a third person even without connivance or complicity with one
of the contracting parties is valid?

HELD:

Granted there was deceit in executing the Promissory Note to Michael & Co., still the deceit and
error alleged could not annul the consent of Veloso nor exempt her from the obligation incurred.
The deceit, in order that it may annul the consent, must be that which the law defines as a
cause. “There is deceit when by words or insidious machinations on the part of one of the
contracting parties, the other is induced to execute a contract which without them he would not
have made.”

Franco was not one of the contracting parties who may have deceitfully induced the other
contracting party, Michael & Co.,to execute the contract. The one and the other of the
contracting parties, to whom the law refers, are the active and passive subjects of the obligation,
the party of the first part and the party of the second part who execute the contract. The active
subject and the party of the first part of the Promissory Note in question was Michael & Co., and
the passive subject and party of the second part were Veloso and Franco.

Veloso and Franco, therefore, composed a single contracting party in contractual relation with or
against Franco, like any other person who might have induced Veloso into signing the
Promissory Note under the influence of deceit, would be but a third person. Under the Civil
Code, deceit by a third person does not in general annul consent. This deceit may give rise to
more or less extensive and serious responsibility on the part of the third person (Franco) and a
corresponding right of action for the contracting party prejudiced (Veloso). Veloso will probably
just have to file an action against the estate of Franco.

Woodhouse v Halili
July 31, 1953, 93 Phil. 526

FACTS:

On November 29, 1947, plaintiff Woodhouse entered into a written agreement with defendant
Halili for a partnership for the bottling and distribution of Mission soft drinks, plaintiff to act as
industrial partner or manager, and the defendant as a capitalist. The plaintiff was to secure the
Mission Soft Drinks franchise for and on behalf of the proposed partnership and that the plaintiff
was to receive 30 percent of the net profits of the business.

Prior to the agreement, plaintiff had informed the Mission Dry Corporation that he had interested
a prominent financier who was willing to invest in the bottling and distribution of the said
beverages, and requested, in order that he may close the deal with him, that the right to bottle
and distribute be granted him for a limited time under the condition that it will finally be
transferred to the corporation. Pursuant to this request, plaintiff was given thirty days option on
exclusive bottling and distribution rights.

Plaintiff prayed for the execution of the contract of partnership; accounting of profits and share
thereof of 30 percent with damages. The Defendant on the other hand claims that the
defendant’s consent to the agreement, was secured by false representation of plaintiff that he
was the owner, or was about to become owner of an exclusive bottling franchise. Further, he
contended that plaintiff did not secure the franchise but was given to defendant himself. He also
filed a counterclaim for damages.

ISSUE: WON false representation, if it existed, annuls the agreement to form the partnership

RULING:

No. Article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal
fraud, which may be ground for the annulment of a contract, and the incidental deceit, which
only renders the party who employs it liable for damages only. The Supreme Court has held that
in order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the
incidental (dolo incidente) inducement to the making of the contract.

If ever the plaintiff was guilty of a false representation, this was not the causal consideration that
led plaintiff to enter into the partnership agreement. The main cause that induced the defendant
to enter into the partnership agreement with plaintiff, was the ability of plaintiff to get the
exclusive franchise to bottle and distribute for the defendant or for the partnership.

Geraldez, vs. CA & Kenstar Travel Corporation

G.R. No. 108253, February 23, 1994

FACTS:
Petitioner Geraldez filed an action for damages by reason of contractual breach against
respondent Kenstar Travel Corp. Petitioner booked the Volare 3 tour with Kenstar. The tour
covered a 22-day tour of Europe for $2,990.00 which she paid the total equivalent amount of
P190,000.00 charged by private respondent for her and her sister, Dolores. At the tour,
petitioner claimed that what was alleged in the brochure was not what they experienced. There
was no European tour manager as stated in the brochure, the hotels where they stayed in which
were advertised as first class were not, the UGC leather factory which was specifically included
as a highlight of the tour was not visited and The Filipino tour guide provided by Kenstar was a
first timer thus inexperienced. The Quezon City RTC rendered a decision ordering respondent
Kenstar to pay moral, nominal, and exemplary damages totalling P1,000,000 and P50,000
attorney’s fees. On appeal, respondent Court of Appeals deleted the award for moral and
exemplary damages and reduced the nominal damages and attorney’s fees to P30,000 and
P10,000 respectively.
ISSUE: Whether or not Kenstar acted in bad faith or with gross negligence in discharging its
obligations in the contract?

RULING:

Yes. Kenstar acted in bad faith and with gross negligence in discharging its obligation. When
they authorized an inexperienced and a first timer to be a tour escort, private respondent
manifested its indifference to the convenience, satisfaction and peace of mind of its clients
during the trip despite its express commitment to provide such facilities under the Volare 3 Tour
Program which had the grandiose slogan “Let your heart sing”. This incompetence must
necessarily be traced to the lack of due diligence on the part of private respondent in the
selection of its employees. It is true that among the thirty-two destinations, which included
twenty-three cities and special visits to nine tourist spots, this was the only place that was not
visited. Clearly, therefore, private respondent’s choice of Zapanta as the tour guide is a manifest
disregard of its specific assurances to the tour group, resulting in agitation and anxiety on their
part, and which deliberate omission is contrary to the elementary rules of good faith and fair
play. It is extremely doubtful if any group of Filipino tourists would knowingly agree to be used in
effect as guinea pigs in an employees’ training program of a travel agency, to be conducted in
unfamiliar European countries with their diverse cultures, lifestyles and languages.

In either case, whether private respondent has committed dolo causante or dolo incidente by
making misrepresentations in its contracts with petitioner and other members of the tour group,
which deceptions became patent in the light of after-events when, contrary to its
representations, it employed an inexperienced tour guide, housed the tourist group in
substandard hotels, and reneged on its promise of a European tour manager and the visit to the
leather factory, it is indubitably liable for damages to petitioner. The effects of dolo causante are
the nullity of the contract and the indemnification of damages, 63 and dolo incidente also obliges
the person employing it to pay damages. Wherefore, ordering private respondent Kenstar Travel
Corporation to pay petitioner Lydia L. Geraldez the sums of P100,000.00 by way of moral
damages, P50,000.00 as exemplary damages, and P20,000.00 as and for attorney’s fees, with
costs against private respondent.

Sps. Tongson v. Emergency Pawnshop

G.R. No. 167874, 15 January 2010

FACTS:
Napala offered to purchase the land of Spouses Tongson for P3,000,000. The petitioners find
the offer acceptable executed with Napala a Memorandum of Agreement. Upon signing of the
Deed of Absolute Sale Napala paid P200,000 in cash to petitioners and issued a postdated PNB
check for the payment of the remaining amount. However, the check bounces because of
insufficient funds, despite the petitioners repeated demand that it be paid in full or return the
land, Napala failed to do both now the petitioners filed an action against Napala.
ISSUE: Whether or not the contract of sale can be annulled based on the fraud employed by
Napala.

RULING:

A valid contract requires the concurrence of the following essential elements: (1) consent or
meeting of the minds, that is, consent to transfer ownership in exchange for the price; (2)
determinate subject matter; and (3) price certain in money or its equivalent.

In the case, there is no dispute as regards the presence of the two requisites for a valid sales
contract, namely, (1) a determinate subject matter and (2) a price certain in money. The
problem now lies with the existence of the remaining element, which is consent of the
contracting parties, specifically, the consent of the Spouses Tongson to sell the property to
Napala.

The Supreme Court found no causal fraud in this case to justify the annulment of the contract of
sale between the parties. It is clear from the records that the Spouses Tongson agreed to sell
their property to Napala who offered to pay ₱3,000,000 as purchase price therefore. Contrary to
the Spouses Tongson’s belief that the fraud employed by Napala was “already operational at
the time of the perfection of the contract of sale,” the misrepresentation by Napala that the
postdated PNB check would bounce on its maturity hardly equates to dolo causante. Napala’s
assurance that the check he issued was fully funded was not the principal inducement for the
Spouses Tongson to sign the Deed of Absolute Sale. Even before Napala issued the check, the
parties had already consented and agreed to the sale transaction. The Spouses Tongson were
never tricked into selling their property to Napala. On the contrary, they willingly accepted
Napala’s offer to purchase the property at ₱3,000,000. In short, there was a meeting of the
minds as to the object of the sale as well as the consideration therefor.

Instances where there is an existence of causal fraud include: (1) when the seller, who had no
intention to part with her property, was “tricked into believing”; (2) when the signature of the
authorized corporate officer was forged; or (3) when the seller was seriously ill, and died a week
after signing the deed of sale raising doubts on whether the seller could have read, or fully
understood, the contents of the documents he signed or of the consequences of his act. Suffice
it to state that nothing analogous to these badges of causal fraud exists in this case.

However, while no causal fraud attended the execution of the sales contract, the fraud surfaced
when Napala issued the worthless check to the Spouses Tongson, which is definitely not during
the negotiation and perfection stages of the sale. Rather, the fraud existed in the consummation
stage of the sale when the parties were in the process of performing their respective obligations
under the perfected contract of sale.

TANKEH vs. DEVELOPMENT BANK OF THE PHILIPPINES

G.R. No. 171428 , November 11, 2013
FACTS:
Sometime in 1980, Alejandro was approached by his brother, Ruperto (president of SSL)
informing him that the latter was operating a new shipping line business and offered him 1000
shares worth P1M to be a director of the business. Alejandro accepted the offer based on the
promise that he be part of the admin staff so that he can oversee the operation of the business
plus his son, who is a practicing lawyer would be given a position in the company. A loan was
applied from DBP for financing of an ocean-going vessel with the conditions that the first
mortgage is obtained over the vessel, the future earnings of the mortgage including
proceeds should be assigned to DBP and DBP is assigned to no less than 67% of the voting
shares of the company.

Alejandro signed the Assignment of Shares of Stock with Voting Rights and the promissory
note making him liable jointly and severally for the amount of the loan. After the vessel is
acquired, a deed of assignment was executed in favor of DBP. On 1983, upon realizing that he
was only being made a tool to realize the purposes of Ruperto, Alejandro officially informed the
company by means of letter that he has severed his connection with the company and asking
the board to pass a resolution to released him from his liabilities with DBP and notify the latter
about this. In 1986, the account of SSL in the DBP was transferred to Asset Privatization Trust
by virtue of Presidential Proclamation No. 50. The assets including loans in favor of DBP were
ordered to be transferred to the national government. Despite the assignment and cash equity
contribution of SSL to cover part of the acquisition cost of the vessel and the like, the
promissory note still subsisted. Hence, Alejandro is still bound as a debtor because of the
promissory note.

ISSUE: WON the fraud perpetrated by Ruperto is serious enough to warrant annulment of the
contract?

Ruling:

No. Only incidental fraud exists in this case. Therefore it is not sufficient to warrant the
annulment of the contracts petitioner entered into but respondent Ruperto is liable to pay him
damages. The distinction between fraud as a ground for rendering a contract voidable or as
basis for an award of damages is provided in Article 1344: In order that fraud may make a
contract voidable, it should be serious and should not have been employed by both contracting
parties. Incidental fraud only obliges the person employing it to pay damages.

Given the standing and stature of the petitioner, he was in a position to ascertain more
information about the contract. The following facts show that petitioner was fully aware of the
magnitude of his undertaking: First, petitioner was fully aware of the financial reverses that SSL
had been undergoing, and he took great pains to release himself from the obligation. Second,
his background as a doctor, as a bank organizer, and as a businessman with experience
in the textile business and real estate should have apprised him of the irregularity in the contract
that he would be undertaking. This meant that at the time petitioner gave his consent to become
a part of the corporation, he had been fully aware of the circumstances and the risks of his
participation. Intent is determined by the acts.
Finally, the records showed that petitioner had been fully aware of the effect of his signing
the promissory note. The bare assertion that he was not privy to the records cannot
counteract the fact that petitioner himself had admitted that after he had severed ties with his
brother, he had written a letter seeking to reach an amicable settlement with respondent Rupert.
Petitioner’s actions defied his claim of a complete lack of awareness regarding the
circumstances and the contract he had been entering.

ECE Realty v. Mandap

G.R. No. 196182, 1 September 2014

FACTS:
The petitioner is a corporation engaged in building condominium units. The petitioner started its
construction at Pasay City. However, in their advertisement it provides that it is situated in
Makati City. The respondent in belief that the condo unit was in Makati City agreed to buy a unit
by paying reservation fee, downpayment and monthly installments. In their Contract to Sell it
indicated therein that the condo unit was in Pasay City.

More than two years after the execution of the contract, respondent demanding the return of her
payment on the ground that the unit was built in Pasay not in Makati.

ISSUE: Whether petitioner was guilty of fraud and if so, whether such fraud is sufficient ground
to nullify its contract with respondent.

RULING:

NO. First, the fraud must be dolo causante or it must be fraud in obtaining the consent of the
party. This is referred to as causal fraud. The deceit must be serious. The fraud is serious when
it is sufficient to impress, or to lead an ordinarily prudent person into error; that which cannot
deceive a prudent person cannot be a ground for nullity. The circumstances of each case
should be considered, taking into account the personal conditions of the victim. Second, the
fraud must be proven by clear and convincing evidence and not merely by preponderance
thereof.

In the present case, the Supreme Court finds that the petitioner is guilty of false representation
of a fact. This is evidenced by its printed advertisements indicating that its subject condominium
project is located in Makati City when, in fact, it is in Pasay City. However, insofar as the present
case is concerned, the Court agrees with the Housing and Land Use Arbiter, the HLURB Board
of Commissioners, and the Office of the President, that the misrepresentation made by
petitioner in its advertisements does not constitute causal fraud which would have been a valid
basis in annulling the Contract to Sell between petitioner and respondent.
“Being a notarized document, it had in its favor the presumption of regularity, and to overcome
the same, there must be evidence that is clear, convincing and more than merely preponderant;
otherwise, the document should be upheld. Mandap failed to overcome this presumption.

Paradigm Development Corporation of the Philippines vs. Bank of the Philippine Islands
G.R. No. 191174, June 07, 2017

FACTS:
Sengkon Trading (Sengkon), a sole proprietorship, obtained a loan from Far East Bank and
Trust Company (FEBTC) under a credit facility. FEBTC again granted Sengkon another credit
facility. Two real estate mortgage (REM) contracts were executed by PDCP’s President to
partially secure Sengkon’s obligations under this Credit Line.

Sengkon defaulted in the payment of its loan obligations. FEBTC demanded payment from
PDCP. Negotiations were put on hold because BPI acquired FEBTC and assumed the rights
and obligations of the latter.

Upon verification with the Registry of Deeds, PDCP discovered that FEBTC extra-judicially
foreclosed the first and second mortgage without notice to it as mortgagor and sold the
mortgaged properties to FEBTC as the lone bidder. Thereafter, the corresponding Certificate of
Sale was registered. PDCP filed a Complaint for Annulment of Mortgage, Foreclosure,
Certificate of Sale and Damages. PDCP alleged that FEBTC assured it that the mortgaged
properties will only secure the Credit Line sub-facility of the Omnibus Line. With this
understanding, PDCP President allegedly agreed to sign on two separate dates a pro-forma and
blank REM. PDCP, however, claimed that it had no intent to be bound under the second REM,
which was not intended to be a separate contract, but only a means to reduce registration
expenses. According to PDCP, when FEBTC registered both REMs, even if the intent was only
to register one, the validity of both REMs was vitiated by lack of consent. PDCP claims that said
intent is supported by the fact that the REMs were constituted merely as “partial security” for
Sengkon’s obligations and therefore there was really no intent to be bound under both – but
only in one – REM.

The RTC rendered its Decision nullifying the REMs and the foreclosure proceedings. The CA
reversed the RTC’s ruling.

Issues:

(1) Whether or not the validity of both REMs was vitiated by lack of consent.

(2) Whether or not the foreclosure proceedings are valid.

Ruling:
(1) No. To begin with, the registration of the REM contract is not essential to its validity under
Article 2085. In relation thereto, Article 2125 of the Civil Code reads:

Article 2125. In addition to the requisites stated in Article 2085, it is indispensable, in order that
a mortgage may be validly constituted, that the document in which it appears be recorded in the
Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding
between the parties.

The codal provision is clear and explicit. Even if the instrument were not recorded, “the
mortgage is nevertheless binding between the parties.” Hence, even assuming that the parties
indeed agreed to register only one of the two REMs, the subsequent registration of both REMs
did not affect an already validly executed REM if there was no other basis for the declaration of
its nullity. That the REMs were intended merely as “partial security” does not make PDCP’s
argument more plausible because as aptly observed by the CA, the PDCP’s act of surrendering
all the titles to the properties to FEBTC clearly establishes PDCP’ s intent to mortgage all of the
four properties in favor of FEBTC to secure Sengkon’s obligation under the Credit Line.

Under Article 1344 of the Civil Code, the fraud must be serious to annul or avoid a contract and
render it voidable. This fraud or deception must be so material that had it not been present, the
defrauded party would not have entered into the contract.

In the present case, even if FEBTC represented that it will not register one of the REMs, PDCP
cannot disown the REMs it executed after FEBTC reneged on its alleged promise. As earlier
stated, with or without the registration of the REMs, as between the parties thereto, the same is
valid and PDCP is already bound thereby. The signature of PDCP’s President coupled with its
act of surrendering the titles to the four properties to FEBTC is proof that no fraud existed in the
execution of the contract. Arguably at most, FEBTC’s act of registering the mortgage only
amounted to dolo incidente which is not the kind of fraud that avoids a contract.

(2) No. FEBTC’s failure to comply with its contractual obligation to send notice to PDCP of the
foreclosure sale is fatal to the validity of the foreclosure proceedings. In Metropolitan Bank v.
Wong, the Court ruled that while as a rule, personal notice to the mortgagor is not required,
such notice may be subject of a contractual stipulation, the breach of which is sufficient to nullify
the foreclosure sale.

Precisely, the purpose of the foregoing stipulation is to apprise respondent of any action which
petitioner might take on the subject property, thus according him the opportunity to safeguard
his rights.

Thus, we restate: the general rule is that personal notice to the mortgagor in extrajudicial
foreclosure proceedings is not necessary and posting and publication will suffice. Sec. 3 of Act
3135 governing extra-judicial foreclosure of [REMs], as amended by Act 4118, requires only
posting of the notice of sale in three public places and the publication of that notice in a
newspaper of general circulation. The exception is when the parties stipulate that personal
notice is additionally required to be given the mortgagor. Failure to abide by the general rule, or
its exception, renders the foreclosure proceedings null and void.

EDUARDO N. RIGUER vs. ATTY. EDRALIN S. MATEO

G.R. No. 222538, June 21, 2017

FACTS:

Sometime in 2002, petitioner Eduardo N. Riguer (Riguer) engaged the services of respondent
Atty. Edralin S. Mateo (Atty. Mateo) to represent him in civil and criminal cases involving a
parcel of land covered by Transfer Certificate of Title (TCT) No. 12112. They agreed that the
compensation for Atty. Mateo's legal services would be the acceptance fee, appearance fee,
and pleading fees, which Riguer religiously paid.

On January 16, 2007, the RTC rendered a judgment favorable to Riguer in the civil case. During
the pendency of the appeal, Atty. Mateo was able to make him sign a document entitled
"Kasunduan." The said document stated that Riguer agreed to pay Atty. Mateo the following:
a) ₱30,000.00 as reimbursement for the latter's expenses in the civil case; b) ₱50,000.00 in
case of a favorable decision in the civil case; and c) ₱250,000.00 once the land covered by TCT
No. 12112 was sold.

On May 21, 2009, the appeal was decided in favor of Riguer, prompting Atty. Mateo to demand
payment of the fees agreed upon in the Kasunduan, Riguer refused pay. After two (2) years or
on May 30, 2011, Atty. Mateo filed a Complaint for Collection of Attorney's Fees with Urgent
Prayer for Issuance of Preliminary Attachment before the MTCC.

In its July 26, 2013 decision, the MTCC ruled in favor of Atty. Mateo and ordered Riguer to pay
him ₱250,000.00 with six percent (6%) interest as attorney's fees and ₱5,494.50 as costs of
suit. Aggrieved, Riguer appealed to the RTC. In its June 2, 2014 Decision, the RTC concurred
with the MTCC. Undeterred, Riguer appealed before the CA.

In its April 13, 2015 Decision, the CA sustained the RTC decision. The appellate court
disagreed that Atty. Mateo merely inserted the Kasunduan in the voluminous documents of the
appealed civil case as the document was signed a month before the trial court had rendered its
decision.

ACCORDINGLY, this petition is DENIED and the Decision dated June 2, 2014, AFFIRMED.
Hence, this petition.

ISSUES:
WHETHER RIGUER'S MOTION FOR RECONSIDERATION FOR THE APRIL 13, 2015 CA
DECISION WAS TIMELY FILED.

WHETHER ATTY. MATEO IS ENTITLED TO RECOVER ₱250,000.00 IN ATTORNEY'S FEES

PURSUANT TO THE KASUNDUAN.

RULING: The petition is partially meritorious.

Under Section 9, Rule 13 of the Rules of Court, service of judgments, final orders or resolutions
may be served either personally or by registered mail. In relation thereto, service by registered
mail shall be made by depositing the copy in the post office in a sealed envelope addressed to
the party or his counsel at his office, if known, otherwise at his residence, if known.

The CA was correct in reckoning the 15-day period to file a motion for reconsideration from May
15, 2015, when Macaldo received a copy of the decision, and not May 18, 2015, when Riguer's
former counsel was allegedly informed by his mother about the decision. Thus, the motion for
reconsideration was filed out of time as it was done only on June 2, 2015. As pointed out by the
CA, the Philippine Postal Corporation certified that a copy of the April 13, 2015 decision was
received by Riguer's counsel through Macaldo.

Fraud must be clearly and convincingly proved before a contract may be nullified. The Court
agrees that Riguer failed to establish that he was deceived and misled by Atty. Mateo in signing
the Kasunduan. Though Atty. Mateo judicially admitted that he prepared the said document
during the pendency of the appeal, 17 it was insufficient to prove that he employed fraud and
deceit in making Riguer sign the said document together with other documents for the appeal.

However, when fraud is alleged in an ordinary civil case involving contractual relations, an
entirely different standard of proof needs to be satisfied. The imputation of fraud in a civil case
requires the presentation of clear and convincing evidence. Mere allegations will not suffice to
sustain the existence of fraud. The burden of evidence rests on the part of the plaintiff or the
party alleging fraud. The quantum of evidence is such that fraud must be clearly and
convincingly shown.

Other than Riguer's allegation of fraud, no clear and convincing evidence was presented to
support a conclusion that Atty. Mateo employed it in preparing, and eventually having Riguer
sign the Kasunduan. Absent sufficient proof of fraud, the contract binds the parties and is the
law between them.

Stipulated attorney's fees may be reduced if found to be unconscionable. The Court,

nevertheless, reduces the agreed attorney's fees for being unconscionable. Section 24, Rule
138 of the Rules of Court provides:
Sec. 24. Compensation of attorneys; agreement as to fees. - An attorney shall be entitled to
have and recover from his client no more than a reasonable compensation for his services, with
a view to the importance of the subject-matter of the controversy, the extent of the services
rendered, and professional standing of the attorney. No court shall be bound by the opinion of
attorneys as expert witnesses as to the proper compensation but may disregard such testimony
and base its conclusion on its professional knowledge. A written contract for services shall
control the amount to be paid therefor unless found by the court to be unconscionable or
unreasonable. Accordingly, whether there is an agreement or not, the courts can fix a
reasonable compensation which lawyers may receive for their professional services. As an
officer of the court, the lawyer submits himself to the authority of the court and, as such, the
power to determine the reasonableness or unconscionable character of attorney's fees
stipulated by the parties is a matter falling within the regulatory prerogative of the courts. To
convince the Court that the ₱250,000.00 attorney's fees was conscionable, Atty. Mateo pointed
out that the deed of sale did not accurately reflect the value of the land sold because its
consideration was only for ₱600,000.00. He insisted that the true value of the property was
around ₱3 million.

In the case at bench, other than his bare assertions, Atty. Mateo never presented proof to
support his claim that the consideration indicated in the deed of sale was spurious. Absent any
proof to the contrary, the contents of the notarized deed of sale should be held valid and true.
Further, Riguer pointed out that the property was located in a remote location, which made it
less valuable compared to properties located in the center of the city.

Lest it be misunderstood, the Court does not wish to deprive Atty. Mateo of his just
compensation for the satisfactory legal service he had rendered to his client. Though his right to
his lawyer's fees is recognized, the same must not amount to a deprivation of property of his
client. As Riguer's property was sold for only ₱600,000.00, and not ₱3million, the agreed
attorney's fees of ₱250,000.00 must be reduced accordingly.

ECE Realty v. Mandap

G.R. No. 196182, 1 September 2014

FACTS:

The petitioner is a corporation engaged in building condominium units. The petitioner started its
construction at Pasay City. However, in their advertisement it provides that it is situated in
Makati City. The respondent in belief that the condo unit was in Makati City agreed to buy a unit
by paying reservation fee, downpayment and monthly installments. In their Contract to Sell it
indicated therein that the condo unit was in Pasay City.

More than two years after the execution of the contract, respondent demanded the return of her
payment on the ground that the unit was built in Pasay not in Makati.
ISSUE: Whether or not the petitioner is guilty of fraud and if so, whether such fraud is sufficient
ground to nullify its contract with respondent.

RULING: NO

First, the fraud must be dolo causante or it must be fraud in obtaining the consent of the party.
This is referred to as causal fraud. The deceit must be serious. The fraud is serious when it is
sufficient to impress, or to lead an ordinarily prudent person into error; that which cannot
deceive a prudent person cannot be a ground for nullity. The circumstances of each case
should be considered, taking into account the personal conditions of the victim. Second, the
fraud must be proven by clear and convincing evidence and not merely by preponderance
thereof.

In the present case, the Supreme Court finds that petitioner is guilty of false representation of a
fact. This is evidenced by its printed advertisements indicating that its subject condominium
project is located in Makati City when, in fact, it is in Pasay City. However, insofar as the present
case is concerned, the Court agrees with the Housing and Land Use Arbiter, the HLURB Board
of Commissioners, and the Office of the President, that the misrepresentation made by
petitioner in its advertisements does not constitute causal fraud which would have been a valid
basis in annulling the Contract to Sell between petitioner and respondent.

“Being a notarized document, it had in its favor the presumption of regularity, and to overcome
the same, there must be evidence that is clear, convincing and more than merely preponderant;
otherwise, the document should be upheld. Mandap failed to overcome this presumption.

Mariano Tuason vs. Crisanto Marquez

G.R. No. L-20659, November 3, 1923

FACTS:

On March 5, 1921, Crisanto C. Marquez, owner of the electric light plant of Lucena, Tayabas
agreed to franchise with Tuason and to pay Marquez a total of P14,400; P2,400 within the sixty
days and remainder , P12,000 within a year.

The 1st installment was paid subsequent to the sixty-day period; 2nd installment has not been
paid. During March 20, 1921 to July 19, 1922, Consolidated Electric Light Plant, once in
possession by Tuason was sold to Gregorio Marquez, brother of Crisanto Marquez at
P5,501.57. While on 1913 to 1914, a franchise for thirty-five years was granted the Lucena
Electric Company. The rights of this Company passed to Crisanto Marquez at sheriff’s sale on
September 10,1919. Marquez, became disgusted with the business result on February 28,
1921, prior to the accomplishment of the contract, he announced to the Public Utility
Commissioner his intention to give up the franchise. Tuason permitted to operate the company
pursuant to a special license which was to continue until they obtained a new franchise granted
by Republic Utility Commissioner with certain conditions amounting to the renovation of the
entire plant. Tuason conceive the idea of bringing active against Marques for rescission of the
contract. The plaintiff filed a complaint in CFI Manila against Crisanto Marquez for P37,400. The
defendant asked for a dismissal action and an allowance of P12,654.50 from plaintiff.

ISSUE: Whether or not the defendant is liable for the damages due to honorable disclosure of
fact pertaining to the renovation of plant as a requisite after the franchise has been granted.

RULING: No, it should emphasized that the contract in making mention of the property, the
Electric Light Company merely renewed a previous inventory of the property. The franchise,
therefore, was not the determining cause of the purchase. Indeed the franchise was then in
force and either party could easily have ascertained its status by applying at the office of the
Public Utility Commissioner. The innocent non-disclosure of a fact does not affect the formation
of the contract or operate to discharge the parties from this agreement.

RURAL BANK OF STA. MARIA vs. CA

G.R. No. 110672, September 14, 1999

FACTS:

A parcel of land is registered in the name of Manuel Behis, married to Cristina Behis. Said land
originally was part of a bigger tract of land owned by Behis, father of Manuel Behis. And upon
the latter's death, his children, namely: Saro Behis, Marcelo Behis, Manuel Behis, Lucia Behis,
Clara Behis and Arana Behis, in an extrajudicial settlement with Simultaneous Sale of
Inheritance, agreed to sell the land to Manuel Behis, married to Cristina Behis but which
subsequently was explained as only an arrangement adopted by them to facilitate transactions
over the land in a Confirmation of Rights of Co-Ownership over real Property, showing that the
Behis brothers and sisters, including Manuel Behis, are still co-owners thereof.

Manuel Behis mortgaged said land in favor of the Bank in a Real Estate Mortgage as security
for loans obtained, covered by six promissory notes and trust receipts under the Supervised
Credit Program and annotated at the back of the title. The mortgage, the promissory notes and
trust receipts bear the signatures of both Manuel Behis and Cristina Behis. Unfortunately
thereafter, Manuel Behis was delinquent in paying his debts.

Manuel Behis sold the land to the plaintiffs in a Deed of Absolute Sale with Assumption of
Mortgage which bears the signature of his wife Cristina Behis. Manuel Behis took it upon
himself to secure the signature of his wife and came back with it. On the same date, plaintiffs
and Manuel Behis simultaneously executed another Agreement whereby plaintiffs are indebted
to Manuel Behis for the sum of P2,400,000.00 payable in installments with P10,000.00 paid
upon signing and in case of default in the installments, Manuel Behis shall have legal recourse
to the portions of the land equivalent to the unpaid balance of the amounts in installments.

Plaintiffs did not present to the Register of Deeds said two contracts and asked that the title in
the name of Manuel Behis be cancelled and a new one issued in their name which normally a
buyer does. Neither did plaintiffs annotate at the back of the title the aforesaid two contracts.
Nor did they immediately go to the Bank and present said two contracts. Thus, the title to the
land remained in the name of Manuel Behis.

The plaintiffs were unable to complete their full payment to Manuel Behis of the sale of the land
as it is nowhere near P2,400,000.00. Meantime, the loan in the name of Manuel Behis with the
Bank secured by the Real Estate Mortgage on the land continued to accumulate being
delinquent.

ISSUE: Whether or not the Memorandum is voidable on the ground of fraud

RULING:

The Supreme Court held that the kind of fraud that will vitiate a contract refers to those insidious
words or machinations resorted to by one of the contracting parties to induce the other to enter
into a contract which without them he would not have agreed to. Simply stated, the fraud must
be the determining cause of the contract, or must have caused the consent to be given. It is
believed that the non-disclosure to the bank of the purchase price of the sale of the land
between private respondents and Manuel Behis cannot be the "fraud" contemplated by Article
1338 of the Civil Code. From the sole reason submitted by the petitioner bank that it was kept
in the dark as to the financial capacity of private respondents, we cannot see how the omission
or concealment of the real purchase price could have induced the bank into giving its consent to
the agreement; or that the bank would not have otherwise given its consent had it known of the
real purchase price.

Secondly, pursuant to Article 1339 of the Civil Code, silence or concealment, by itself, does not
constitute fraud, unless there is a special duty to disclose certain facts, or unless according to
good faith and the usages of commerce the communication should be made. Verily, private
respondents Rayandayan and Arceño had no duty, and therefore did not act in bad faith, in
failing to disclose the real consideration of the sale between them and Manuel Behis.

Laureta Trinidad v. IAC

G.R. No. L-65922, 3 December 1991

FACTS:

The house looked beautiful in summer but not when the waters came. Then it was flooded five
feet deep and less than prepossessing, let alone livable. Disenchanted, the buyer sued the
seller for the annulment of the sale and damages, alleging fraud.

ISSUE: Whether or not there was misrepresentation on the part of Francisco to justify the
rescission of the sale and the award damages to the petitioner.

RULING:
Fraud is never lightly inferred, it is presumed that “a person is innocent of crime or wrong” and
that “private transactions have been fair and regular.” While disputable, these presumptions can
be overcome only by clear and preponderant evidence. Our finding is that the fraud alleged by
the petitioner has not been satisfactorily established to call for the annulment of the contract.
This finding is based on the following considerations.

First, it was the petitioner who admittedly approached the private respondent, who never
advertised the property nor offered it for sale to her. Second, the petitioner had full opportunity
to inspect the premises, including the drainage canals indicated in the vicinity map that was
furnished to her, before she entered into the contract of conditional sale. Third, it is assumed
that she made her appraisal of the property not with the untrained eye of the ordinary
prospective buyer but with the experience and even expertise of the licensed real estate broker
that she was. Fourth, seeing that the lot was depressed and there was a drainage lot about it,
she cannot say she was not forewarned of the possibility that the place might be flooded. Fifth,
there is no evidence except her own testimony that two previous owners of the property had
vacated it because of the floods and that Francisco assured her that the house would not be
flooded again. The supposed previous owners were not presented as witnesses and neither
were the neighbors. Francisco himself denied having made the alleged assurance. Sixth, the
petitioner paid the 1970 and 1971 amortizations even if, according to her Complaint, “since
1969 said lot had been under floods of about one (1) foot deep,” and despite the floods of
September and November 1970. Seventh, it is also curious that notwithstanding the said floods,
the petitioner still “made annexes and decorations on the house,” all of a permanent nature, for
which she now claims reimbursement from the private respondent.

SONGCO v. SELLNER
G.R. No. 11513, December 4, 1917

FACTS:

George C. Sellner was the owner of a farm at Floridablanca, Pampanga. Right beside his farm
was another farm owned by Lamberto Songco. On or about December 1915, both properties
had a considerable quantity of sugar cane ready to be cut. The nearest sugar center where
sugar canes were milled was located in Dinalupijan. Sellner wanted his harvest to be milled
here, but the owners of the sugar central could not accommodate him. The said sugar central,
however, was going to mill Songco's cane. Sellner offered to buy Songco's canes. He did so in
order to include the canes harvested from his own farm with that of Songco's and have these
milled at the aforecited sugar center. Part of the deal was for Songco to grant Sellner a right of
way to his farm. Songco sold his potential harvest to Sellner for P12,000. Songco estimated that
the canes from his farm would produce 3,000 piculs of sugar. Sellner agreed to pay in three
installments amounting to P4,000 each. Sellner was able to complete the two installments.
However, he refused to pay the third and final installment. This prompted Songco to file an
action against Sellner.
As a defense, Sellner denied the allegations and posited that his deal with Songco was marred
by fraudulent misrepresentation. It turned out that instead of yielding 3,000 piculs of sugar as
estimated, the canes from Songco's farm only yielded 2,017 piculs, gross, and after the toll for
milling was deducted the net left to Sellner was very much less. Sellner also said that Songco
refused to warrant his estimate.

The lower court ruled in favor of Songco, ordering Sellner to pay the final P400 installment. The
court nonetheless dismissed the attachment of some of Sellner's properties because, as proven
in court, Sellner was a wealthy man who had no reason to convey Songco's property. The court
also ordered Songco to pay damages to Sellner equivalent to the amount actually paid out by
Sellner in procuring the dissolution of the attachment. Hence, the instant petition by Songco..

ISSUES:
1. Whether or not Songco was disingenuous and uncandid with his estimate of the yields of
his farm produce.
2. Whether or not the contract of sale should be voided for fraud.
3. Whether or not Sellner's properties should be levied in favor of Songco.

RULING:

1. YES. It was fairly shown by the evidence that Songco knew at the time he made the
representation in question that he was greatly exaggerating the probable produce of his
fields, and it was impossible to believe that his estimate honestly reflected his true
opinion. He knew what these same fields had been producing over a long period of
years; and he knew that, judging from the customary yield, the harvest in 1915 would fall
far below the amount stated.

2. NO. The law allows considerable latitude to seller's statements, or dealer's talk. The
refusal of Songco to warrant his estimate should have admonished Sellner that the said
estimate was put forth as a mere opinion. Granted, a misinterpretation upon a mere
matter of opinion is not an actionable deceit, nor is it a sufficient ground for voiding a
contract as fraudulent. By relying on Songco's estimate, Sellner bound himself to the
terms stipulated in their contract. Since Sellner did so at his own peril, he must therefore
take the consequences of his own imprudence. As such, he must pay Songco the third
and final installment worth P400.

3. NO. As proven in court, Sellner was a wealthy man with no interest in conveying away
Songco's property as alleged. The SC affirmed the lower court's ruling denying further
award of damages (apart from what was already given) to Sellner, who was arguing that
when one of his creditors discovered that he was made the subject of an attachment, he
was forced to sell sugar at a much lower rate, resulting in lesser income. The SC held
that such damages were remote and speculative.

Mercado and Mercado v. Espiritu

G.R. No. L-11872, 1 December 1917

FACTS:

The case was about the contract made by Luis Espiritu (father of Jose Espiritu, the defendant)
and the heirs of his sister Margarita Mercado; Domingo and Josepha Mercado, who pretended
to be of legal age to give their consent into the contract of sale of the land they inherited from
their deceased mother Margarita Mercado (sister of Luis Mercado). The siblings Domingo et. al.,
sought for the annulment of contract asserting that Domingo and Josepha were minors during
the perfection of contract.

ISSUE: Whether or not the deed of sale is valid, when the minors presented themselves of legal
age, at the time of the perfection of the contract.

RULING: YES, even if it were made and entered into by minors, who pretended to be of legal
age. Whenever a party has, by its own declaration, act or omission, intentionally and
deliberately led another party to believe a particular thing to be true, and to act upon such belief,
he cannot, in any litigation arising out of such declaration, cannot be permitted to falsify it.
Furthermore, the sale of real estate made by a minor who pretends to be of legal age, when in
fact he is not, is VALID, and he will not be permitted to excuse himself from the fulfillment of the
obligations contracted by him or to have it annulled. The judgment that holds such sale to be
valid and absolves the purchaser from the complaint filed against him does not violate the laws
relative to the sale of minor’s property, nor the judicial rules established in consonance
therewith. In the given case, annulment of the sale cannot be invoked on the ground of minority,
since at the time of the perfection of the contract; Domingo and Josefa presented themselves to
be of legal age.

Braganza v. Villa Abrille

G.R. No. L-12471, 13 April 1959

FACTS:

Rosario Braganza and her sons loaned from De Villa Abrille P70,000 in Japanese war notes
and in consideration thereof, promised in writing to pay him P10,000 + 2% per annum in legal
currency of the Philippines 2 years after the cessation of the war. Because they have not paid,
Abrille sued them in March 1949.

The Manila court of first instance and CA held the family solidarily liable to pay according to the
contract they signed. The family petitioned to review the decision of the CA whereby they were
ordered to solidarily pay De Villa Abrille P10,000 + 2% interest, praying for consideration of the
minority of the Braganza sons when they signed the contract.

They also averred that Guillermo and Rodolfo were minors when they signed the promissory
note.
Court of Appeals found them liable pursuant to the following reasoning:

. . . . These two appellants did not make it appear in the promissory note that they were not yet
of legal age. If they were really to their creditor, they should have appraised him on their
incapacity, and if the former, in spite of the information relative to their age, parted with his
money, then he should have contended with the consequence of his act. But, that was not the
case. Perhaps defendants in their desire to acquire much-needed money, they readily and
willingly signed the promissory note, without disclosing the legal impediment with respect to
Guillermo and Rodolfo. When minors, like in the instant case, pretended to be of legal age, in
fact, they were not, they will not, later on, be permitted to excuse themselves from the fulfillment
of the obligation contracted by them or to have it annulled. (Mercado, et al. vs. Espiritu, 37 Phil.,
215.)

ISSUE: Whether or not the minors are liable for the promissory note?

RULING:

No, in order to hold them liable, the fraud must be actual and not constructive. It has been held
that his mere silence when making a contract as to his age does not constitute a fraud which
can be made the basis of an action of deceit. The fraud of which an infant may be held liable to
one who contracts with him in the belief that he is of full age must be actual, not constructive,
and mere failure of the infant to disclose his age is not sufficient. However, the boys, though not
bound by the provisions of the contract, are still liable to pay the actual amount they have
profited from the loan. Art. 1340 states that even if the written contract is unenforceable
because of their non-age, they shall make restitution to the extent that they may have profited
by the money received.

Suntay v. CA
G.R. No. 114950, 19 December 1995

FACTS:

Federico Suntay, herein private respondent, was the registered owner of a parcel of land and a
rice mill. He applied as a miller-contractor of NARIC. His application was denied because he
was tied up with several unpaid loans. For purposes of circumvention, he thought of letting his
nephew-lawyer, herein petitioner, to make the application for him. Rafael prepared the deed of
sale, wherein Federico sold the parcel of land and the rice mill to Rafael. Three months later,
the second deed of sale was made, wherein Rafael sold back the properties in question to
Federico for a consideration of P20,000. A Certificate of Title in the name of Federico was
canceled and a new one was issued in the name of Rafael. In spite of this, Federico remained in
possession of the property and continued to exercise rights of absolute ownership over the
property. Rafael, meanwhile, did not make any attempt to take possession thereof at any time.
Federico requested Rafael to deliver his copy of the TCT so that Federico could have the
counter-deed of sale in his favor registered in his name. Rafael declined and further contended
that the second deed of sale was a counterfeit. Federico filed a complaint about reconveyance
assailing the validity of the first deed of sale, interjecting that he has been in continuous
possession of the properties in question. While the trial court favored the petitioner, the CA
reversed the decision of the trial court by stating that the first deed of sale is absolutely
simulated and fictitious.

ISSUE: WON the first Deed of Sale is simulated and therefore invalid.

RULING: Yes. It can be adduced by the facts that the first deed of sale stipulating a transfer of
property from Federico to Rafael is absolutely simulated and fictitious. Rafael and Federico
were relatives, whose blood relation was the foundation of their professional and business
relationship. Rafael admits that he came into possession thereof in the course of rendering legal
services to his uncle. Their close relationship, as considered by the CA, is a badge of
simulation. Rafael further attempted to claim that the transfer was consideration for his
attorney’s fees. The most protuberant index of simulation is the complete absence of an attempt
in any manner on the part of the late Rafael to assert his rights of ownership over the land and
rice mill in question. After the sale, he should have entered the land and occupied the premises
thereof. He did not even attempt to. If he stood as owner, he would have collected rentals from
Federico for the use and occupation of the land and its improvements. All that the late Rafael
had was a title in his name.

Blanco v. Quasha
G.R. No. 133148, 17 November 1999

FACTS:

Mary Ruth C. Elizalde was an American national who owned a house and lot situated on a
2,500 square-meter parcel of land in Forbes Park, Makati. On May 22, 1975, she entered into a
Deed of Sale over the property in favor of Parex Realty Corporation, for and in consideration of
the amount of P625,000.00payable in 25 equal annual installments of P25,000.00 commencing
on May 22, 1975 and ending on May 22, 1999. Also on May 22, 1975, Parex executed a
Contract of Lease with Elizalde, whereby the same parcel of land was leased to the latter for a
term of 25 years for a monthly rental of $2,083.34 orP25,000.08 a year. The rental payments
shall be credited to and applied in reduction of the agreed yearly installments of the purchase
price of the property. A transfer of title was made in 1975. Despite the transfer of title, she
continued to pay the Forbes Park Association dues and garbage fees until her demise in 1990.
Likewise, she undertook to pay the realty taxes on the property during the term of the lease.
Petitioner, the special administrator of Elizalde’s estate, by letter dated June 13, 1990,
demanded from respondents, the individual stockholders and directors of Parex, the
reconveyance of the title to the property to the estate of Elizalde or, in the alternative, to assign
all shares of Parex to said estate. Respondents ignored the demand. Petitioner brought the
action to the court and alleged that the sale of the property was absolutely simulated and
fictitious and, therefore, null and void.
ISSUE: Whether or not the sale-lease-back agreement of the parties is void being simulated or
fictitious.

RULING:

Valid. The simulation of a contract may be absolute or relative. The former takes place when the
parties do not intend to be bound at all; the latter, when the parties conceal their true
agreement. The former is null and void, while the latter is binding to the parties if it does not
prejudice a third person and is not intended for any purpose contrary to law, morals, good
customs, public order or public policy.

Petitioner cannot correctly claim that there was no consideration for the contracts of sale and
lease only because the amount of the annual installments of the purchase price dovetails with
the rate of rentals stipulated in the lease contract. Elizalde’s continued occupancy of the
premises even after she sold it to Parex constitutes valuable consideration which she received
as compensation for the sale. The contract is valid and binding upon the parties.

Dr. Lorna Formaran vs. Dr. Glenda Ong and Solomon Ong
G.R. No. 186264, July 8, 2013

FACTS:

According to plaintiff, she owns the parcel of land which was donated to her inter vivos by her
uncle and aunt, spouses Melquiades Barraca and Praxedes Casidsid. That upon the proddings
and representation of defendant Glenda, that she badly needed a collateral for a loan which she
was applying from a bank to equip her dental clinic, plaintiff made it appear that she sold one-
half of the parcel of land to the defendant Glenda; that the sale was totally without any
consideration and fictitious; that contrary to plaintiff’s agreement with defendant Glenda for the
latter to return the land, defendantGlenda filed a case for unlawful detainer against the plaintiff.

Defendant Glenda insisted on her ownership over the land in question on account of a Deed of
Absolute Sale executed by the plaintiff in her favor. Petitioner filed an action for annulment of
the Deed of Sale against respondents before the Regional Trial Court. The trial court rendered a
Decision in favor of petitioner and against the respondent by declaring the Deed of Absolute
Sale null and void for being an absolutely simulated contract and for want of consideration;
declaring the petitioner as the lawful owner entitled to the possession of the land in question.

Respondents appeal to the CA. The CA reversed and set aside the Decision of the trial court
and ordered petitioner to vacate the land in question and restore the same to respondents.

ISSUE: Whether or not the Deed of Absolute Sale is null and void for being an absolutely
simulated contract?
RULING: Yes. The Court believes and so holds that the subject Deed of Sale is indeed
simulated, as it is: (1) totally devoid of consideration; (2) it was executed on August 12, 1967,
less than two months from the time the subject land was donated to petitioner on June 25,1967
by no less than the parents of respondent Glenda Ong; (3) on May 18, 1978, petitioner
mortgaged the land to the Aklan Development Bank for a ₱23,000.00 loan; (4) from the time of
the alleged sale, petitioner has been in actual possession of the subjectland; (5) the alleged sale
was registered on May 25, 1991 or about twenty four (24) years after execution; (6) respondent
Glenda Ong never introduced any improvement on the subject land; and (7) petitioner’s house
stood on a part of the subject land.
These are facts and circumstances which may be considered badges of bad faith that tip the
balance in favor of petitioner.The amplitude of foregoing undisputed facts and circumstances
clearly shows that the sale of the land in question was purely simulated. It is void from the very
beginning. If the sale was legitimate, defendant Glenda should have immediately taken
possession of the land, declared in her name for taxation purposes, registered the sale, paid
realty taxes,introduced improvements therein and should not have allowed plaintiff to mortgage
the land. These omissions properly militate against defendant Glenda’s submission that the sale
was legitimate and the consideration was paid.

Maria Gervacio Blas v. Rosalina Santos

G.R. No. L-14070 March 29, 1961

FACTS:

Lazaro died in 1950, and is survived by three legitimate children who are plaintiffs herein,
namely, Manuel Gervacio Blas, Leoncio Gervacio Blas and Loida Gervacio Blas. Marta Cruz
died in 1898, and the following year, Simeon Blas contracted a second marriage with Maxima
Santos. At the time of this second marriage, no liquidation of the properties required by Simeon
Blas and Marta Cruz was made. Three of the properties left are fishponds located in Obando,
Bulacan. Maxima Santos does not appear to have apported properties to her marriage with
Simeon Blas.

On December 26, 1936, only over a week before his death on January 9, 1937, Simeon Blas
executed a last will and testament. In the said testament Simeon Blas gave to Maxima Santos
de Blas one half of all her properties. MAXIMA SANTOS DE BLAS on the other hand made a
document giving one half of all her inheritance to the children of maximo in the first marriage,
labelled as exhibit “A”. The court below held that said Exhibit “A” has not created any right in
favor of plaintiffs which can serve as basis for the complaint; that neither can it be considered as
a valid and enforceable contract for lack of consideration and because it deals with future
inheritance. The court also declared that Exhibit “A” is not a will because it does not comply with
the requisites for the execution of a will; nor could it be considered as a donation, etc. Both the
court below in its decision and the appellees in their brief, argue that the heirs of Simeon Blas
and his wife Marta Cruz can no longer make any claim for the unliquidated conjugal properties
acquired during said first marriage, because the same were already included in the mass of
properties constituting the estate of the deceased Simeon Blas and in the adjudications made
by virtue of his will, and that the action to recover the same has prescribed.

ISSUE: Is exhibit “A” a contract involving future inheritance, hence should be declared void?

RULING: No. Exhibit “A” is not a contract on future inheritance. it is an obligation or promise
made by the maker to transmit one-half of her share in the conjugal properties acquired with her
husband, which properties are stated or declared to be conjugal properties in the will of the
husband. The conjugal properties were in existence at the time of the execution of Exhibit “A” on
December 26, 1936. As a matter of fact, Maxima Santos included these properties in her
inventory of her husband’s estate of June 2, 1937. The promise does not refer to any properties
that the maker would inherit upon the death of her husband, because it is her share in the
conjugal assets. That the kind of agreement or promise contained in Exhibit “A” is not void
under Article 1271 of the old Civil Code, has been decided by the Supreme Court of Spain in its
decision of October 8, 19154, thus: It will be noted that what is prohibited to be the subject
matter of a contract under Article 1271 of the Civil Code is “future inheritance.” To us future
inheritance is any property or right not in existence or capable of determination at the time of the
contract, that a person may in the future acquire by succession. The properties subject of the
contract Exhibit “A” are well defined properties, existing at the time of the agreement, which
Simeon Blas declares in his statement as belonging to his wife as her share in the conjugal
partnership. Certainly his wife’s actual share in the conjugal properties may not be considered
as future inheritance because they were actually in existence at the time Exhibit “A” was
executed.

J.L.T. Agro, Inc. v. Balansag and Cadayday

G.R. No. 141882, 11 March 2005

FACTS:

Don Julian contracted two marriages. He had two children with the first wife Antonia and 4
children with the second wife Milagros. The present controversy involves a parcel of land which
was originally registered in the name of Don Julian and Antonia. Don Julian married Milagros
without partitioning the properties in his first marriage. To avoid conflict, the parties entered into
a Compromise Agreement which embodied the partition of all the properties of Don Julian. The
above parcel of land was included to be the share of Milagros and her children. Milagros took
possession of the said property which was subsequently sold to respondents herein.
Respondents, upon registering the said land discovers that the title to the above land was on
the name of Petitioner herein.

Don Julian after the execution of the Compromise Agreement executed a Deed of Assignment
of Assets with Assumption of Liabilities to petitioner which transfers the ownership of the subject
land in favor to the petitioner. Don Julian died intestate.
ISSUE: Whether or not a future legitime can be determined, adjudicated and reserved prior to
the death of the testator.

RULING: Yes. Well-entrenched is the rule that all things, even future ones, which are not
outside the commerce of man may be the object of a contract. The exception is that no contract
may be entered into with respect to future inheritance, and the exception to the exception is the
partition inter vivos referred to in Article 1080 which states that: “Should a person make a
partition of his estate by an act inter vivos, or by will, such partition shall be respected, insofar
as it does not prejudice the legitime of the compulsory heirs.”

The partition will, of course, be effective only after death. It does not necessarily require the
formalities of a will for after all, it is not the partition that is the mode of acquiring ownership.
Neither will the formalities of a donation be required since donation will not be the mode of
acquiring the ownership here after death; since no will has been made it follows that the mode
will be succession (intestate succession). Besides, the partition here is merely the physical
determination of the part to be given to each heir.
The partition inter vivos of the properties of Don Julian is undoubtedly valid pursuant to Article
1347. However, considering that it would become legally operative only upon the death of Don
Julian, the right of his heirs from the second marriage to the properties adjudicated to him under
the compromise agreement was but a mere expectancy. It was a bare hope of succession to the
property of their father. Being the prospect of a future acquisition, the interest by its nature was
inchoate. It had no attribute of property, and the interest to which it related was at the time
nonexistent and might never exist.

Evidently, at the time of the execution of the deed of assignment covering Lot No. 63 in favor of
petitioner, Don Julian remained the owner of the property since ownership over the subject lot
would only pass to his heirs from the second marriage at the time of his death. Thus, as the
owner of the subject lot, Don Julian retained the absolute right to dispose of it during his lifetime.
His right cannot be challenged by Milagros Donio and her children on the ground that it had
already been adjudicated to them by virtue of the compromise agreement. However, it was
proven that there was no evidence showing the acceptance by the petitioner as the donee.
Such acceptance will never be presumed being Don Julian as the Majority stockholder of such
Corporation.

LAND BANK OF THE PHILIPPINES VS EDUARDO M. CACAYURAN

G.R. No. 191667, April 17, 2013

FACTS:

Municipality of Agoo entered into 2 loans with LBP in order to finance a Redevelopment Plan of
the Agoo Public Plaza. The Sangguniang Bayan of the Municipality authorized the Mayor
Eriguel to enter into a P4M loan with LBP for the Public Plaza and again for the amount of P28M
to construct a commercial center. The Municipality used as collateral a 2,323.75 sqm lot at the
south-eastern portion of the Plaza. Cacayuran and other residents opposed the redevelopment
of the Plaza as well as the means of the funding. They claim that these are highly irregular,
violative of the law, and detrimental to public interest resulting in the desecration of the public
plaza. Cacayuran’s request for the documents relating to the plaza’s redevelopment was not
granted. Cacayuran invokes his taxpayer right and files a complaint against LBP and officers of
the municipality but does not include the municipality itself as party-defendant. He questioned
the validity of the loan agreements and prays that the redevelopment is enjoined.

LBP asserted that Cacayuran did not have any cause of action because he was not privy to the
loan agreements. RTC held the Subject loans are null and void. Resolutions approving the loan
were passed irregularly and are thus ultra vires. Plaza lot is property for public use and not valid
as collateral.

CA affirmed RTC with modification. Cacayuran has locus standi as resident and the issue is of
transcendental importance to public interest.

ISSUE: WON the Municipality of Agoo should be deemed an indispensable party to the case.

RULING: YES, it is an indispensable party under Sec 7, Rule 3 which mandates that all
indispensable parties are to be joined in a suit as it is the party whose interest will be affected by
the court’s action and without whom no final determination of the case can be had. His legal
presence is an absolute necessity. Absence of the indispensable party renders all subsequent
actions of the court null and void for want of authority to act.

Failure to implead any indispensable party is not a ground for the dismissal of the complaint.
The proper remedy is to implead them. In this case, Cacayuran failed to implead the
Municipality, a real party in interest and an indispensable party that stands to be directly
affected by any judicial resolution. It is the contracting party and the owner of the public plaza. It
stands to be benefited or injured by the judgment of the case.

Liguez v. CA
G.R. No. L-11240, 18 December 1957

FACTS:

Conchita Liguez filed a complaint against the widow and heirs of Salvador Lopez to recover a
parcel of 51.84 hectares of land in Davao. She averred to be its legal owner, pursuant to a deed
of donation executed in her favor by Salvador. At the time the deed was executed, Conchita
was 16. She had also been living with Salvador’s parents for barely a month. The deed of
donation recites that the donor Salvador, “for and in consideration of his love and affection” for
Conchita, and “also for the good and valuable services rendered to [Salvador] by [Conchita],
does by these presents, voluntarily give, grant and donate…”

The donation was made in view of Salvador’s desire to have sexual relations with Conchita.
Furthermore, Conchita’s parents would not allow Conchita to live with him unless he first
donated the subject land. The donated land originally belonged to the conjugal partnership of
Salvador and his wife, Maria Ngo. The deed of donation was inoperative, and null and void
because: (a) Lopez had no right to donate conjugal property to Conchita; and (b) the donation
was tainted with illegal causa or consideration.

ISSUE: Whether or not the conveyance was predicated on illegal causa.

RULING: Yes. Conchita Liguez entitled to so much of the donated property as may be found,
upon proper liquidation, not to prejudice the share of the widow Maria Ngo in the conjugal
partnership or the legitimes of Salvador’s forced heirs. Under the cited Art. 1274, liberality of the
donor is deemed causa only in contracts that are of “pure” beneficence, or contracts designed
solely and exclusively to procure the welfare of the beneficiary, without any intent of producing
any satisfaction for the donor.

In this case, Salvador was not moved exclusively by the desire to benefit Conchita, but also to
secure her cohabiting with him, and so that he could gratify his sexual impulses. This is clear
from Salvador’s confession to two witnesses that he was in love with her but her parents would
not agree unless he donated the land in question to her. Actually, therefore, the donation was
but one part of an onerous transaction (at least with Conchita’s parents) that must be viewed in
its totality. Thus considered, the conveyance was clearly predicated upon an illicit causa. Lopez
would not have conveyed the property in question had he known that Conchita would refuse to
cohabit with him. The cohabitation was an implied condition to the donation and being unlawful,
necessarily tainted the donation.

Moreover, the CA erred in applying the pari delicto rule. It cannot be said that both parties had
equal guilt. Salvador was a man advanced in years and mature experience, and Conchita was
only 16 when the donation was made. Her acceptance of the deed does not imply knowledge of
conditions and terms not set forth therein. Witnesses testified that it was Conchita’s parents who
insisted on the donation. The rule that parties to an illegal contract, if equally guilty, will not be
aided by the law but will both be left where it finds them, has been interpreted by this Court as
barring the party from pleading the illegality of the bargain either as a cause of action or as a
defense. But where the plaintiff can establish a cause of action without exposing its illegality, the
vice does not affect the right to recover.

Carantes v CA
76 SCRA 514

FACTS:

Mateo Carantes was the original owner of a certain parcel of land. When he died, he was
survived by his wife and six children. Subsequently, the parcel of land was subjected for
expropriation, and was later on indeed expropriated. A deed denominated as Assignment of
Right of Inheritance was executed by four of Mateo’s children assigning Maximo Carantes their
rights to inheritance over the lot. Maximo then sold the remaining lots to the government and
also registered on Mar. 16, 1940 the deed of Assignment of Right to Inheritance. The still
remaining lot was issued in the name of Maximo. A complaint was filed against Maximo alleging
that the deed be annulled on the ground of fraud. The trial court rendered a decision stating that
plaintiff’s right of action has prescribed. The CA reversed the decision.

ISSUE: WON plaintiff’s right of action has prescribed.

RULING: The present action, being one to annul the contract on the ground of fraud, its
prescriptive period is four years from the time of the discovery of the fraud. The weight of
authorities is to effect that the registration of an instrument in the Office of the Register of Deeds
constitutes constructive notice to the whole world, and therefore, discovery of the fraud is
deemed to have taken place at the time of the registration. In this case the deed of assignment
was registered on Mar. 16, 1940. The four year period within which the private respondents
could have filed the present action consequently commenced on Mar. 16, 1940; and since they
filed it only on Sept. 4, 1958, it follows that the same is barred by the statute of limitations.

Spouses Buenaventura v. Court of Appeals

G.R. No. 126376. November 20, 2003

FACTS:

Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of plaintiffs
Consolacion, Nora, Emma and Natividad as well as of defendants Fidel, Tomas, Artemio,
Clarita, Felicitas, Fe, and Gavino, all surnamed JOAQUIN. The married Joaquin children are
joined in this action by their respective spouses. Sought to be declared null and void ab initio
are certain deeds of sale covering 6 parcels of land executed by defendant parents Leonardo
Joaquin and Feliciana Landrito in favor of their co-defendant children and the corresponding
certificates of title issued in their names. In seeking the declaration of nullity of the aforesaid
deeds of sale and certificates of title, plaintiffs, in their complaint, aver that the purported sale of
the properties in litis was the result of a deliberate conspiracy designed to unjustly deprive the
rest of the compulsory heirs (plaintiffs herein) of their legitime.

ISSUE: Whether Petitioners have a legal interest over the properties subject of the Deeds of
Sale.

RULING: Petitioners do not have any legal interest over the properties subject of the Deeds of
Sale. As the appellate court stated, petitioners’ right to their parents’ properties is merely
inchoate and vests only upon their parents’ death. While still living, the parents of petitioners are
free to dispose of their properties. In their overzealousness to safeguard their future legitime,
petitioners forget that theoretically, the sale of the lots to their siblings does not affect the value
of their parents’ estate. While the sale of the lots reduced the estate, cash of equivalent value
replaced the lots taken from the estate.

Dauden-Hernaez v. De los Angeles

G.R. No. L-27010, 30 April 1969

FACTS:

Petitioner, an actress, filed a complaint against Hollywood Far East Productions to recover fees
for her services as leading actress in two motion pictures produced by the company.
Respondent judge, De los Angeles ordered the complaint dismissed grounded on the reason
that the “claim of plaintiff was not evidenced by any written document, either public or private”.
That according to Article 1358 governing unenforceable contracts, writing was absolute and
indispensable, because the amount involved exceeds five hundred pesos.

ISSUE: WON said contract must be in writing to be valid and enforceable.

RULING: No. The aforementioned contract needs not to be in writing.

Article 1315 of the Civil Code provides that: “Contracts are perfected by mere consent, and from
that moment the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature, may be in keeping
with good faith, usage and law.”. Furthermore Article 1356 of the same book provides that:
“Contracts shall be obligatory in whatever form they may have been entered into, provided all
the essential requisites for their validity are present….” Exemptions to the general rule are
solemn contracts (needs to be in writing to be valid) and memorandums (governed by Article
1402(2) of the Statute of Frauds).

In the matter of formalities, the contractual system of our Civil Code still follows the upholding of
the spirit and intent of the parties over formalities: hence, in general, contracts are valid and
binding from their perfection regardless of form whether they be oral or written. Petition is with
merit and case remanded to lower court for fee determination.

Cenido v. Sps. Amadeo

G.R. No. 132474, 19 November 1999

FACTS:

On its face, the document Pagpapatunay attests to the fact that Bonifacio Aparato was the
owner of the house and lot in Layunan, Rizal; that because the Apacionado spouses took care
of him until the time of his death, Bonifacio sold said property to them for the sum of
P10,000.00; that he was signing the same document with a clear mind and with full knowledge
of its contents; and as proof thereof, he was affixing his signature on said document on the tenth
day of December 1981 in Layunan, Binangonan, Rizal. Bonifacio affixed his thumb mark on the
space above his name; and this was witnessed by Virgilio O. Cenido and Carlos Inabayan.

Petitioner Cenido disputes the authenticity and validity of the Pagpapatunay. He claims that it is
not a valid contract of sale and its genuineness is highly doubtful because: (1) it was not
notarized and is merely a private instrument; (2) it was not signed by the vendor, Bonifacio; (3) it
was improbable for Bonifacio to have executed the document and dictated the words lumagda
ako ng aking pangalan at apelyido because he was paralyzed and could no longer sign his
name at that time; and (4) the phrase ang nag-alaga sa akin hanggang sa ako’y tuluyang kunin
ng Dakilang Maykapal speaks of an already departed Bonifacio and could have been made only
by persons other than the dead man himself.

ISSUES:
Is the contract of sale valid?

Is the conveyance also valid despite the fact that the contract of sale is merely a private
document?

RULING:

To determine whether the Pagpapatunay is a valid contract of sale, it must contain the essential
requisites of contracts, viz: (1) consent of the contracting parties; (2) object certain which is the
subject matter of the contract; and (3) cause of the obligation which is established. The object of
the Pagpapatunay is the house and lot. The consideration is P10,000.00 for the services
rendered to Aparato by respondent spouses. Neither has petitioner claimed, at the very least,
that the consent of Bonifacio to the contract was vitiated by mistake, violence, intimidation,
undue influence or fraud…. There must be clear and convincing evidence of what specific acts
of undue influence or fraud were employed by respondent spouses that gave rise to said
defects. Absent such proof, Bonifacio’s presumed consent to the Pagpapatunay remains.

The Pagpapatunay, therefore, contains all the essential requisites of a contract. Its authenticity
and due execution have not been disproved either.

The Pagpapatunay is indisputably a private document. And this fact does not detract from its
validity. The Civil Code, in Article 1356 provides:

Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into,
provided all the essential requisites for their validity are present. However, when the law
requires that a contract be in some form in order that it may be valid or enforceable or that a
contract be proved in a certain way, that requirement is absolute and indispensable. In such
cases, the right of the parties stated in the following article cannot be exercised.

Generally, contracts are obligatory, in whatever form such contracts may have been entered
into, provided all the essential requisites for their validity are present. When, however, the law
requires that a contract be in some form for it to be valid or enforceable, that requirement must
be complied with.
Formalities intended for greater efficacy or convenience or to bind third persons, if not done,
would not adversely affect the validity or enforceability of the contract between the contracting
parties themselves.

Art. 1358. The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property; sales of real property or of an interest
therein are governed by Articles 1403, No. 2 and 1405;

Art. 1403. The following contracts are unenforceable unless they are ratified:

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing, and subscribed and by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:

(e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;

The sale of real property should be in writing and subscribed by the party charged for it to be
enforceable. The Pagpapatunay is in writing and subscribed by Bonifacio Aparato, the vendor;
hence, it is enforceable under the Statute of Frauds. Not having been subscribed and sworn to
before a notary public, however, the Pagpapatunay is not a public document, and therefore
does not comply with Article 1358, paragraph 1 of the Civil Code.

The requirement of a public document in Article 1358 is not for the validity of the instrument but
for its efficacy. Although a conveyance of land is not made in a public document, it does not
affect the validity of such conveyance. Article 1358 does not require the accomplishment of the
acts or contracts in a public instrument in order to validate the act or contract but only to ensure
its efficacy so that after the existence of said contract has been admitted, the party bound may
be compelled to execute the proper document. This is clear from Article 1357, viz:

Art. 1357. If the law requires a document or other special form, as in the acts and contracts
enumerated in the following article [Article 1358], the contracting parties may compel each other
to observe that form, once the contract has been perfected. This right may be exercised
simultaneously with the action upon the contract.

The private conveyance of the house and lot is therefore valid between Bonifacio Aparato and
respondent spouses. The question of whether the Pagpapatunay is sufficient to transfer and
convey title to the land for purposes of original registration or the issuance of a real estate tax
declaration in respondent spouses’ names, as prayed for by respondent spouses, is another
matter altogether. For greater efficacy of the contract, convenience of the parties and to bind
third persons, respondent spouses have the right to compel the vendor or his heirs to execute
the necessary document to properly convey the property.

RESUENA v. CA
G.R. No. 128338. March 28, 2005

FACTS:

Juanito Borromeo, Sr. (respondent), is the co-owner and overseer of certain parcels of land
located in Talisay, Cebu and owns six-eighths (6/8) of Lot No. 2587 while the late spouses
Bascon own two-eights (2/8) thereof. Lot No. 2592 is owned in common by respondent and the
heirs of one Nicolas Maneja. However, the proportion of their undivided shares was not
determined by a quo.

Initially, petitioners Tining Resuena, Alejandra Garay, Lorna Resuena, Eleuterio Resuena, and
Unisima Resuena resided in the upper portion of Lot No. 2587, allegedly under the
acquiescence of the Spouses Bascon and their heir, Andres Bascon.

While petitioner Eutiquia Rosario occupied a portion of Lot No. 2592, allegedly with the
permission of the heirs of Nicolas Maneja, one of the original co-owners of Lot No. 2587.
Respondent claims that all petitioners have occupied portions of the subject property by virtue of
his own liberality.

Respondent developed portions of Lots Nos. 2587 and 2592 occupied by him into a resort. In
his desire to expand and extend the facilities of the resort that he established on the subject
properties, respondent demanded that petitioners vacate the property. Petitioners, however,
refused to vacate their homes.

Respondent filed a Complaint for ejectment with the MTC against the petitioners. The MTC
ruled that respondent did not have a preferential right of possession over the portions occupied
by petitioners, since Lots Nos. 2587 and 2592 were not yet partitioned nor the disputed portions
assigned to respondent as his determinate share. Thus, the MTC held that respondent had no
right to evict petitioners therefrom.

On appeal, the RTC reversed the Decision of the MTC. It held that Article 487 of the Civil Code,
which allows any one of the co-owners to bring an action in ejectment, may successfully be
invoked by the respondent because, in a sense, a co-owner is the owner and possessor of the
whole, and that the suit for ejectment is deemed to be instituted for the benefit of all co-owners

The Court of Appeals affirmed the Decision of the RTC.

ISSUE: Whether or not respondent is estopped in filing this ejectment case against petitioners.

RULING: The petition cannot prosper.

Article 487 of the Civil Code, which provides simply that [a]ny one of the co-owners may bring
an action in ejectment, is a categorical and an unqualified authority in favor of respondent to
evict petitioners from the portions of Lot. No. 2587.

This provision is a departure from Palarca v. Baguisi, which held that an action for ejectment
must be brought by all the co-owners. Thus, a co-owner may bring an action to exercise and
protect the rights of all. When the action is brought by one co-owner for the benefit of all, a
favorable decision will benefit them; but an adverse decision cannot prejudice their rights.

Respondents' action for ejectment against petitioners is deemed to be instituted for the benefit
of all co-owners of the property since petitioners were not able to prove that they are authorized
to occupy the same.

Petitioners lack of authority to occupy the properties, coupled with respondent’s right under
Article 487, clearly settles respondent’s prerogative to eject petitioners from Lot No. 2587. Time
and again, this Court has ruled that persons who occupy the land of another at the latter’s
tolerance or permission, without any contract between them, are necessarily bound by an
implied promise that they will vacate the same upon demand, failing in which a summary action
for ejectment is the proper remedy against them.

Thus, in order that the petition may acquire any whiff of merit, petitioners are obliged to
establish a legal basis for their continued occupancy of the properties. The mere tolerance of
one of the co-owners, assuming that there was such, does not suffice to establish such right.
Tolerance in itself does not bear any legal fruit, and it can easily be supplanted by a sudden
change of heart on the part of the owner. Petitioners have not adduced any convincing evidence
that they have somehow become successors-in-interest of the Spouses Bascon, or any of the
owners of Lot No. 2587

The lower courts have made a common factual finding that petitioners are occupying portions of
Lots No. 2587 and 2592 by mere tolerance. Thus, petitioners have no right to get reimbursed for
the expenses they incurred in erecting their houses thereon.

Norma M. Diampoc V. Jessie Buenaventura

G.R. No. 200383, March 19, 2018

FACTS:

Norma M. Diampoc and her husband Wilbur L. Diampoc filed a Complaint for annulment of
deed of sale and recovery of duplicate original copy of title against Jessie Buenaventuraand the
Registry of Deeds for the Province of Rizal. The Diampocs alleged that they owned a 174-
square meter parcel of land in Signal Village, Taguig City. They acceded to Buenaventura’s
request to borrow the owner's copy of the land title to be used as security for a P1 million bank
loan the latter wished to secure. This is on the condition thatBuenaventura should not sell the
subject property. Buenaventura also promised to give them P300,000.00 out of the P1 million
loan proceeds. Buenaventura caused them to sign a folded document without giving them the
opportunity to read its contents, and failed to give them a copy of the document. They added
that at the time they signed the same, it was "dark".

The Diampocs discovered later that Buenaventura became the owner of a one-half portion of
the subject property by virtue of a supposed deed of sale in her favor. They then proceeded to
the notary public who notarized the said purported deed of sale, and discovered that the portion
was purportedly sold to Buenaventura for P200,000.00. TheDiampocs prayed that the purported
deed of sale be annulled on the grounds thatBuenaventura deceived them into signing the
subject document, and that the deed of sale suffers from defects relative to its notarization,
which thus render the deed ineffective, if not null and void. They claim that the deed was not
signed by the parties before the notary public, and was notarized in their absence.

ISSUES:

1. Whether or not absence of notarization of the deed of sale would invalidate the contract
2. Whether or not the attendant circumstances during the signing of the document would relieve
the petitioners from the obligation

RULING:

1. No, the absence of notarization of the deed of sale would not invalidate the transaction
evidenced therein. It merely reduces the evidentiary value of a document to that of a private
document, which requires proof of its due execution and authenticity to be admissible as
evidence. A defective notarization will strip the document of its public character and reduce itto
a private instrument. Consequently, when there is a defect in the notarization of a document, the
clear and convincing evidentiary standard normally attached to a duly-notarized document is
dispensed with, and the measure to test the validity of such document is preponderance of
evidence.

2. No, the circumstances did not prevent the Diampocs from discovering the true nature of the
document. Being high school graduates and thus literate, they were not completely precluded
from reading the contents thereof, as they should have done if they were prudent enough.
Petitioner's excuses are therefore flimsy and specious. It is also a well-settled principle that the
law will not relieve parties from the effects of an unwise, foolish or disastrous agreement they
entered into with all the required formalities and with full awareness of what they were
doing.Courts have no power to relieve them from obligations they voluntarily assumed, simply
because their contracts turn out to be disastrous deals or unwise investments. Neither the law
nor the courts will extricate them from an unwise or undesirable contract which they entered into
with all the required formalities and with full knowledge of its consequences.

Bentir v. Leande
G.R. No. 128991, 12 April 2000
FACTS:

Respondent Leyte Gulf Traders, Inc. filed a complaint about a reformation of an instrument,
specific performance, annulment of conditional sale and damages with prayer for a writ of
injunction against petitioners Yolanda Rosello-Bentir and the spouses Samuel and Charito
Pormida.

Respondent corporation alleged that it entered into a contract of lease of a parcel of land with
petitioner Bentir for a period of twenty (20) years starting May 5, 1968. According to respondent
corporation, the lease was extended for another four (4) years or until May 31, 1992. On May 5,
1989, petitioner Bentir sold the leased premises to petitioner spouses Samuel Pormada and
Charito Pormada. Respondent corporation questioned the sale alleging that it had a right of first
refusal. It filed civil case seeking the reformation of the expired contract of lease on the ground
that its lawyer inadvertently omitted to incorporate in the contract of lease executed in 1968, the
verbal agreement or understanding between the parties that in the event petitioner Bentir leases
or sells the lot after the expiration of the lease, respondent corporation has the right to equal the
highest offer.

Petitioners filed their answer alleging that the inadvertence of the lawyer who prepared the
lease contract is not a ground for reformation. They further contended that respondent
corporation is guilty of laches for not bringing the case for reformation of the lease contract
within the prescriptive period of ten (10) years from its execution.

ISSUE: Whether or Not the action for reformation has not yet prescribed.

RULING:

No. The Action for Reformation has prescribed. Prescription is intended to suppress fraudulent
claims arising from transactions like the facts had become so obscure from the lapse of time or
defective memory. Our law and jurisprudence set such limitations, among which is laches. A suit
for reformation of an instrument may be barred by lapse of time. The prescriptive period for
actions based upon a written contract and for reformation of an instrument is ten (10) years
under Article 1144 of the Civil Code. Respondent corporation had ten (10) years from 1968, the
time when the contract of lease was executed, to file an action for reformation. Sadly, it did so
only on May 15, 1992 or twenty-four (24) years after the cause of action accrued, hence, its
cause of action has become stale, hence, time-barred.

Sarming, et. al. v. Cresencio Dy, et. al.

G.R. No. 133643, 6 June 2002

FACTS:
In this case a certain Silveria Flores sold her lot to Alejandra Delfino, now were all represented
by their successors-in-interest. The petitioner wanted for the reformation of the contract of sale
entered between Silveria and Delfino because of the mistake in the lot number in the contract.
Silveria and Delfino inquired from the Registry of Deeds about the status of the lot, finding that
the lot was still on file. Alejandra paid all the necessary expenses and the title was given to
Silveria however despite repeated demand Silveria failed to give the title to Delfino.

ISSUE:

Whether or not there is a cause of action for reformation of instrument against Silveria Flores.

RULING:

Yes. Reformation is that remedy in equity by means of which a written instrument is made or
construed so as to express or conform to the real intention of the parties.

Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true
intention is not expressed in the instrument purporting to embody the agreement by reason of
mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of
the instrument to the end that such true intention may be expressed.

If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the
parties, the proper remedy is not reformation of the instrument but annulment of the contract.

An action for reformation of instrument under this provision of law may prosper only upon the
concurrence of the following requisites: (1) there must have been a meeting of the minds of the
parties to the contact; (2) the instrument does not express the true intention of the parties; and
(3) the failure of the instrument to express the true intention of the parties is due to mistake,
fraud, inequitable conduct or accident.

All of these requisites, in our view, are present in this case. There was a meeting of the minds
between the parties to the contract but the deed did not express the true intention of the parties
due to mistake in the designation of the lot subject of the deed. There is no dispute as to the
intention of the parties to sell the land to Alejandra Delfino but there was a mistake as to the
designation of the lot intended to be sold as stated in the Settlement of Estate and Sale.

Borromeo v. CA
G.R. No. 133643, 6 June 2002

FACTS:

Villamor was the distributor of lumber belonging to Mr. Miller and the plaintiff Borromeo being
Villamor’s friend and former classmate borrowed a large sum of money for which he mortgaged
his property as a security because of his obligation to Mr. Miller. Miller then filed a civil action
against Villamor and attached his properties including the mortgaged property to the plaintiff.
Plaintiff then pressed the defendant to settle his obligation, but the defendant however offered to
execute a document promising the plaintiff to pay his debt even after the lapse of 10 years.
Defendant then signed a promissory note to pay his debt and with 12% interest per annum.
Despite repeated demands from plaintiff, defendant still failed to settle his debt.

Plaintiff did not file any complaint against the defendant within ten years from the execution of
the document as there was no property registered in defendant’s name, who furthermore
assured him that he could collect even after the lapse of ten years. After the last war, plaintiff
made various oral demands, but defendants failed to settle his account, — hence the present
complaint for collection.

ISSUE: Whether or not the CA was correct in their interpretation.

RULING:

It is a fundamental principle in the interpretation of contracts that while ordinarily the literal
sense of the words employed is to be followed, such is not the case where they “appear to be
contrary to the evident intention of the contracting parties,” which “intention shall prevail.
However, the above decision, had occasion to reiterate, under the view that such features of the
obligation are added to it and do not go to its essence, a criterion based upon the stability of
juridical relations should tend to consider the nullity as confined to the clause or pact suffering
therefrom, except in cases where the latter, by an established connection or by manifest
intention of the parties, is inseparable from the principal obligation, and is a condition, juridically
speaking, of that the nullity of which it would also occasion.’ The rule is that a lawful promise
made for a lawful consideration is not invalid merely because an unlawful promise was made at
the same time and for the same consideration, and this rule applies, although the invalidity is
due to violation of a statutory provision, unless the statute expressly or necessary implication
declares the entire contract void.

Kasilag v. Rodriguez
G.R. No. 46623, 7 December 1939

FACTS:

This is an appeal taken by the defendant-petitioner (Kasilag) from the decision of the Court of
Appeals which modified that rendered by the court of First Instance of Bataan. The said court
held: that the contract is entirely null and void and without effect; that the plaintiffs-respondents
(Rodriguez, et.al.), then appellants, are the owners of the disputed land, with its improvements,
in common ownership with their brother Gavino Rodriguez, hence, they are entitled to the
possession thereof; that the defendant-petitioner should yield possession of the land in their
favor, with all the improvements thereon and free from any lien.
The parties entered into a contract of loan to which has an accompanying accessory contract of
mortgage. The executed accessory contract involved the improvements on a piece land, the
land having been acquired by means of homestead. Petitioner for his part accepted the contract
of mortgage.

Believing that there are no violations to the prohibitions in the alienation of lands Petitioner,
acting in good faith took possession of the land. To wit, the Petitioner has no knowledge that the
enjoyment of the fruits of the land is an element of the credit transaction of Antichresis.

ISSUE: Whether the petitioner should be deemed a possessor in good faith?

RULING:

When the acquisition appears in a public document, the capacity of the parties has already
passed upon by competent authority, and even established by appeals taken from final
judgments and administrative remedies against the qualification of registrars, and the possibility
of error is remote under such circumstances; but unfortunately, private documents and even
verbal agreements far exceed public documents in number, while no one should be ignorant of
the law, the truth is that even we who are called upon to know and apply it fall into error not
infrequently. However, a clear, manifest, and truly inexcusable ignorance is one thing, to which
undoubtedly refers article 2, and another and different this is possible and excusable errors
arising from complex legal principles and from the interpretation of conflicting doctrines

Even ignorance of the law may be based upon error of fact, or better still, ignorance of a fact is
possible as to the capacity to transmit and as to the intervention of certain persons, compliance
with certain formalities and appreciation of certain acts, and error of law is possible in the
interpretation of doubtful doctrines.

Gross and inexcusable ignorance of law may not be the basis of good faith, but possible,
excusable ignorance may be such basis. It is a fact that the petitioner is not conversant with the
laws because he is not a lawyer. In accepting the mortgage of the improvements he proceeded
on the well-grounded belief that he was not violating the prohibition regarding the alienation of
the land. In taking possession thereof and in consenting to receive its fruits, he did not know, as
clearly as a jurist does, that the possession and enjoyment of the fruits are attributes of the
contract of antichresis and that the latter, as lien, was prohibited by section 116. These
considerations again bring us to the conclusion that, as to the petitioner, his ignorance of the
provisions of section 116 is excusable and may therefore, be the basis of good faith.We do not
give much importance to the change of the tax declaration, which consisted in making the
petitioner appear as the owner of the land, because such an act may only be considered as a
sequel to the change of possession and enjoyment of the fruits by the petitioner, to about which
we have stated that the petitioner’s ignorance of the law is possible and excusable. We,
therefore, hold that the petitioner acted in good faith in taking possession of the land and
enjoying its fruits.
Santi vs. Court of Appeals
GR 93625, 227 SCRA 541

FACTS:

Esperanza Jose, a registered owner of a parcel of land, leased a portion of her property in
Cavite to spouses Eugenio Vitan and Beatriz Francisco for a period of 20 years automatically
extended for another 20 years. Spouses, in turn, sold all their rights and interest to Augusto
Reyes where a new lease contract was entered with Jose. In the interim, Jose sold all his rights
to plaintiff Vicente Santi, with a rental of 20 years extendable for another 20 years. After Reyes’
expiration of lease, plaintiff Santi wrote to Reyes’ heirs demanding recover of possession.
Defendants refused on the contention that there was automatic 20 years extension, and
tendered to plaintiff the payment which the latter refused to accept. Plaintiff filed a complaint
against Reyes which the trial court ruled in his favor. CA reversed the lower court’s decision.

ISSUE: Whether the contract of lease contained automatic extension of lease

RULING:

NO. The phrase, “automatically extended” did not appear and was not used in the lease
contract subsequently entered by Jose and Reyes since the lessor did not want to be bound by
the stipulation of automatic extension as provided in the previous contract. It clearly shows that
Jose did not intend to automatically extend the lease contract but to ponder whether to do so. If
the intention provided for an automatic extension, they could have easily provided a 40 years
contract instead to 20.

BENGUET CORPORATION V. CESAR CABILDO,

G.R. NO. 151402: August 22, 2008

FACTS:

Petitioners are all officers and employees of Benguet Corporation, a mining company with
three(3) mining sites: Balatoc, Antamok and Acupan. On the other hand, respondents are the
former employees of the company. A contract was formally signed between Cabildo and
Benguet Corporation upon negotiation with petitioners Reyes and Fider. Herein quotation was
submitted and the price schedule was discussed. It was agreed that Benguet Corporation would
provide Cabildo the needed materials for the painting of Benguet Corporation's Mill Buildings
and Bunkhouses located at Balatoc mining site including the necessary repair works thereon.To
undertake the project, Cabildo recruited and hired laborers - thirty-three (33) painters and
carpenters - including petitioner Velasco as his general foreman. Souring of relationship began
when Velasco left [Cabildo] as the latter's general foreman and went on his own as contractor,
offering his services for painting jobs at a lower price scheduled, and entering a contract with
Benguet Corporation like painting the underneath of Mill Buildings No. 702 at Balatoc Mill,
Barangay Virac, Itogon, Benguet and install the necessary scaffoldings, and another is the
contract to paint the structural steel members at the Mill crushing plant at Balatoc Mill, Barangay
Virac, Itogon, Benguet.

Such are conflicting and overlapping with Cabildo’s Contract of work with the same Corporation.
At that time [Cabildo] had already painted the top roof and three (3) sidings both interior and
exterior of Mill Building 702. Cabildo complained and protested but Reyes said the Contract of
Work of [Cabildo] covers only the painting of exterior of the Mill Buildings in Balatoc but not the
interior although the same was not expressly stated in the Contract.Cabildo filed a complaint for
damages against the petitioners and Velasco before the RTC, claiming breach by Benguet
Corporation of their Contract of Work. The RTC rendered a decision in favor of Cabildo and
found the petitioners, as well as Velasco, defendant before the RTC, jointly and severally liable
to Cabildo. CA affirmed with modification of the RTC's ruling. Petitioners now applied for Review
on certiorari assailing that the CA erred in awarding Cabildo Damages because his Contract of
Work with Benguet Corporation only covered painting of the exterior of the Mill Buildings and
Bunkhouses at the Balatoc mining site. In effect, petitioners claim that their respective contracts
with Cabildo and Velasco cover separate and different subject matters, i.e., painting of the
exterior and interior of the Mill Buildings, respectively.

Petitioners contend that there is an apparent conflict between the wording of the contract and
the actual intention of the parties on the specific object of the painting job. The Petitioners argue
that Cabildo knew of Benguet Corporation's practice to have only the exterior of buildings
painted and was, therefore, aware that the Contract of Work referred only to the exterior
painting of the Mill Buildings, excluding the interior portion thereof. Thus, the petitioners submit
that when there is a conflict as regards the interpretation of a contract,the obvious intention of
the parties must prevail.

ISSUES:
Whether or not there is breach of Contract of Work between Benguet Corporation and Cabildo

RULING:

It is crystal clear that the petitioners breached the Contract of Work with Cabildo by awarding
Velasco a contract covering the same subject matter, quite understandably, because Velasco
offered a price schedule lower than Cabildo's. The court affirmed with the uniform findings of the
lower courts that the petitioners waylaid Cabildo and prevented him from performing his
obligations under the Contract of Work. The materials for the painting work were provided by
Benguet Corporation as listed and requested by Cabildo. The petitioners had the opportunity to
disapprove Cabildo's requests for materials needed to paint the interiors of the Mill Buildings,
but they failed to do so. Records reveal an unequivocal intention to have both the exterior and
interior of the Mill Buildings painted. In the case at bench, the Contract of Work leaves no room
for equivocation or interpretation as to the exact intention of the parties. The fact that Benguet
Corporation's counsel drafted and prepared the contract. Undoubtedly, the petitioners' claimed
ambiguity in the wordings of the contract, if such an ambiguity truly exists, cannot give rise to an
interpretation favorable toBenguet Corporation.Court dismissed the petition.
STATCON
Article 1377 of the Civil Code provides: The interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the obscurity.Thus, Benguet Corporation cannot
unilaterally suspend the Contract of Work for reasons not stated therein.

Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control.This provision is similar to
the "plain meaning rule" which assumes that the intent of the parties to an instrument is
"embodied in the writing itself, and when the words are clear and unambiguous the intent is to
be discovered only from the express language of the agreement.

VICENTE VILLAFLOR vs. COURT OF APPEALS

G.R. No. 95694, October 9, 1997

FACTS:

The Petitioner bought a large tract of land containing one hundred forty (140) hectares to four
(4) different owners in 1940. The land was part of the public domain, but the petitioners
predecessor in interest over which he acquired the property, have been in open, exclusive and
notorious possession of the same for sometime. After acquisition, petitioner asserts exclusive
rights thereof for more than fifty (50) years.

In 1946, petitioner entered into a lease agreement with respondent Nasipit Lumber Co.Inc.
However, an “Agreement for the Relinquishment of Rights” was entered into by both parties in
1950. The respondent having complied all the requirements agreed upon, assumed ownership
and possession of the property since then. Respondent corporation likewise filed a sales
application in 1950 over the property to bolster his claim which the Bureau of Land otherwise
granted in the same year as proof of an “Order of Award” issued.

In 1974 or twenty four (24) years had passed, when petitioner, questioned and made several
collateral and extraneous claims against the respondent. However, the Bureau of Lands
dismissed the claim, arguing that petitioner no longer has any substantial rights to question the
validity of acquisition of the respondent and the subsequent issuance of free patent by the
Bureau of Lands. Unperturbed, petitioner filed a motion for reconsideration at the Ministry of
Natural Resources which likewise dismissed the petition.

On July 6, 1978, petitioner filed a complaint in the trial court for “Declaration of Nullity of
Contract ( Deed of Relinquishment of Rights), Recovery of Possession (of two parcels of land
subject of the contract), and Damages” at about the same time that he appealed the decision of
the Minister of Natural Resources to the Office of the President. On January 28, 1983, petitioner
died. Petitioner’s heir substituted in his behalf to pursue the claim. The trial court in Butuan City
who initially take cognizance of the case ordered the case dismissed, on the grounds that: (1)
petitioner admitted the due execution and genuineness of the contract and was estopped from
proving its nullity, (2) the verbal lease agreements were unenforceable under Article 1403 (2) (e)
of the Civil Code, and (3) his causes of action were barred by extinctive prescription and/or
laches.

The heirs appealed to the CA which likewise rendered judgment of dismissal by upholding the
lower court’s ruling.

ISSUE: Whether or not the sale is valid.

RULING:
No. The provision of the law is specific that public lands can only be acquired in the manner
provided for therein and not otherwise(Sec. 11, CA. No. 141, as amended). In his sales
application, petitioner expressly admitted that said property was public land. This is formidable
evidence as it amounts to an admission against interest. The records show that Villaflor had
applied for the purchase of lands in question with this Office (Sales Application V-807) on 2
December 1948. There is a condition in the sales application to the effect that he recognizes
that the land covered by the same is of public domain and any and all rights he may have with
respect thereto by virtue of continuous occupation and cultivation are relinquished to the
Government of which Villaflor is very much aware. It also appears that Villaflor had paid for the
publication fees appurtenant to the sale of the land. He participated in the public auction where
he was declared the successful bidder. He had fully paid the purchase price thereof. It would be
a height of absurdity for Villaflor to be buying that which is owned by him if his claim of private
ownership thereof is to be believed. The area in dispute is not the private property of the
petitioner.

It is a basic assumption of public policy that lands of whatever classification belong to the state.
Unless alienated in accordance with law, it retains its rights over the same as dominus. No
public land can be acquired by private persons without any grant, express or implied from the
government. It is indispensable then that there be showing of title from the state or any other
mode of acquisition recognized by law. Such sales applicant manifestly acknowledged that he
does not own the land and that the same is a public land under the administration of the Bureau
of Lands, to which the application was submitted, all of its acts prior thereof, including its real
estate tax declarations, characterized its possessions of the land as that of a “sales applicant”.
And consequently, as one who expects to buy it, but has not as yet done so, and is not,
therefore, its owner.

The rule on the interpretation of contracts (Article 1371) is used in affirming, not negating, their
validity. Article 1373,which is a conjunct of Article 1371, provides that, if the instrument is
susceptible of two or more interpretations, the interpretation which will make it valid and
effectual should be adopted. In this light, it is not difficult to understand that the legal basis
urged by petitioner does not support his allegation that the contracts to sell and the deed of
relinquishment are simulated and fictitious. Simulation occurs when an apparent contract is a
declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce,
for the purpose of deception, the appearance of a juridical act which does not exist or is different
from that which was really executed. Such an intention is not apparent in the agreements. The
intent to sell, on the other hand, is as clear as daylight. The fact that the agreement to sell (7
December 1948) did not absolutely transfer ownership of the land to private respondent, does
not show that the agreement was simulated. Petitioner‟s delivery of the Certificate of Ownership
and execution of the deed of absolute sale were suspensive conditions, which gave rise to a
corresponding obligation on the part of the private respondent, i.e., the payment of the last
installment of the consideration mentioned in the Agreement. Such conditions did not affect the
perfection of the contract or prove simulation Nonpayment, at most, gives the vendor only the
right to sue for collection. Generally, in a contract of sale, payment of the price is a resolutory
condition and the remedy of the seller is to exact fulfillment or, in case of a substantial breach,
to rescind the contract under Article 1191 of the Civil Code. However, failure to pay is not even
a breach, but merely an event which prevents the vendor‟s obligation to convey title from
acquiring binding force.

The requirements for a sales application under the Public Land Act are: (1) the possession of
the qualifications required by said Act (under Section 29) and (2) the lack of the disqualifications
mentioned therein (under Sections 121, 122,and 123). Section 121 of the Act pertains to
acquisitions of public land by a corporation from a grantee: The private respondent, not the
petitioner, was the direct grantee of the disputed land. Sections 122 and 123 disqualify
corporations, which are not authorized by their charter, from acquiring public land; the records
do not show that private respondent was not so authorized under its charter.

Cabahug v. NPC

FACTS:

The Spouses Cabahug are the owners of two parcels of land situated in Barangay
Capokpok,Tabango, Leyte. They were among the defendants in Special Civil Action No. 0019-
PN, a suit for expropriation earlier filed by National Power Corporation (NPC) before the RTC, in
connection with its Leyte-Cebu Interconnection Project. The suit was later dismissed when NPC
opted to settle with the landowners by paying an easement fee equivalent to 10% of value of
their property in accordance withRA 6395. It appears that the Leyte Provincial Appraisal
Committee, upon request of NPC, fixed devaluation of the affected properties at P45.00/ sq. m.
Jesus Cabahug executed two documents denominated as Right of Way Grant in favor of NPC.
For and in consideration of the easement fees in the sums of P112,225.50 and P21,375.00,
Jesus Cabahuggranted NPC a continuous easement of right of way for the latter’s
transmissions lines and their appurtenances over 2 parcels of land. By said grant, Jesus
Cabahug agreed not to construct any building or structure whatsoever, nor plant in any area
within the Right of Way that will adversely affect or obstruct the transmission line of NPC, except
agricultural crops, the growth of which will not exceed three meters high. Under paragraph 4 of
the grant, however, Jesus Cabahug reserved the option to seek additional compensation for
easement fee, based on an SC decision. (Napocor v. Gutierrez)The Spouses Cabahug filed the
complaint for the payment of just compensation, damages and attorneys fees against NPC with
the RTC. Spouses Cabahug alleged, among other matters, that in accordance with the
reservation provided under paragraph 4, for the subject properties which, based on the
valuation fixed by the Leyte Provincial Appraisal Committee, amounting to P1.2M.

NPC averred that it already paid the full easement fee mandated under Section 3-A of RA
6395(10% of market value) and that the reservation in the grant referred to additional
compensation for easement fee, not the full just compensation sought by the Spouses
Cabahug.RTC, in ruling for Sps. Cabuhag, applied the ruling handed down by this Court in
Gutierrez to the effect that NPC’s easement of right of way which indefinitely deprives the owner
of their proprietary rights over their property falls within the purview of the power of eminent
domain. The CA reversed, stating that since the spouses had already accepted the payment of
easement fee in 1996, NPC’s easement of right of way has been established as far back as
1996.

ISSUES: W/N CA erred in disregarding paragraph 4 of the Grant of Right of Way whereby
Jesus Cabahug reserved the right to seek additional compensation for easement fee?

RULING:

It is evident that the Spouses Cabahug’s receipt of the easement fee did not bar them from
seeking further compensation. Indeed, the rule is settled that a contract constitutes the law
between the parties who are bound by its stipulations, so it would not be unjust enrichment for
Cabahug to demand for further compensation. CA likewise erred in finding that the ruling in said
case does not apply to the case at bench. Concededly,the NPC was constrained to file an
expropriation complaint in Gutierrez due to the failure of the negotiations for its acquisition of an
easement of right of way for its transmission lines. In upholding the landowners' right to full just
compensation, the Court ruled that the power of eminent domain may be exercised although
title is not transferred to the expropriator in an easement of right of way.

Just compensation which should be neither more nor less than the money equivalent of the
property is,moreover, due where the nature and effect of the easement is to impose limitations
against the use of the land for an indefinite period and deprive the landowner of its ordinary use.
Where the right of way easement, as in this case, similarly involves transmission lines which not
only endangers life and limb but restricts as well the owner’s use of the land traversed thereby,
the ruling in Gutierrez remains doctrinal and should be applied. The owner should be
compensated for the monetary equivalent of the land if, as here, the easement is intended to
perpetually or indefinitely deprive the owner of his proprietary rights through the imposition of
conditions that affect the ordinary use, free enjoyment and disposal of the property or through
restrictions and limitations that are inconsistent with the exercise of the attributes of ownership,
or when the introduction of structures or objects which, by their nature,create or increase the
probability of injury, death upon or destruction of life and property found on the landis
necessary.Measured not by the taker’s gain but the owner’s loss just compensation is defined
as the full and fair equivalent of the property taken from its owner by the expropriator.
Too, the CA reversibly erredin sustaining NPC’s reliance on Section 3A of RA 6395 which states
that only 10% of the market value of the property is due to the owner of the property subject to
an easement of right of way. Any valuation for just compensation laid down in the statutes may
serve only as a guiding principle or one of the factors in determining just compensation, but it
may not substitute the court’s own judgment as to what amount should be awarded and how to
arrive at such an amount. Hence, Section 3A of R.A. No. 6395, as amended,is not binding upon
this Court.

STAR TWO (SPV-AMC), INC., V PAPER CITY CORPORATION OF THE PHILIPPINES

G.R. No. 169211, March 6, 2013

FACTS:

Respondent Paper City is a domestic corporation engaged in the manufacture of paper

products. Paper City applied for and was granted loans and credit accommodations in peso and
dollar denominations by RCBC secured by 4 Deeds of Continuing Chattel Mortgages on its
machineries and equipment found inside its paper plants.

However, a unilateral Cancellation of Deed of Continuing Chattel Mortgage on Inventory of

Merchandise/Stocks-in-Trade was executed by RCBC over the merchandise and stocks-in-
trade covered by the continuing chattel mortgages.

RCBC, Metrobank and Union Bank (creditor banks with RCBC instituted as the trustee bank)
entered into a Mortgage Trust Indenture (MTI) with Paper City. In the said MTI, Paper City
acquired an additional P170, 000,000.00 from the creditor banks in addition to the previous loan
from RCBC amounting to P110, 000,000.00.

The old loan of P110,000,000.00 was partly secured by various parcels of land situated in
Valenzuela City. The new loan obligation of P170,000,000.00 would be secured by the same
five (5) Deeds of Real Estate Mortgage and additional real and personal properties described in
an annex to MTI, Annex "B" which covered the machineries and equipment of Paper City.

This foreclosure sale prompted Paper City to file a Complaint against the creditor banks alleging
that the extra-judicial sale of the properties and plants was null and void due to lack of prior
notice and attendance of gross and evident bad faith on the part of the creditor banks.

Acting on the said motion, the trial court issued an Order denying the prayer and ruled that the
machinery and equipment were included in the annexes and form part of the MTI.

Paper City filed its Motion for Reconsideration which was favorably granted by the trial court
with justification that the disputed machineries and equipments are chattels by agreement of the
parties through their inclusion in the four Deeds of Chattel Mortgage and the deed of
cancellation executed by RCBC was not valid because it was done unilaterally and without the
consent of Paper City. The CA affirmed the Order.

ISSUE: Whether the subject machineries and equipment were included in the mortgage,
extrajudicial foreclosure and in the consequent sale.

RULING:
Yes. By contracts, all uncontested in this case, machinery and equipment are included in the
mortgage in favor of RCBC, in the foreclosure of the mortgage and in the consequent sale on
foreclosure also in favor of petitioner.

Repeatedly, the parties stipulated that the properties mortgaged by Paper City to RCBC are
various parcels of land including the buildings and existing improvements thereon as well as the
machineries and equipments, which as stated in the granting clause of the original mortgage,
are "more particularly described and listed that is to say, the real and personal properties listed
in Annexes ‘A’ and ‘B’.”

The plain language and literal interpretation of the MTIs must be applied. The petitioner, other
creditor banks and Paper City intended from the very first execution of the indentures that the
machineries and equipment enumerated in Annexes "A" and "B" are included. Obviously, with
the continued increase in the amount of the loan, totaling hundreds of millions of pesos, Paper
City had to offer all valuable properties acceptable to the creditor banks.

Stronghold Insurance Company Inc. v. Spouses Rune and Lea Stroem

G.R. No. 204869, January 21, 2015

FACTS:

Spouses Stroem entered an Owners-Contractor Agreement with Asis-Leif & Company, Inc.
(ALCI) represented by Cynthia Asis-Leif for the construction of a two-storey house on their lot.
ALCI secured a performance bond in the amount of P4.5M from Stronghold Insurance Company
(SIC) whereby the latter and ALCI bound themselves solidarily to pay the Stroem spouses the
agreed amount in the event the construction is not completed.

ALCI failed to finish the project on time despite repeated demands and the Spouses Stroem
rescinded the agreement and hired an independent appraiser to evaluate the progress of the
construction project. They later filed a complaint for breach of contract with damages against
ALCI and SIC. Only SIC was served with summons. The RTC ruled in favor of the Spouses
Stroem and ordered SIC to pay damages.

SIC argued that the RTC should have dismissed the case in view of the arbitration clause in the
agreement and that the stipulations in the Owners-Contractor Agreement are part and parcel of
the conditions in the bond issued by it. On the other hand, Spouses Stroem argued that the
Owners-Contractor Agreement is ―separate and distinct from the Bond. The parties to the
Agreement are ALCI/Ms. Asis-Leif and Spouses Stroem, while the parties to the Bond are
Spouses Stroem and Stronghold. The considerations for the two contracts are likewise distinct.
Thus, the arbitration clause in the Agreement is binding only on the parties thereto, specifically
ALCI/Ms. Asis-Leif and Spouses Stroem.

ISSUE: Whether SIC as surety can invoke that CIAC has jurisdiction over the case based on
the principal contract.

RULING:
The SC ruled that SIC cannot invoke the stipulation in the principal contract providing for
arbitration. What is at issue in this case is the parties‘ agreement, or lack thereof, to submit the
case to arbitration. Spouses Stroem argue that SIC is not a party to the arbitration agreement.
SIC did not consent to arbitration. Only Spouses Stroem and Asis-Leif may invoke the
arbitration clause in the contract.

This court has previously held that a performance bond, which is meant "to guarantee the
supply of labor, materials, tools, equipment, and necessary supervision to complete the project
is significantly and substantially connected to the construction contract and, therefore, falls
under the jurisdiction of the CIAC.

The Owners-Contractor Agreement and the performance bond referred to each other; the
performance bond was issued pursuant to the construction agreement. In enforcing a surety
contract, the complementary-contracts-construed-together‘ doctrine finds application. According
to this principle, an accessory contract must be read in its entirety and together with the
principal agreement.

The ruling in Prudential Guarantee and Assurance Inc. v. Anscor Land, Inc., (G.R. No. 177240,
September 8, 2010) to the effect that the Prudential willingly acceded to the terms of the
principal contract providing for arbitration despite the absence of a similar stipulation in the
performance bond because the construction contract breathes life into the performance bond
will not apply to the present case. In Prudential, the construction contract (principal contract)
expressly incorporated the performance bond into the principal contract. In the present case, the
Owners-Contractor Agreement between ALCI and Spouses Stroem merely stated that a
performance bond shall be issued in favor of the latter. The performance bond merely
referenced (not incorporated) the contract entered into by Spouses Stroem and ALCI, which
pertained to ALCI‘s duty to construct a two-storey residence building. To be clear, it is in the
Owners-Contractor Agreement that the arbitration clause is found. The construction agreement
was signed only by Spouses Stroem and the contractor, ALCI, as represented by Ms. Ma.
Cynthia Asis-Leif. It is basic that “contracts take effect only between the parties, their assigns
and heirs”. Not being a party to the construction agreement, SIC cannot invoke the arbitration
clause and cannot thus invoke the jurisdiction of the CIAC.

PIONEER INSURANCE and SURETY CORPORATION v. APL CO., PTE. LTD.

G.R. NO. 226345, AUGUST 2, 2017

FACTS:

Chillies Export House Limited, turned over to respondent APL Co. Pte. Ltd. (APL) 250 bags
of chili pepper for transport from the port of Chennai, India, to Manila. The shipment, with a total
declared value of $12,272.50, was loaded on board M/V Wan Hai 262. In turn, BSFIL
Technologies, Inc. (BSFIL), as consignee, insured the cargo with petitioner Pioneer Insurance
and Surety Corporation. The shipment arrived at the port of Manila and was temporarily stored
at North Harbor, Manila. Later, the bags of chili were withdrawn and delivered to BSFIL. Upon
receipt thereof, it discovered that 76 bags were wet and heavily infested with molds. The
shipment was declared unfit for human consumption and was eventually declared as a total
loss. As a result, BSFIL made a formal claim against APL and Pioneer Insurance. Pioneer
Insurance paid BSFIL ₱195,505.65 after evaluating the claim.Having been subrogated to all the
rights and cause of action of BSFIL, Pioneer Insurance sought payment from APL, but the latter
refused. This prompted Pioneer Insurance to file a complaint for sum of money against APL on
February 1, 2013.

ISSUE: Whether or not the one year prescriptive period under the Carriage of Goods by Sea
Act (COGSA) applies.

RULING:

YES, the one year prescriptive period under COGSA applies in this case. The cardinal rule in
the interpretation of contracts is embodied in the first paragraph of Article 1370 of the Civil
Code: “if the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control.” The stipulations in the Bill
of Lading between the parties are clear and unequivocal.

It was categorically stated in the Bill of Lading that the carrier shall in any event be discharged
from all liability whatsoever in respect of the goods, unless suit is brought in the proper forum
within nine (9) months after delivery of the goods or the date when they should have been
delivered. The same, however, is qualified in that when the said nine-month period is contrary to
any law compulsory applicable, the period prescribed by the said law shall apply.

The present case involves lost or damaged cargo, wherein the one-year prescriptive period
under the COGSA applies. A reading of the Bill of Lading between the parties reveals that the
nine month prescriptive period is not applicable in all actions or claims. As an exception, the
nine-month period is inapplicable when there is a different period provided by a law for a
particular claim or action. Thus, it is readily apparent that the exception under the Bill of Lading
became operative because there was a compulsory law applicable which provides for a different
prescriptive period. Hence, strictly applying the terms of the Bill of Lading, the one-year
prescriptive period under the COGSA should govern because the present case involves loss of
goods or cargo.
Universal Food Corporation v. CA
G.R. No. L-29155; May 13, 1970

FACTS:
Magdalo Francisco is the inventor of the formula for Mafran Sauce who asked for the financial
assistance of Universal Food Corporation (UFC) which lead to an execution of a Bill of
Assignment. Said Bill stipulates that Francisco shall be the chief chemist of the company
(permanent in character ) and that UFC shall have a right to use the formula. However, a year
after, UFC ordered the suspension of the employment of Francisco. Hence, Francisco filed an
action for the rescission of the BOA. UFC contends that the rescission should be denied
because under Art. 1383, rescission is just a subsidiary remedy.

ISSUE: Whether or not Art. 1383 is applicable in the case at bar

HELD:
No. The general rule is that rescission of a contract will not be permitted for a slight or casual
breach, but only for such substantial and fundamental breach as would defeat the very object of
the parties in making the agreement.

The question of whether a breach of a contract is substantial depends upon the attendant
circumstances. The petitioner contends that rescission of the Bill of Assignment should be
denied because, under article 1383, rescission is a subsidiary remedy which cannot be
instituted except when the party suffering damage has no other legal means to obtain reparation
for the same.

Lalicon v. NHA
G.R. No. 185440, 13 July 2011

FACTS:
National Highway Authority (NHA) executed a Deed of Absolute Sale with Mortgaged over a lot
in favor of the spouses Alfaros. The deed of sale provides that the Alfaros could sell the land
within five years from the date of the release from mortgage without the NHAs prior written
consent. 9 years later while the mortgage on the land subsists, the spouses sell the land to their
son Victor. After the loan was paid the NHA released the mortgage. Six days later Victor
transferred his ownership of the land to his illegitimate daughters.

Four and a half years after the release of the mortgage Victor registered the sale of the land in
his favor, resulting for the cancellation of his parent’s title. Victor mortgaged the land to Marcela
Lao Chua, Rosa Sy, Amparo Ong, and Ida See. Victor sells the land to Chua. A year later the
NHA instituted a case for the annulment of the NHAs sale of the land to the Alfaros, the spouses
Alfarpo’s sale of the land to their son Victor, and the subsequent sale of the same to Chua,
made in violation of NHA rules and regulations.
ISSUE:

Whether or not the NHAs right to rescind has prescribed.

Whether or not the subsequent buyers of the land acted in good faith and their rights, therefore,
cannot be affected by the rescission.

RULING:

An action for rescission can proceed from either Article 1191 or Article 1381. It has been held
that Article 1191 speaks of rescission in reciprocal obligations. Resolution applies only to
reciprocal obligations such that a breach on the part of one party constitutes an implied
resolutory condition which entitles the other party to rescission. Resolution grants the injured
party the option to pursue, as principal actions, either a rescission or specific performance of the
obligation, with payment of damages in either case.
Rescission under Article 1381, on the other hand, which is a subsidiary action, not based on a
party’s breach of obligation. The four-year prescriptive period provided in Article 1389 applies to
rescissions under Article 1381.

Here, the NHA sought annulment of the Alfaros sale to Victor because they violated the five-
year restriction against such sale provided in their contract. Thus, the CA correctly ruled that
such violation comes under Article 1191 where the applicable prescriptive period is that
provided in Article 1144 which is 10 years from the time the right of action accrues. The NHAs
right of action accrued on February 18, 1992 when it learned of the Alfaros forbidden sale of the
property to Victor. Since the NHA filed its action for annulment of sale on April 10, 1998, it did so
well within the 10-year prescriptive period.

The Court also agrees with the CA that the Lalicons and Chua were not buyers in good faith.
Since the five-year prohibition against alienation without the NHAs written consent was
annotated on the property’s title, the Lalicons very well knew that the Alfaros sale of the property
to their father, Victor, even before the release of the mortgage violated that prohibition.
As regards Chua, she and a few others with her took the property by way of mortgage from
Victor in 1995, well within the prohibited period. Chua knew, therefore, based on the annotated
restriction on the property, that Victor had no right to mortgage the property to her group
considering that the Alfaros could not yet sell the same to him without the NHAs consent.
Consequently, although Victor later sold the property to Chua after the five-year restriction had
lapsed, Chua cannot claim lack of awareness of the illegality of Victor’s acquisition of the
property from the Alfaros.

Lastly, since mutual restitution is required in cases involving rescission under Article 1191, the
NHA must return the full amount of the amortizations it received for the property, plus the value
of the improvements introduced on the same, with 6% interest per annum from the time of the
finality of this judgment. The Court will no longer dwell on the matter as to who has a better right
to receive the amount from the NHA: the Lalicons, who paid the amortizations and occupied the
property, or Chua, who bought the subject lot from Victor and obtained for herself a title to the
same, as this matter was not raised as one of the issues in this case. Chuas appeal to the Court
in a separate case having been denied due course and NHA failing to file its own petition for
review, the CA decision ordering the restitution in favor of the Lalicons has now become final
and binding against them.

ANCHOR SAVINGS BANK vs. HENRY H. FURIGAY

G.R. No. 191178; March 13, 2013

FACTS:
ASB filed a verified complaint for sum of money and damages with application for replevin
against Ciudad Transport Services, Inc. (CTS), its president, respondent Henry H. Furigay; his
wife,respondent Gelinda C. Furigay; and a “John Doe.” While that case was pending,
respondent spouses donated their registered properties to their minor children,
respondents Hegem G. Furigay and Herriette C. Furigay. Claiming that the donation of these
properties was made in fraud of creditors, ASB filed a Complaint for Rescission
of Deed of Donation, Title and Damages against the respondent spouses and their children.

The RTC ruled that the action for rescission had already prescribed.The CA found that the
action of ASB had not yet prescribed, but was premature and dismissed the case.

ISSUE: Is the action of ASB to file a complaint for rescission of Deed of Donation premature that
warrant dismissal?

RULING:

Yes. The remedy of rescission is subsidiary in nature; it cannot be instituted except when the
party suffering damage has no other legal means to obtain reparation for the same.
Consequently, following the subsidiary nature of the remedy of rescission, a creditor would have
a cause of action to bring an action for rescission, if it is alleged that the following successive
measures have already been taken: (1) exhaust the properties of the debtor through levying by
attachment and execution upon all the property of the debtor, except such as are exempt by law
from execution; (2)exercise all the rights and actions of the debtor, save those personal to him
(accion subrogatoria); and (3)seek rescission of the contracts executed by the debtor in fraud of
their rights (accion pauliana).

A cursory reading of the allegations of ASB’s complaint would show that it failed to allege the
ultimate facts constituting its cause of action and the prerequisites that must be complied with
before the same may be instituted. ASB, without availing of the first and second
remedies, that is, exhausting the properties of CTS, Henry H. Furigay and Genilda C.
Furigay or their transmissible rights and actions,simply undertook the third measure and filed an
action for annulment of the donation. This cannot be done. While, the four-year prescriptive
period for action of rescission commences to run neither from the date of the registration of the
deed sought to be rescinded nor from the date the trial court rendered its decision but from the
day it has become clear that there are no other legal remedies by which the creditor can satisfy
his claims.In this case, the action is premature.WHEREFORE, the petition is DENIED.

Oria v. McMicking
G.R. No. L-7003, 18 January 1912

FACTS:

Gutierrez Hermanos brought two actions Oria Hermanos & Co. for the recovery of sum of
money. Subsequent to the beginning of the above actions, the members of the company of Oria
Hermanos & Co., dissolved their relations and entered into liquidation. Tomas Oria y Balbas, as
managing partner in liquidation, acting for himself and on behalf of his other coowners entered
into a contract with the plaintiff in this case, Manuel Orio Gonzales, which said contract was for
the purpose of selling and transferring to the plaintiff in this action all of the property of which the
said Oria Hermanos & Co. was owner. Among the goods transferred by this instrument was the
steamship Serantes, which is the subject of litigation.

One of the actions instituted by Hermanos was decided by the court in his favor and
subsequently, the execution was issued thereon and placed in the hands of the sheriff. The
sheriff immediately demanded that Tomas Oria y Balbas, as liquidator of the firm of Oria
Hermanos & Co. make payment of the said judgment, to which he replied that there were no
funds with which to pay the same. Thereupon the sheriff levied upon the said steamer Serantes,
took possession of the same, and announced it for sale at public auction. Three days before the
sale, the plaintiff in this action presented to the sheriff a written statement claiming to be the
owner of the said steamship, and to have the right of possession of the same by reason of the
sale to him by Oria Hermanos & Co. of all of the property belonging to said company, including
the said steamer Serantes.

ISSUE: Whether or not the sale between Oria Hermanos & Co. and Manuel Orio Gonzales was
valid.

RULING:

In determining whether or not a certain conveyance is fraudulent the question in every case is
whether the conveyance was a bona fide transaction or a trick and contrivance to defeat
creditors, or whether it conserves to the debtor a special right. It is not sufficient that it is
founded on good consideration or is made with bona fide intent: it must have both elements. If
defective in either of these particulars, although good between the parties, it is voidable as to
creditors. The rule is universal both at law and in equity that whatever fraud creates justice will
destroy. The test as to whether or not a conveyance is fraudulent is, does it prejudice the rights
of creditors.

In the consideration of whether or not certain transfers were fraudulent, courts have laid down
certain rules by which the fraudulent character of the transaction may be determined. The
following are some of the circumstances attending sales which have been dominated by the
courts badges of fraud:

The fact that the consideration of the conveyance is fictitious or is inadequate.

A transfer made by a debtor after suit has been begun and while it is pending against him.
A sale on credit by an insolvent debtor.
Evidence of large indebtedness or complete insolvency.
The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or
greatly embarrassed financially.
The fact that the transfer is made between father and son, when there are present other of the
above circumstances.
The failure of the vendee to take exclusive possession of all the property.
The case at bar presents every one of the badges of fraud above enumerated. Tested by the
inquiry, does the sale prejudice the rights of the creditors, the result is clear. The sale in the
form in which it was made leaves the creditors substantially without recourse. The property of
the company is gone, its income is gone, the business itself is likely to fail, the property is being
dissipated, and is depreciating in value. As a result, even if the claims of the creditors should
live twelve years and the creditors themselves wait that long, it more than likely that nothing
would be found to satisfy their claim at the end of the long wait.

Since the records show that there was no property with which the judgment in question could be
paid, the defendants were obliged to resort to and levy upon the steamer in suit. The court
below was correct in finding the sale fraudulent and void as to Gutierrez Hermanos in so far as
was necessary to permit the collection of its judgment. As a corollary, the court below found that
the evidence failed to show that the plaintiff was the owner or entitled to the possession of the
steamer in question at the time of the levy and sale complained of, or that he was damaged
thereby. Defendant had the right to make the levy and test the validity of the sale in that way,
without first resorting to a direct action to annul the sale. The creditor may attack the sale by
ignoring it and seizing under his execution the property, or any necessary portion thereof, which
is the subject of the sale.

Siguan vs. Lim

G.R. No. 134686, 19 November 1999

FACTS:

On 25 and 26 August 1990, respondent issued two Metrobank checks to petitioner. However,
the checks were dishonored for the reason the account was closed. After demands to make
good the checks proved futile, a criminal case for violation of Batas Pambansa Blg. 22 was filed
by the petitioner with the Regional Trial Court (RTC) of Cebu City. The lower court convicted the
respondent. On 31 July 1990 respondent was also charged with estafa by a certain Victoria
Suarez. Respondent was acquitted but held civilly liable.
On 2 July 1991, a Deed of Donation conveying the parcels of land and purportedly executed by
respondent on 10 August 1989 in favor of her children was registered. On 23 June 1993,
petitioner filed an accion pauliana against respondent and her children to rescind the questioned
Deed of Donation. She alleges that respondent and her children conspired to fraudulently
transfer all her real property to her children in bad faith and in fraud of creditors, including her.

The trial court ordered the rescission of the deed of donation. But upon appeal, the CA reversed
the decision contending that two of the requisites for filing an accion pauliana were absent,
namely, (1) there must be a credit existing prior to the celebration of the contract; and (2) there
must be a fraud, or at least the intent to commit fraud, to the prejudice of the creditor seeking
the rescission. The CA argues the deed of donation appears to have been executed in 1989
prior to any credit.

ISSUES: Whether or not the Deed of Donation executed by respondent Rosa Lim in favor of her
children be rescinded for being in fraud of her alleged creditor, petitioner Maria Antonia Siguan.

RULING:

No. The alleged debt of respondent in favor of petitioner was incurred in August 1990, while the
deed of donation was purportedly executed on 10 August 1989. Article 1381 of the Civil Code
enumerates the contracts which are rescissible, and among them are those contracts
undertaken in fraud of creditors when the latter cannot in any other manner collect the claims
due them. The action to rescind contracts in fraud of creditors is known as accion pauliana. For
this action to prosper, the following requisites must be present: (1) the plaintiff asking for
rescission has a credit prior to the alienation, although demandable later; (2) the debtor has
made a subsequent contract conveying a patrimonial benefit to a third person; (3) the creditor
has no other legal remedy to satisfy his claim; (4) the act being impugned is fraudulent; (5) the
third person who received the property conveyed, if it is by onerous title, has been an
accomplice in the fraud.
The fourth requisite for an accion pauliana to prosper is not present either.

Article 1387, first paragraph, of the Civil Code provides: All contracts by virtue of which the
debtor alienates property by gratuitous title are presumed to have been entered into in fraud of
creditors when the donor did not reserve sufficient property to pay all debts contracted before
the donation. Likewise, Article 759 of the same Code, second paragraph, states that the
donation is always presumed to be in fraud of creditors when at the time thereof the donor did
not reserve sufficient property to pay his debts prior to the donation.

For this presumption of fraud to apply, it must be established that the donor did not leave
adequate properties which creditors might have recourse for the collection of their credits
existing before the execution of the donation. As earlier discussed, petitioners alleged credit
existed only a year after the deed of donation was executed. She cannot, therefore, be said to
have been prejudiced or defrauded by such alienation. Evidence also disclose that respondent
still had other properties when the deed of donation was executed.
China Banking v. CA
G.R. No. 129644, 7 March 2000

FACTS:

In connection with a civil case filed by Metropolitan Bank against Alfonso Roxas Chua, a notice
of levy affecting the residential land of Alfonso and his wife was issued. Meanwhile, in 1985, the
trial court rendered another decision in favor of China Banking Corporation against Alfonso in a
collection case. A certificate of sale covering ½ of the undivided portion of the property was
executed in favor of Metro Bank. In 1988, Alfonso executed “Assignment of Right to Redeem” to
his son Paulino who redeemed the said property on the same day. On the other hand, another
levy on execution in favor of China Bank was issued on the same property. Thereafter, a
certificate of sale on execution was issued to China Bank in 1992. Paulino instituted a civil case
arguing that he has a better right over the title of China Bank, the property having been
redeemed by him in 1988 while China Bank acquired its right in 1991. The trial court ruled that
the assignment was made for a valuable consideration and was executed two years before
China Bank levied the conjugal share of Chua. China Bank argued that the assignment of right
of redemption made by Alfonso to Paulino was done in fraud of creditors and may be rescinded
under Article 1387, NCC.

ISSUE: Was the assignment by Alfonso to Paulino of the right of redemption done to defraud his
creditors and may be rescinded under Art. 1387, NCC?

RULING:

YES. The assignment was done in fraud of creditors. China Bank is, therefore, entitled to
rescind the same. Under Article 1381(3) of the Civil Code, contracts which are undertaken in
fraud of creditors when the latter cannot in any manner collect the claims due them are
rescissible. The existence of fraud with intent to defraud the creditor may either be presumed in
accordance with Article 1387, NCC or duly proved in accordance with the ordinary rules of
evidence. Hence, the law presumes that there is fraud of creditors when:

a) There is alienation of property by gratuitous title by the debtor who has not reserved sufficient
property to pay his debts contracted before such alienation; or
b) There is alienation of property by onerous title made by a debtor against whom some
judgment has been rendered in any instance or some writ of attachment has been issued. The
decision or attachment need not refer to the property alienated and need not have been
obtained by the party seeking rescission.

In as much as the judgment of the trial court in favor of China Bank against Alfonso was
rendered as early as 1985, there is a presumption that the 1988 sale of his property, in this case
the right of redemption, is fraudulent under Article 1387 of the Civil Code. The fact that private
respondent Paulino redeemed the property and caused its annotation on the TCT more than
two years ahead of petitioner China Bank is of no moment. The Court of Appeals maintained
that although the transfer was made between father and son, the conveyance was not
fraudulent since Paulino has indeed paid the redemption fee of P1,463,375.39 to Metrobank
and the sum of P100,000 to his father. In determining whether or not a certain conveyance is
fraudulent, the question in every case is whether the conveyance was a bona fide transaction or
a trick and contrivance to defeat creditors or whether it conserves the creditor to the debtor or a
special right. It is not sufficient that it is founded on good considerations or is made with bona
fide intent. It must have both elements. If defective in either of these, although good between
the parties, it is voidable as to creditors. The question as to whether or not the conveyance is
fraudulent is: does it prejudice the rights of the creditors? The mere fact that the conveyance
was founded on valuable consideration does not necessarily negate the presumption of fraud
under Art. 1387, NCC. There has to be a valuable consideration and the transaction must have
been made bona fide. In the case at bar, the presumption that the conveyance is fraudulent has
not been overcome. At the time a judgment was rendered in favor of China Bank against
Alfonso, Paulino was still living with his parents in the subject property. Paulino himself admitted
that he knew his father was heavily indebted and could not afford to pay his debts. The transfer
was undoubtedly made between father and son at the time when the father was insolvent and
had no other property to pay his creditors. Hence, it is of no consequence whether or not
Paulino had given valuable consideration for the conveyance.

Francisco v. Herrera
G.R. No. 139982, 21 November 2002

FACTS:

Eligio Herrera, Sr., father of respondent Pastor Herrera, owned two parcels of land consisting of
500 sq. m. and 451 sq. m. located at Cainta, Rizal. The two parcels of land were sold at 1M and
750k to the petitioner.

Pastor, contending that the contract price for the two parcels of land was grossly inadequate,
tried to negotiate with petitioner to increase the purchase price. When petitioner refused,
respondent then filed a complaint for annulment of sale. Pastor alleged that the contract of sale
was null and void on the ground that Eligio, Sr., at that time, was already afflicted with senile
dementia. Petitioner, on the other hand, contended that respondent had effectively ratified both
contracts of sales, by receiving the consideration offered in each transaction.

RTC ruled that the contract of sale is null and void. CA affirmed, hence, this petition.

ISSUE:Whether the assailed contracts of sale void or merely voidable and hence capable of
being ratified?

RULING:
In the present case, vendor Eligio, Sr. entered into an agreement with petitioner, but that the
former’s capacity to consent was vitiated by senile dementia. Hence, it was ruled that the
assailed contracts are not void or inexistent per se; rather, these are contracts that are valid and
binding unless annulled through a proper action filed in court.

An annullable contract may be rendered perfectly valid by ratification, which can be expressed
or implied. Implied ratification may take the form of accepting and retaining the benefits of a
contract. As in this case, respondent negotiated for the increase of the purchase price while
receiving the installment payments from the petitioner. Clearly, respondent was agreeable to the
contract. Further, there is no showing that respondent returned the payments or made an offer
to do so. This bolsters the view that indeed there was ratification. Therefore, the two contracts of
sale are declared valid.

Heirs of Ureta v. Heirs of Ureta

G.R. No. 165748, 14 September 2011

FACTS:

Alfonso Ureta was financially well-off and owned several properties. He begot fourteen children,
including herein petitioners and Policronio, father of respondents. For taxation purposes,
Alfonso sold, without monetary consideration, several parcels of land to four of his children,
including Policronio. Alfonso continued to own, possess and enjoy the lands and their produce.
Upon his death, Liberato acted as the administrator. The Fernandez Family rented the portion
transferred to Policronio. But even after the fact, the tenants never turned over the produce of
the lands to Policronio or any of his heirs, but to Alfonso and, later, to the administrators of his
estate. When Policronio died, except for a portion of one of the parcels of land, neither
Policronio nor his heirs ever took possession of the subject lands. Alfonso’s heirs executed a
Deed of Extra-Judicial Partition,8 which included all the lands that were covered by the four (4)
deeds of sale that were previously executed by Alfonso for taxation purposes. Conrado,
Policronio’s eldest son, representing the Heirs of Policronio, signed the Deed of Extrajudicial
Partition on behalf of his co-heirs. Heirs of Policronio allegedly learned about the Deed of Extra-
Judicial Partition involving Alfonso’s estate when it was published in the July 19, 1995 issue of
the Aklan Reporter. The Heirs of Policronio averred that the extra-judicial partition is void
because Conrado signed the same without written authority from his siblings.

ISSUE: WON Conrado Ureta’s lack of capacity to give his co-heirs’ consent to the Extra-Judicial
Partition rendered the same voidable.

RULING:

No. Article 1390 is not applicable in this case. Article 1390 (1) contemplates the incapacity of a
party to give consent to a contract. What is involved in the case at bench though is not
Conrado’s incapacity to give consent to the contract, but rather his lack of authority to do so.
Instead, Articles 1403 (1), 1404, and 1317 of the Civil Code find application to the
circumstances prevailing in this case. The Deed of Extrajudicial Partition and Sale is not a
voidable or annullable contract under Article 1390 of the New Civil Code. Article 1390 renders a
contract voidable if one of the parties is incapable of giving consent to the contract or if the
contracting party’s consent is vitiated by mistake, violence, intimidation, undue influence or
fraud. Therefore, Conrado’s failure to obtain authority from his co-heirs to sign the Deed of
Extra-Judicial Partition in their behalf did not result in his incapacity to give consent so as to
render the contract voidable, but rather, it rendered the contract valid but unenforceable against
Conrado’s co-heirs for having been entered into without their authority.

Metropolitan Fabrics, Inc., et al. v. Prosperity Credit Resources, Inc. et al.,

GR No. 154390, March 14, 2017

FACTS:

Metropolitan Fabrics, Incorporated (MFI), a family corporation, owned a 5.8hectare industrial

compound at No. 685 Tandang Sora Avenue, Novaliches, Quezon City which was covered by
TCT No. 241597.Pursuant to a P2 million, 10-year 14% per annum loan agreement with
Manphil Investment Corporation (Manphil) dated April 6, 1983, the said lot was subdivided
into11 lots, with Manphil retaining four lots as mortgage security.

The other seven lots, now covered by TCT Nos. 317699 and 317702 to 317707, were released
to MFI. In July 1984, MFI sought from PCRI a loan in the amount of P3,443,330.52, the balance
of the cost of its boiler machine, to prevent its repossession by the seller. PCRI, also a family-
owned corporation licensed since 1980 to engage in money lending, was represented by
Domingo Ang (“Domingo”) its president, and his son Caleb, vice-president. The parties knew
each other because they belonged to the same family association, the Lioc Kui Tong Fraternity.

On the basis only of his interview with Enrique, feedback from the stockholders and the Chinese
community, as well as information given by his own father Domingo, and without further
checking on the background of Enrique and his business and requiring him to submit a
company profile and a feasibility study of MFI, Caleb recommended the approval of the P3.44
million with an interest ranging from 24% to 26% per annum and a term of between five and ten
years (Decision, p. 5).
According to the court, it sufficed for Caleb that Enrique was a well-respected Chinese
businessman, that he was the president of their Chinese family association, and that he had
other personal businesses aside fromMFI, such as the Africa Trading.However, in September
1984, the first amortization check bounced for insufficient fund due to MFIs continuing business
losses. It was then that the appellees allegedly learned that PCRI had filled up the 24 blank
checks with dates and amounts that reflected a 35%interest rate per annum, instead of just
24%, and a two year repayment period, instead of10 years.

On September 4, 1986, Enrique received a Notice of Sheriff’s Sale dated August 29, 1986,
announcing the auction of the seven lots on September 24, 1986 due to unpaid indebtedness of
P10.5 million. Vicky (daughter of owner of MFI, because their father went into a coma because
of intense pressure from the foreclosure) insisted that prior to the auction notice, they never
received any statement or demand letter from the defendants to pay P10.5 million, nor did the
defendants inform them of the intended foreclosure.

ISSUE: Was the Mortgage Contract VOID?

RULING:
No. As the records show, petitioners really agreed to mortgage their properties as security for
their loan, and signed the deed of mortgage for the purpose. Thereafter, they delivered the
TCTs of the properties subject of the mortgage to respondents. Consequently, petitioners’
contention of absence of consent had no firm moorings. It remained unproved. To begin with,
they neither alleged nor established that they had been forced or coerced to enter into the
mortgage. Also, they had freely and voluntarily applied for the loan, executed the mortgage
contract and turned over the TCTs of their properties. And, lastly, contrary to their modified
defense of absence of consent, Vicky Ang’s testimony tended at best to prove the vitiation of
their consent through insidious words, machinations or misrepresentations amounting to fraud,
which showed that the contract was voidable.

Where the consent was given through fraud, the contract was voidable, not void ab initio. This is
because a voidable or annullable contract is existent, valid and binding, although it can be
annulled due to want of capacity or because of the vitiated consent of one of the parties. Article
1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting
parties was obtained through fraud, the contract is considered voidable and may be annulled
within four years from the time of the discovery of the fraud.

According to Article 1338 of the Civil Code, there is fraud when one of the contracting parties,
through insidious words or machinations, induces the other to enter into the contract that,
without the inducement, he would not have agreed to. Yet, fraud, to vitiate consent, must be the
causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of
the contract. In Samson v. Court of Appeals, causal fraud is defined as “a deception employed
by one party prior to or simultaneous to the contract in order to secure the consent of the other.”

Singsong v. Isabela Sawmill

G.R. No. L-27343, February 28, 1979

FACTS:

In 1951, defendants entered into a contract of partnership under the firm name “Isabela
Sawmill”. In 1956 the plaintiff sold to the partnership a motor truck and two tractors. The
partnership was not able to pay their whole balance even after demand was made. One of the
partners withdrew from the partnership but instead of terminating the said partnership it was
continued by the two remaining partners under the same firm name. Plaintiffs also seek the
annulment of the assignment of right with chattel mortgage entered into by the withdrawing
partner and the remaining partners. The appellants contend that the chattel mortgage may no
longer be nullified because it had been judicially approved and said chattel mortgage had been
judicially foreclosed.

ISSUE: Whether the withdrawal of one of the partners dissolved the partnership.

RULING:

It does not appear that the withdrawal of the partner was not published in the newspapers. The
appellees and the public in general had a right to expect that whatever credit they extended to
the remaining partners could be enforced against the properties of the partnership. The
withdrawing partner cannot be relieved from her liability to the creditor of the partnership due to
her own fault by not insisting on the liquidation of the partnership. Though she had acted in
good faith, the appellees also acted in good faith in extending credit to the partnership. Where
one of two innocent persons must suffer, that person who gave occasion for the damages to be
caused must bear the consequences. Technically, the partnership was dissolved by the
withdrawal of one of the partners. Through her acts of entering into a memorandum with the
remaining partners misled the creditors that they were doing business with the partnership.
Hence, from the order of the lower court ordering the withdrawing partner to pay the plaintiffs,
she is thus entitled for reimbursement from the remaining partners.

ANGELINA J. MALABANAN vs. GAW CHING

G.R. Nos. 74938-39. January 17, 1990

FACTS:

Gaw Ching has been leasing the house and lot in Binondo from Mr. Jabit since 1951. When Mr.
Jabit died, his daughter continued to lease the premises to the plaintiff. On April 27, 1980,
Angelina Malabanan told him that she was selling the house and lot for P5,000.00/sqm,
however Gaw Ching said that the price was not agreeable. He tried to pay the rentals, but
Malabanan refused to accept it, so upon consulting with his lawyer, the same was deposited in
a bank. Gaw Chingreceived another letter from Malabanan which stated that if he was not
agreeable to theP5000/sqm price, then she will sell the premises to another person at
P4,000.00/sqm. He didn't reply to her letter. Later that year, Gaw Ching received a letter stating
that the premises had been sold to Leonida Senolos. Gaw Ching asked for a copy of the sale,
but they were not furnished a copy. Later on, Gaw Ching received a letter, demanding that he
vacate the premises and to pay the arrear ages in rentals from October to December, as they
were going to repair and convert the dwelling into a warehouse. He refused to leave, however,
and the building was demolished with them still living there. The claim for damages stems from
the incident wherein the building was demolished while Gaw Ching and his family was still in the
building, with him claiming that the demolition team caused the destruction and loss of his
personal properties
ISSUE: Whether or not the CA erred in ruling for the annulment for the deed of sale and a grant
for damages.

RULING:

YES. There is a limitation of the right of a person injured by a contract between two (2) third
paresto sue to nullify that contract, which is that that contract may be nullified only to the extent
necessary to protect the plain’s lawful rights. Respondent Gaw Ching does not fall within the
possible exception, as he had no legal right of preemption in respect of the house and lot
involved. The redemptive rights of a lessee under P.D. No. 1517 exists only in respect of one
who built his house on someone else’s lot and lived there for more than 10 years. In this case,
where both land and building belong to the lessor, that redemptive right was simply not available
under the law. Moreover, it must be stressed that petitioner Malabanan offered the land three
times to Gaw Ching but the latter had consistently refused to buy. Since Gaw Ching did not in
fact accept the offer to sell and did not buy the land, he suffered no prejudice nor fraud from the
sale. Moreover, the order of condemnation or demolition had been issued by the proper
authorities which order was valid and subsisting at the me the demolition was actually carried
out. Gaw Ching had ample notice of the demolition order and had adequate me to remove his
belongings from the premises if he was minded to obey the order for demolition. He chose not
to obey that order. If he did suffer any losses — the trial court did not believe his claims that he
did — he had only himself to blame.

Cadwallader & Co vs. Smith Bell & Co.

G.R. No. 3246, February 9, 1907

Facts:

In May 1902, the Pacific Export Lumber Company of Portland shipped upon the steamer Quito
five hundred and eighty-one (581) piles to the defendant, Henry W. Peabody & Company, at
Manila, it was stipulated that they’ll receive a commission of one half of whatever sum was
obtained over $15 for each pile and 5 percent of the price of the piles sold. August 2, Peabody
and Company wrote the agent of the Pacific Company at Shanghai that for lack of a demand the
piles would have to be sold at considerably less than $15 a piece; in response they telegraphed
him an offer of $12 per piece.

July 9 Peabody & Company had entered into negotiations with the Insular Purchasing Agent for
the sale of piles at $20 a piece. August 4, Insular Purchasing Agent sold to the Government two
hundred and thirteen (213) piles at $19 each. More of them were afterwards sold to the
Government at the same figure. Thus it is clear that at the time when the agents were buying
from their principal these piles at $12 a piece on the strength of their representation that no
better price was obtainable, they had already sold a substantial part of them at $19. In these
transactions the defendant, Smith, Bell & Company, were associated with the defendants,
Henry W. Peabody & Company, who conducted the negotiations, and are consequently
accountable with them.

Issue: Whether or not the contract of sale is subject for annulment.

Held:

Yes. Concealing from their principal the negotiations with the Government, resulting in a sale of
the piles at 19 a piece and in misrepresenting the condition of the market, the agents committed
a breach of duty from which they should benefit. The contract of sale to themselves thereby
induced was founded on their fraud and was subject to annulment by the aggrieved party. (Civil
Code, articles 1265 and 1269.) Upon annulment the parties should be restored to their original
position by mutual restitution. (Article 1303 and 1306.) Therefore the defendants are not entitled
to retain their commission realized upon the piles included under the contract so annulled. In
respect of the 213 piles, which at the time of the making of this contract on August 5 they had
already sold under the original agency, their commission should be allowed.

Velarde vs. Court of Appeals

(361 SCRA 57)

FACTS:
The private respondent executed a Deed of Sale with Assumption of Mortgage, with a balance
of P1.8 million, in favor of the petitioners. Pursuant to said agreements, plaintiffs paid the bank
(BPI) for three (3) months until they were advised that the Application for Assumption of
Mortgage was denied. This prompted the plaintiffs not to make any further payment. Private
respondent wrote the petitioners informing the non-fulfillment of the obligations. Petitioners, thru
counsel responded that they are willing to pay in cash the balance subject to several conditions.
Private respondents sent a notarial notice of cancellation/rescission of the Deed of Sale.
Petitioners filed a complaint which was consequently dismissed by an outgoing judge but was
reversed by the assuming judge in their Motion for Reconsideration. The Court of Appeals
reinstated the decision to dismiss.

ISSUE: Whether or not there is a substantial breach of contract that would entitle its rescission.

RULING:
YES. Article 1191 of the New Civil Code applies. The breach committed did not merely consist
of a slight delay in payment or an irregularity; such breach would not normally defeat the
intention of the parties to the contract. Here, petitioners not only failed to pay the P1.8 million
balance, but they also imposed upon private respondents new obligations as preconditions to
the performance of their own obligation. In effect, the qualified offer to pay was a repudiation of
an existing obligation, which was legally due and demandable under the contract of sale.
Hence, private respondents were left with the legal option of seeking rescission to protect their
own interest.
Uy Soo Lim v. Tan Unchuan
G.R. No. 12605, 7 September 1918

FACTS:

Santiago Pastrano Uy Toco, a Chinese, came to the Philippines and married Candida Vivares, a
Filipina. They had two daughters, Francisca and Concepcion. At the time of this marriage,
Santiago Pastrano possessed very little property — a tienda worth about P2,000. However,
when he died, his wealth amassed to a large estate that he acquired with Candida.

Santiago stayed in China for less than a year and had an affair with Chan Quieng, who later
claimed that what they did in China was equivalent to a marriage in Chinese law and customs.

Santiago and Quieng never saw each other again but she wrote him letters that she bore him a
son, plaintiff Uy Soo Lim. Believing this, Santiago allegedly dedicated to Uy Soo Lim a large
amount in his will — 7/9.

Uy Soo Lim, while still a minor, thereafter, executed a deed of sale to Francisa, concomitantly,
relinquishing all his right, title, and interest in the estate. Chan Quieng gave her consent to the
sale. Francisca was then declared as the sole owner of all the properties of Uy Soo Lim. The
latter then spent all the money.

Thereafter, when he was of age, Uy Soo Lim sought to rescind and annul the contract by which
he had sold and transferred to Francisca all his interest in the estate alleging that undue
influence was exercised upon him, taking advantage of his youth.

ISSUE: Whether or not Uy Soo Lim can file for the annulment of the contract.

RULING:

No. Positive statutory law, no less than uniform court decisions, require, as a condition
precedent to rescission of a contract on account of minority, that the consideration received be
refunded. We cite and quote as follows:

ART. 1295 (Civil Code). Rescission obliges the return of the things which were the objects of
the contract, with their fruits and the sum with interest; therefore it can only be carried into effect
when the person who may have claimed it can return that which, on his part, he is bound to do.

ART. 1304 (Civil Code). When the nullity arises from the incapacity of one of the contracting
parties, the incapacitated person is not obliged to make restitution, except to the extent he has
profited by the thing or by the sum he may have received.
ART. 1308 (Civil Code). While one of the contracting parties does not return that which he is
obliged to deliver by virtue of the declaration of nullity, the other cannot be compelled to fulfill,
on his part, what is incumbent on him.

Knowing his legal rights, therefore, the plaintiff should have been prompt to disaffirm his
contract upon reaching majority. This was not done. Instead, he deliberately permitted
defendants to continue making payments thereunder, and then, on May 25, 1914, when the last
cent upon such contract was collected, sought to avail himself of this ground of rescission. This
was almost eight months after he had attained his majority.

Iglesia Filipina Independiente v. Heirs of Taeza

G.R. No. 179597, 3 February 2014

FACTS:

Iglesia Filipina Independiente was the owner of a parcel of land described as Lot 3653,
containing an area of 31,038 square meters, situated at Ruyu (now Leonarda), Tuguegarao,
Cagayan, and covered by Original Certificate of Title No. P-8698. The said lot is subdivided as
follows: Lot Nos. 3653-A, 3653-B, 3653-C, and 3653-D. It then sold Lot 3653-D, with an area of
15,000 square meters, to one Bienvenido de Guzman.

Rev. Macario Ga, in his capacity as the Supreme Bishop of the plaintiff-appellee, to the
defendant Bernardino Taeza, for the amount of ₱100,000.00, through installment, with
mortgage to secure the payment of the balance. Subsequently, the defendant allegedly
completed the payments. In 1977, a complaint for the annulment of the February 5, 1976 Deed
of Sale with Mortgage was filed by the Parish Council of Tuguegarao, Cagayan, represented by
Froilan Calagui and Dante Santos.

ISSUE: Whether then Supreme Bishop Rev. Ga is authorized to enter into a contract of sale on
behalf of petitioner.

RULING:

No. The sale is invalid for not being in conformity with the Canons of the church.

Section 113 of the Corporation Code of the Philippines provides that:

Sec. 113. Acquisition and alienation of property. – Any corporation sole may purchase and hold
real estate and personal property for its church, charitable, benevolent or educational purposes,
and may receive bequests or gifts for such purposes. Such corporation may mortgage or sell
real property held by it upon obtaining an order for that purpose from the Court of First Instance
of the province where the property is situated; x x x Provided, That in cases where the rules,
regulations and discipline of the religious denomination, sect or church, religious society or
order concerned represented by such corporation sole regulate the method of acquiring,
holding, selling and mortgaging real estate and personal property, such rules, regulations and
discipline shall control, and the intervention of the courts shall not be necessary.

The Court finds it erroneous for the CA to ignore the fact that the laymen’s committee objected
to the sale of the lot in question. The Canons require that ALL the church entities listed in Article
IV (a) thereof should give its approval to the transaction. Thus, when the Supreme Bishop
executed the contract of sale of petitioner’s lot despite the opposition made by the laymen’s
committee, he acted beyond his powers.

This case clearly falls under the category of unenforceable contracts mentioned in Article 1403,
paragraph (1) of the Civil Code, which provides, thus:

Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority
or legal representation, or who has acted beyond his powers.

Swedish Match v. Court of Appeals

G.R. No. 128120, 20 October 2004

FACTS:

Private respondent seeks to enforce a contract of sale between it and the petitioner when the
latter allegedly accepted its bid to purchase the former’s shares. Petitioner counters that it did
not accept the bid and merely advised the private respondent to conduct a pre-acquisition audit.
The trial court ruled in favor of the petitioner’s while the CA reversed the same and remanded
the case to the trial court for further proceedings.

ISSUE: Was there a perfected contract of sale?

RULING:

There was none. This was caused by the lack of consent or meeting of the minds of the parties
regarding the price of the shares.

In the case of a contract of sale, required is the concurrence of three elements, to wit: (a)
consent or meeting of the minds, that is, consent to transfer ownership in exchange for the
price; (b) determinate subject matter, and (c) price certain in money or its equivalent. Such a
contract is born from the moment there is a meeting of minds upon the thing which is the object
of the contract and upon the price.

In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and
consummation. Negotiation begins from the time the prospective contracting parties manifest
their interest in the contract and ends at the moment of agreement of the parties. Perfection or
birth of the contract takes place when the parties agree upon the essential elements of the
contract. Consummation occurs when the parties fulfill or perform the terms agreed upon in the
contract, culminating in the extinguishment thereof.

A negotiation is formally initiated by an offer. An offer would require, among other things, a clear
certainty on both the object and the cause or consideration of the envisioned contract. Consent
in a contract of sale should be manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter-offer.

Private respondent repeatedly stressed in his letters that they would not be able to submit their
final bid by 30 June 1990.With indubitable inconsistency, respondents later claimed that for all
intents and purposes, the US$36 million was their final bid. If this were so, it would be inane for
Litonjua to state, as he did, in his letter dated 28 June 1990 that they would be in a position to
submit their final bid only on 17 July 1990. The lack of a definite offer on the part of respondents
could not possibly serve as the basis of their claim that the sale of the Phimco shares in their
favor was perfected, for one essential element of a contract of sale was obviously wanting the
price certain in money or its equivalent. The price must be certain, otherwise there is no true
consent between the parties. There can be no sale without a price. Quite recently, this Court
reiterated the long-standing doctrine that the manner of payment of the purchase price is an
essential element before a valid and binding contract of sale can exist since the agreement on
the manner of payment goes into the price such that a disagreement on the manner of payment
is tantamount to a failure to agree on the price.

Granting arguendo, that the amount of US$36 million was a definite offer, it would remain as a
mere offer in the absence of evidence of its acceptance. To produce a contract, there must be
acceptance, which may be expressed or implied, but it must not qualify the terms of the offer.
The acceptance of an offer must be unqualified and absolute to perfect the contract. In other
words, it must be identical in all respects with that of the offer so as to produce consent or
meeting of the minds.

Respondents’ attempt to prove the alleged verbal acceptance of their US$36 million bid
becomes futile in the face of the overwhelming evidence on record that there was in the first
place no meeting of the minds with respect to the price. It is dramatically clear that the US$36
million was not the actual price agreed upon but merely a preliminary offer which was subject to
adjustment after the conclusion of the audit of the company finances. Respondents’ failure to
submit their final bid on the deadline set by petitioners prevented the perfection of the contract
of sale. It was not perfected due to the absence of one essential element which was the price
certain in money or its equivalent.

Sps. Torcuator v. Sps. Bernabe

G.R. No. 134219, 8 June 2005

FACTS:
The subject of this action is Lot 17, Block 5 of the Ayala Alabang Village, Muntinlupa, Metro-
Manila,with an area of 569 square meters and covered by TCT No. S-79773. The above parcel
of land was purchased by the Salvador spouses from the developers of Ayala Alabang subject,
among others, to the following conditions:–“It is part of the condition of buying a lot in Ayala
Alabang Village (a) that the lot buyer shall deposit withAyala Corporation a cash bond (about
P17,000.00 for the Salvadors) which shall be refunded to him if he builds a residence thereon
within two (2) years of purchase, otherwise the deposit shall be forfeited, (b)architectural plans
for any improvement shall be approved by Ayala Corporation, and (c) no lot may be resold by
the buyer unless a residential house has been constructed thereon (Ayala Corporation keeps
theTorrens Title in their [sic] possession). Salvadors sold the parcel of land to Bernabe spouses.
Salvadors executed a special power of attorney authorizing the Bernabes to construct a
residential house on the lot and to transfer the title in their names.Bernabes, on the other hand,
without making any improvement, contracted to sell the parcel of land to Torcuator spouses.
Confronted by the Ayala Alabang restrictions, the parties agreed to cause the sale between the
Salvadors and the Bernabes cancelled, in favor of (a) a new deed of sale from the Salvadors
directly to the Torcuators; (b) a new Irrevocable Special Power of Attorney executed by the
Salvadors to the Torcuators in order for the latter to build a house on the land in question; and
(c) an IrrevocableSpecial Power of Attorney from the Salvadors to the Bernabes authorizing the
latter to sell, transfer and convey, with power of substitution, the subject lot.The deed of sale
was never consummated nor was payment on the said sale ever effected.
Subsequently,Bernabes sold it to Angeles, a brother-in-law, however the document was not
notarized. Torcuators filed an action against the Bernabes and Salvadors for Specific
Performance or Rescission with Damages. TCdismissed petition. CA also dismissed the appeal,
ruling that the sale between the Bernabes and theTorcuators was tainted with serious
irregularities and bad faith.

ISSUE: WON the agreement is a contract to sell or a contract of sale.

RULING:

The agreement is a contract to sell.Contract of sale- title passes to the buyer upon delivery of
the thing sold; Non-payment of the price is a negative resolutory condition.Contract to sell-
ownership is reserved in the seller and is not to pass until the full payment of the purchase price
is made; Full payment is a positive suspensive condition.

The agreement imposed upon petitioners the obligation to fully pay the agreed purchase price
for the property; that ownership shall not pass to petitioners until they have fully paid the price is
implicit in the agreement. Salvadors did not execute a deed of sale in favor of Torcuator, but a
special power of attorney authorizing the Bernabes to sell the property on their behalf, in order
to afford the latter a measure of protection that would guarantee full payment of the purchase
price before any deed of sale in favor of Torcuator was executed.Ayala Corporation retained title
to the property and the Salvador spouses were precluded from selling it unless a residence had
been constructed thereon. Had the agreement been a contract of sale, the special power of
attorney would have been entirely unnecessary as petitioners would have had the right to
compel the Salvadors to transfer ownership to them.The special power of attorney does not
contain the essential elements of the purported contract and, more tellingly, does not even refer
to any agreement for the sale of the property. In any case, it was rendered virtually inoperable
as a consequence of the Salvadors’ adamant refusal to part with their title to the property.
Petition denied.

Carbonnel v. Poncio, et al.

G.R. No. L-11231, 12 May 1958

FACTS:

Petitioner Rosario Carbonnel allegedly purchased a parcel of land from respondent Jose
Poncio. Such land was mortgaged to a bank which respondent has an obligation to pay. It was
alleged that petitioner partially paid the respondent of the price of the land and to assume
respondent`s responsibility to recover the land. One of the conditions of the alleged sale was
that Poncio would be allowed to continue staying in said land for one year. However, Poncio has
conveyed the same land to the other respondents herein which are the spouses Mr. and Mrs.
Infante. Respondents herein claims that the previous sale between Poncio and petitioner was
unenforceable due to a violation of the Statute of Fraud as the alleged sale was never deduced
to writing. Petitioner here claims ownership of the said property.

ISSUE: Whether or not the transaction falls under the Statute of Frauds.

RULING:

No. It is well settled in this jurisdiction that the Statute of Frauds is applicable only to executory
contracts. It is the accepted view that part performance of a parol contract for the sale of real
estate has the effect, subject to certain conditions concerning the nature and extent of the acts
constituting performance and the right to equitable relief generally, of taking such contract from
the operation of the statute of frauds, so that chancery may decree its specific performance or
grant other equitable relief. If a contract has been totally or partially performed, the exclusion of
parol evidence would promote fraud or bad faith, for it would enable the defendant to keep the
benefits already denied by him from the transaction in litigation, and, at the same time, evade
the obligations, responsibilities or liabilities assumed or contracted by him thereby.

The true basis of the doctrine of part performance according to the overwhelming weight of
authority, is that it would be a fraud upon the plaintiff if the defendant were permitted to escape
performance of his part of the oral agreement after he has permitted the plaintiff to perform in
reliance upon the agreement.

In the case at bar, it appears that Poncio still asked permission from petitioner to stay in the
premises. Aside from that, it was shown that the passbook of Poncio was in the hand of the
Petitioner and it has a credit account allegedly representing the amount partially paid by
petitioner.

Wherefore, the order appealed from is hereby set aside, and let this case be remanded to the
lower court for further proceedings not inconsistent with this decision, with the costs of this
instance against defendants-appellees. It is so ordered.

Ching v. Goyanko, Jr.

G.R. No. 165879, 10 November 2006

FACTS:
Respondents Joseph Goyanko et al. filed with the Regional Trial Court of Cebu City a complaint
for recovery of property and damages against Maria Ching, praying for the nullification of the
deed of sale and of transfer certificate and the issuance of a new one. Goyanko et al. aver that
they are the real owners of the property involved. They further contend that it was after their
father‘s death that they found out that a contract of sale involving the same property has been
executed by their father and common-law wife Ching. However, Ching claimed that she is the
actual owner of the property as it was she who provided its purchase price. The RTC dismissed
the complaint against Ching, declaring that there is no valid and sufficient ground to declare the
sale as null and void, fictitious and simulated.

On appeal, the Court of Appeals reversed the decision of the trial court and declared null and
void the questioned deed of sale and TCT No. 138405.

ISSUE: Whether or not the contract of sale was null and void for being contrary to morals and
public policy.

RULING:

Yes, the Court ruled that the contract of sale was null and void for being contrary to morals and
public policy. The sale was made by a husband in favor of a concubine after he had abandoned
his family and left the conjugal home where his wife and children lived and from whence they
derived their support. The sale was subversive of the stability of the family, a basic social
institution which public policy cherishes and protects.

Article 1409 of the Civil Code states inter alia that: contracts whose cause, object, or purposes
is contrary to law, morals, good customs, public order, or public policy are void and inexistent
from the very beginning.

In the case at bar, the subject property having been acquired during the existence of a valid
marriage between Joseph Sr. and Epifania dela Cruz-Goyanko, is presumed to belong to the
conjugal partnership. Moreover, while this presumption in favor of conjugality is rebuttable with
clear and convincing proof to the contrary, the court finds no evidence on record to conclude
otherwise. The record shows that while Joseph Sr. and his wife Epifania have been estranged
for years and that he and defendant-appellant Maria Ching, have in fact been living together as
common-law husband and wife, there has never been a judicial decree declaring the dissolution
of his marriage to Epifania nor their conjugal partnership. It is therefore undeniable that the
property located at Cebu City belongs to the conjugal partnership. Assuming that the subject
property was not conjugal, still the court cannot sustain the validity of the sale of the property by
Joseph, Sr. to defendant-appellant Maria Ching, there being overwhelming evidence on records
that they have been living together as common-law husband and wife.

Additionally, the law emphatically prohibits the spouses from selling property to each other
subject to certain exceptions. Similarly, donations between spouses during marriage are
prohibited. And this is so because if transfers or conveyances between spouses were allowed
during marriage, that would destroy the system of conjugal partnership, a basic policy in civil
law. It was also designed to prevent the exercise of undue influence by one spouse over the
other, as well as to protect the institution of marriage, which is the cornerstone of family law.
The prohibitions apply to a couple living as husband and wife without benefit of marriage,
otherwise, the condition of those who incurred guilt would turn out to be better than those in
legal union. Those provisions are dictated by public interest and their criterion must be imposed
upon the will of the parties.

Urada v. Mapalad
A.M. MTJ 91-622, 22 March 1993

FACTS:
Atty. Manuel T. Ubarra, on behalf of his client Juanito A. Calderon, charges respondent, the
Presiding Judge of the Municipal Trial Court (MTC) of Pulilan, Bulacan, with grave misconduct,
knowingly rendering an unjust judgment, the violation of the Canons of Judicial Ethics and the
failure to decide within the mandated ninety-day period. Accused Roberto Cruda worked as a
houseboy of the herein respondent; by that time, he (Calderon) had already observed the
latter’s partiality in favor of the said accused. Roberto Cruda married Annabelle V. Manlangit
respondent’s youngest sister; it was the respondent herself who solemnized that marriage other
office, as evidenced by the marriage contract; despite such marriage, respondent did not inhibit
herself from hearing the criminal case and instead proceeded to render and promulgate a
judgment acquitting Cruda, her brother-in-law.

Earlier, however, respondent voluntarily inhibited herself in the other case to avoid suspicion,
partiality or bias because accused Cruda had already become her relative by affinity. Calderon
thus asserts that the respondent acted with bias or partiality in rendering the decision in the
criminal case.

Anent the specific charges leveled against her, respondent claims that the trial on the merits of
the criminal case was terminated. After the court adjourned, Romeo saw the respondent in her
chambers to inform her that Roberto and Annabelle had eloped. Both were, however, married in
her office with her as the solemnizing officer. Thereupon, she inhibited herself. She maintains
that the ground for her inhibition in the criminal case had not yet existed when she tried the
same as she became related to Roberto Cruda within the prohibited degree only on 9 August
1991, long after the termination of the trial therein.

She denies having knowingly rendered an unjust judgment in favor of her brother-in-law
because she “was persuaded to dismiss the same not on account that the guilt of Cruda was
not proven beyond reasonable doubt but by the very reason that both the private complainant
and the accused therein were in pari delicto.”

ISSUE: WHETHER OR NOT the doctrine of in pari delicto is applicable in the criminal case
rendered by the judge.

RULING:

No. We find the application of the pari delicto theory in a criminal case to be strange, to the
least. In the first place, the rule on pari delicto is a rule in civil law. First, in view of the broader
grounds of public policy, the rule may not be invoked against the State. And second, in the
prosecution of public crimes, the complainant is the State — i.e., the People of the Philippines
— while the private offended party is but a complaining witness. Any criminal act perpetrated by
the latter on the occasion of the commission of the crime, or which may have given rise to the
criminal act imputed to the accused is not the act or conduct of the State and can by no means
find it under the doctrine of pari delicto.

In spite of all this, however, the respondent may not necessarily be liable for rendering an unjust
judgment as there is no convincing evidence on record to show that she knew such judgment to
be unjust and that she rendered the same with the conscious and deliberate intent to commit an
injustice. She could only be as she is hereby found, guilty of gross ignorance of the law.

Modina v. CA
G.R. No. 109355, 29 October 1999

FACTS:
Ramon Chiang sold a lot to Modina as evidenced by a deed of sale. Merlinda, the wife of
Ramon, sought the nullity of the sale alleging that said lands were not legally transferred to her
husband. Modina then filed a complaint for recovery of possession with damages against the
spouses and lessees on said lot. RTC and CA ruled in favor of Merlinda. Modina insists that the
deed of sale is valid alleging that the sale between the spouses is void under the law, thereby
allowing the principle of in pari delicto to be applicable. Petitioner avers that these leaves the
guilty spouses as they are and keeps the rights of third persons, such as himself, undisturbed.

ISSUE: WON the sale of the land to Modina is valid.

RULING:

No. The sale of land between Ramon and Modina is null and void.
Art. 1490 of the Civil Code provides that: “The husband and the wife cannot sell property to
each other, except: (1) when a separation of property was agreed upon in the marriage
settlements; or (2) when there has been a judicial separation of property under Art. 191.”

Merlinda is still the owner of the said lot. Not being the owner of the land, Ramon Chiang cannot
sell the same to Modina. Hence the sale is void and inexistent. Petition is denied.

RELLOSA v. GAW CHEE HUN

G.R. No. L-1411. September 29, 1953

FACTS:

On February 2, 1944, Dionisio Rellosa sold to Gaw Chee Hun a parcel of land, together with the
house erected thereon, situated in the City of Manila, Philippines, for the sum of P25,000. The
vendor remained in possession of the property under a contract of lease entered into on the
same date between the same parties.

Alleging that the sale was executed subject to the condition that the vendee, being a Chinese
citizen, would obtain the approval of the Japanese Military Administration in accordance with
(seirei) No. 6 issued on April 2, 1943, by the Japanese authorities, and said approval has not
been obtained, and that, even if said requirement were met, the sale would at all events be void
under article XIII, section 5, of our Constitution.

The vendor instituted the present action in the Court of First Instance of Manila seeking the
annulment of the sale

ISSUES:
1. Whether the sale was void because it is against the constitution
2. Whether the petitioner have the sale declared null and void and recover the property
considering the effect of the law governing rescission of contracts

HELD:

1) Yes, the court held that under the Constitution, aliens may not acquire private or public
agricultural lands, including residential lands. This matter has been once more submitted to the
court for deliberation, but the ruling was reaffirmed. This ruling fully disposes of the question
touching on the validity of the sale of the property herein involved.

2) No, even if the plaintiffs can still invoke the Constitution to set aside the sale in question, they
are now prevented from doing so if their purpose is to recover the lands that they have
voluntarily parted with, because of their guilty knowledge that what they were doing was in
violation of the Constitution. They cannot escape this conclusion because they are presumed to
know the law.
Banking Corp. v. Lui She
G.R. No. L-17587, 12 September 1967

FACTS:
Justina Santos executed on a contract of lease of real properties in favor of Wong.The lease
was for 50 years, although the lessee was given the right to withdraw at any time from the
agreement.

Subsequently, she executed another contract giving Wong the option to buy the leased
premises for P120,000, payable within ten years at a monthly installment of P1,000. The option
imposed on him the obligation to pay for the food of the dogs and the salaries of the maids in
her household, the charge not to exceed P1,800 a month. The option was conditioned on his
obtaining Philippine citizenship, a petition for which was then pending in the CFI of Rizal.

It appears, however, that this application for naturalization was withdrawn when it was
discovered that he was not a resident of Rizal. On October 28, 1958 she filed a petition to adopt
him and his children on the erroneous belief that adoption would confer on them Philippine
citizenship. The error was discovered and the proceedings were abandoned.

In two wills, she bade her legatees to respect the contracts she had entered into with Wong, but
in a codicil of a later date she appears to have a change of heart. Claiming that the various
contracts were made by her because of machinations and inducements practiced by him, she
now directed her executor to secure the annulment of the contracts.

ISSUE: Whether the contracts involving Wong were valid.

RULING:

No, the contracts show nothing that is necessarily illegal, but considered collectively, they reveal
an insidious pattern to subvert by indirection what the Constitution directly prohibits. To be sure,
a lease to an alien for a reasonable period is valid. So is an option giving an alien the right to
buy real property on condition that he is granted Philippine citizenship.

But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of
which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50
years, then it becomes clear that the arrangement is a virtual transfer of ownership whereby the
owner divests himself in stages not only of the right to enjoy the land but also of the right to
dispose of it.

Article 1416 of the Civil Code provides, as an exception to the rule on pari delicto, that “When
the agreement is not illegal per se but is merely prohibited, and the prohibition by law is
designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover
what he has paid or delivered.” The Constitutional provision that “Save in cases of hereditary
succession, no private agricultural land shall be transferred or assigned except to individuals,
corporations, or associations qualified to acquire or hold lands of the public domain in the
Philippines” is an expression of public policy to conserve lands for the Filipinos.

Accordingly, the contracts in question are annulled and set aside; the land subject-matter of the
contracts is ordered returned to the estate of Justina Santos.

FRENZEL v. CATITO
G.R. No. 143958. July 11, 2003

FACTS:

Petitioner Alfred Fritz Frenzel is an Australian citizen of German descent. He was so enamored
with Ederlina that he bought her numerous properties such as house and lot in Quezon City and
in Davao City. He also put up a beauty parlor business in the name of Ederlina. Alfred was
unaware that Ederlina was married until her spouse Klaus Muller wrote a letter to Alfred begging
the latter to leave her wife alone.

When Alfred and Ederlinas relationship started deteriorating. Ederlina had not been able to
secure a divorce from Klaus. The latter could charge her for bigamy and could even involve
Alfred, who himself was still married. To avoid complications, Alfred decided to live separately
from Ederlina and cut off all contacts with her.

On October 15, 1985, Alfred wrote to Ederlinas father, complaining that Ederlina had taken all
his life savings and because of this, he was virtually penniless. He further accused the Catito
family of acquiring for themselves the properties he had purchased with his own money. He
demanded the return of all the amounts that Ederlina and her family had stolen and turn over all
the properties acquired by him and Ederlina during their coverture.

ISSUE: Whether the petitioner could recover the money used in purchasing the several
properties

HELD:

No, even if, as claimed by the petitioner, the sales in question were entered into by him as the
real vendee, the said transactions are in violation of the Constitution; hence, are null and void
ab initio. A contract that violates the Constitution and the law, is null and void and vests no
rights and creates no obligations. It produces no legal effect at all. The petitioner, being a party
to an illegal contract, cannot come into a court of law and ask to have his illegal objective
carried out. One who loses his money or property by knowingly engaging in a contract or
transaction which involves his own moral turpitude may not maintain an action for his losses. To
him who moves in deliberation and premeditation, the law is unyielding. The law will not aid
either party to an illegal contract or agreement; it leaves the parties where it finds them.
DOMINGO GONZALO vs. JOHN TARNATE, JR.
G.R. No. 160600, January 15, 2014

FACTS:
After the DPWH had awarded on July 22, 1997 the contract for the improvement of the
Sadsadan-Maba-ay Section of the Mountain Province-Benguet Road to his company, Gonzalo
Construction, petitioner Gonzalo subcontracted to respondent Tarnate on October 15, 1997, the
supply of materials and labor for the project under the latter’s business known as JNT
Aggregates. Their agreement stipulated, among others, that Tarnate would pay Gonzalo eight
percent and four percent of the contract price, respectively, upon Tarnate’s first and second
billing in the project.

In furtherance of their agreement, Gonzalo executed on April 6, 1999 a deed of assignment

whereby he, as the contractor, was assigning to Tarnate an amount equivalent to 10% of the
total collection from the DPWH for the project. This 10% retention fee was the rent for Tarnate’s
equipment that had been utilized in the project. In the deed of assignment, Gonzalo further
authorized Tarnate to use the official receipt of Gonzalo Construction in the processing of the
documents relative to the collection of the 10% retention fee and in encashing the check to be
issued by the DPWH for that purpose. The deed of assignment was submitted to the DPWH on
April 15, 1999. During the processing of the documents for the retention fee, however, Tarnate
learned that Gonzalo had unilaterally rescinded the deed of assignment by means of an affidavit
of cancellation of deed of assignment dated April 19, 1999 filed in the DPWH on April 22, 1999;
and that the disbursement voucher for the 10% retention fee had then been issued in the name
of Gonzalo, and the retention fee released to him.

Tarnate demanded the payment of the retention fee from Gonzalo, but to no avail.

ISSUE: Whether or not the subcontract and deed of assignment are void contracts.

RULING:

YES. The Court held that the subcontract agreement and deed of assignment between Gonzalo
and Tarnate are void for being contrary to law. However, even though both parties are in pare
delicto the Court allowed Tarnate to recover his retention fee, as an exception, due to unjust
enrichment.

Every contractor is prohibited from subcontracting with or assigning to another person any
contract or project that he has with the DPWH unless the DPWH Secretary has approved the
subcontracting or assignment. Gonzalo, who was the sole contractor of the project in question,
subcontracted the implementation of the project to Tarnate in violation of the statutory
prohibition. Their subcontract was illegal, therefore, because it did not bear the approval of the
DPWH Secretary. Necessarily, the deed of assignment was also illegal, because it sprung from
the subcontract.
Obviously, without the Sub-Contract Agreement there will be no Deed of Assignment to speak
of. The illegality of the Sub-Contract Agreement necessarily affects the Deed of Assignment
because the rule is that an illegal agreement cannot give birth to a valid contract. To rule
otherwise is to sanction the act of entering into a transaction the object of which is expressly
prohibited by law and thereafter execute an apparently valid contract to subterfuge the illegality.
The legal proscription in such an instance will be easily rendered nugatory and meaningless to
the prejudice of the general public.

Under Article 1409 (1) of the Civil Code, a contract whose cause, object or purpose is contrary
to law is a void or inexistent contract. As such, a void contract cannot produce a valid one. To
the same effect is Article 1422 of the Civil Code, which declares that “a contract, which is the
direct result of a previous illegal contract, is also void and inexistent.”

Fullido v. Grilli
G.R. No. 215014, 29 February 2016

FACTS:

Grilli, an Italian national, met Fullido in Bohol and courted her. Grilli decided to build a residential
house where he and Fullido would stay whenever he would be vacationing in the country. Grilli
financially assisted Fullido in procuring a lot from her parents which was registered in her name
On the said property, they constructed a house, which was funded by Grilli. Upon completion,
they maintained a common-law relationship and lived there whenever Grilli was on vacation in
the Philippines twice a year. Grilli and Fullido executed a contract of lease, a memorandum of
agreement and a special power of attorney to define their respective rights over the house and
lot.

The lease contract stipulated, among others, that Grilli as the lessee, would rent the lot,
registered in the name of Fullido, for a period of fifty (50) years, to be automatically renewed for
another fifty (50) years upon its expiration; and that Fullido as the lessor, was prohibited from
selling, donating, or encumbering the said lot without the written consent of Grilli. The MOA, on
the other hand, stated, among others, that Grilli paid for the purchase price of the house and lot;
that ownership of the house and lot was to reside with him; and that should the common-law
relationship be terminated, Fullido could only sell the house and lot to whomever Grilli so
desired.

Lastly, the SPA allowed Grilli to administer, manage, and transfer the house and lot on behalf of
Fullido. Initially, their relationship was harmonious, but it turned sour after 16 years of living
together. Both charged each other with infidelity. They could not agree who should leave the
common property, and Grilli sent formal letters to Fullido demanding that she vacate the
property, but these were unheeded. Grilli filed a complaint for unlawful detainer with prayer for
issuance of preliminary injunction against Fullido The MCTC dismissed the case after finding
that Fullido could not be ejected from their house and lot. The MCTC opined that she was a co-
owner of the house as she contributed to it by supervising its construction. RTC reversed and
set aside the MCTC decision CA upheld the decision of the RTC emphasizing that in an
ejectment case, the only issue to be resolved would be the physical possession of the property.
Hence, this petition.

ISSUE: Whether or not Grilli has the right to possess the property by virtue of the Contract of
Lease.

RULING:

No. The lease contract and the MOA circumvent the constitutional restraint against foreign
ownership of lands. Hence, it is null and void. Under Section 1 of Article XIII of the 1935
Constitution, natural resources shall not be alienated, except with respect to public agricultural
lands and in such cases, the alienation is limited to Filipino citizens.

Concomitantly, Section 5 thereof states that, save in cases of hereditary succession, no private
agricultural land shall be transferred or assigned except to individuals, corporations, or
associations qualified to acquire or hold lands of the public domain in the Philippines. The
prohibition, however, is not limited to the sale of lands to foreigners. It also covers leases of
lands amounting to the transfer of all or substantially all the rights of dominion. Where a scheme
to circumvent the Constitutional prohibition against the transfer of lands to aliens is readily
revealed as the purpose for the contracts, then the illicit purpose becomes the illegal cause
rendering the contracts void.

Thus, if an alien is given not only a lease of, but also an option to buy, a piece of land by virtue
of which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50
years, then it becomes clear that the arrangement is a virtual transfer of ownership whereby the
owner divests himself in stages not only of the right to enjoy the land but also of the right to
dispose of it — rights which constitute ownership.

If this can be done, then the Constitutional ban against alien landholding in the Philippines, is
indeed in grave peril. Based on the above-cited constitutional, legal and jurisprudential
limitations, the Court finds that the lease contract and the MOA in the present case are null and
void for virtually transferring the reigns of the land to a foreigner.

DELOS SANTOS v. ABEJON

G.R. No. 215820, March 20, 2017

FACTS:
Respondents filed Complaint for Cancellation of Title with collection of sum of money against
Petitioners before the RTC. The complaint alleged that Erlinda and her late husband Pedro
Delos Santos (Pedro) borrowed money from the former's sister, Teresita, as evidenced by a
Promissory Note. As security for the loan, Erlinda and Pedro mortgaged their property, covered
by Transfer Certificate of Title. which mortgage was annotated on the title. After Pedro died,
Erlinda ended up being unable to pay the loan, and as such, agreed to sell the subject land to
Teresita. They executed a Deed of Sale and a Release of Mortgage, and eventually issued it in
the name of "Teresita, Abejon.”

In defense, petitioners denied any participation relative to the spurious Deed of Sale, and
instead, maintained that it was Teresita who fabricated the same and caused its registration
before the Register of Deeds of Makati City. They likewise asserted that Erlinda and Pedro
never sold the subject land to Teresita, and that they did not receive any demand for the
payment, representing the loan, representing the construction cost of the building. Finally, they
claimed that the improvements introduced by Teresita on the subject land were all voluntary on
her part.

The RTC ruled that respondents should be reimbursed for the amount of the loan, as well as the
expenses incurred for the construction of the three (3)-storey building in view of petitioners'
categorical admission of their indebtedness to her, as well as the construction of the building
from which they derived benefit being the actual occupants of the property.

The CA ruled that since petitioners admitted their indebtedness to Teresita during the pre-trial
proceedings, respondents should be allowed to recover the amount representing the same,
including the appropriate interest.

ISSUE: WON the CA correctly held that petitioners should be held liable to respondents.

RULING: Petitioners admitted the existence of the loan obligation as well as respondents' right
to collect on the same, it does not necessarily follow that respondents should collect the loan
amount from petitioners, as concluded by both the RTC and the CA. It must be pointed out that
such loan was contracted by Erlinda, who is only one out of the four herein petitioners, and her
deceased husband, Pedro, during the latter's lifetime and while their marriage was still
subsisting.

Both the RTC and the CA erred in holding petitioners liable to respondents for the loan
obligation.

VILLAROEL vs ESTRADA
G.R. No. 47362 December 19, 1940

FACTS:

On May 9, 1912, Alejandro Callao, mother of Juan Villaroel, obtained a loan of P1,000 from
spouses Mariano Estrada and Severina payable after seven years. Alejandra died, leaving Juan
Villaroel as sole heir, Spouses Mariano Estrada and Severina also died, leaving Bernardino
Estrada as sole heir. On August 9, 1930, Juan Villaroel signed a document in which he declared
to pay the debt of his deceased mother in the amount of P1,000 with legal interest of 12% per
annum. The Court of First Instance of Laguna ordered Juan Villaroel to pay the amount of
P1,000 with an interest of 12% per annum from August 9, 1930 until full payment. Villaroel
appealed.

ISSUE: Whether or not the right to prescription may be waived or renounced.

HELD: Yes, right to prescription may be waived or renounced. As a general rule, when a debt
has already prescribed, it cannot be imposed by the creditor. However, a new contract which
recognizes and assumes the prescribed debt is an exception, for it would be valid and
enforceable. Hence, a person who acknowledges the correctness of the debt and promises to
pay it despite knowing that the debt has already prescribed, such as the case at bar, waived the
benefit of the prescription.

Fisher v. Robb
G.R. No. 46274, 2 November 1939

FACTS:

John C. Robb made a business trip to Shanghai as per request by the board of directors of the
Philippine Greyhound Club, Inc. to study the operation of a dog racing course. The defendant
stayed at American Club where he became acquainted with Fisher. Upon knowing the purpose
of the defendant the plaintiff himself asked the defendant if he could be part of the stockholder.
The defendant agreed to it, and the plaintiff then paid the first installment.

The defendant went back to Manila and the board of directors of PGCI issued a call for the
payment of the second installment in which the plaintiff answered that he had already paid the
same. The PGCI was then replaced by The Philippine Racing Club. The defendant then sends
letters to the plaintiff informing him of the critical condition of the PGCI to reimburse the second
installment out of moral responsibility.

ISSUE: Whether or not there was sufficient consideration to justify the promise made by the
defendant-appellant in his letters

RULING:

No. The Supreme Court held that the promise made by an organizer of a dog racing course to a
stockholder to return to him certain amounts paid by the latter in satisfaction of his subscription
upon the belief of said organizer that he was morally responsible because of the failure of the
enterprise, is not the consideration required by article 1261 of the Civil Code as an essential
element for the legal existence of an onerous contract which would bind the promisor to comply
with his promise.
ART. 1261. There is no contract unless the following requisites exists:

The consent of the contracting parties;

A definite object which is the subject-matter of the contract;
A consideration for the obligation established.

In the present case, while the defendant-appellant told the plaintiff-appellee that he felt morally
responsible for the second payments which had been made to carry out his plan, and that Mr.
Hilscher and he would do everything possible so that the stockholders who had made second
payments may receive the amount paid by them from their personal funds because they
voluntarily assumed the responsibility to make such payment as soon as they receive from the
Philippine racing Club certain shares for their services as promoters of said organization, it does
not appear that the plaintiff-appellee had consented to said form of reimbursement which he had
directly paid to the Philippine Greyhound Club, Inc., in satisfaction of the second installment.
The first essential requisite required by the cited article 1261 of the Civil Code for the existence
of a contract, does not exist.

Kalalo v. Luz
G.R. No. L-27782, 31 July 1970

FACTS:

Kalalo, the plaintiff, is a licensed civil engineer who entered into an agreement with defendant
Alfredo J. Luz, a license architect. Plaintiff sent a statement of account to defendant stating his
fee for the service that he rendered. The defendant however did not pay the plaintiff of the exact
amount that he requested because some of appellee’s services were not in accordance with the
agreement and appellee’s claims were not justified by the services actually rendered. Defendant
alleges that plaintiff had no cause of action, that plaintiff was in estoppel because of certain
acts, representations, admissions and/or silence, which led appellant to believe certain facts to
exist and to act upon said facts.

ISSUE: Whether or not under the doctrine of estoppel would apply in this case.

RULING:

No. The statement of accounts could not estop appellee, because appellant did not rely thereon
as found by the Commissioner. Under article 1431 of the Civil Code, in order that estoppel may
apply to the person, to whom representations have been made and who claims the estoppel in
his favor must have relied or acted on such representations.

The essential elements of estoppel in pais may be considered in relation to the party sought to
be estopped, and in relation to the party invoking the estoppel in his favor. As related to the
party to be estopped, the essential elements are: (1) conduct amounting to false representation
or concealment of material facts or at least calculated to convey the impression that the facts
are otherwise than, and inconsistent with, those which the party subsequently attempts to
assert; (2) intent, or at least expectation that his conduct shall be acted upon by, or at least
influence, the other party; and (3) knowledge, actual or constructive, of the real facts. As related
to the party claiming the estoppel, the essential elements are (1) lack of knowledge and of the
means of knowledge of the truth as the facts in questions; (2) (reliance, in good faith, upon the
conduct or statements of the party to be estopped; (3) action or inaction based thereon of such
character as to change the position or status of the party claiming the estoppel, to his injury,
detriment or prejudice.

The first essential element in relation to the party sought to be estopped does not obtain in the
instant case, for, as appears in the Report of the Commissioner, appellee testified “that when he
wrote Exhibit 1 and prepared Exhibit 1-A, he had not yet consulted the services of his counsel
and it was only upon advice of counsel that the terms of the contract were interpreted to him
resulting in his subsequent letters to the defendant demanding payments of his fees pursuant to
the contract Exhibit A.” It is established, therefore, that Exhibit 1-A was written by appellee
through ignorance or mistake. Anent this matter, it has been held that if an act, conduct or
misrepresentation of the party sought to be estopped is due to ignorance founded on innocent
mistake, estoppel will not arise. Regarding the essential elements of estoppel in relation to the
party claiming the estoppel, the first element does not obtain in the instant case, for it cannot be
said that appellant did not know, or at least did not have the means of knowing, the services
rendered to him by appellee and the fees due thereon as provided in Exhibit A. The second
element is also wanting, for, as adverted to, appellant did not rely on Exhibit 1-A but consistently
denied the accounts stated therein. Neither does the third element obtain, for appellant did not
act on the basis of the representations in Exhibit 1-A, and there was no change in his position,
to his own injury or prejudice.

Citibank NA v. Tanco-Gabaldon
G.R. Nos. 198469-70, 4 September 2013

FACTS:

Respondent Gabaldon filed with the SEC’s Enforcement and Prosecution Department a
complaint for violation of the Revised Securities Act and the Securities Regulation Code against
petitioners Citibank N.A.

The respondents met with petitioner Lim, who “induced” them into signing a subscription
agreement for the purchase of USD 2,000,000.00 worth of Ceres II Finance Ltd. Income Notes.
They met again with Lim for another investment proposal, this time for the purchase of USD
500,000.00 worth of Aeries Finance II Ltd. Senior Subordinated Income Notes. In a statement
issued by Citigroup, the respondents learned that their investments declined, until their account
was totally wiped out. Upon verification with the SEC, they learned that the Ceres II Finance Ltd.
Notes and the Aeries Finance II Ltd. Notes were not duly registered securities. They also
learned that Ceres II Finance Ltd., Aeries Finance II Ltd. and the petitioners, among others, are
not duly-registered security issuers, brokers, dealers or agents.
Petitioners Citibank and Citigroup claimed that they did not receive a copy of the complaint and
it was only after the BSP wrote to them that they were furnished a copy. They replied to the BSP
disclaiming any participation by the Citibank or its officers on the transactions and products
complained of.

The SEC-EPD asked from the petitioners certain documents to be submitted during a scheduled
conference, to which they complied. Petitioners, however, reiterated its position that they are not
submitting to the jurisdiction of the SEC. The SEC-EPD, however, terminated its investigation
on the grounds that the respondents’ action has already prescribed.

Later on, petitioners received the SEC En Banc Decision reinstating the complaint and ordering
the immediate investigation of the case.

ISSUE: Whether the criminal action for the offenses punished under the SRC filed by the
respondents has prescribe and the filing of the action for the petitioner's administrative liability is
barred by laches.

RULING:

Given the absence of a prescriptive period for the enforcement of the criminal liability in
violations of the SRC, Act No. 3326 now comes into play. Under Section 73 of the SRC,
violation of its provisions or the rules and regulations is punishable with imprisonment of not less
than seven years nor more than twenty-one years. Applying Section 1 of Act No.3326, a
criminal prosecution for violations of the SRC shall, therefore, prescribe in twelve (12) years.
Hand in hand with Section 1, Section 2 of Act No. 3326 states that prescription shall begin to
run from the day of the commission of the violation of the law, and if the same be not known at
the time, from the discovery thereof and the institution of judicial proceedings for its investigation
and punishment.

The respondents alleged in their complaint that the transactions occurred between September
2000, when they purchased the Subscription Agreement for the purchase of USD 2,000,000.00
worth of Ceres II Finance Ltd. Income Notes, and July 31, 2003, when their Ceres II Finance
Ltd. account was totally wiped out. Nevertheless, it was only sometime in November 2004 that
the respondents discovered that the securities they purchased were actually worthless.
Thereafter, the respondents filed on October 23, 2005 with the Mandaluyong City Prosecutor’s
Office a complaint for violation of the RSA and SRC. In a Resolution dated July 18,2007,
however, the prosecutor’s office referred the complaint to the SEC. Finally, the respondents filed
the complaint with the SEC on September 21,2007. Based on the foregoing antecedents, only
seven (7) years lapsed since the respondents invested their funds with the petitioners, and three
(3) years since the respondents’ discovery of the alleged offenses, that the complaint was
correctly filed with the SEC for investigation. Hence, the respondents’ complaint was filed well
within the twelve (12)-year prescriptive period provided by Section 1 of Act No. 3326.
On the issue of laches, Section 54 of the SRC provides for the administrative sanctions to be
imposed against persons or entities violating the Code, its rules or SEC orders. Just as the SRC
did not provide a prescriptive period for the filing of criminal actions, it likewise omitted to
provide for the period until when complaints for administrative liability under the law should be
initiated. On this score, it is a well-settled principle of law that laches is a recourse inequity,
which is, applied only in the absence of statutory law. And though laches applies even to
imprescriptible actions, its elements must be proved positively. Ultimately, the question of
laches is addressed to the sound discretion of the court and, being an equitable doctrine, its
application is controlled by equitable considerations.

In this case, records bear that immediately after the respondents discovered in 2004 that the
securities they invested in were actually worthless, they filed on October 23, 2005 a complaint
for violation of the RSA and SRC with the Mandaluyong City Prosecutor’s Office. It took the
prosecutor three years to resolve the complaint and refer the case to the SEC, in conformity
with the Court’s pronouncement in Baviera that all complaints for any violation of the SRC and
its implementing rules and regulations should be filed with the SEC. Clearly, the filing of the
complaint with the SEC on September 21, 2007 is not barred by laches as the respondents’
judicious actions reveal otherwise.

Tan vs. Andrade

GR no, 171904, August 7, 2013

FACTS:

Rosario de Andrade was the registered owner of four parcels of land in Cebu. These were
mortgaged and later foreclosed by Simon Diu. Before the redemption period expired, Rosario
sold the lots to Bobby Tan and her son, Proceso Andrade Jr. with a Deed of Sales for P100k.
Proceso executed a Deed of Assignment in favour of Bobby in consideration of P50k. The DoA
was signed by Henry (another son of Rosario), among others. Bobby extended an Option to Buy
(right to buy at a fixed price at a fixed time) the lots in favour of Proceso for the sum of P310k.
Proceso was unable to pay, so Bobby consolidated his ownership over the lots and had titles
issued in his name.

RTC: Rosarioʼs children filed a complaint for reconveyance and annulment of deeds of
conveyance and damages against Bobby. They alleged the ff: – the transaction between
Rosario and Bobby was not a sale but an equitable mortgage, to secure Rosarioʼs debt with
Bobby. – The properties were inherited from their father, hence these were conjugal properties.
Rosario had no right to dispose of their respective shares. The children argue that they
remained as co-owners together with Bobby, despite the titles being issued in his name Bobby
argues that the properties were solely owned by Rosario per the titles issued in her name. He
also contends that he validly acquired the properties when Proceso Jr. failed to exercise his
Option to Buy Back.
RTC dismissed Andradeʼs complaint. – The properties are exclusive properties of Rosario. The
childrenʼs claim had already prescribed and laches set in. – The transaction was a sale not an
equitable mortgage, based on the terms and conditions. – Proceso Jr. Also failed to exercise his
option to buy back, so titles were validly consolidated and favour of Bobby

CA - Partially upheld the RTC decision – The transaction was a sale, not an an equitable
mortgage – The properties belong to the conjugal partnership of Rosario and Proceso Sr. – She
co-owned the same with her children – The sale was only valid as to Rosarioʼs pro-indiviso
share and not the childrensʼ, since they did not consent to the sale – A trust was created
between Bobby and the Andrades (prescription / laches is yet to set in). CA ordered Bobby to
reconvey to the children, their share in the properties Both sides filed motions for
reconsideration, which were both denied, hence the instant petition.

Issue:
1.) W/N the transaction was a sale or an equitable mortgage?
2.) Was the property covered by the conjugal partnership?

RULING:

1. The transaction was a sale. Since RTC and CA both observed that there was no
convincing evidence that it was a mortgage, the findings are conclusive and binding
upon the SC. The general rule is the Court does not review facts.

2. NO, these are exclusive properties of Rosario. Since the RTC and CA had different
findings, the Court will re-examine the facts – Article 160 of the Civil Code which states
that “all property of the marriage is presumed to belong to the conjugal partnership,
unless it is proved that it pertains exclusively to the husband or wife” – The presumption
cannot apply when there is no showing that it was acquired during the marriage – The
conjugal partnership was terminated when Proceso Sr. died in August 7, 1978. The titles
were issued in 1979 solely in the name of Rosario de Andrade, widow – No other
evidence was presented to establish that the lots were procured during coverture or
bought with conjugal funds – Proceso Jr. Was a party to the transaction but did not
dispute it. – The children were aware of the transaction yet only pursued the claim 14
years after the sale was executed (laches had already set in, precluding the children
from pursuing their claim) SC grants Bobbyʼs petition, denies the Andrade childrenʼs
petition, and REINSTATES RTC Decision.

Sps. Roberto Aboitiz vs. Sps. Peter L. Po

G.R. No. 208450, June 5, 2017

FACTS:

This case involves a parcel of land located in Cabancalan, Mandaue City, initially registered
under the name of Roberto Aboitiz. This parcel of land originally belonged to the late Mariano
Seno. On July 31, 1973, Mariano executed a Deed of Absolute Sale in favor of his son, Ciriaco
Seno. On May 5, 1978, Ciriaco sold the two (2) lots to Victoria Po (Victoria). The parties
executed a Deed of Absolute Sale. On July 15, 1982, Mariano died and was survived by his five
(5) children.

In 1990, Peter Po discovered that Ciriaco “had executed a quitclaim dated August 7, 1989
renouncing his interest in favor of Roberto. In the quitclaim, Ciriaco stated that he was “the
declared owner of Lot Nos. 2835 and 2807.

The Spouses Po confronted Ciriaco. By way of remedy, Ciriaco and the Spouses Po executed a
Memorandum of Agreement dated June 28, 1990 in which Ciriaco agreed to pay Peter the
difference between the amount paid by the Spouses Po as consideration for the entire property
and the value of the land the Spouses Po were left with after the quitclaim. However, also in
1990, Lot No. 2835 was also sold to Roberto. The Mariano Heirs, including Ciriaco, executed
separate deeds of absolute sale in favor of Roberto. Thereafter, Roberto immediately developed
the lot as part of a subdivision called North Town Homes. On April 19, 1993, Roberto filed an
application for original registration of Lot No. 2835, the trial court granted the issuance of
Original Certificate of Title No. 0-887 in the name of Roberto. The lot was immediately
subdivided with portions sold to Ernesto and Jose.

On November 19, 1996, the Spouses Po filed a complaint to recover the land and to declare
nullity of title with damages.

The Spouses Aboitiz appealed to the Court of Appeals. The Court of Appeals, in its Decision
dated October 31, 2012, partially affirmed the trial court decision, declaring the Spouses Po as
the rightful owner of the land. However, it ruled that the titles issued to respondents Jose,
Ernesto, and Isabel should be respected.

The Court of Appeals discussed the inapplicability of the rules on double sale and the doctrine
of buyer in good faith since the land was not yet registered when it was sold to the Spouses Po.
However, it ruled in favor of the Spouses Po on the premise that registered property may be
reconveyed to the “rightful or legal owner or to the one with a better right if the title was
wrongfully or erroneously registered in another person’s name.” The Court of Appeals held that
the Mariano Heirs were no longer the owners of the lot at the time they sold it to Roberto in
1990 because Mariano, during his lifetime, already sold this to Ciriaco in 1973.

It found that the Deed of Absolute Sale between Ciriaco and the Spouses Po was duly notarized
and was thus presumed regular on its face. Their Memorandum of Agreement did not cancel or
rescind the Deed of Absolute Sale but rather strengthened their claim that they “entered into a
contract of sale. “It likewise ruled that, contrary to the assertion of the Spouses Aboitiz, there
was no showing that Ciriaco merely held the property in trust for the Mariano Heirs.It held that
the action of the Spouses Po had not yet prescribed because their complaint in 1996 was within
the 10-year prescriptive period as the title in favor of the Spouses Aboitiz was issued in 1994.
However, the Court of Appeals ruled that the certificates of title of Jose, Ernesto, and Isabel
were valid as they were innocent buyers in good faith.

ISSUE: Whether or not the action of Spouses Po is barred by prescription even with the
existence of fraud.

RULING: The Spouses Po’s action has not prescribed. In all cases of registration procured by
fraud, the owner may pursue all his legal and equitable remedies against the parties to such
fraud without prejudice, however, to the rights of any innocent holder for value of a certificate of
title. Article 1456 of the Civil Code provides that a person acquiring a property through fraud
becomes an implied trustee of the property’s true and lawful owner.

An implied trust is based on equity and is either (i) a constructive trust, or (ii) a resulting trust. A
resulting trust is created by implication of law and is presumed as intended by the parties. A
constructive trust is created by force of law such as when a title is registered in favor of a person
other than the true owner. The implied trustee only acquires the right “to the beneficial
enjoyment of the property.” legal title remains with the true owner.

Thus, it was held that when a party uses fraud or concealment to obtain a certificate of title of
property, a constructive trust is created in favor of the defrauded party. Constructive trusts are
“created by the construction of equity in order to satisfy the demands of justice and prevent
unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse
of confidence, obtains or holds the legal right to property which he ought not, in equity and good
conscience, to hold.” When property is registered in another’s name, an implied or constructive
trust is created by law in favor of the true owner. The action for reconveyance of the title to the
rightful owner prescribes in 10 years from the issuance of the title. Thus, the law creates a trust
in favor of the property’s true owner.

It is now well-settled that the prescriptive period to recover property obtained by fraud or
mistake, giving rise to an implied trust under Art. 1456 of the Civil Code, is 10 years pursuant to
Art. 1144. This ten year prescriptive period begins to run from the date the adverse party
repudiates the implied trust, which repudiation takes place when the adverse party registers the
land. Considering that the Spouses Po’s complaint was filed on November 19, 1996, less than
three (3) years from the issuance of the Torrens title over the property on April 6, 1994, it is well
within the 10-year prescriptive period imposed on an action for reconveyance.

Agnes V. Guison v. Heirs of Loreño Terry

G.R. No. 191914; August 9, 2017

FACTS:A Deed of Absolute Sale was executed in favor of Respondent Terry by

Petitioner’s father. The subject of the sale was a parcel of land in Catanduanes. Respondent
then sold certain portions of the lot to third parties. However, subsequently, Petitioner’s father
and Respondent executed an Agreement of Revocation of Sale relating to the same parcel of
land. The instrument stated that Vargas had erroneously sold the entire area of Lot 10628-pt to
Terry. The parties, however, averred that their true intention was only to convey a 3,000-
square-meter portion of the land to Terry, considering that there was no monetary
consideration for the transaction. Consequently, they agreed to revoke the earlier Deed of
Absolute Sale to the extent of 1.0894 hectares, while affirming the validity of the conveyance to
Terry of a 3,000-square-meters potion, whose actual location would later be determined by both
parties in a separate document.Vargas died on 10 June 1998with no agreement executed
regarding the actual location of the land conveyed to Terry. A Partition Agreementwas then
entered into by the Heirs of Angeles Vargas, represented by petitioner, and respondent
Terry. The instrument, which was executed for the purpose of physically segregating the
3,000-square-meter portion allotted to Terry. Thereafter, Terry sold other portions of the
property to third parties with all the foregoing transactions leaving him with ownership of only 17
square meters of the lot.

As such, Petitioner filed a Complaint for annulment of contracts,accion publiciana, and damages
against Terry and all those who had allegedly purchased portions of the lot from him. Petitioner
argued that the original Deed of Absolute Sale and the Agreement of Revocation of Sale should
be considered void for lack of consideration. She then contended that the nullity of
those earlier instruments led to the invalidity of the Partition Agreement, because it was signed
in the mistaken belief that Terry had a right to the property. Respondent third parties claim that
they were buyers in good faith and that Petitioner is estopped from seeking recovery of
the property since he acknowledged Respondent Terry’s entitlement to the property.

The RTC rendered a decision in favor of the Petitioner while the CA reversed.

ISSUES:
1.Whether the Revocation and Partition agreements should be annulled?
2.Whether the Petitioner’s claims are barred by laches?

RULING:

1. Yes. The two agreements are null and void. There was no meeting of the minds
regarding the consideration for the sale. As such, the property was never validly conveyed to
Terry. Based on the provisions of the Revocation Agreement and the Partition Agreement, we
conclude that the two instruments must be read as part of a single contract of sale. In
the Revocation Agreement, the parties recognized the transfer of a 3,000-square meter
portion of Lot No. 10628-pt to Terry. However, instead of identifying the specific segment
of the property allegedly conveyed, they stipulated that “the actual location of the said 3,000
square meters shall be determined by both parties in a separate document consonant with
this agreement, but forming a part hereof.That separate document was the Partition
Agreement subsequently executed by the parties to physically segregate the portion of the
property sold to Terry.

It is therefore evident that the two instruments in question are not separate contracts, but are
mere components of the same sales transaction.Consideration is one of the requisites of a valid
contract of sale as per Article 1458 of the Civil Code. Neither agreement mentions the purchase
price for the sale of the lot. Although it was alleged by the Respondents that the
consideration was paid twice for the same lot (P5,557.60 upon the execution of the
original Deed of Absolute Sale and P3,000 upon the signing of the Revocation
Agreement) while petitioner contends that there was no consideration stated in the
Revocation Agreement, because the parties agreed to determine the price of the property
in a separate document, the Court has determined that indeed, no “price certain” was
concluded. This lack of consensus as to the price prevented the perfection of the sale. We
emphasize that the law requires a definite agreement as to a “price certain”; otherwise, there is
no true meeting of the minds between the parties.

2. Yes. Despite the invalidity of the agreements, the Petitioner is estopped from
questioning the title of those who purchased the lot fromTerry and relied upon Petitioner’s
representations in the Partition Agreement.The essential elements of estoppel in pais, in relation
to the party sought to be estopped, are: 1) a clear conduct amounting to false representation
or concealment of material facts or, at least, calculated to convey the impression that the
facts are otherwise than, and inconsistent with, those which the party subsequently attempts to
assert; 2) an intent or, at least, an expectation, that this conduct shall influence, or be acted
upon by, the other party; and 3) the knowledge, actual or constructive, by him of the real
facts.

With respect to the party claiming the estoppel, the conditions he must satisfy are: 1) lack of
knowledge or of the means of knowledge of the truth as to the facts in question; 2) reliance, in
good faith, upon the conduct or statements of the party to be estopped; and 3) action or
inaction based thereon of such character as to change his position or status calculated
to cause him injury or prejudice. It has not been shown that respondent intended to
conceal the actual facts concerning the property; more importantly, petitioner has been shown
not to be totally unaware of the real ownership of the subject property. All the foregoing
requisites have been fulfilled in this case. When petitioner signed the Partition Agreement, she
clearly recognized Terry’s right as absolute owner of the portion of the property assigned to
him, with no reservation whatsoever. She recognized that right despite her doubts about
the validity of the sale made by her father and the knowledge that Terry had not yet paid for the
land. Moreover, she could not have been oblivious to the fact that the document might be used
to influence others to buy the land, because she knew that Terry had previously sold portions of
the property to third persons. Respondents Sarmiento and Alberto, on the other hand, clearly
relied in good faith on the Partition AgreementOn the other hand, the Court does not agree
that the doctrine of laches is applicable here. The interval of six years between the date
of execution of the Partition Agreement and that of the institution of the Complaint in this
case does not, by itself, render the demands of petitioner stale.

Manila Lodge No. 761 Benevolent and Protective Order of the Elks v. CA
G.R. No. L-41001, 30 September 1976

FACTS:
The Philippine Commission enacted Act No. 1360 which authorized the City of Manila to reclaim
a portion of Manila Bay. Subsequently Act No. 1657 amended the former act which states that
the City of Manila was authorized to sell or lease the set aside for hotel site. The City of Manila
sold the land to Manila Lodge No. 761 then the latter sold the land to Tarlac Development
Corporation. The City of Manila filed a petition for re-annotation of its right to repurchase. The
TDC then filed a complaint that the City of Manila was estopped from repurchasing the property.

ISSUE: Whether or not the City of Manila was estopped from questioning the validity of the sale.

RULING:

The Government is never estopped by mistakes or errors on the pan of its agents, and estoppel
does not apply to a municipal corporation to validate a contract that is prohibited by law or is
against Republic policy, and the sale executed by the City of Manila to Manila Lodge was
certainly a contract prohibited by law. Moreover, estoppel cannot be urged even if the City of
Manila accepted the benefits of such contract of sale and the Manila Lodge No. 761 had
performed its part of the agreement, for to apply the doctrine of estoppel against the City of
Manila in this case would be tantamount to enabling it to do indirectly what it could not do
directly.

The sale of the subject property executed by the City of Manila to the Manila Lodge No. 761,
BPOE, was void and inexistent for lack of subject matter. It suffered from an incurable defect
that could not be ratified either by lapse of time or by express ratification. The Manila Lodge No.
761 therefore acquired no right by virtue of the said sale. Hence to consider now the contract
inexistent as it always has seen, cannot be, as claimed by the Manila Lodge No. 761, an
impairment of the obligations of contracts, for there was it, contemplation of law, no contract at
all.

Miguel v. Catalino
G.R. No. L-23072, 29 November 1968

FACTS:

Bacaquio was an owner of a parcel of land and subsequently sold it to Catalino Agyapao, father
of defendant Florendo Catalino for for P300.00 in 1928 which of the purchase price P100.00
was paid and receipted for when the land was surveyed, but the receipt was lost; the balance
was paid after the certificate of title was issued. Bacaquio. No formal deed of sale was
executed, but since the sale in 1928, or for more than 30 years, vendee Catalino Agyapao and
his son, defendant-appellee Florendo Catalino, had been in possession of the land, in the
concept of owner, paying the taxes thereon and introducing improvements. Grace Ventura, by
herself alone, “sold” as per her Transferor’s Affidavit presented, anew the same land for
P300.00 to defendant Florendo Catalino. Catalino Agyapao in turn sold the land to his son, the
defendant Florendo Catalino. It is worth noting that in the Original Certificate Title of the subject
land, no encumbrance or sale has ever been annotated in the certificate of title. Simeon, Emilia
and Marcelina Miguel, and appellant Grace Ventura brought suit against Florendo Catalino for
the recovery of the land, plaintiffs claiming to be the children and heirs of the original registered
owner, and averred that defendant, without their knowledge or consent, had unlawfully taken
possession of the land, gathered its produce and unlawfully excluded plaintiffs therefrom.
Defendant answered pleading ownership and adverse possession for 30 years. After trial the
Court dismissed the complaint, declared the defendant to be the rightful owner, and ordered the
Register of Deeds to issue a transfer certificate in lieu of the original.

ISSUE: Who is the rightful owner of the land? Does the principle of estoppel apply?

RULING:

The sale of the land by Bacaquio to Catalino Agyapao, defendant’s father, is null and void ab
initio, for lack of executive approval. Section 145(b) of the Administrative Code of Mindanao and
Sulu, providing that no conveyance or encumbrance of real property shall be made in that
department by any non-christian inhabitant of the same, unless, among other requirements, the
deed shall bear indorsed upon it the approval of the provincial governor or his representative
duly authorized in writing for the purpose and Section 146 of the same Code, declaring that
every contract or agreement made in violation of Section 145 “shall be null and void”.Since the
sale is technically invalid, Bacaquio remained, in law, the owner of the land until his death in
1943, when his title passed on, by the law on succession, to his heirs, the plaintiffs-appellants.

Notwithstanding, the Court is of the opinion that the judgment in favor of defendant-appellee
Florendo Catalino must be sustained. For despite the invalidity of his sale to Catalino Agyapao,
father of defendant-appellee, the vendor Bacaquio suffered the latter to enter, possess and
enjoy the land in question without protest, from 1928 to 1943, when the seller died; and the
appellants, in turn, while succeeding the deceased, also remained inactive, without taking any
step to vindicate the lot from 1944 to 1962, when the present suit was commenced in court.
Even granting appellants’ proposition that no prescription lies against their father’s recorded
title, their passivity and inaction for more than 34 years (1928-1962) justifies the defendant-
appellee in setting up the equitable defense of laches in his own behalf. As a result, the action
of plaintiffs-appellants must be considered barred and the Court below correctly so held. Courts
cannot look with favor at parties who, by their silence, delay and inaction, knowingly induce
another to spend time, effort and expense in cultivating the land, paying taxes and making
improvements thereon for 30 long years, only to spring from ambush and claim title when the
possessor’s efforts and the rise of land values offer an opportunity to make easy profit at his
expense.

The four elements of laches are present in the case at bar, namely: (a) conduct on the part of
the defendant, or of one under whom he claims, giving rise to the situation of which complaint is
made and for which the complaint seeks a remedy; (b) delay in asserting the complainant’s
rights, the complainant having had knowledge or notice, of the defendant’s conduct and having
been afforded an opportunity to institute a suit; (c) lack of knowledge or notice on the part of the
defendant that the complainant would assert the right on which he bases his suit; and (d) injury
or prejudice to the defendant in the event relief is accorded to the complainant or the suit is not
held to be barred. In the case at bar, Bacaquio sold the land in 1928 but the sale was void for
lack of the governor’s approval. The vendor, and also his heirs after him, could have instituted
an action to annul the sale from that time, since they knew of the invalidity of the sale, which is a
matter of law; they did not have to wait for 34 years to institute suit. The defendant was made to
feel secure in the belief that no action would be filed against him by such passivity, and also
because he “bought” again the land in 1949 from Grace Ventura who alone tried to question his
ownership; so that the defendant will be plainly prejudiced in the event the present action is not
held to be barred.

The defense of laches applies independently of prescription. Laches is different from the statute
of limitations. Prescription is concerned with the fact of delay, whereas laches is concerned with
the effect of delay. Prescription is a matter of time; laches is principally a question of the inequity
of permitting a claim to be enforced, this inequity being founded on some change in the
condition of the property or the relation of the parties. The prescription is statutory; laches is not.
Laches apply in equity, whereas prescription applies at law. Prescription is based on fixed time
laches is not.

Since the plaintiffs-appellants are barred from recovery, their divestiture of all the elements of
ownership in the land is complete; and the Court a quo was justified in ordering that Bacaquio’s
original certificate be cancelled, and a new transfer certificate in the name of Florendo Catalino
be issued in lieu thereof by the Register of Deeds.

Salao v. Salao
G.R. No. L-26699 March 16, 1976

FACTS:

The spouses Manuel Salao and Valentina Ignacio of Barrio Dampalit, Malabon, Rizal begot four
children named Patricio, Alejandra, Juan and Ambrosia. Manuel Salao died in 1885. His eldest
son, Patricio, died in 1886 survived by his only child. Valentin Salao. His widow died on May 28,
1914. After her death, her estate was administered by her daughter Ambrosia. It was partitioned
extrajudicially in a notarized deed. The deed was signed by her four legal heirs, namely, her
three children, Alejandra, Juan and Ambrosia, and her grandson, Valentin Salao, in
representation of his deceased father, Patricio. Prior to the death of Valentina Ignacio her two
children, Juan Y. Salao, Sr. and Ambrosia Salao, secured a Torrens title in their names for a
forty-seven-hectare Calunuran fishpond. Juan Y. Salao, Sr. died on November 3, 1931 at the
age of eighty years. His nephew, Valentin Salao, died on February 9, 1933 at the age of sixty
years according to the death certificate. The intestate estate of Valentin Salao was partitioned
extrajudicially between his two daughters, Benita Salao-Marcelo and Victorina Salao-Alcuriza.
His estate consisted of the two fishponds which he had inherited in 1918 from his grandmother,
Valentina Ignacio. Ambrosia Salao donated to her grandniece, plaintiff Benita Salao, three lots.
It was only after Ambrosia Salao’s death that she thought of filing an action for the
reconveyance of the Calunuran fishpond which was allegedly held in trust and which had
become the sole property of Juan Salao y Santiago.

During the Japanese occupation and about a year before Ambrosia Salao’s death on
September 14, 1945 due to senility, she donated her one-half proindiviso share in the two
fishponds in question to her nephew, Juan S. Salao, Jr. At that time she was living with Juani’s
family. He was already the owner of the other half of the said fishponds, having inherited it from
his father, Juan Y. Salao, Sr. The deed of denotion included other pieces of real property owned
by Ambrosia.

ISSUE: WON plaintiffs have successional rights to Ambrosia’s share.

RULING:

No. The plaintiffs would not have any successional rights to Ambrosia’s share. The sole legal
heir of Ambrosia was her nephew, Juan, Jr., her nearest relative within the third degree.
Valentin Salao, if living in 1945 when Ambrosia died, would have been also her legal heir,
together with his first cousin, Juan, Jr. (Juani). Benita Salao, the daughter of Valentin, could not
represent him in the succession to the estate of Ambrosia since in the collateral line,
representation takes place only in favor of the children of brothers or sisters whether they be of
the full or half blood is (Art 972, Civil Code). The nephew excludes a grandniece like Benita
Salao or great-grandnephews like the plaintiffs Alcuriza.

Goyanko, Jr. v. UCPB

G.R. No. 179096, February 06, 2013

FACTS:

The late Joseph Goyanko, Sr. (Goyanko) invested Two Million Pesos (P2,000,000.00) with
Philippine Asia Lending Investors, Inc. family, represented by the petitioner, and his illegitimate
family presented conflicting claims to PALII for the release of the investment. PALII deposited
the proceeds of the investment with UCPB on October 29, 1996, under the name "Phil Asia: ITF
(In Trust For) The Heirs of Joseph Goyanko, Sr." (ACCOUNT). On September 27, 1997, the
deposit under the ACCOUNT was P1,509,318.76.

UCPB allowed PALII to withdraw One Million Five Hundred Thousand Pesos (P1,500,000.00)
from the Account, leaving a balance of only P9,318.76. When UCPB refused the demand to
restore the amount withdrawn plus legal interest from December 11, 1997, the petitioner filed a
complaint before the RTC. In its answer to the complaint, UCPB admitted, among others, the
opening of the ACCOUNT under the name "ITF (In Trust For) The Heirs of Joseph Goyanko,
Sr.," (ITF HEIRS) and the withdrawal on December 11, 1997.

RTC dismissed the petitioner’s complaint. The CA held that no express trust was created
between the HEIRS and PALII. For a trust to be established, the law requires, among others, a
competent trustor and trustee and a clear intention to create a trust, which was absent in this
case. Quoting the RTC with approval, the CA noted that the contract of deposit was only
between PALII in its own capacity and UCPB, and the words "ITF HEIRS" were insufficient to
establish the existence of a trust. The CA concluded that as no trust existed, expressly or
impliedly, UCPB is not liable for the amount withdrawn.

ISSUE: WON there is a trust established between the heirs of Goyanko and UCPB.
RULING:

No trust, express or implied, was established between the parties in this case. First, while an
ascertainable trust res and sufficiently certain beneficiaries may exist, a competent trustor and
trustee do not. Second, UCPB, as trustee of the ACCOUNT, was never under any equitable
duty to deal with or given any power of administration over it. On the contrary, it was PALII that
undertook the duty to hold the title to the ACCOUNT for the benefit of the HEIRS. Third, PALII,
as the trustor, did not have the right to the beneficial enjoyment of the ACCOUNT. Finally, the
terms by which UCPB is to administer the ACCOUNT was not shown with reasonable certainty.
While we agree with the petitioner that a trust’s beneficiaries need not be particularly identified
for a trust to exist, the intention to create an express trust must first be firmly established, along
with the other elements laid above; absent these, no express trust exists.

Obiter Dictum

We find that the petitioner changed the theory of his case. The petitioner argued before the
lower courts that an express trust exists between PALII as the trustee and the HEIRS as the
trustor-beneficiary. The petitioner now asserts that the express trust exists between PALII as the
trustor and UCPB as the trustee, with the HEIRS as the beneficiaries. At this stage of the case,
such a change of theory is simply not allowed as it violates basic rules of fair play, justice, and
due process. Our rulings are clear - "a party who deliberately adopts a certain theory upon;
which the case was decided by the lower court will not be permitted to change [it] on appeal"
otherwise, the lower courts will effectively be deprived of the opportunity to decide the merits of
the case fairly.

Tong vs. Go Tiat Kun

G.R. No. 196023, April 21, 2014

FACTS:
Juan Tong met all his children to inform them of his intention to purchase a lot for the family’s
lumber business. Since he was a Chinese citizen the title to the property will be registered to
Luis, Sr., his only Filipino child among his children. Accordingly, the title was issued to Luis, Sr.

Luis, Sr. predeceased Juan Tong. The heirs of the former claimed ownership over the lot by
succession causing a new TCT in their names. The other children of Juan Tong discovered the
breach of the trust agreement when Luis, Jr. sold his share of the lot to Fine Rock Development
Corporation, which in turn sold the same to Visayas Goodwill Credit Corporation. The other
children succeeded in recovering Luis, Jr.’s share of the lot.

The share of the wife of Luis, Sr. was divided in favor of her children. The other children of Juan
Tong filed a case to nullify the title and deeds. The trial court rendered its judgement in favor of
the plaintiffs, ruling that there was an implied trust. However, the Court of Appeals reversed the
set aside the trial court’s decision, ruling that there was an express trust created. The CA also
ruled that even granting that an implied trust was created, the said resulting trust was converted
into a constructive trust upon Luis, Sr. 's death.

ISSUE: Whether the case falls under an express trust.

RULING:

No. The Court held that “The principle of a resulting trust is based on the equitable doctrine that
valuable consideration and not legal title determines the equitable title or interest and are
presumed always to have been contemplated by the parties. They arise from the nature or
circumstances of the consideration involved in a transaction whereby one person thereby
becomes invested with legal title but is obligated in equity to hold his legal title for the benefit of
another. On the other hand, a constructive trust, unlike an express trust, does not emanate
from, or generate a fiduciary relation. Constructive trusts are created by the construction of
equity in order to satisfy the demands of justice and prevent unjust enrichment. They arise
contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or holds
the legal right to property which he ought not, in equity and good conscience, to hold.”

Spouses Trinidad v. Imson

G.R. No. 197728, September 16, 2015

FACTS:

On August 17, 2007, herein petitioners filed with the Metropolitan Trial Court (MeTC) of Pasig
City a Complaint for ejectment against herein respondent. In their Position Paper, petitioners
alleged that: they are the owners of a condominium unit, denominated as Unit 2203, which is
located at AIC Gold Tower, Emerald Avenue, Ortigas Center, Pasig City; they purchased the
condominium unit from three (3) Indian nationals who originally contracted to buy the said
property from the developer, AIC Realty Corporation (AIC), but had not fully paid for it yet;
petitioners' purchase was evidenced by a Deed of Assignment and Transfer of Rights6 dated
June 13, 2002 and, later on, a Deed of Absolute Sale7 dated July 13, 2007 in the name of
petitioner Armando; at the time of petitioners' purchase of the subject condominium unit, the
same was being leased by respondent from the original owners; the period of lease was from
April 1, 2002 to March 1, 2003; petitioners respected the contract of lease between respondent
and the original owners; however, since June 2002 up to the time of the filing of the complaint
for ejectment, respondent neither remitted nor consigned the monthly rentals due to petitioners
for her continued use of the condominium unit; the rental arrears amounted to a total of
P2,130,000.00; petitioners sent a letter of demand to respondent requiring that she, together
with any and all persons using the said unit with her approval, vacate the premises and pay her
arrears; respondent ignored petitioners' demand letter; petitioners tried to settle the case
amicably but no agreement was reached.

In her Answer with Compulsory Counter claims, respondent countered that: she, indeed,
entered into a contract of lease with the original owners of the disputed condominium unit which
was to commence on April 1, 2002 and would end on March 1, 2003; sometime in June 2002,
she decided to purchase the unit; however, since she was then undergoing proceedings to
annul her previous marriage and thinking that her purchase of the subject property would disrupt
the property arrangements already agreed upon, she thought it best not to have the
condominium unit registered yet in her name; instead, she requested Armando Trinidad, who
was her confidante, to purchase the unit and register it under his name with the understanding
that the said property would actually be owned by respondent; Armando agreed without
objection, which led to the execution of the Deed of Assignment and Transfer of Rights in his
name; payments for the purchase price were made by respondent through cash and checks
paid to the original owners who acknowledged said payments; aside from paying the purchase
price, respondent also paid the real property taxes due on the condominium unit as well as the
association dues, water bills, common area real estate tax, building insurance and other
charges billed by the developer; having full trust in Armando, coupled with her hectic schedule,
respondent did not bother to transfer ownership of the subject unit in her name; since April 2002
up to the time of filing her Answer, respondent has been in open and public possession of the
subject property; in 2007, while respondent was out of the country, Armando, without
respondent's knowledge, annotated his claim on the condominium certificate of title; he also
executed a Deed of Absolute Sale in his favor on July 13, 2007; as a result, respondent was
surprised to receive a copy of petitioners' demand letter and complaint.

The MeTC of Pasig City rendered its Decision dismissing petitioners' complaint and ordering
them to pay respondent the amount of P250,000.00 as attorney's fees and cost of suit.

CA promulgated its assailed Decision setting aside the RTC judgment and ordering petitioners
to return possession of the subject condominium unit to respondent. CA ratiociated that, based
on the evidence adduced by the parties, respondent's claim of ownership deserves more
credence. The CA ruled that records of payment of the purchase price of the subject property,
through respondent's personal checks, acknowledgment of these payments by the former
owners by way of receipt and affidavit, and respondent's exercise of acts of ownership prove
that she is the owner of the disputed condominium unit and, thus, is entitled to the possession
thereof. Petitioners filed a Motion for Reconsideration but the CA denied it in its Resolution

ISSUE: Whether or not an implied trust was created in respondent's favour?

RULING :
The first sentence of Article 1448 of the Civil Code provides that "there is an implied trust when
property is sold and the legal estate is granted to one party but the price is paid by another for
the purpose of having the beneficial interest of the property." This is sometimes referred to as a
purchase money resulting trust, the elements of which are: (a) an actual payment of money,
property or services, or an equivalent, constituting valuable consideration; and (b) such
consideration must be furnished by the alleged beneficiary of a resulting trust.

The principle of a resulting trust is based on the equitable doctrine that valuable consideration,
and not legal title, determines the equitable title or interest and are presumed always to have
been contemplated by the parties. They arise from the nature or circumstances of the
consideration involved in a transaction whereby one person thereby becomes invested with
legal title but is obligated in equity to hold his legal title for the benefit of another, although only
presumed, implied or supposed by law from the nature of the transaction or from the facts and
circumstances accompanying the transaction, particularly the source of the consideration - is
always an element of a resulting trust and may be inferred from the acts or conduct of the
parties rather than from direct expression of conduct.

Certainly, intent as an indispensable element, is a matter that necessarily lies in the evidence,
that is, by evidence, even circumstantial, of statements made by the parties at or before the time
title passes, because an implied trust is neither dependent upon an express agreement nor
required to be evidenced by writing. Article 1457 of our Civil Code authorizes the admission of
parole evidence to prove their existence. Parole evidence that is required to establish the
existence of an implied trust necessarily has to be trustworthy and it cannot rest on loose,
equivocal or Indefinite declarations. In the instant petition, the Court finds no cogent reason to
depart from the findings of the MeTC and the CA that, under the circumstances of the case, the
parole evidence presented by respondent sufficiently proves that an implied trust was created in
her favor. Finally, a trust, which derives its strength from the confidence one reposes on
another, does not lose that character simply because of what appears in a legal document.
Applying this principle to the present case, petitioner Armando, as trustee, cannot repudiate the
trust by simply relying on the questioned Deed of Assignment and Transfer of Rights and the
Deed of Absolute Sale. WHEREFORE, the instant petition is DENIED.

FABIAN vs. FABIAN

G.R. No. L-20449, January 29, 1968

FACTS:

Pablo Fabian bought from the Philippine Government lot 164 of the Friar Lands Estate in
Muntinlupa, Rizal, of an area 1 hectare, 42 acres and 80 centares, for the sum of P112 payable
in installments. By virtue of this purchase, he was issued sale certificate 547. He died on August
2, 1928, survived by four children, namely, Esperanza, Benita I, Benita II, and Silbina. Fabian,
married to Feliciano Landrito, and Teodora Fabian, married to Francisco del Monte, for the sum
of P120. The vendees spouses forthwith in 1929 took physical possession thereof, cultivated it,
and appropriated the produce therefrom (and concededly have up to the present been
appropriating the fruits from the land exclusively for themselves). On the basis of a partial
stipulation of facts together with annexes, the lower court rendered judgment on June 28, 1962,
declaring that the defendant spouse had acquired a valid and complete title to the property by
acquisitive prescription, and accordingly dismissed the complaint, with costs against the
plaintiffs.

ISSUE: Whether or not laches may constitute a bar to an action to enforce a constructive trust?
RULING:

Upon the undisputed facts in the case at bar, not only had laches set in when the appellants
instituted their action for, reconveyance in 1960, but as well their right to enforce the
constructive trust had already prescribed. When respondents executed theaforementioned deed
of extra-judicial settlement stating therein that they are the sole heir of the late Marcelo de
Guzman, and secured new transfer certificates of title in their ownname, they thereby excluded
the petitioners from the estate of the deceased, and consequently, set up a title adverse to
them. And this is why petitioners have brought this action for the annulment of said deed upon
the ground that the same is tainted with fraud. Article 1456 of the new Civil Code, while not
retroactive in character, merely expresses arule already recognized by our courts prior to the
Code’s promulgation. The express trusts disable the trustee from acquiring for his own benefit
the property committed to his management or custody, at least while he does not openly
repudiate the trust, and makes such repudiation known to the beneficiary or
cestui que trust.

BUENO et al vs. MATEO and JUAN REYES

G.R. No. L-22587, April 28, 1969

FACTS:

Francisco Reyes filed an answer in a Cadastral Case claiming lot No. 2857 as property
belonging to himself and to his two brothers, Juan and Mateo. The case was heard without
opposition, and the lot was adjudicated in favor of the claimants in whose names an OCT was
issued to.

Twenty-three years thereafter, the plaintiffs filed the action below for reconveyance of the
subject land. They allege in their complaint that the said lot originally belonged to Jorge Bueno,
who died leaving three children, namely, Brigida, Eugenia and Rufino to whom the property
descended by intestate succession; that subsequently Brigida and Eugenia died, leaving their
respective children, who are now the plaintiffs-appellants together with Rufino; that Francisco
Reyes was Eugenia’s husband and the father of the plaintiffs surnamed Reyes, “who [by]
agreement among the heirs of Jorge Bueno was entrusted in filing the answer in the cadastral
proceedings and in obtaining the title thereto for and in behalf of all the heirs of Jorge Bueno,
including his wife Eugenia Bueno.” (Par. V of the complaint.)
That as agreed upon with said Francisco Reyes, said Francisco Reyes declared the said parcel
of land above-described in his name, and either in bad faith or by mistake filed an answer in the
cadastral proceedings and obtained title thereto in his name and those of brothers, Mateo and
Juan, who connived and consented to the malicious or erroneous acts of the late Francisco
Reyes, knowing fully well that said parcel of land was never owned by them and has never been
in their possession, and knowing further that said parcel of land belonged to, and possessed by
the wife of Francisco Reyes in conjunction with her sister and brother, Brigida and Rufino,
respectively;

That the fact that Francisco Reyes, Mateo Reyes and Juan Reyes are declared owners of the
has only been discovered during this year when Mateo Reyes and Juan Reyes, the defendants
herein, including Francisco Reyes who was dead long ago, filed with this Court a petition for the
issuance of a writ of possession against a wrong person by the name of Mateo R. Reyes, who
now admittedly (sic) not the possessor of the lot but plaintiffs herein, and the plaintiffs have
demanded from the defendants the reconveyance and/or the quit claiming of their undivided
shares as appearing in said Certificate of Title No. but then, they refused, and continue to
refuge to do so.

The plaintiffs’ complaint was dismissed, upon motion of the defendants, alleging that there is
already prescription of action. Hence, this petition.

ISSUE: WON the lower court erred in the dismissal of the complaint on the ground of
prescription.

HELD: The order appealed from is set aside and the case is remanded for further proceedings

Both the appellees and the court below proceeded on the theory that the action for
reconveyance was predicated on the existence of an implied trust, and that such an action
prescribes in 10 years. The appellants counter, in this appeal, that the trust was not implied but
express, and that in any case even an implied trust, according to some decisions of this Court,
is imprescriptible.

1. NO. If any trust can be deduced at all from the foregoing facts it was an implied one, arising
by operation of law not from any presumed intention of the parties but to satisfy the demands of
justice and equity and as a protection against unfair dealing or downright fraud. Indeed, in this
kind of implied trust, commonly denominated constructive, as distinguished from resulting trust,
there exists a certain antagonism between the cestui que trust and the trustee. Thus, for
instance, under Article 1456 of the Civil Code:

“if property is acquired through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property
comes.” In a number of cases this Court has held that registration of property by one person in
his name, whether by mistake or fraud, the real owner being another person, impresses upon
the title so as to acquire the character of a constructive trust for the real owner, which would
justify an action for reconveyance.

Tamayo v Callejo
GR No. L-25563, Jul 28, 1972

FACTS:

Before 1912, the Tamayos sold a piece of land to Fernando Domantay, who took possession of
the land. When Vicente died after the sale and his widow waived her rights to the remaining
portion of the property to their children Mariano and Marcos, the two brothers applied to register
the land in their name, saying they inherited it from their father, including the part that was sold
to Domantay. In 1918 Domantay sold the land to Callejo. In 1940 Mariano Tamayo sold the land
to Estacio, whose surveyor went to the land in 1952 to segregate it; that same year Callejo
registered his adverse claim to the land. Tamayo pleaded the statute of limitations as defense,
but the court found that in 1918, when they had the land registered in their name, Mariano
Tamayo, on his behalf and that of his brother, executed a public document acknowledging that
his deceased parents had sold a parcel of the land to Domantay. Though there was no clear
evidence to create a trust, ruling out an express trust, the admission of the sale in a public
document turned the implied trust into an express one. An express trust, the court held, was a
“continuing and subsisting trust” until repudiated, in which case the period of prescription begins
to run only from the time of repudiation.

ISSUE: W/N the erroneous inclusion of the parcel of land owned by Callejo in Mariano’s
certificate of title created an implied trust.

RULING:

NO. Although the trust created by the application for registration and the inclusion of Callejo’s
parcel of land may have created an implied trust, this status was substantially affected when on
June 28, 1918, Domantay and Mariano executed a public instrument where Mariano explicitly
acknowledged the sale made by his parents toDomantay. In such statement, it is stipulated that
Mariano is “responsible to said Mr. Fernando Domantay, his heirs and successors for the
property, the title to which I bind myself to defend against claims of whomsoever shall file the
same.”

This express recognition had the effect of imparting the nature of an express trust- having been
created by the will of the parties. No particular words are required for the creation of an express
trust, it being sufficient that a trust is clearly intended. An express trust is a continuing and
subsisting trust not subject to the statute of limitations, until repudiated. Prescription begins to
run only after the time of repudiation. In this case, repudiation only took place in early June 1952
when Mariano rejected Callejo’s demand to exclude his portion of the land from the TCT in
Mariano’s name. But then, the case was filed on June 25, 1952, when the prescription period
had barely begun to run.