CONTRACTS CASES

[1-4 = ALBAJERA]

1.GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), petitioner, vs. HONORABLE COURT OF APPEALS
and SPOUSES RAUL and ESPERANZA LEUTERIO, respondents.
G.R. No. 105567 November 25, 1993
PUNO, J.:

FACTS:
On December 18, 1963, the petitioner GSIS conducted a lottery draw for the allocation of lots
and housing units in Project 8-C of GSIS Village. Private respondent Esperanza Leuterio won and was
issued a Certificate of Acknowledgment to purchase the subject house and lot 2 on December 27, 1963.
In 1965, the parties entered into a Deed of Conditional Sale evidencing the conveyance of the subject
property and all improvements thereon to the Leuterio spouses for the purchase price of P19,740.00,
payable over a fifteen-year period, in 180 equal monthly installments of P168.53 each.
After the land development and housing construction of Project 8-C were completed in 1966,
petitioner's Board of Trustees increased the purchase price indicated in the Deed of Conditional Sale
covering houses and lots therein. The new price was based on the alleged final cost of construction of
the GSIS Village. It is noted that, on the face of the Leuterio's Conditional Deed of Sale is the marginal
notation "subject to adjustment pending approval of the Board of Trustees." The Leuterio spouses
alleged that this notation was not in the Deed when they signed the same in 1965. Resolving this
factual issue, the trial court found that the appended words were inserted into the document without
the knowledge or consent of the Leuterio spouses.
Sometime in the early 1970's, a group (not including the Leuterios) of conditional vendees of
houses and lots in Project 8-C of GSIS Village brought suit against herein petitioner, questioning the
increase in purchase price. They likewise wrote a "A Plea For Justice" to then President Ferdinand E.
Marcos, requesting for a directive to petitioner's management to "accept payments of amortization
installments on the original amounts stated in the Deed(s) of Conditional Sale."
As a result, the Office of the President created a three-man Ad Hoc committee, composed of
representatives of the Office of the President, the petitioner System, and the GSIS Village Association.
The committee found that the final cost of the Village justified a higher price range for the houses and
lots in the project. Based on the ad hoc committee's findings, the petitioner System, with the approval
of its Board of Trustees, increased the purchase prices of the houses and lots in the GSIS Village.
Meanwhile, after years of diligently paying the monthly amortizations and real estate taxes on
the subject property, the private respondents spouses informed petitioner that the payments for the
property had been completed, and hence, the execution of an absolute deed of sale in their favor was
in order. No action on the matter was taken by petitioner. A Complaint for Specific Performance with
Damages was filed to compel petitioner to execute in private respondents' favor, the final Deed of Sale
over the subject property.
The trial court found for the Leuterios.
The Court of Appeals in its impugned Decision, upheld the trial court solely on the basis of
estoppel . It held that petitioner cannot increase the price of the subject house and lot after it failed,
through the years, to protest against private respondents' P200.00-amortization or to require the
payment by them of bigger monthly installments.

ISSUE: Whether the spouses Leuterio agreed to the notation "subject to adjustment pending approval of
the Board of Trustees" appearing on the margin of the parties' Conditional Deed of Sale.
HELD:
NO; private respondent Raul Leuterio that when he and his wife signed the Deed of Conditional
Sale in 1965, the notation "subject to adjustment pending approval of the Board of Trustees" was not in
the Deed. Likewise, the answer of petitioner to the complaint of the private respondents admitted the
non-existence of this notation at the time the Deed of Conditional Sale was signed, albeit, it called the
omission an honest mistake. This was also confirmed by the petitioner in the instant Petition for Review
on Certiorari where it is alleged that ". . . the respondents-spouses Leuterio were not required to sign a
new contract as provided in Resolution No. 966 but instead, the words 'subject to adjustment pending
approval of the Board of Trustees' were inserted in the Deed of Conditional Sale executed in 1965."
Petitioner is bound by these judicial admission.
Quite clearly, therefore, the purchase price mutually agreed upon by the parties was P19,
740.00. The spouses Leuterio did not give their consent for petitioner to make a unilateral upward
adjustment of this purchase price depending on the final cost of construction of the subject house and
lot. It is illegal for petitioner to claim this prerogative, for Article 1473 of the Civil Code provides that "the
fixing of the price can never be left to the discretion of one of the contracting parties. . . Petitioner's
contention that the spouses Leuterio are bound by the recommendation of the ad hoc committee was
also rejected as this was set aside by then President Ferdinand E. Marcos. The rejection was
communicated by then Presidential Assistant Jacobo Clave to petitioner in a Memorandum dated May
30, 1973. Petitioner moved for reconsideration but the motion was denied by the former President thru
Presidential Assistant Joaquin Venus, in a letter dated December 18, 1990.

2. JOSE P. DIZON, petitioner, v. ALFREDO G. GABORRO (Substituted by PACITA DE GUZMAN GABORRO

as Judicial Administratrix of the Estate of Alfredo G. Gaborro) and the DEVELOPMENT BANK OF THE
PHILIPPINES, respondents. G.R. No. L-36821 June 22, 1978
GUERRERO, J.:

FACTS:
Petitioner Jose P. Dizon was the owner of the 3 parcels of land, subject matter of this litigation,
situated in Mabalacat, Pampanga with an aggregate area of 130.58 hectares. He constituted a first
mortgage lien in favor of the Development Bank of the Philippines in order to secure a loan in the sum
of P38, 000.00 trial and second mortgage lien in favor of the Philippine National Bank to cure his
indebtedness to said bank in the amount of P93, 831.91. Petitioner Dizon having defaulted in the
payment of his debt, the Development Bank of the Philippines foreclosed the mortgage extrajudicially
pursuant to the provisions of Act No. 3135. The lands were sold to the DBP for- P31, 459.21, which
amount covered the loan, interest and trial expenses. Dizon himself executed the deed of sale over the
properties in favor of the DBP which deed was recorded in the Office of the Register of Deeds.
Alfredo G. Gaborro and Jose P. Dizon met. Gaborro became interested in the lands of Dizon.
Dizon originally intended to lease to Gaborro the property which had been lying idle for some time. But
as the mortgage was already foreclosed by the DPB, they abandoned the projected lease. They then
entered into the contract DEED OF SALE WITH ASSUMPTION OF MORTGAGE, That the VENDEE,
assume as he has assumed, under the same terms trial conditions of the mortgage contracts dated ...
and ... of the mortgage indebtedness of the VENDOR in favor of the Development Bank of the
Philippines and the Philippine National Bank, respectively, as if the aforesaid documents were personally
executed by the VENDEE. The second contract which was executed the same day is called Option to
Purchase Real Estate which states that Alfredo Gaborro for valuable consideration gives to JOSE P.
DIZON, his heirs, successors and assigns, the option of repurchasing the properties and that In the event
that Mr. Jose P. Dizon may be able to find a purchaser for- the foregoing properties on or the fifth year
from the date the execution of this document, the GRANTEE, Mr. JOSE P. DIZON, may do so provided
that the aggregate amount which was Paid to Development Bank of the Philippines and to the Philippine
National Bank together with the interests thereon at the rate of 8% shall be refunded to the
undersigned.
Furthermore, in case Mr. Jose P. Dizon shall be able to find a purchaser for- the said properties, it shall
be his duty to first notify the undersigned of the contemplated sale, naming the price trial the purchaser
therefor, and awarding the first preference in the sale hereof to the undersigned.
The sum of P131, 813.91 which purports to be the consideration of the sale was not actually
paid by Alfredo G. Gaborro to the petitioner. The said amount represents the aggregate debts of the
petitioner with the Development Bank of the Philippines trial the Philippine National Bank. After the
execution of said contracts, Alfredo G. Gaborro took possession of the three parcels of land in question.
After the execution of the conditional made to him, Gaborro made several payments to the DBP
and PNB. He introduced improvements, cultivated the kinds raised sugarcane and other crops and
appropriated the produce to himself. On July 5, 1961, Jose P. Dizon through his lawyer, Atty. Leonardo
Abola, wrote a letter to Gaborro informing him that he is formally offering reimburse Gaborro of what
he paid to the banks but without, however, tendering any cash, and demanding an accounting of the
income and of the pro contending that the transaction they entered into was one of antichresis.
Gaborro did not accede to the demands of the petitioner.
Jose P. Dizon instituted a complaint in the Court of First Instance of Pampanga, Gaborro, 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 Dizon, 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.
Dizon prayed that defendant Gaborro be ordered to accept his offer to reimburse him of what
he paid to the banks; to surrender the possession of the lands to plaintiff; to make an accounting of all
the fruits, produce, harvest and other income which he had received from the three parcels of land; and
to pay the plaintiff for the loss of two barns and for damages.
Defendant Alfredo G. Gaborro contends that the "Deed of Sale with Assumption of Mortgage"
expresses the true agreement of the parties "fully, truthfully and religiously" but the Option to Purchase
Real Estate" does not express the true intention of the parties because it was made only to protect the
reputation of the plaintiff among his townmates, and even in the supposition that said option is valid,
the action is premature.

Trial court: the true agreement between plaintiff Jose P. Dizon and the defendant Alfredo G.
Gaborro is that the defendant would assume and pay the indebtedness of the plaintiff to the
Development Bank of the Philippines and the Philippine National Bank, 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.
Court of Appeals: affirmed the decision with the modification that the plaintiff-appellant has the
right to refund or reimburse the defendant-appellee the sum of P131,831.91 with interest at 8% per
annum.

ISSUE: Whether the deed of sale is NOT A REAL AND CONDITIONAL SALE.

HELD:
 Yes, In this case, after the extrajudicial foreclosure and sale of his properties, petitioner Dizon
retained the right to redeem the lands, the possession, use and enjoyment of the same during the
period of redemption. And these are the only rights that Dizon could legally transfer, cede and convey
unto respondent Gaborro under the instrument captioned Deed of Sale with Assumption of Mortgage,
likewise the same rights that said respondent could acquire in consideration of the latter's promise to
pay and assume the loan of petitioner Dizon with DBP and PNB. Such an instrument cannot be legally
considered a real and unconditional sale of the parcels of land, firstly, because there was absolutely no
money consideration therefor, as admittedly stipulated the sum of P131,831.91 mentioned in the
document as the consideration "receipt of which was acknowledged" was not actually paid; and
secondly, because the properties had already been previously sold by the sheriff at the foreclosure sale,
thereby divesting the petitioner of his full right as owner thereof to dispose and sell the lands.
In legal consequence thereby, respondent Gaborro as transferee of these certain limited rights
or interests, cannot grant to petitioner Dizon more that said rights, such as the option to purchase the
lands as stipulated in the document called Option to Purchase Real Estate, This is necessarily so for the
reason that respondent Gaborro did not purchase or acquire the full title and ownership of the
properties by virtue of the Deed of Sale With Assumption of Mortgage, earlier executed between them
which was ruled out as an absolute sale. The only legal effect of this Option Deed is the grant to
petitioner the right to recover the properties upon reimbursing respondent Gaborro of the total sums of
money that the latter may have paid to DBP and PNB on account of the mortgage debts, the said right to
be exercised within the stipulated 5 years period.
The agreement between petitioner Dizon and respondent Gaborro is one of those inanimate
contracts under Art. 1307 of the New Civil Code whereby petitioner and respondent agreed "to give and
to do" certain rights and obligations respecting the lands and the mortgage debts of petitioner which
would be acceptable to the bank but partaking of the nature of the antichresis insofar as the principal
parties, petitioner Dizon and respondent Gaborro, are concerned.
The instruments must, therefore, be reformed in accordance with the intention and legal rights
and obligations of the parties the petitioner, the respondent and the Banks. We agree with the
reformation decreed by the trial and appellate courts, but in the sense that petitioner Jose P. Dizon has
the right to reacquire the three parcels of land within the one-year period indicated below by refunding
or reimbursing to respondent Alfredo G. Gaborro or the Judicial Administratrix of his Estate whatever
amount the latter has actually paid on account of the principal only, of the loans of Dizon with the DBP
and PNB, excluding the interests and land taxes that may have been paid or may have accrued, on duly
certified financial statements issued by the said banks.

3. C. W. ROSENSTOCK, as administrator of the estate of H. W. ELSER, plaintiff-appellant, vs. EDWIN

BURKE, defendant-appellant. THE COOPER COMPANY, intervenor-appellee
G.R. No. 20732 September 26, 1924
AVANCEA, J.:

FACTS:
The defendant Edwin Burke owned a motor yacht, known as Bronzewing, which he acquired in
Australia in the year 1920 for the purpose of selling it here. This yacht was purely for recreation and as
no purchaser presented himself, it had been moored for several months until the plaintiff H. W. Elser, at
the beginning of the year 1922, began negotiations with the defendant for the purchase thereof. At
the time this yacht was mortgaged to the Asia Banking Corporation to secure the payment of a debt of
P100,000 which was due and unpaid since one year prior thereto, contracted by the defendant in favor
of said bank of which Mr. Avery was then the manager. The plan of the plaintiff was to organize a yacht
club and sell it afterwards for P120,000, of which P20,000 was to be retained by him as commission and
the remaining P100,000 to be paid to the defendant.
To carry out his plan, the plaintiff proposed to the defendant to make a voyage on board the
yacht to the south, with prominent business men for the purpose, undoubtedly, of making an
advantageous sale. But as the yacht needed some repairs to make it seaworthy for this voyage, and as,
on the other hand, the defendant said that he had no funds to make said repairs, the plaintiff paid
almost all their amount. It has been stipulated that the plaintiff was not to pay anything for the use of
the yacht. The cost of those repairs was P6,972.21, which was already paid by the plaintiff, plus
P1,730.84 due to the Cooper Company which still remains unpaid, plus P832.93, due to the plaintiff,
which also remains unpaid.
The plaintiff never accepted the offer of the defendant for the purchase of the yacht
contained in the letter of option. The plaintiff believed, in view of the result of that voyage, that it was
convenient to replace the engine of the yacht with a new one which would cost P20,000. In this
connection the plaintiff had negotiated with Mr. Avery for another loan of P20,000 with which to
purchase this new engine. The defendant, after an interview with Mr. Avery held on the same day,
answered the plaintiff that he had arrived at an agreement with Mr. Avery about the sale of the yacht to
the plaintiff for P80,000 payable as follows: P5,000 each month during the first six months and P10,000
thereafter until full payment of the price, the yacht to be mortgaged to secure payment thereof. The
plaintiff informed the defendant that he was not inclined to accept this proposition. The defendant
called at the office of the plaintiff to speak with him about the matter and as a result of the interview
held between them, the plaintiff in the presence of the defendant wrote a letter addressed to the
latter which states that he is willing to entertain the purchase of the yacht;
The plaintiff brings this action against the defendant to recover the sum of P6,139.28, the value
of the repairs made on the yacht which he had paid for.
The defendant alleges as a defense against this action that the agreement he had with
the plaintiff about these repairs was that the letter was to pay for them for his own account in exchange
of the gratuitous use of the yacht, and prays that he be absolved from the complaint. As a counterclaim
he prays that the plaintiff be compelled to pay him the sum of P832.93, one-half of the price of the
canvas used in the repair of the yacht, which has not yet been paid by the plaintiff.

Trial court: The trial court rendered judgment sentencing the defendant to pay the plaintiff and
to pay the intervenor, the Cooper Company. The plaintiff was sentenced to comply in all its parts with
the contract for the purchase of the yacht, according to the terms of his letter. The plaintiff appeals from
the judgment in so far as it compels him to purchase the yacht upon the conditions stated in the letter.

ISSUE: whether the letter was a definite offer to purchase which constitutes a valid contract of sale
which is binding against the plaintiff.

HELD:
No; "In connection with the yacht Bronzewing, I am in position and am willing to entertain the
purchase of it under the following terms . . . ." The whole question is reduced to determining what the
intention of the plaintiff was in using that language. 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. But the plaintiff instead of using in his letter
the expression, I want to purchase, I offer to purchase, I am in position to purchase, or other similar
language of easy and unequivocal meaning, used this other, I am in position and am willing to
entertain the purchase of the yacht. The word "entertain" applied to an act does not mean the
resolution to perform said act, but simply a position to deliberate for deciding to perform or not to
perform said act. Taking into account only the literal and technical meaning of the word "entertain," it
seems to us clear that the letter of the plaintiff cannot be interpreted as a definite offer to purchase
the yacht, but simply a position to deliberate whether or not he would purchase the yacht. It was but
a mere invitation to a proposal being made to him, which might be accepted by him or not.
Furthermore there are other circumstances which show that in writing this letter it was really
not the intention of the plaintiff to make a definite offer. The plaintiff never thought of acquiring the
yacht for his personal use, but for the purpose of selling it to another or to acquire it for another,
thereby obtaining some gain from the transaction, and it can be said that the only thing the plaintiff
wanted in connection with this yacht was that the defendant should procure its sale, naturally with
some profit for himself. For this reason the original idea of the plaintiff was to organize a yacht club that
would afterwards acquire the yacht through him, realizing some gain from the sale. But above all, there
is in the record positive proof that in writing this letter, the plaintiff had no intention to make thereby a
definite offer. This letter was written by his stenographer Mr. Parkins in his office and in the presence of
the defendant who has been there precisely for the purpose of speaking about this purchase. According
to the plaintiff when he was dictating that part wherein he said that he was in position to entertain the
purchase of the yacht, the defendant interrupted him and suggested the elimination of the word
entertain and the substitution therefore of a definite offer, but after a discussion between them, during
which the plaintiff clearly said that he was not in position to make a definite offer, the word entertain
now appearing in the letter was preserved. The letter of the plaintiff was not a definite offer and is
declared to be under no obligation to purchase the yacht upon the terms of his letter.

4. SALVADOR P. MALBAROSA, petitioner, v. HON. COURT OF APPEALS and S.E.A. DEVELOPMENT

CORP., respondents.
G.R. No. 125761 April 30, 2003
CALLEJO, SR., J.:

FACTS:
Philtectic Corporation and Commonwealth Insurance Co., Inc. were only two of the group of
companies wholly-owned and controlled by respondent S.E.A. Development Corporation (SEADC). The
petitioner Salvador P. 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 Malbarosa one of its vehicles described as a 1982 model Mitsubishi Gallant Super Saloon, with plate
number PCA 180 for his use. He was also issued membership certificates in the Architectural Center, Inc.
Louis Da Costa was the president of the respondent and Commonwealth Insurance Co., Inc., while Senen
Valero was the Vice-Chairman of the Board of Directors of the respondent and Vice-Chairman of the
Board of Directors of Philtectic Corporation.

Malbarosa intimated to Senen Valero his desire to retire from the SEADC group of companies
and requested that his 1989 incentive compensation as president of Philtectic Corporation be paid to
him. He then sent a letter to Senen Valero tendering his resignation, from all his positions in the SEADC
group of companies, and reiterating therein his request for the payment of his incentive compensation.
The respondent, through Senen Valero, signed a letter-offer addressed to Malbarosa
stating that Malbarosa's resignation from all the positions in the SEADC group of companies 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 him by the company shall be transferred to him at a value of P220,000.00. (Although he had
indicated a value of P180,000.00, our survey in the market indicates that P220,000.00 is a reasonable
reflection of the value of the car.)

Malbarosa was dismayed when he read the letter and learned that he was being offered an
incentive compensation of only P251,057.67. He told Da Costa that he was entitled to no less than
P395,000 as incentive compensation. He refused to sign the letter-offer. He received the original of the
letter and wrote on the duplicate copy of the letter-offer retained by Da Costa, the words: "Rec'd
original for review purposes." Despite the lapse of more than two weeks, the respondent had not
received the original Letter-offer of the respondent with the conformity of the petitioner on the space
provided therefor. The respondent decided to withdraw its offer. The Board of Directors of the
respondent approved a resolution authorizing the Philtectic Corporation and/or Senen Valero to
demand from Malbarosa for the return of the car and to take such action against him, including the
institution of an action in court against the petitioner for the recovery of the motor vehicle.

With the refusal of Malbarosa to return the vehicle, SEADC, as plaintiff, filed a complaint against
Malbarosa. The trial court issued an order for the issuance of a writ of replevin, SEADC was able to
recover the possession of the vehicle. Malbarosa alleged that he had already agreed on March 28,
1990 to the March 14, 1990 Letter-offer of the respondent, the plaintiff therein, and had notified the
said plaintiff of his acceptance; hence, he had the right to the possession of the car. Philtectic
Corporation had no right to withdraw the offer of the respondent SEADC. Malbarosa testified that after
conferring with his counsel, he had decided to accept the offer of the respondent, and had affixed his
signature on the space below the word "Agree".

Trial court: there existed no perfected contract between the petitioner and the respondent on the
latter's March 14, 1990 Letter-offer for failure of the petitioner to effectively notify the respondent of
his acceptance of said letter-offer before the respondent withdrew the same.

CA: affirmed the decision of the trial court.

ISSUE: Whether there was a valid acceptance on Malbaros part of the March 14, 1990 Letter-offer of
the respondent.

HELD:

No; Under Article 1318 of the Civil Code, the essential requisites of a contract are as follows:

Art. 1318. 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.

Under Article 1319 of the New Civil Code, the consent by a party is manifested by the meeting of
the offer and the acceptance upon the thing and the cause which are to constitute the contract. An offer
may be reached at any time until it is accepted. An offer that is not accepted does not give rise to a
consent. The contract does not come into existence. To produce a contract, there must be acceptance of
the offer which may be express or implied but must not qualify the terms of the offer. The acceptance
must be absolute, unconditional and without variance of any sort from the offer. The acceptance of an
offer must be made known to the offeror. Unless the offeror knows of the acceptance, there is no
meeting of the minds of the parties, no real concurrence of offer and acceptance. The offeror may
withdraw its offer and revoke the same before acceptance thereof by the offeree. The contract is
perfected only from the time an acceptance of an offer is made known to the offeror. 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. On the other hand, an attempt
on the part of the offeree to accept the offer in a different manner does not bind the offeror as the
absence of the meeting of the minds on the altered type of acceptance. An offer made inter praesentes
must be accepted immediately. If the parties intended that there should be an express acceptance, the
contract will be perfected only upon knowledge by the offeror of the express acceptance by the offeree
of the offer. 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 contract is not perfected if
the offeror revokes or withdraws its offer and the revocation or withdrawal of the offeror is the first to
reach the offeree. The acceptance by the offeree of the offer after knowledge of the revocation or
withdrawal of the offer is inefficacious. The termination of the contract when the negotiations of the
parties terminate and the offer and acceptance concur, is largely a question of fact to be determined by
the trial court.

In this case, SEADC made its offer through its Vice-Chairman of the Board of Directors, Senen
Valero. On March 16, 1990, Da Costa handed over the original of the March 14, 1990 Letter-offer of
SEADC to Malbarosa. SEADC required Malbarosa to accept the offer by affixing his signature on the
space provided in said letter-offer and writing the date of said acceptance, thus foreclosing an implied
acceptance or any other mode of acceptance by Malbarosa. However, when the letter-offer of SEADC
was delivered to Malbarosa on March 16, 1990, he did not accept or reject the same for the reason that
he needed time to decide whether to reject or accept the same. There was no contract perfected
between the Malbarosa and SEADC. Although Malbarosa claims that he had affixed his conformity to the
letter-offer on March 28, 1990,he failed to transmit the said copy to SEADC. It was only on April 7, 1990
when he appended to his letter to the respondent a copy of the said March 14, 1990 Letter-offer
bearing his conformity that he notified SEADC of his acceptance to said offer. But then, SEADC, through
Philtectic Corporation, had already withdrawn its offer and had already notified Malbarosa of said
withdrawal via SEADC 's letter dated April 4, 1990 which was delivered to Malbarosa on the same day.
Indubitably, there was no contract perfected by the parties on the March 14, 1990 Letter-offer of the
SEADC.

[5= DIMA-ALA]
5. Sanchez vs. Rigos

Facts:

Nicolas Sanchez and defendant Severina Rigos executed an instrument, entitled Option to Purchase,
whereby Mrs. Rigos the agreed, promised and committed x x x to sell to Sanchez, for the sum of
P1,510.00, a parcel of land situated in barrios of Abar and Sibot, municipality of San Jose, province of
Nueva Ecija, within two (2) years from said date with the understanding that said option shall be
deemed terminated and elapsed. if Sanchez shall fail to exercise his right to buy the property
within the stipulated period. Inasmuch as several tenders of payment of the sum of P1,510.00. made by
Sanchez within said period, were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said
amount with the Court of First Instance of Nueva Ecija and commenced against the latter the present
action, for damages. The lower court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the
sum judicially consigned by him and to execute, in his favor, the requisite deed of conveyance. In his
complaint plaintiff alleges that, by virtue of the option under consideration, defendant agreed and
committed to sell and the plaintiff agreed and committed to buy the land described in the option.
Hence, plaintiff maintains that the promise contained in the contract is "reciprocally demandable,
pursuant to the first paragraph of said Article 1479. Although defendant had really "agreed, promised
and committed herself to sell the land to the plaintiff, it is not true that the latter had, in turn, "agreed
and committed himself to buy said property. Said Annex A does not bear out plaintiffs allegation to this
effect. What is more, since Annex A has been made "an integral part of his complaint, the provisions of
said instrument form part "and parcel of said pleading. The option did not impose upon plaintiff the
obligation to purchase defendant's property. Annex A is not a contract to buy and sell. It merely
granted plaintiff an option to buy. And both parties so understood it, as indicated by the caption,
"Option to Purchase, given by them to said instrument. Under the provisions thereof, the defendant
"agreed, promised and committedherself to sell the land therein described to the plaintiff for P1,510.00,
but there is nothing in the contract to indicate that her aforementioned agreement, promise and
undertaking is supported by a consideration "distinct from the price stipulated for the sale of the land.

Issue: WON there is a bilateral contract between the parties

Held:

In the case of Atkins, Kroll and Co., Inc. v, Cua Hian Tek,8 decided later than Southwestern Sugar &
Molasses Co. v. Atlantic Gulf & Pacific Co., saw no distinction between Articles 1324 and 1479 of the Civil
Code and applied the former where a unilateral promise to sell similar to the one sued upon here was
involved, treating such promise as an option which, although not binding as a contract in itself for lack of
a separate consideration, nevertheless generated a bilateral contract of purchase and sale upon
acceptance. In other words, 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 1824on the general principles on contractsand 1479 on salesof the Civil Code, in line with the
cardinal rule of statutory construction that, in construing different provisions of one and the same law
or code, such interpretation should be favored as will reconcile or harmonize said provisions and avoid a
conflict between the same.

[6-9 = BACCAY]

[10=DIMA-ALA]
10. Heirs of Sevilla vs. Sevilla

Facts:
Filomena Almirol de Sevilla died intestate leaving 8 children and left 4 parcels of land, parcel I is
paraphernal property of Filomena Almirol de Sevilla which she co-owned with her sisters, Honorata
Almirol and Felisa Almirol, who were both single and without issue. Parcels II, III and IV are conjugal
properties of Filomena Almirol de Sevilla and her late husband Andres Sevilla. When Honorata died in
1982, her 1/3 undivided share in Lot No. 653 was transmitted to her heirs, Felisa Almirol and the heirs of
Filomena Almirol de Sevilla, who thereby acquired the property in the proportion of one-half share each.
Felisa Almirol and Peter Sevilla, in his own behalf and in behalf of the heirs of Filomena Almirol de
Sevilla, executed a Deed of Extrajudicial Partition, identifying and adjudicating the 1/3 share of Honorata
Almirol to the heirs of Filomena Almirol de Sevilla and to Felisa Almirol. Felisa died on July 6, 1988.9
Previous thereto, on November 25, 1985, she executed a last will and testament devising her 1/2 share
in Lot No. 653 to the spouses Leopoldo Sevilla and Belen Leyson.10 On August 8, 1986, Felisa executed
another document denominated as Donation Inter Vivos ceding to Leopoldo Sevilla her 1/2 undivided
share in Lot No. 653, which was accepted by Leopoldo in the same document. On June 21, 1990, Felipe
Sevilla, Rosa Sevilla, and the heirs of William, Jimmy and Maria, all surnamed Sevilla, filed the instant
case against respondents Leopoldo Sevilla, Peter Sevilla and Sevilla, for annulment of the Deed of
Donation and the Deed of Extrajudicial Partition. They alleged that the Deed of Donation is tainted with
fraud because Felisa Almirol, who was then 81 years of age, was seriously ill and of unsound mind at the
time of the execution thereof; and that the Deed of Extrajudicial Partition is void because it was
executed without their knowledge and consent. Regional Trial Court, upheld the validity of the Deed of
Donation and declaring the Deed of Extrajudicial Partition unenforceable. Both parties appealed to the
Court of Appeals. Petitioners contended that the Deed of Donation should be declared void and that Lot
No. 653 should be divided equally among them. Respondents, on the other hand, posited that the trial
court erred in declaring the Deed of Extrajudicial Partition unenforceable against the other heirs of
Filomena Almirol de Sevilla who were not parties to said Deed.

Issue: WON the acts of Leopoldo constituted fraud or undue influence in Deed of Donation.

Ruling:

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.29 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:
the 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. Ei incumbit probatio qui dicit, non qui negat. He who asserts, not he who denies, must
prove. We have consistently applied the ancient rule that if the plaintiff, upon whom rests the burden of
proving his cause of action, fails to show in a satisfactory manner facts on which he bases his claim, the
defendant is under no obligation to prove his exception or defense. In the instant case, the self serving
testimony of the petitioners are vague on what acts of Leopoldo Sevilla constituted fraud and undue
influence and on how these acts vitiated the consent of Felisa Almirol. Fraud and undue influence that
vitiated a party' consent must be established by full, clear and convincing evidence, otherwise, the
latter' presumed consent to the contract prevails.32 Neither does the fact that the donation preceded
the partition constitute fraud. It is not necessary that partition should first be had because what was
donated to Leopoldo was the 1/2 undivided share of Felisa in Lot No. 653. Moreover, petitioners failed
to show proof why Felisa should be held incapable of exercising sufficient judgment in ceding her share
to respondent Leopoldo.33 As testified by the notary public who notarized the Deed of Donation, Felisa
confirmed to him her intention to donate her share in Lot No. 653 to Leopoldo. He stressed that though
the donor was old, she was of sound mind and could talk sensibly. Significantly, there is nothing in the
record that discloses even an attempt by petitioners to rebut said declaration of the notary public.
Clearly, therefore, the courts below did not err in sustaining the validity of the deed of donation.

[11-14 = CABIGAO]
11. Dumasug vs. Modelo
34 Phil 252. Gr no 10462. March 16 1916

Facts: On June 17, 1912, counsel for Andrea Dumasug filed a written complaint in the Court of First
Instance of Cebu, in which he alleged that about the month of November, 1911, defendant persuaded
plaintiff to sign a document by falsely and maliciously making her believe that it contained an
engagement on plaintiff's part to pay defendant a certain sum of money as expresses occasioned the
latter by reason of a lawsuit in which plaintiff Dumasug was one of the parties and was protected and
aided by defendant. The plaintiff, who does not know how to write, signed by affixing her mark thereto,
believing in good faith that defendant had told her the truth and that said document referred to the
expenses incurred by defendant; but that three months after the execution of said document,
defendant took possession of a carabao belonging to plaintiff and also of two parcels of land, likewise
belonging to her, situated in the barrio of Katang, pueblo of Argao, Cebu, the area and boundaries of
which are specified in the complaint, and notified plaintiff that she had conveyed to him by absolute sale
said parcels of land and the plow carabao. It sets forth that on November 3, 1911, plaintiff Andrea
Dumasug, in consideration of the sum of P333.49 which she received from defendant, Felix Modelo, sold
and conveyed to the latter outright two parcels of land and the plow carabao which are the subject
matter of the complaint, and furthermore bound herself to warrant and defend the title thereto. This
contract of sale appears to be authorized by the vendor, Andrea Dumasug, by means of a cross placed
between her Christian name and surname in the presence of the witnesses Mariano Abear and Apolina
Minosa, and certified before a notary on the very date of its execution.

In spite of plaintiff's opposition and protests, defendant took possession of said property and, up to the
date of the complaint, continued to hold possession thereof and to enjoy the products of the lands and
of the labor of the carabao; and that, by reason of such acts, defendant had caused loss and damage to
plaintiff in the sum of P1,000. Said counsel therefore prayed the court to render judgment by declaring
null and void and of no value whatever the alleged contract of purchase and sale of the carabao and the
two parcels of land described in the complaint, to order defendant to restore to plaintiff said work
animal and lands, and, besides, to pay her the sum of P1,000 for the loss and damage caused her, in
addition to the costs of the suit.

Issue: whether or not the instrument of purchase and sale of two parcels of land and a plow carabao is
null and void?

Ruling: The 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 about the month of November, 1911, related to the sum of P101 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 of P120 for her carabao, but that she did not
wish to sell the animal as she rented if for fifty centavos per day, her only means of livelihood. The
consent given by plaintiff in the document is null and void, as it was given by mistake. It is, then,
perfectly evident that the document Exhibit 1, 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 Exhibit 1 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. If Exhibit 1 is the document signed by her, it is undeniable that she was deceived in order to
obtain her consent thereto, and if the document which she signed is different from the one now
presented as Exhibit 1, then this latter has no value whatever, for the reason that it is not the one which,
of her own free will, she authenticated with her mark.

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. It is undeniable that she
was deceived in order to obtain her consent thereto. The document signed by plaintiff has no value
whatever, for the reason that it is not the one which, of her own free will, she authenticated with her
mark.

12.Hemedes vs CA
316 SCRA 347. Gr no 107132. October 8 1999

Facts: The lot in question was originally owned by the late Jose Hemedes, father of Maxima Hemedes
and Enrique D. Hemedes. On March 22, 1947 Jose Hemedes executed a document entitled Donation
Inter Vivos With Resolutory Conditions whereby he conveyed ownership over the subject land, together
with all its improvements, in favor of his third wife, Justa Kauapin, subject to a resolutory conditions:

(a) Upon the death or remarriage of the DONEE, the title to the property donated shall revert to any of
the children, or their heirs, of the DONOR expressly designated by the DONEE in a public document
conveying the property to the latter; or
(b) In absence of such an express designation made by the DONEE before her death or remarriage
contained in a public instrument as above provided, the title to the property shall automatically revert
to the legal heirs of the DONOR in common.

Pursuant to the first condition above mentioned, Justa Kausapin executed a Deed of Conveyance of
Unregistered Real Property by Reversion conveying to Maxima Hemedes the subject property. An OCT
was issued in the name of Maxima Hemedes by the Registry of Deeds of Laguna, with the annotation
that Justa Kausapin shall have the usufructuary rights over the parcel of land herein described during
her lifetime or widowhood. Maxima Hemedes and her husband Raul Rodriguez constituted a real estate
mortgage over the subject property in its favor to serve as security for a loan which they obtained in the
amount of P6, 000.00 from & B Insurance. The latter extrajudicially foreclosed the mortgage since
Maxima Hemedes failed to pay the loan even after it became due. The land was sold at a public auction
with R & B Insurance as the highest bidder and a certificate of sale was issued by the sheriff in its favor.
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 Hemedes, pursuant to the resolutely
condition in the deed of donation executed in her favor by her late husband Jose Hemedes. Enrique
Hemedes later sold the property to Dominium Realty and Construction Corporation (Dominium). Justa
Kausapin executed an affidavit affirming the conveyance of the subject property in favor of Enrique
Hemedes as embodied in the Kasunduan, and at the same time denying the conveyance made to
Maxima Hemedes

Dominium leased the property to its sister corporation Asia Brewery, Inc. (Asia Brewery) who, even
before the signing of the contract of lease, constructed two warehouses made of steel and asbestos
costing about P10,000,000.00 each. Upon learning of Asia Brewerys constructions upon the subject
property, R & B Insurance sent it a letter informing the former of its ownership of the property and of its
right to appropriate the constructions since Asia Brewery is a builder in bad faith. 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 wherein she asserted that she is the rightful
owner of the subject property and that, as such, she has the right to appropriate Asia Brewerys
constructions, to demand its demolition, or to compel Asia Brewery to purchase the land. In another
letter of the same date addressed to R & B Insurance, Maxima Hemedes denied the execution of any
real estate mortgage in favor of the latter

Issue:

a. Whether or not R & B Insurance should be considered an innocent purchaser of the land in question?
b. Whether or not donation in favor of Enrique Hemedes was valid?

HELD:

a. Yes. The annotation of usufructuary rights in favor of Justa Kausapin upon Maxima Hemedes OCT
does not impose upon R & B Insurance the obligation to investigate the validity of its mortgagors title.
Usufruct gives a right to enjoy the property of another with the obligation of preserving its form and
substance. The usufructuary is entitled to all the natural, industrial and civil fruits of the property and
may personally enjoy the thing in usufruct, lease it to another, or alienate his right of usufruct, even by a
gratuitous title, but all the contracts he may enter into as such usufructuary shall terminate upon the
expiration of the usufruct. Clearly, only the jus utendi and jus fruendi over the property is transferred
to the usufructuary. The owner of the property maintains the jus disponendi or the power to alienate,
encumber, transform, and even destroy the same. This right is embodied in the Civil Code, which
provides that the owner of property the usufruct of which is held by another, may alienate it, although
he cannot alter the propertys form or substance, or do anything which may be prejudicial to the
usufructuary. There is no doubt that the owner may validly mortgage the property in favor of a third
person and the law provides that, in such a case, the usufructuary shall not be obliged to pay the debt of
the mortgagor, and should the immovable be attached or sold judicially for the payment of the debt, the
owner shall be liable to the usufructuary for whatever the latter may lose by reason thereof. Based on
the foregoing, the annotation of usufructuary rights in favor of Justa Kausapin is not sufficient cause to
require R & B Insurance to investigate Maxima Hemedes title, contrary to public respondents ruling, for
the reason that Maxima Hemedes ownership over the property remained unimpaired despite such
encumbrance. R & B Insurance had a right to rely on the certificate of title and was not in bad faith in
accepting the property as a security for the loan it extended to Maxima Hemedes.
b. 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. Considering also that in this case, Justa Kausapin disclaims any
knowledge of the Deed of Conveyance of Unregistered Real Property by Reversion in favor of Maxima
Hemedes. In fact, she asserts that it was only during the hearing conducted on December 7, 1981 before
the trial court that she first caught a glimpse of the deed of conveyance and thus, she could not have
possibly affixed her thumbmark thereto. It is private respondents own allegations which render article
1332 inapplicable for it is useless to determine whether or not Justa Kausapin was induced to execute
said deed of conveyance by means of fraud employed by Maxima Hemedes, who allegedly took
advantage of the fact that the former could not understand English, when Justa Kausapin denies even
having seen the document before the present case was initiated in 1981.
It has been held by this Court that mere preponderance of evidence is not sufficient to overthrow a
certificate of a notary public to the effect that the grantor executed a certain document and
acknowledged the fact of its execution before him. To accomplish this result, the evidence must be so
clear, strong and convincing as to exclude all reasonable controversy as to the falsity of the certificate,
and when the evidence is conflicting, the certificate will be upheld. In the present case, we hold that
private respondents have failed to produce clear, strong, and convincing evidence to overcome the
positive value of the Deed of Conveyance of Unregistered Real Property by Reversion a notarized
document. The mere denial of its execution by the donor will not suffice for the purpose.

13.Katipunan vs Katipunan
375 SCRA 200

Facts: Respondent Braulio Katipunan, Jr. is the owner of a 203 square meter lot and a five-door
apartment constructed thereon located at 385-F Matienza St., San Miguel, Manila. The apartment units
are occupied by lessees. On December 29, 1985, respondent, assisted by his brother, petitioner Miguel
Katipunan, entered into a Deed of Absolute Sale with brothers Edgardo Balguma and Leopoldo Balguma,
Jr. (co-petitioners), represented by their father Atty. Leopoldo Balguma, Sr., involving the subject
property for a consideration of P187,000.00. Consequently, respondents title to the property was
cancelled and was registered and issued in the names of the Balguma brothers. In January, 1986, Atty.
Balguma, then still alive, started collecting rentals from the lessees of the apartments.

On March 10, 1987, respondent filed with the RTC a complaint for annulment of the Deed of Absolute
Sale. He averred that his brother Miguel, Atty. Balguma and Inocencio Valdez (defendants therein, now
petitioners) convinced him to work abroad. They even brought him to the NBI and other government
offices for the purpose of securing clearances and other documents which later turned out to be
falsified. Through insidious words and machinations, they made him sign a document purportedly a
contract of employment, which document turned out to be a Deed of Absolute Sale. By virtue of the said
sale, brothers Edgardo and Leopoldo, Jr. (co-defendants), were able to register the title to the property
in their names. Respondent further alleged that he did not receive the consideration stated in the
contract. He was shocked when his sister Agueda Katipunan-Savellano told him that the Balguma
brothers sent a letter to the lessees of the apartment informing them that they are the new owners.
Finally, he claimed that the defendants, now petitioners, with evident bad faith, conspired with one
another in taking advantage of his ignorance, he being only a third grader.

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

Ruling: 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. Even the trial court, in reinstating the case which it earlier dismissed, took cognizance of the
medical finding of Dr. Revilla (presented by respondents counsel as expert witness) who testified during
the hearing of respondents motion for reconsideration of the first order dismissing the complaint.
According to her, based on the tests she conducted, she found that respondent has a very low IQ and a
mind of a six-year old child. In fact, the trial court had to clarify certain matters because Braulio was
either confused, forgetful or could not comprehend. Thus, his lack of education, coupled with his mental
affliction, placed him not only at a hopelessly disadvantageous position vis--vis petitioners to enter into
a contract, but virtually rendered him incapable of giving rational consent. To be sure, his ignorance and
weakness made him most vulnerable to the deceitful cajoling and intimidation of petitioners. The trial
court obviously erred when it disregarded Dr. Revillas testimony without any reason at all. It must be
emphasized that petitioners did not rebut her testimony. 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.

14.) Martinez vs HSBC

15 Phil 252. February 19, 1910. Gr no 5496

Facts: Alejandro S. Macleod was for many years the managing partner of the house of Aldecoa & Co. in
the city of Manila. He withdrew from the management on the 31st day of December, 1906, when
Aldecoa & Co. went into liquidation. At the time that Aldecoa & Co. ceased active business the
Hongkong & Shanghai banking Corporation was a creditor of that firm to the extent of several hundred
thousand pesos and claimed to have a creditor's lien in the nature of a pledge over certain properties of
the debtor. In April, 1907, the bank began a civil action against Alejandro S. Macleod, his wife, Mercedes
Martinez, Aldecoa & Co., and the firm known as Viuda e Hijos de Escao. In the bank's complaint it was
alleged that a certain undertaking in favor of Aldecoa & Co. had been hypothecated to the bank to
secure the indebtedness of Aldecoa & Co., but that this obligation had been wrongfully transferred by
Alejandro S. Macleod into an obligation in favor in his wife, Mercedes Martinez, to the prejudice of the
bank. In May, 1907, Aldecoa & Co. began a civil action against Alejandro S. Macleod and others for the
recovery of certain shares of stock of the par value of P161.000 and for damages in the sum of
P150,000, basing its right to recover upon alleged criminal misconduct of Mr. Macleod in his
management of the firm's affairs. When the two causes of action above referred to were discovered and
the suits there mentioned commenced, Alejandro S. Macleod and Mercedes Martinez, his wife, engaged
the services of Messrs. Del-Pan, Ortigas and Fisher, attorneys at law, to represent and defend them in
the matter. Soon thereafter these attorneys made overtures to the liquidation of Aldecoa & Co, for the
settlement of the latter's claims. While these negotiations were pending Aldecoa & Co. claimed that
they had made discoveries of many frauds which Macleod had perpetrated against the company during
the period of his management, whereby the company had been defrauded of many thousands of pesos.
Aldecoa & Co. filed a complaint against Mr. Macleod, charging him with the falsification of a commercial
document, and a warrant for his arrest was issued by the Court of First Instance of Manila, and the
executive department of the Philippine Government issued a formal request to the Portuguese
authorities for the extradition of the accused.

Settlements were offered but there appears to have been little resistance to this demand on the part of
the plaintiff herein, stoutly objected to the conveyance required of her, maintaining that the property
which she was asked to transfer was her separate and exlusive property and not liable for the debts of
her husband. Her position was fully stated by her to her attorney, Mr. Fisher, and to her attorney-in-fact,
Mr. William Macleod. An interview between her attorney and the attorney for Aldecoa & Co. followed
this declaration on her part.

On the 12th of August, at an interview had between theplaintiff and her attorney-in-fact, Mr. William
Macleod, the plaintiff acceded to the terms proposed by the defendants and authorized Mr. William
Macleod to execute the contract of settlement on her behalf. The document of settlement was prepared
and after certain corrections upon the part of the plaintiff's attorneys, making the same entirely
satisfactory to them, it was signed by the plaintiff's attorney-in-fact on her behalf on the 14th of August.
It was thereafter and on the same day ratified by the plaintiff, who executed the same in person. After
Adecoa & Co. and the bank had taken possession of the property of plaintiff and her husband, conveyed
to them, the civil suits were dismissed, the criminal charges withdrawn, and Mr. Macleod returned from
macao to Manila. The plaintiff had a surveyor divide the property in Malate, of which she had conveyed
a half interest, into two equal parts. She negotiated for apartition of the land on the basis of this survey.

On December 3, 1907, the plaintiff filed her complaint in the present action, and, after the joining of
issue and the hearing of evidence, judgment was rendered in favor of defendants on the 29th day of
May, 1909. From this judgment, after the usual motion for a new trial, its denial and exception to such
denial, plaintiff appealed to this court.

Issue: Whether or not the compromise agreement entered between the parties should be anuled on the
ground of duress and undue influence?

Ruling: No.
 In the first place, the undisputed evidence demostrates that the first offers of compromise were
made by the plaintiff herself through her representatives. It appears that from first to last the
effort and anxiety to compromise the claims of the defendants were on the part of the plaintiff
through her representatives.
In the second place, there were at no time during the course of these negotiations for
settlement any direct personal relations or communications between the parties to this action.
During the whole course of the negotiations no person communicated with the plaintiffs on
behalf of the defendants alone. The offers, proposition, or treats, if any, made by the
defendants were filtered to her through the personality, mind, and judgment of her own
attorneys or relatives, all of them being persons who had her welfare and the welfare of her
family deeply at heart and who were acting for her and her husband and not for the
defendants.
In the third place, the plaintiff by means of the negotiations and settlement in question was
engaged partly at least in the settlement of her own suits and controversies
In the fourth place, it must be remembered that the plaintiff, Mercedes Martinez, never at any
time stood alone in the negotiations. There was never a moment when she did not have
interposed between her and the defendants the counsel of skilled attorneys and of interested
relatives
In the fifth place, it must be overlook the fact that the plaintiff took advantage of said contract
after its execution and required the complete fulfilling of every one of its provisions favorable
to herself. She negotiated with Aldecoa & Co. for a partition of the Malate property and to that
end caused a survey and a division thereof to be made. She demanded of Aldecoa & Co.
payment of the P2,000 provided for by the contract, which said sum she received. She caused
one-half of said Malate property to be assessed against said company. She caused a change to
be made in the proceedings to register the title to said Malate lands, previously begun by her,
so as to register her title to only one-half thereof. She caused to be dismissed the action
pending against her on account of the Escao notes, which dismissal occured after this present
action was commenced.

These acts are mentioned not to show a ratification of the contract in the sence that those acts
estopped her from thereafter questioning the same, but rather as confirmatory of the theory that in the
execution of the contract complained of she acted accroding to the dictates of good business judgment
rather that from duress and undue influence.

[15 = DIMA-ALA]

15. Songco vs. Sellner

Facts:

GeorgeC. Sellner, was the owner of a farm at Floridablanca, Pampanga, which was contiguous to a farm
owned by the plaintiff Lamberto Songco. Both properties had a considerable quantity of sugar cane
ready to be cut At Dinalupijan, a short distance away, was located a sugar central, and Sellner desired to
mill his cane at this central. Sellner bought Songco's cane as itstood in the fields for the agreed sum
ofP12,000 and executed therefor three promissory notes of P4,000 each. Two of these notes were paid.
Later, Seller filed a complaint against Songco for obtaining promissory notes by means of certain false
and fraudulent. The principal defense here urged relates to a false representation which, it is claimed,
was made by the plaintiff Songco with respect to the quantity of uncut cane standing in the fields at the
time the defendant Sellner became the purchaser thereof. Upon this point it is proved that Songco
estimated that this cane would produce 3,000 piculs of sugar and that Sellner bought the crop believing
this estimate to be substantially correct. As the crop turned out it produced 2,017 piculs, gross, and after
the toll for milling was deducted the net left to Sellner was very much less. It appears that in the course
ofthe negotiations Sellner requested Songco to guarantee the quantity which the latter claimed to be in
the fields but he would not do so. He, however, repeated that he was sure the fields contained the
quantity estimated by him.

Issue:

WON there is the contract entered by the two parties fraudulent because of misrepresentation of
Songco.

Ruling:

Notwithstanding the fact that Songco's statement as to the probable output of his crop was
disingenuous and uncandid, we nevertheless think that Sellner was bound and that he must pay the
price stipulated.The representation in question can only be considered matter of opinion as the cane
was still standing in the field, and the quantity of sugar it would produce could not be known with
certainty until it should be harvested and milled. Undoubtedly Songco had better experience and better
information on which to form an opinion on this question than Sellner. Nevertheless the latter could
judge with his own eyes as to the Character of the cane, and it is shown that he measured the fields and
ascertained that they contained 96hectares,It is of course elementary that a misrepresentation upon a
mere matter of opinion is not an actionable deceit, nor is it a sufficient ground for avoiding a contract as
fraudulent. We are aware that where one party to a contract, having special or expert knowledge, takes
advantage of the ignorance of another to impose upon him,the false representation may afford ground
for relief, though otherwise the injured party would be bound. But we do not think that the fact that
Songco was an experienced farmer, while Sellner was, as he claims, a mere novice in the business',brings
this case within that exception.

[16-19 = CRUZ]

16. G.R. No. L-29449 December 29, 1928

LEODEGARIO AZARRAGA, plaintiff-appellee,

vs.
MARIA GAY, defendant-appellant.

VILLAMOR, J.:

FACTS

Plaintiff sold two parcels of lands to the defendant for the lump sum of P47,000, payable in installments:
 1. 5k at the time of the execution of the contract
2. 20k upon delivery of the 1stlands Torrens title
3. 10k upon delivery of the 2ndlands Torrens title
4. 12k 1 year after the delivery of the 2ndTorrens title.

Defendant, however, failed to pay the last 2 installments hence, plaintiff filed for claims with legal
interest.

The plaintiff here claims the sum of P22,000, with legal interest from the month of April 1921 on the
sum of P10,000, and from April 1922 on the sum of P12,000, until full payment of the amounts claimed.

The lower court, having minutely analyzed the evidence adduced by the parties held that neither the
plaintiff nor the defendant gave any importance to the area of the land in consenting to the contract in
question, and that there having been no fraud when the parties agreed to the lump sum for the two
parcels of land described in the deed (Exhibit A), following Article 1471 of the Civil Code, ordered the
defendant to pay the plaintiff the sum of P19,300 with legal interest at 8 per cent per annum from April
30, 1921 on the sum of P7,300, and from April 30, 1922, on the sum of P12,000.

On appeal, the appellant alleges that the trial court erred in not considering that the plaintiff induced
the defendant by deceit, to pay him the stipulated price for the two parcels he sold, stating falsely in the
deed of sale that the second of said parcels had an area of 98 hectares when he knew that in reality it
only had about 60 hectares more or less, or at least, if such deceit was not practiced, that there was a
mistake on the part of Maria Gay in believing that said second parcel contained 98 hectares.

The CA held that no such deceit was practiced, as the trial court rightly found.

ISSUE

WON there was fraud on the part of the plaintiff.

HELD

NO.

As a question of fact the trial court found from the evidence adduced by the parties, that the plaintiff
had not practiced any deception in agreeing with the defendant upon the sale of the two parcels of land
described in Exhibit A. We concur with the trial court in this conclusion. It appears of record that before
the execution of the contract Exhibit A, the defendant went over the plaintiff's land and made her own
calculations as to the area of said two parcels. But this not all. The plaintiff delivered to the defendant
the documents covering the land he was trying to sell. As to the first parcel there is no question
whatever and the defendant's contention is limited solely to the actual area of the second parcel. The
defendant had document Exhibit 4 in her possession which is the deed by which the plaintiff acquired
the land from the original owner, Crispulo Beramo, in which document it appears that the area of the
second parcel is about 70 hectares. It was the defendant who intrusted the drawing of the deed of sale
Exhibit A to her attorney and notary, Hontiveros, and it is to be presumed that both she and the lawyer
who drew the document Exhibit A, had read the contents of the document Exhibit 4. The plaintiff
declares that he signed the document between 5 and 7 in the afternoon of that day and he did not pay
any attention to the area of the second parcel, probably in the belief that in the drawing of the
document the data concerning the area of the land had been taken from the said Exhibit 4. The
defendant testified that she received from the plaintiff a note or piece of paper containing the data to
be inserted in the contract Exhibit A. The plaintiff denies this and said note or piece of paper was not
presented at the trial. We are of opinion that this testimony of the defendant's is unimportant, because,
in reality, if the plaintiff had delivered Exhibit 4 to the defendant, there was no need to deliver to her
another note to indicate the area of the second which already appeared in the said Exhibit 4.

If, notwithstanding the fact that it appeared in Exhibit 4 that the area of the second parcel was,
approximately, 70 hectares, the defendant, however, stated in said document Exhibit A that said second
parcel contained 98 hectares as was admitted by him in his interviews with the plaintiff in the months of
April and June, 1924, then she has no right to claim from the plaintiff the shortage in area of the second
parcel. Furthermore, there is no evidence of record that the plaintiff made representation to the
defendant as to the area of said second parcel, and even if he did make such false representations as are
now imputed to him by the defendant, the latter accepted such representations at her own risk and she
is the only one responsible for the consequences of her inexcusable credulousness. In the case of
Songco vs. Sellner (37 Phil., 254), the court said:

The law allows considerable latitude to seller's statements, or dealer's talk; and experience
teaches that it as exceedingly risky to accept it at its face value.

Assertions concerning the property which is the subject of a contract of sale, or in regard to its
qualities and characteristics, are the usual and ordinary means used by sellers to obtain a high
price and are always understood as affording to buyers no ground from omitting to make
inquiries. A man who relies upon such an affirmation made by a person whose interest might so
readily prompt him to exaggerate the value of his property does so at his peril, and must take
the consequences of his own imprudence.

The defendant had ample opportunity to appraise herself of the condition of the land which she
purchased, and the plaintiff did nothing to prevent her from making such investigation as she deemed
fit, and as was said in Songco vs. Sellner, supra, when the purchaser proceeds to make investigations by
himself, and the vendor does nothing to prevent such investigation from being as complete as the
former might wish, the purchaser cannot later allege that the vendor made false representations to him.
(National Cash Register Co. vs. Townsend, 137 N. C., 652; 70 L. R. A., 349; Williamson vs. Holt, 147 N. C.,
515.) The same doctrine has been sustained by the courts of the United States in the following cases,
among others: Misrepresentation by a vendor of real property with reference to its area are not
actionable, where a correct description of the property was given in the deed and recorded chain of
title, which the purchaser's agent undertook to investigate and report upon, and the vendor made on
effort to prevent a full investigation." (Shappirio vs. Goldberg, 48 Law. ed., 419.) "One who contracts for
the purchase of real estate in reliance on the representations and statements of the vendor as to its
character and value, but after he has visited and examined it for himself, and has had the means and
opportunity of verifying such statements, cannot avoid the contract on the ground that they were false
or exaggerated." (Brown vs. Smith, 109 Fed., 26.)

That the defendant knew that the area of the second parcel was only about 70 hectares is shown by the
fact that she received the document Exhibit 4 before the execution of the contract Exhibit A, as also
Exhibit E-3 on September 30, 1920; which is the notification of the day for the trial of the application for
registration of said parcel, wherein it appears that it had an area of 60 hectares more or less, and by the
fact that she received from the plaintiff in the month of June 1924 the copy of the plans of the two
parcels, wherein appear their respective areas; and yet, in spite of all this, she did not complain of the
difference in the area of said second parcel until the year 1926. Moreover, the record contains several of
the defendant's letters to the plaintiff in the years 1921 to 1925, in which said defendant acknowledges
her debt, and confining herself to petitioning for extentions of time within which to make payment for
the reasons given therein. But in none of these letters is there any allusion to such lack of area, nor did
she complain to the plaintiff of the supposed deceit of which she believes she is a victim. All of which, in
our opinion, shows that no such deceit was practiced, as the trial court rightly found.

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

LAURETA TRINIDAD, petitioner,

vs.
INTERMEDIATE APPELLATE COURT and VICENTE J. FRANCISCO, respondent.

CRUZ, J.:

FACTS

The house was Bungalow No. 17, situated at Commonwealth Village in Quezon City, and belonged to the
late Vicente J. Francisco. The petitioner herein, approached him and offered to buy the property.
Francisco was willing to sell forP70,000.00 with a down payment of P17,500.00. Trinidad inspected the
house and lot and examined a vicinity map which indicated drainage canals along the property. The
balance was to be paid in five equal annual installments not later than July 1 of each year at 12%
interest per annum.

Trinidad paid Francisco P5,000.00 as earnest money and entered into the possession of the house.
Howevershe subsequently heard from her new neighbors that two buyers had previously vacated the
property because it was subject to flooding. She says she talked to Francisco about this matter and that
he told her everything had been fixed and the house would never be flooded again. Thus assured, she
gave him P12,500.00 to complete the down payment. They signed the Contract of Conditional Sale on
August 8, 1969.

Petitioner eventually decided not to continue paying the amortizations because the house was flooded
again, the waters rising to as high as five feet. She then requested an inspection of the subject premises
to determine the cause of the flooding. The finding of City Engineer Pantaleon P. Tabora was that "the
lot is low and is a narrowed portion of the creek."

Thus, the petitioner filed her complaint against Francisco alleging that she was induced to enter into the
contract of sale because of his misrepresentations. She asked that the agreement be annulled and her
payments refunded to her, together with the actual expenses she had incurred for the "annexes and
decorations" she had made on the house. She also demanded the actual cost of the losses she had
suffered as a result of the floods, moral and exemplary damages in the sum of P200,000.00, and
P10,000.00 attomey's
fees.
Defendant, on the other hand, denied the charge of misrepresentation and stressed that the plaintiff
had thoroughly inspected the property before she decided to buy it. The claimed creek was a drainage
lot, and the floods complained of were not uncommon in the village and indeed even in the Greater
Manila area if not the entire Luzon. In any event, the floods were fortuitous events not imputable to
him. He asked for the rescission of the contract and the forfeiture of payments made by the plaintiff plus
monthly rentals with interest of P700.00 for the property from July 2, 1972, until the actual vacation of
the property by the plaintiff. He also claimed litigation expenses, including attorney's fees.

RTC ruled in favor of the plaintiff, ordering the defendant the following:

a) annulment of the contract of conditional sale entered into by the parties; b) defendant's
representatives to pay to the plaintiff the amount of P49,840.00 with interest from the time of the filing
of the complaint; c) defendant's representatives to pay the amount of P39,800.00 representing the
value of the improvements and the losses she incurred by virtue of the flood; d) plaintiff to return to the
defendant's representatives the house and lot in question; e) defendant's representatives to pay the
amount of P5,000.00 as and by way of attomey's fees.

Both of the parties appealed. The appeal of plaintiff was dismissed. With respect to the appeal of
defendant, the decision of the lower court was reversed and set aside.

ISSUE

WON there was fraud prior to the sale that induced petitioner to enter into the said sale/ WON there
was misrepresentation on the part of Francisco to justify the rescission of the sale and the award
damages to the petitioner.

HELD

The pertinent provisions of the Civil Code on fraud are the following:

Art. 1338. There is fraud when, through 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.

Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the
parties are bound by confidential relations, constitutes fraud.

Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to
know the facts, are not in themselves fraudulent.

Fraud is never lightly inferred; it is good faith that is. Under the Rules of Court, it is presumed that "a
person is innocent of crime or wrong" and that "private transactions have been fair and
regular." 8 While disputable, these presumptions can be overcome only by clear and preponderant
evidence.
The Court finds 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 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. If she minimized the presence of the drainage canals, she has only
her own negligence to blame.

Fourth, seeing that the lot was depressed and there was a drainage lot abutting it, she cannot
say she was not forewarned of the possibility that the place might be flooded. Notwithstanding
the obvious condition of the property, she still decided to buy it.

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.

To repeat, it has not been satisfactorily established that the private respondent inveigled the petitioner
through false representation to buy the subject property. Assuming that he did make such
representations, as the petitioner contends, she is deemed to have accepted them at her own risk and
must therefore be responsible for the consequences of her careless credulousness.

The Court have also held that "one who contracts for the purchase of real estate in reliance on the
representations and statements of the vendor as to its character and value, but after he has visited and
examined it for himself and has had the means and opportunity of verifying such statements, cannot
avoid the contract on the ground that they were false and exaggerated."

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

DOMINGO MERCADO and JOSEFA MERCADO, plaintiffs-appellants, vs.

JOSE ESPIRITU, administrator of the estate of the deceased Luis Espiritu, defendant-appellee.
TORRES, J.:

FACTS

Margarita Espiritu was the owner of a 48 hectare land. In 1897, she died and the land was left to her
husband (Wenceslao Mercado) and her children, Domingo Mercado, Josefa Mercado and 3 other
siblings.
Apparently however, during the lifetime of Margarita in 1894, she executed a deed of sale transferring
about 71% of her land (covering 15 cavanes of seeds) to her brother Luis Espiritu (father of Jose Espiritu)
for P2,000.00. After her death, Wenceslao had a hard time making ends meet for his family and so he
took out a loan from Luis in the amount of P375.00. The loan was secured by the remainder of the lot.
Later, that loan was increased to P600.00.
In May 1910, Luis entered into a notarized agreement with Domingo and Josefa whereby the two, while
purporting to be of legal age, acknowledged the sale and the loan previously entered into by their
parents with Luis. In the same agreement, the siblings agreed that for and in consideration of the
amount of P400.00, they are transferring the remainder 29% (covering 6 cavanes of seeds) to Luis.

But later, the siblings contested the said agreement. Luis later died and he was substituted by Jose. It is
the contention of Domingo et al that the agreement is void because they were only minors, 19 and 18
years of age respectively, when the contract was entered into in May 1910 (21 being the age of minority
at that time) and for the further reason that the deceased purchaser Luis Espiritu availed himself of
deceit and fraud in obtaining their consent for the execution of said deed.

ISSUE

1. WON Luis Espiritu employed fraud, deceit, violence, or intimidation, in order to effect the sale.
2. Whether or not the agreement between Luis and Domingo et al in May 1910 is valid despite the
minority of the latter party.

HELD

1. NO.

The evidence adduced at the trial does not show, even circumstantially, that the purchaser Luis Espiritu
employed fraud, deceit, violence, or intimidation, in order to effect the sale mentioned in the document
Exhibit 3, executed on May 17, 1910. In this document the vendors, the brother and the sisters
Domingo, Maria del Consejo, Paz and, Josefa surnamed Mercado y Espiritu, attested the certainty of the
previous sale which their mother, during her lifetime, had made in behalf of said purchaser Luis Espiritu,
her brother with the consent of her husband Wenceslao Mercado, father of the vendors of the portion
of land situated in the barrio of Panducot, pueblo of Calumpit, Bulacan; and in consideration of the fact
that the said vendor Luis Espiritu paid them, as an increase, the sum of P400, by virtue of the contract
made with him, they declare having sold to him absolutely and in perpetuity said parcel of the land,
waive and thenceforth any and all rights they may have, inasmuch as said sum constitutes the just price
of the property.

2. YES.
The minority of Domingo and Josefa was not proven with certainty because of the loss of official records
(got burned down). However, even assuming that they were indeed minors, they are bound by their
declaration in the notarized document where they presented themselves to be of legal age. Domingo
claimed he was 23 years old in the said document.

The Supreme Court declared: the sale of real estate, made by minors who pretend to be of legal age,
when in fact they are not, is valid, and they will not be permitted to excuse themselves from the
fulfillment of the obligations contracted by them, or to have them annulled in pursuance of the
provisions of Law.

[19 = UNABIA]

19. ROSARIO L. DE BRAGANZA, ET AL., petitioners, vs. FERNANDO F. DE VILLA ABRILLE, respondent.
G.R. No. L-12471. April 13, 1959

FACTS: On October 1944, Rosario Braganza, and sons Rodolfo and Guillermo, loaned from Villa Abrille
P70,000 in Japanese War notes and in consideration thereof promised in writing to pay him P10,000 in
legal currency of the P. I. two years after the cessation of the present hostilities or as soon as
International Exchange has been established in the Philippines", plus 2% per annum. Petitioners
defaulted so Villa Abrille filed a complaint in March 1949. Petitioners claimed that they only received
P40k and that Guillermo (16 y/o) and Rodolfo (18 y/o) were minors when they signed the promissory
note. Respondent argues that the defense of minority was raised only in 1957 and inasmuch as Rodolfo
reached the age of majority in 1947, it was too late to invoke it because more than 4 years had elapsed
after he had become emancipated.

The RTC ruled that petitioners were required solidarily to pay Villa Abrille P10,000 plus 2% interest. The
CA affirmed the decision stating that although minors, Rodolfo and Guillermo did not make it appear in
the promissory note that they were not yet of legal age. If they were really fair to their creditor, they
should have apprised him on their incapacity. When minors, like in the instant case, pretended to be of
legal age, when in fact they were not, they will not later on be permitted to excuse themselves from the
fulfillment of the obligation.

ISSUE: WN petitioners Guillermo and Rodolfo are liable for the contract.

HELD: Their liability is in pursuance with Art. 1304.

There can be no question about the responsibility of Mrs. Rosario L. Braganza because the minority of
her consigners does not release her from liability; since it is a personal defense of the minors. However,
such defense will benefit her to the extent of the shares for which such minors may be responsible.

From the minors' failure to disclose their minority in the same promissory note they signed, it does not
follow as a legal proposition, that they will not be permitted thereafter to assert it. They had no juridical
duty to disclose their inability. However, these minors may not be entirely absolved from monetary
responsibility. In accordance with the provisions of the Civil Code, even if their written contract is
unenforceable because of non-age, they shall make restitution to the extent that they may have profited
by the money they received. There is testimony that the funds delivered to them by Villa Abrille were
used for their support during the Japanese occupation. Such being the case, it is but fair to hold that they
had profited to the extent of the value of such money.

Since the share of these minors was 2/3 of P70,000 (P46,666.66) they should now return P1,166.67.
Their promise to pay P10,000 in Philippine currency cannot be enforced since they were minors
incapable of binding themselves.

SUB-ISSUE: 4 year prescription period to raise defense of minority.

The parties do not specify the exact date of Rodolfo's birth. It is undenied, however, that in October
1944, he was 18 years old. On the basis of such datum, it should be held that in October 1947, he was 21
years old, and in October 1951, he was 25 years old. So that when this defense was interposed in June
1951, 4 years had not yet completely elapsed from October 1947.

However, where minority is set up only as a defense to an act on, without the minor asking for any
positive relief from the contract, the four-year period fixed by Article 1301 of the Civil Code may not be
applied.

[20 = DIMA-ALA]

20. Tuason vs. Marquez

Facts: Crisanto Marquez, the owner of the electric light plant of Lucena, Tayabas, called Sucesores del
Lucena Electric, gave an option to Antonio Tuason for the purchase of the plant for P14,400. The
agreement was, that Tuason was to pay Marquez a total of P14,400; P2,400within sixty days, and the
remainder, P12,000, within a year. Tuason being once in possession of the electric light plant, it was run
under the management of the Consolidated Electric Company for about sixteen months, the property
was sold under execution by reason of a judgment in the case of Levy Hermanos vs. The Philippine
Electric Light Company. The purchaser at said sale was Gregorio Marquez, brother of Crisanto Marquez,
who paid P5,501.57 for the property. With this the general background of the controversy, we have to
give special attention to one clause in the contract and its antecedents. The contract Exhibit B entered
into by Tuason and Marquez included as a portion of the property sold by Marquez toTuason "el
derecho a la franquicia concedido a la, Compaa parala, explotacin de la industria a que la misma est
dedicada."It appears that originally in either 1913 or 1914, a franchise for thirty-five years was granted
the Lucena Electric Company. The rights of this company passed to Crisanto Marquez at a sheriff's sale
on September 10, 1919. The company seems never to have functioned very efficiently either at that
time or at any other time, as appears from the constant complaint of the municipal authorities of
Lucena. Evidently, Marquez became disgusted with the business, he announced to the Public Utility
Commissioner his intention to give up the franchise. On March 29,1921, that is, subsequent to the
accomplishment of the contract, the Public Utility Commissioner took action and declared cancelled the
franchise acquired by Crisanto Marquez from the Lucena Electric Light, Ice & Water Company. Tuason
and his outfit were permitted to operate the company pursuant to a special license which was to
continue until they obtained a new franchise. The new franchise was finally granted by the Public Utility
Commissioner with certain conditions, which amounted to a renovation of the entire plant. It was then,
following a knowledge of what was expected by the Government, and following the execution sale, that
Tuason conceived the idea of bringing action against Marquez for a rescission of the contract The
plaintiff claims in effect that the contract should be rescinded and that he should be allowed his
damages, on account of the misrepresentation and fraud perpetrated by the defendant in selling an
electric light plant with a franchise, when the defendant had already given up his rights to that franchise

Issue: WON the contract should be rescinded due to fraud and misrepresentation

Ruling:

It should be emphasized that the contract, in making mention of the property of 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 their agreement. The maxim caveat emptor should be recalled. The plaintiff operated the electric
light plant for about sixteen months without question; he made the first payment on the contract
without protest; he bestirred himself to secure what damages he could from the defendant only after
the venture had proved disastrous and only after the property had passed into the hands of a third
party. We find no proof of fraud on the part of the defendant and find the plaintiff in estoppel to press
his action.

[21-23 = DE LEON]

21.) RURAL BANK OF STA. MARIA, PANGASINAN, petitioner vs. THE HONORABLE COURT OF APPEALS,
ROSARIO R. RAYANDAYAN, CARMEN R. ARCEO, respondents.

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

FACTS:
A parcel of land of about 49,969 square meters, located in Baguio City 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 (one name), father of Manuel Behis, covered by OCT-0-33. And upon the latters death
on September 24, 1971, 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 dated
September 28, 1978, 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 dated September 26, 1983, 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 dated October 23,
1978 (Exhibit `Q-1) as security for loans obtained, covered by six promissory notes and trust receipts
under the Supervised Credit Program in the total sum of P156,750.00 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.

A Deed of Absolute Sale with Assumption of Mortgage was executed between Manuel Behis as
vendor/assignor and Rayandayan and Arceo as vendees/assignees for the sum of P250,000.00. On the
same day, Rayandayan and Arceo together with Manuel Behis executed another Agreement embodying
the real consideration of the sale of the land in the sum of P2,400,000.00. Thereafter, Rayandayan and
Arceo negotiated with the principal stockholder of the bank, Engr. Edilberto Natividad in Manila, for the
assumption of the indebtedness of Manuel Behis and the subsequent release of the mortgage on the
property by the bank. Rayandayan and Arceo did not show to the bank the Agreement with Manuel
Behis providing for the real consideration of P2,400,000.00 for the sale of the property to the former.

Subsequently, the bank consented to the substitution of plaintiffs as mortgage debtors in place of
Manuel Behis in a Memorandum of Agreement between private respondents and the bank with
restructured and liberalized terms for the payment of the mortgage debt. Instead of the bank
foreclosing immediately for non-payment of the delinquent account, petitioner bank agreed to receive
only a partial payment of P143,000.00 by installment on specified dates. After payment thereof, the
bank agreed to release the mortgage of Manuel Behis; to give its consent to the transfer of title to the
private respondents; and to the payment of the balance of P200,000.00 under new terms with a new
mortgage to be executed by the private respondents over the same land.

Bank explained it entered into the Assignment of Mortgage because at the time it considered the
Memorandum of Agreement cancelled as first, plaintiffs failed to settle the objections of Cristina Behis
aforesaid on her signature being forged in the Deed of Sale with Assumption of Mortgage despite the
lapse of time from February, 1986 to July, 1986. Second, the terms of the Memorandum of Agreement
have not been fully complied with as the payments were not made on time on the dates fixed therein;
and third, their consent to the Memorandum of Agreement was secured by the plaintiffs thru fraud as
the Bank was not shown the Agreement containing the real consideration of P2,400,000.00 of the sale
of the land of Manuel Behis to plaintiffs.

ISSUE: WON the act of Randayan., et al. in not disclosing to the bank the consideration of P2.4M on
the Deed of Absolute Sale with Assumption of Mortgage was executed between them and Manuel
behis, renders the MOA between Randayan., et al. and the bank voidable on the ground of fraud?

HELD: NO. According to petitioner bank, had it known of the real consideration for the sale, i.e. P2.4
million, it would not have consented into entering the Memorandum of Agreement with Rayandayan
and Arceo as it was put in the dark as to the real capacity and financial standing of private respondents
to assume the mortgage from Manuel Behis. Petitioner bank pointed out that it would not have
assented to the agreement, as it could not expect the private respondents to pay the bank the
approximately P343,000.00 mortgage debt when private respondents have to pay at the same time
P2,400,000.00 to Manuel Behis on the sale of the land.

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.[13] 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.[14] From the sole reason
submitted by the petitioner bank that it was kept in the dark as to the financial capacity of private
respondent, 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.

First of all, the consideration for the purchase of the land between Manuel Behis and herein private
respondents Rayandayan and Arceo could not have been the determining cause for the petitioner bank
to enter into the memorandum of agreement. To all intents and purposes, the bank entered into said
agreement in order to effect payment on the indebtedness of Manuel Behis. As correctly ruled by the
Court of Appeals:

xxx. The real consideration for the sale with assumption of mortgage, or the non-disclosure thereof, was
not the determining influence on the consent of the bank.

The bank received payments due under the Memorandum of Agreement, even if delayed. It initially
claimed that the sale with assumption of mortgage was invalid not because of the concealment of the
real consideration of P2,400,000.00 but because of the information given by Cristina Behis, the widow of
the mortgagor Manuel Behis that her signature on the deed of absolute sale with assumption of
mortgage was forged. Thus, the alleged nullity of the Memorandum of Agreement, Exhibit F, is a clear
aftertought. It was raised by defendant bank, by way of counterclaim only after it was sued.

The deceit which avoids the contract exists where the party who obtains the consent does so by means
of concealing or omitting to state material facts, with intent to deceive, by reason of which omission or
concealment the other party was induced to give a consent which he would not otherwise have given
xxx In this case, the consideration for the sale with assumption of mortgage was not the inducement to
defendant bank to give a consent which it would not otherwise have given.

Indeed, whether the consideration of the sale with assumption of mortgage was P250,000.00, or
P2,400,000.00. should not be of importance to the bank. Whether it was P250,000.00 or P2,400.000.00
the banks security remained unimpaired.
We are, therefore, constrained to uphold the validity of the Memorandum of Agreement, Exhibit F, and
reverse and set aside the ruling declaring the same annulled allegedly due to fraud of plaintiffs-
appellants.

Secondly, pursuant to Article 1339 0f the Civil Code,[16] 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 Arceo 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.

Consequently, not all elements of fraud vitiating consent for purposes of annulling a contract concur, to
wit: (a) It was employed by a contracting party upon the other; (b) It induced the other party to enter
into the contract; (c) It was serious; and; (d) It resulted in damages and injury to the party seeking
annulment. Petitioner bank has not sufficiently shown that it was induced to enter into the agreement
by the non-disclosure of the purchase price, and that the same resulted in damages to the bank.
22.) MARIA GERVACIO BLAS, MANUEL GERVACIO BLAS, LEONCIO GERVACIO BLAS and LODA
GERVACIO BLAS, plaintiffs-appellants, vs. ROSALINA SANTOS, in her capacity as Special Administratrix
of the Estate of the deceased MAXIMA SANTOS VDA. DE BLAS, in Sp. Proc. No. 2524, Court of First
Instance of Rizal, defendants-appellants. MARTA GERVACIO BLAS and DR. JOSE CHIVI, defendants-
appellants.

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

FACTS:
Simeon Blas contracted a first marriage with Marta Cruz sometime before 1898. They had
three children, only one of whom, Eulalio, left children, namely, Maria Gervacio Blas, one of the
plaintiffs, Marta Gervacio Blas, one of the defendants, and Lazaro Gervacio Blas. 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 over a week before his death on January 9, 1937,
Simeon Blas executed a last will and testament. In the said testament Simeon Blas makes the following
declarations.

The above testamentary provisions may be translated as follows:

I
2. During my second marriage with Maxima Santos de Blas, I possessed and acquired wealth and
properties, consisting of lands, fishponds and other kinds of properties, the total assessed value of
which reached the amount P678,880.00.
II
1. One-half of our properties, after the payment of my and our indebtedness, all these properties having
been acquired during marriage (conjugal properties), constitutes the share of my wife Maxima Santos de
Blas, according to the law.

The document which was thus prepared and which is marked as Exhibit "A" reads;

That I MAXIMA SANTOS DE BLAS, of legal age, married to SIMEON BLAS, resident of Malabon,
Rizal, Philippines, voluntarily state:

That I have read and knew the contents of the will signed by my husband, SIMEON BLAS, (2) and
I promise on my word of honor in the presence of my husband that I will respect and obey all and every
disposition of said will (3) and furthermore, I promise in this document that all the properties my
husband and I will leave, the portion and share corresponding to me when I make my will, I will give
one-half () to the heirs and legatees or the beneficiaries named in the will of my husband, (4) and
that I can select or choose any of them, to whom I will give depending upon the respect, service and
treatment accorded to me.

Plaintiffs heirs of the first marriage of Simeon to Marta Cruz then filed a case against the administration
of the estate of Maxima Santos, to secure a judicial declaration that one-half of the properties left by
Maxima Santos Vda. de Blas, the greater bulk of which are set forth and described in the project of
partition presented in the proceedings for the administration of the estate of the deceased Simeon Blas,
had been promised by the deceased Maxima Santos to be delivered upon her death and in her will to
the plaintiffs, and requesting that the said properties so promised be adjudicated to the plaintiffs.

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.

Counsel for the defendant-appellee claims Exhibit "A" is a worthless piece of paper because it is not a
will nor a donation mortis causa nor a contract.

ISSUE: (1) WON exhibit A, executed by Maxima Blas, is a worthless piece of paper and cannot be given
effect since it is neither a will nor a contract and that it lacks consideration?
(2) WON it is void since its object is future inheritance?

HELD: (1) NO. Plaintiffs-appellants argue before us that Exhibit "A" is both a trust agreement and a
contract in the nature of a compromise to avoid litigation. Defendants-appellees, in answer, claim that it
is neither a trust agreement nor a compromise a agreement. Considering that the properties of the first
marriage of Simeon Blas had not been liquidated when Simeon Blas executed his will on December 26,
1936', and the further fact such properties where actually , and the further fact that included as conjugal
properties acquired during the second marriage.

We find, as contended by plaintiffs-appellants that the preparation and execution of Exhibit "A" was
ordered by Simeon Blas evidently to prevent his heirs by his first marriage from contesting his will and
demanding liquidation of the conjugal properties acquired during the first marriage, and an
accounting of the fruits and proceeds thereof from the time of the death of his first wife. Exhibit "A",
therefore, appears to be the compromise defined in Article 1809 of the Civil Code of Spain, in force at
the time of the execution of Exhibit "A", which provides as follows:

Compromise is a contract by which each of the parties in interest, by giving, promising, or

retaining something avoids the provocation of a suitor terminates one which has already the
provocation been instituted.

As we have in indicated above, it is a compromise and at the same time a contract with a sufficient
cause or consideration.

HELD: (2) It is also contended that it deals with future inheritance. We do not think that Exhibit "A" is 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.
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.

23.) BELINDA TAREDO, for herself and in representation of her brothers and sisters, and TEOFILA
CORPUZ TANEDO, representing her minor daughter VERNA TANEDO, petitioners, vs. THE COURT OF
APPEALS, SPOUSES RICARDO M. TAREDO AND TERESITA BARERA TAREDO, respondents.

G.R. No. 104482. January 22, 1996

FACTS:
On October 20, 1962, Lazardo Taedo executed a notarized deed of absolute sale in favor of his
eldest brother, Ricardo Taredo, and the latters wife, Teresita Barera, private respondents herein,
whereby he conveyed to the latter in consideration of P1,500.00, one hectare of whatever share he
shall have over Lot No. 191 of the cadastral survey of Gerona, Province of Tarlac and covered by Title T-
l3829 of the Register of Deeds of Tarlac, the said property being his future inheritance from his parents.
Upon the death of his father Matias, Lazaro executed an Affidavit of Conformity dated February 28,
1980 to re-affirm, respect. acknowledge and validate the sale he made in 1962. On January 13, 1981,
Lazaro executed another notarized deed of sale in favor of private respondents covering his undivided
ONE TWELVE (1/12) of a parcel of land known as Lot 191 . He acknowledged therein his receipt of P
10,000.00 as consideration therefor. In February 1981, Ricardo learned that Lazaro sold the same
property to his children, petitioners herein, through a deed of sale dated December 29, 1980 . On June
7, 1982, private respondents recorded the Deed of Sale in their favor in the Registry of Deeds and the
corresponding entry was made in Transfer Certificate of Title No. 166451.

Petitioners on July 16, 1982 filed a complaint for rescission (plus damages) of the deeds of sale
executed by Lazaro in favor of private respondents covering the property inherited by Lazaro from his
father.

Petitioners claimed that their father, Lazaro, executed an Absolute Deed of Sale dated December 29,
1980 (Exit. E), conveying to his ten children his allotted portion under the extrajudicial partition
executed by the heirs of Matias, which deed included the land in litigation.

Private respondents, however presented in evidence a Deed of Revocation of a Deed of Sale dated
March 12, 1981 (Exh. 6), wherein Lazaro revoked the sale in favor of petitioners for the reason that it
was simulated or fictitious - without any consideration whatsoever.
Shortly after the case a quo was filed, Lazaro executed a sworn statement which virtually repudiated the
contents of the Deed of Revocation of a Deed of Sale and the Deed of Sale, in favor of private
respondents. However, Lazaro testified that he sold the property to Ricardo, and that it was a lawyer
who induced him to execute a deed of sale in favor of his children after giving him five pesos (P5.00) to
buy a drink.

ISSUE: (1) WON Lazaros sale of future inheritance in favor respondents Ricardo Taredo., et al. was
valid?
(2) WON the petitioners are entitled to the property?

HELD: No. We hereby categorically rule that, pursuant to Article 1347 of the Civil Code, (n)o contract
may be entered into upon a future inheritance except in cases expressly authorized by law.
Consequently, said contract made in 1962 is not valid and cannot be the source of any right nor the
creator of any obligation between the parties. Hence, the affidavit of conformity dated February 28,
1980, insofar as it sought to validate or ratify the 1962 sale, is also useless and, in the words of the
respondent Court, suffers from the same infirmity.

(2) NO. the documents that are critical to the resolution of this case are: (a) the deed of sale of January
13, 1981 in favor of private respondents covering Lazaros undivided inheritance of one-twelfth (1/12)
share in Lot No. 191, which was subsequently registered on June 7, 1982; and (b) the deed of sale dated
December 29, 1980 in favor of petitioners covering the same property. These two documents were
executed after the death of Matias (and his spouse) and after a deed of extrajudicial settlement of his
(Matias) estate was executed, thus vesting in Lazaro actual title over said property. In other words,
these dispositions, though conflicting, were no longer infected with the infirmities of the 1962 sale.

Critical in determining which of these two deeds should be given effect is the registration of the sale in
favor of private respondents with the register of deeds on June 7, 1982.

Article 1544 of the Civil Code governs the preferential rights of vendees in cases of multiple sales,
(Check Codal)

The property in question is land, an immovable, and following the above-quoted law, ownership shall
belong to the buyer who in good faith registers it first in the registry of property. Thus, although the
deed of sale in favor of private respondents was later than the one in favor of petitioners, ownership
would vest in the former because of the undisputed fact of registration. On the other hand, petitioners
have not registered the sale to them at all.

Petitioners contend that they were in possession of the property and that private respondents never
took possession thereof. As between two purchasers, the one who registered the sale in his favor has a
preferred right over the other who has not registered his title, even if the latter is in actual possession of
the immovable property.

[24 = UNABIA]

24. CONCHITA LIGUEZ, petitioner, vs. THE HONORABLE COURT OF APPEALS, MARIA NGO VDA. DE
LOPEZ, ET AL., respondents.

G.R. No. L-11240. December 18, 1957

REYES, J. B. L., J.:

FACTS: Liguez filed a complaint against the widow and heirs of Salvador P. Lopez to recover a parcel of
51.84 hectares of land in Mati, Davao. Petitioner avers that she is the legal owner pursuant to a deed of
donation in her favour executed by Salvador. The defense interposed that the donation was null and
void for having an illicit causa or consideration, which was plaintiff's entering into marital relations with
Salvador, a married man. The property had been adjudicated to the appellees as heirs of Lopez by the
CFI since 1949.

The CA found that the deed of donation was prepared by the Justice of Peace of Mati before whom it
was signed and ratified. At the time, Liguez was only 16 y/o. The deed stated that the donation was
made and in consideration of his love and affection for the said DONEE, Conchita Liguez. It was later
found that the deed was made as a condition before Salvador could have sexual relations and live with
Conchita Liguez. It was also found that the subject property was originally belonged to the conjugal
partnership of Salvador P. Lopez and his wife, Maria Ngo; that the land was assessed in the tax rolls in
the name of Lopez and later in the name of Maria Ngo; and that the deed of donation was never
recorded.

The CA held that the deed of donation was inoperative, and null and void because Salvador no right to
donate conjugal property to Liguez and the donation was tainted with illegal causa or consideration, of
which donor and donee were participants.

ISSUE: WN Liguez is entitled to the subject property.

HELD: 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.

The CA erred in applying he pari delicto rule because it cannot be said that both parties here had equal
guilt since Salvador was a man advanced in years and Liguez was a minor at the time of the donation
and was not fully aware of the terms of the bargain entered into by and between Lopez and her parents.
Also, her acceptance in the deed of donation) did not necessarily imply knowledge of conditions and
terms not set forth. These facts are more suggestive of seduction than of immoral bargaining on the part
of appellant. It must not be forgotten that illegality is not presumed, but must be duly and adequately
proved.

Furthermore, 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. Since Salvador Lopez
himself, if living, would be barred from setting up the plea that the donation was illegal, his heirs
[respondents herein] as his privies and successors in interest, can have no better rights than Lopez
himself.

SUB-ISSUE: WN the donation is invalid for having an illicit cause.

Article 1274 of the Civil Code of 1889 (which was the governing law in 1943 during the donation),
liberality of the donor is deemed causa only in those contracts that are of "pure" beneficence; that is to
say, contracts designed solely and exclusively to procure the welfare of the beneficiary, without any
intent of producing any satisfaction for the donor. It provides that in remuneratory contracts, the
consideration is the service or benefit for which the remuneration is given; causa is not liberality in these
cases because the contract or conveyance is not made out of pure beneficence.

The records show that Salvador was not not moved exclusively by the desire to benefit Conchita Liguez,
but also to secure her cohabiting with him, so that he could gratify his sexual impulses. Therefore, the
donation was but one part of an onerous transaction (at least with appellant's parents) that must be
viewed in its totality. Thus considered, the conveyance was clearly predicated upon an illicit causa. It
indisputable that Lopez would not have conveyed the property if he knew Liguez would not cohabit with
him, thus making that the cohabitation was an implied condition to the donation, being unlawful would
taint the donation itself.

[25 = TANIO]

25. MAXIMINO CARANTES (Substituted by Engracia Mabanta Carantes), petitioner, vs. COURT OF
APPEALS, BILAD CARANTES, LAURO CARANTES, EDUARDO CARANTES and MICHAEL
TUMPAO, respondents,
G.R. No. L-33360 April 25, 1977
CASTRO, C.J:

FACTS:

Mateo Carantes died leaving behind Lot 44 leaving his widow Ogasia and six children. A portion
of the said lot was needed for the construction of the landing field of the Loakan Airport, so the
Government instituted proceedings for its expropriation. A special proceeding for the settlement of the
estate of the late Matero Carantes were filed wherein Maximino Carantes was appointed as judicial
administrator of the estate.

A deed of Assignment of Right to Inheritance was executed by four of Mateo Carantes and the
heirs of the son of Mateo who died in 1923 assigning to Maximino their rights to inheritance in Lot.
No.44 for the monetary consideration of P1.00. However, the document contains a recital to the effect
that the said lots, "by agreement of all the direct heirs and heirs by representation of the deceased
Mateo Carantes as expressed and conveyed verbally. by him during his lifetime, rightly and exclusively
belong to the particular heir, Maximino Carantes, now and in the past in the exclusive, continuous,
peaceful and notorious possession of the same for more than ten years." On the same date Maximino
Carantes sold to the Government Lots Nos. 44-B and 44-C and divided the proceeds of the sale among
himself and the other heirs of Mateo.

Upon joint petition of the heirs of Mateo Carantes, the CFI of Baguio City issued an Order in
another proceeding cancelling O.C.T. No. 3. Pursuant thereto the said title was cancelled, and in its place
Transfer Certificate of Title No. 2533 was issued in the joint names of the five children of Mateo
Carantes and the children of Apung Carantes as co-owners pro indiviso, or one-sixth share for each child.

Maximino Carantes registered the deed of "Assignment of Right to Inheritance." Accordingly,

T.C.T. No. 2533 in the names of the heirs was cancelled, and in lieu thereof Transfer Certificate of Title
No. 2540 was issued on the same date in the name of Maximino Carantes. Also on the same date,
Maximino, executed a formal deed of sale in favor of the Government over Lots Nos. 44-B and 44-C.
 A complaint was filed by three children of the late Mateo Carantes and by some of the surviving
heirs of Apung and of Sianang. Maximino Carantes was named principal defendant, and some of the
heirs of Apung and Sianang were impleaded as parties-defendants in view of their alleged reluctance to
join as parties-plaintiffs.

After trial, the court dismissed the complaint. It likewise dismissed the counterclaim. The
plaintiffs moved for reconsideration. Their motion having been denied, they appealed to the Court of
Appeals which reversed the judgment of the trial court, hence the present recourse.

ISSUE:

1. WHETHER THE DEED OF ASSIGNMENT OF RIGHT TO INHERITANCE IS VOID AB INITIO AND

INEXISTENT ON THE GROUNDS THAT REAL CONSENT WAS WANTING

NO. The Court did not agree with the respondent court's legal conclusion that the deed of
"Assignment of Right to Inheritance" is void ab initio and inexistent on the grounds that real consent
was wanting and the consideration of P1.00 is so shocking to the conscience that there was in fact no
consideration, hence, the action for the declaration of the contract's inexistence does not prescribe
pursuant to article 1410 of the new Civil Code.

Article 1409 (2) of the new Civil Code relied upon by the respondent court provides that
contracts "which are absolutely simulated or fictitious" are inexistent and void from the beginning. The
basic characteristic of simulation is the fact that the apparent contract is not really desired or intended
to produce legal effects or in any way alter the juridical situation of the parties. 4

The respondents' action may not be considered as one to declare the inexistence of a contract for lack
of consideration. It is total absence of cause or consideration that renders a contract absolutely void and
inexistent. In the case at bar consideration was not absent. The sum of P1.00 appears in the document
as one of the considerations for the assignment of inheritance. In addition and this of great legal
import the document recites that the decedent Mateo Carantes had, during his lifetime, expressed to
the signatories to the contract that the property subject-matter thereof rightly and exclusively belonged
to the petitioner Maximino Carantes. This acknowledgment by the signatories definitely constitutes
valuable consideration for the contract.

2. Whether the action to annul the contract entitled Assignment of Right to Inheritance on the
ground of fraud has already prescribed.

YES. The present action being one to annul a 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 the 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 March 16, 1940, and in fact on the same
date T.C.T. No. 2533 in the names of the heirs of Mateo Carantes was cancelled, and T.C.T. No. 2540 in
the name of the petitioner was issued in lieu thereof. The four-year period within which the private
respondents could have filed the present action consequently commenced on March 16, 1940; and since
they filed it only on September 4, 1958, it follows that the same is barred by the statute of limitations.

[26-28 = DIMAIN]

26. SPOUSES BERNARDO BUENAVENTURA and CONSOLACION JOAQUIN, SPOUSES JUANITO EDRA and
NORA JOAQUIN, SPOUSES RUFINO VALDOZ and EMMA JOAQUIN, and NATIVIDAD
JOAQUIN, petitioners, vs. COURT OF APPEALS, SPOUSES LEONARDO JOAQUIN and FELICIANA
LANDRITO, SPOUSES FIDEL JOAQUIN and CONCHITA BERNARDO, SPOUSES TOMAS JOAQUIN and
SOLEDAD ALCORAN, SPOUSES ARTEMIO JOAQUIN and SOCORRO ANGELES, SPOUSES ALEXANDER
MENDOZA and CLARITA JOAQUIN, SPOUSES TELESFORO CARREON and FELICITAS JOAQUIN, SPOUSES
DANILO VALDOZ and FE JOAQUIN, and SPOUSES GAVINO JOAQUIN and LEA ASIS, respondents.

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

Carpio

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 of real
property 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.

The plaintiffs alleged that the contract of sale are simulated because there was no actual
consideration in the sale, assuming that there was a consideration, the properties is three-fold times
more valuable than the consideration, the deed of sale do not reflect the true intent of the parties, and
lastly these sales were designed to deprive the compulsory heir of their legitime.

The defendants in its answer alleged that the sales were with sufficient considerations and
made by defendants parents voluntarily, in good faith, and with full knowledge of the consequences of
their deeds of sale.

Issue

WON the deed of sales are void for want of consideration/insufficiency of consideration

Ruling

NO. Petitioners failed to show that the prices in the Deeds of Sale were absolutely simulated. To
prove simulation, petitioners presented Emma Joaquin Valdozs testimony stating that their father,
respondent Leonardo Joaquin, told her that he would transfer a lot to her through a deed of sale
without need for her payment of the purchase price. The trial court did not find the allegation of
absolute simulation of price credible. Petitioners failure to prove absolute simulation of price is
magnified by their lack of knowledge of their respondent siblings financial capacity to buy the
questioned lots. On the other hand, the Deeds of Sale which petitioners presented as evidence plainly
showed the cost of each lot sold. Not only did respondents minds meet as to the purchase price, but
the real price was also stated in the Deeds of Sale. As of the filing of the complaint, respondent siblings
have also fully paid the price to their respondent father.
Articles 1355 of the Civil Code states:

Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or undue influence.

Article 1470 of the Civil Code further provides:

Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as may indicate a defect
in the consent, or that the parties really intended a donation or some other act or contract.

Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of the Civil
Code which would invalidate, or even affect, the Deeds of Sale. Indeed, there is no requirement that the
price be equal to the exact value of the subject matter of sale. All the respondents believed that they
received the commutative value of what they gave.

27. Gutierrez Hermanos v. Orense

G.R. No. L-9188 December 4, 1914
Torress

Facts

Engacio Orense is the owner of a parcel of land with improvements thereon in Albay registered
in the property registry. Jose Duran, a nephew of the defendant, allegedly with the latter's knowledge
and consent, executed before a notary a public instrument whereby he sold and conveyed to the
plaintiff company, for P1,500, the aforementioned property, the vendor Duran reserving to himself the
right to repurchase it for the same price within a period of four years from the date of the said
instrument. But the possession of the said property was retained by the Orense.

Jose Duran, by virtue of a contract of lease executed by the plaintiff to Duran, which contract
was in force up to February 14, 1911; that the said instrument of sale of the property, executed by Jose
Duran, was allegedly ratified by the defendant Orense. Orense refused to sign the agreement. So the
plaintiff initiated a complaint compelling Orense to execute the said deed. Orense in its answer denied
that Jose Duran executed the deed of sale of the property in favor of the plaintiff with the defendant's
knowledge and consent and he did not give any authority to Duran in order that the latter might, in his
name and representation, sell the said property to the plaintiff company. Plaintiff on the other hand
raised the fact that Orense stated in the case of estafa against Duran that Orense authorized Duran to
sell his property which resulted for the acquittal of Duran in the case.

Issue

WON Duran has an authorization from his Uncle to sell the latters land thereby validating the
contract. Or w/n Orense ratified the act of Duran without authorization thereby validating the contract.
Ruling

YES. Article 1259 of the Civil Code prescribes: "No one can contract in the name of another
without being authorized by him or without his legal representation according to law.

A contract executed in the name of another by one who has neither his authorization nor legal
representation shall be void, unless it should be ratified by the person in whose name it was
executed before being revoked by the other contracting party.

The sworn statement made by the defendant, Orense, while testifying as a witness at the trial of
Duran for estafa, virtually confirms and ratifies the sale of his property effected by his nephew, Duran,
and, pursuant to article 1313 of the Civil Code, remedies all defects which the contract may have
contained from the moment of its execution.

The sale of the said property made by Duran to Gutierrez Hermanos was indeed null and void in
the beginning, but afterwards became perfectly valid and cured of the defect of nullity it bore at its
execution by the confirmation solemnly made by the said owner upon his stating under oath to the
judge that he himself consented to his nephew Jose Duran's making the said sale. Moreover, pursuant to
article 1309 of the Code, the right of action for nullification that could have been brought became legally
extinguished from the moment the contract was validly confirmed and ratified, and, in the present case,
it is unquestionable that the defendant did confirm the said contract of sale and consent to its
execution.

The repeated and successive statements made by the defendant Orense in two actions, wherein
he affirmed that he had given his consent to the sale of his property, meet the requirements of the law
and legally excuse the lack of written authority, and, as they are a full ratification of the acts executed by
his nephew Jose Duran, they produce the effects of an express power of agency.

28. MIGUEL FLORENTINO, ROSARIO ENCARNACION de FLORENTINO, MANUEL ARCE, JOSE

FLORENTINO, VICTORINO FLORENTINO, ANTONIO FLORENTINO, REMEDION ENCARNACION and
SEVERINA ENCARNACION, petitioners-appellants, vs. SALVADOR ENCARNACION, SR., SALVADOR
ENCARNACION, JR., and ANGEL ENCARNACION

G.R. No. L-27696,

GUERRERO

Facts

The petitioners here filed an application for the registration under Act 496 of a parcel of
agricultural land located at Barrio Lubong Dacquel 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 their knowledge and belief, there is no
mortgage, lien or encumbrance of any kind whatever affecting said land, nor any other person having
any estate or interest thereon, legal or equitable, remainder, reservation or in expectancy; that said
applicants had acquired the aforesaid land thru and by inheritance from their predecessors in
interest, lately from their aunt, Doa Encarnacion Florentino who died in Vigan, Ilocos Sur in 1941, and
for which the said land was adjudicated to them by virtue of the deed of extrajudicial partition with a
stipulation giving shares to church for its expenses; that applicants Salvador Encarnacion, Jr. and Angel
Encarnacion acquired their respective shares of the land thru purchase from the original heirs, Jesus,
Caridad, Lourdes and Dolores surnamed Singson one hand and from Asuncion Florentino on the other.

After due notice and publication, the Court set the application for hearing. No Opposition
whatsoever was filed except that of the Director of Lands which was later withdrawn, thereby leaving
the option unopposed.

Florentino asked the court to include an encumbrance on the land sought to be registered, and
cause the entry of the same on the face of the title that will finally be issued a stipulation on the
partition giving financial to religious functions.

Issue

WON the benefits given to the Church (3rd person) in a contract was accepted by the church
prior to the revocation of the parties.

Ruling

YES. The stipulation embodied in Exhibit O-1 on religious expenses is not revocable at the
unilateral option of the co-owners and neither is it binding only on the petitioners-appellants Miguel
Florentino, Rosario Encarnacion de Florentino Manuel Arce, Jose Florentino, Victorino Florentino
Antonio Florentino, Remedios Encarnacion and Severina E It is also binding on the oppositors-appellees
Angel Encarnacion,

The stipulation in pan of an extrajudicial partition 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 (Art. 1308, N.C.C.). Under Art 1311 of the New Civil Code, this stipulation takes effect
between the parties, their assign and heirs. The article provides:

Art. 1311. Contracts take effect only between the parties, their assigns and heirs,
except in cases 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 a 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 sufficient. The
contracting parties must have clearly and deliberately conferred a favor upon a third
person.

The second paragraph of Article 1311 above-quoted states the law on stipulations pour
autrui. Consent the nature and purpose of the motion. We hold that said stipulation is a station 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 and demand its
fulfillment provoked that he communicates his to the obligor before it is revoked. The requisites are: (1)
that the stipulation in favor of a third person should be a part, not the whole, of the contract; (2) that
the favorable stipulation should not be conditioned or compensated by any kind of obligation whatever;
and (3) neither of the contracting bears the legal represented or authorization of third person. To
constitute a valid stipulation pour autrui it must be the purpose and intent of the stipulating parties to
benefit the third and it is not sufficient that the third person may be incidentally benefited by the
stipulation. The fairest test to determine whether the interest of third person in a contract is a
stipulation pour autrui or merely an incidental interest, is to rely upon the intention of the parties as
disclosed by their contract. In applying this test, it meters not whether the stipulation is in the nature of
a gift or whether there is an obligation owing from the promisee to the third person. That no such
obsorption exists may in some degree assist in determining whether the parties intended to benefit a
third person.

We find that the trial court erred in holding that the stipulation, arrangement or grant (Exhibit
O-1) is revocable at the option of the co-owners. While a stipulation in favor of a third person has no
binding effect in itself before its acceptance by the party favored, the law does not provide when the
third person must make his acceptance. As a rule, there is no time at such third person has after the
time until the stipulation is revoked. Here, We find that the Church accepted the stipulation in its favor
before it is sought to be revoked by some of the co-owners, namely the petitioners-appellants herein. It
is not disputed that from the time of the with of Doa Encarnacion Florentino in 1941, as had always
been the case since time immemorial up to a year before the firing of their application in May 1964, the
Church had been enjoying the benefits of the stipulation. The enjoyment of benefits flowing therefrom
for almost seventeen years without question from any quarters can only be construed as an implied
acceptance by the Church of the stipulation pour autrui before its revocation.

The acceptance does not have to be in any particular form, even when the stipulation is for the
third person an act of liberality or generosity on the part of the promisor or promise. It need not be
made expressly and formally. Notification of acceptance, other than such as is involved in the making of
demand, is unnecessary.

A trust constituted between two contracting parties for the benefit of a third person is not
subject to the rules governing donation of real property. The beneficiary of a trust may demand
performance of the obligation without having formally accepted the benefit of the this in a public
document, upon mere acquiescence in the formation of the trust and acceptance under the second
paragraph of Art. 1257 of the Civil Code.

[29 = UNABIA]

29. MELECIO COQUIA, MARIA ESPANUEVA and MANILA YELLOW TAXICAB Co., INC., plaintiffs-
appellees, vs. FIELDMEN'S INSURANCE Co., INC., defendant-appellant.

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

CONCEPCION, C.J.:

FACTS: In 1961, Feldmens Insurance (Company) issued, in favour of Manila Yellow Taxicab Co. (Insured),
common carrier accident insurance policy for December 1961-1962. The policy stipulated that the
Company will indemnify the insured for accidents caused by motor vehicle use in case of death or injury
to the driver, conductor, or inspector onboard. It also stated that in the event of death of any person
covered by the policy, the Company will indemnify his personal representatives and "may, at its option,
make indemnity payable directly to the claimants or heirs of claimants.

In February 1962, a taxicab driven by Carlito Coquia met an accident and Coquia died. The Insured filed a
claim for P5000, the Company offered P2000 as compromise. The Insured made a counter-offer of
P4000 but the Company rejected it so the Insured and Carlitos parents (Coquias) filed a complaint to
collect the insurance proceeds. In its Answer, the Company admitted the policy but pleaded lack of
cause of action on the part of plaintiffs. The trial court ordered the Company to pay plaintiffs P4000 plus
costs. Hence this appeal, the Company appealed claiming that plaintiffs have no cause of action
because: 1) the Coquias have no contractual relation with the Company; and 2) the Insured has not
complied with the provisions of the policy concerning arbitration.

ISSUE: WN plaintiffs are entitled to the insurance claim on the basis of stipulation pour autrui.

HELD: YES. The subject policy is typical of contracts pour autriu.

In general, only parties to a contract may bring an action based thereon. This rule is subject to
exceptions, one of which is found in the second paragraph of Article 1311 or the restatement of a well-
known principle concerning contracts pour autrui, the enforcement of which may be demanded by a
third party for whose benefit it was made, although not a party to the contract, before the stipulation in
his favor has been revoked by the contracting parties.

Records showed that the deceased driver paid 50% of the insurance premiums which were deducted
from his weekly commissions. Under these conditions, it is clear that the Coquiaswho, admittedly, are
the sole heirs of the deceasedhave a direct cause of action against the Compan and could have
maintained the action themselves even without assistance of the Insured.

Decision affirmed in toto.

[30 = TANIO]

30. PASTOR B. CONSTANTINO, plaintiff-appellant, vs. HERMINIA ESPIRITU, defendant-appellee.

G.R. No. L-22404 May 31, 1971
DIZON, J.:

FACTS:

Pastor Constantino alleged that by a fictitious deed of absolute sale, he had conveyed to
Herminia Espiritu on October 30, 1953, for a consideration of P8,000.00, the two-storey house and four
(4) subdivision lots in the name of Pastor B. Constantino, married to Honorata Geukeko with the
understanding that appellee would hold the properties in trust for their illegitimate son, Pastor
Constantino, Jr., still unborn at the time of the conveyance. Thereafter, Herminia mortgaged said
properties to the Republic Savings Bank of Manila twice to secure payment of two loans, one of
P3,000.00 and the other of P2,000.00, and that thereafter she offered them for sale.

On December 16, 1959, appellee moved to dismiss the complaint on the ground that it stated no
cause of action because Pastor Constantino, Jr., the beneficiary of the alleged trust, was not included as
party-plaintiff, and on the further ground that appellant's cause of action was unenforceable under the
Statute of Frauds.

The trial court dismissed the complaint. Immediately after receiving notice of said order of
dismissal, appellant filed a motion for the admission of an amended complaint, wherein it includes the
minor, Pastor Constantino, Jr. as co-plaintiff. The lower court denied appellant's motion for the
admission of his amended complaint. Hence, the instant direct appeal.

ISSUE: WHETHER THE CONTRACT BETWEEN THE APPELLANT AND APPELLEE WAS A CONTRACT POUR
AUTRUI

YES. It appears upon the facts alleged by appellant that 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 appearing 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.

[31-34 = GERALDO]

31. INTEGRATED PACKAGING CORP., petitioner, vs. COURT OF APPEALS and FIL-ANCHOR PAPER CO.,
INC., respondents.
G.R. No. 115117 June 8, 2000
QUISUMBING, J.:

FACTS: Petitioner INTEGRATED PACKAGING CORP. and private respondent FIL-ANCHOR PAPER CO., INC.
executed, on May 1978, an order agreement whereby FIL-ANCHOR bound itself to deliver to IPC 3,450
reams of printing paper and other materials worth P1,040,060.00, on different delivery schedules. In
accordance with the standard operating practice of the parties, the materials were to be paid within a
minimum of 30 days and maximum of 90 days from delivery.

1978, IPC entered into a contract with Philippine Appliance Corporation to print 3 volumes of books for
delivery on different dates, with a minimum of 300,000 copies at a price of P10.00 per copy or a total
cost of P3,000,000.00.
1979, FIL-ANCHOR had delivered to IPC 1,097 reams of printing paper out of the total 3,450 reams
stated in the agreement. IPC wrote FIL-ANCHOR to immediately deliver the balance because further
delay would greatly prejudice former. From June 1980 and until July 1981, FIL-ANCHOR delivered again
to IPC various quantities of printing paper amounting to P766,101.70. However, IPC encountered
difficulties paying the said amount. Accordingly, FIL-ANCHOR made a formal demand to settle the
outstanding account, in which IPC made partial payments totaling P97,200.00 which was applied to its
back accounts covered by delivery invoices dated September and October 1980.

IPC, later on, entered into another contract with PHILACOR but failed to fully comply with the contract.
Thus, PHILACOR demanded compensation from IPC for the delay and damage it suffered.

FIL-ANCHOR filed with the RTC of Caloocan City a collection suit against IPC for the sum of P766,101.70
representing the unpaid purchase price by IPC on credit. IPC denied the material allegations of the
complaint and filed a counterclaim, alleging that the FIL-ANCHOR failed to deliver the materials based
on the agreed schedule and that it suffered actual damages and failed to realize expected profits. FIL-
ANCHOR moved for admission of its supplemental complaint, wherein it alleged that subsequent to the
enumerated purchase invoices in the original complaint, IPC made additional purchases of printing
paper on credit amounting to P94,200.00 and also averred that IPC failed and refused to pay its
obligation although it made partial payments in the amount of P97,200.00 which was applied to back
accounts, reducing IPC's indebtedness to P763,101.70.

RTC rendered judgment declaring that IPC should pay FIL-ANCHOR the sum representing the value of
printing paper delivered by the latter from June 1980 to July 1981. However, the court also found IPCs
counterclaim meritorious, it ruled that were it not for the delay of FIL-ANCHOR to deliver materials,
petitioner could have sold books to PHILACOR and realized profit. It further ruled that IPC suffered a
dislocation of business on account of loss of contracts and goodwill as a result of FIL-ANCHORs violation
of its obligation, for which the award of moral damages was justified.

CA reversed the judgment of the RTC. CA ordered IPC to pay FIL-ANCHOR the unpaid printing paper
delivered by the latter to IPC, with legal interest. However, the court deleted the award of
compensatory damages as well as the award of moral damages for lack of factual and legal basis.

ISSUE/S: WON FIL-ANCHOR violated the order agreement.

WON FIL-ANCHOR is liable for petitioner's breach of contract with PHILACOR.

RULING: The SC ruled in the negative.

The transaction between the parties is a contract of sale whereby FIL-ANCHOR, as a seller, obligates
itself to deliver printing paper to IPC, as a buyer, which, in turn, binds itself to pay therefor a sum of
money or its equivalent.

Both parties concede that the order agreement gives rise to a reciprocal obligation such that the
obligation of one is dependent upon the obligation of the other. Reciprocal obligations are to be
performed simultaneously, so that the performance of one is conditioned upon the simultaneous
fulfillment of the other.

Thus, FIL-ANCHOR undertakes to deliver printing paper of various quantities subject to IPC's
corresponding obligation to pay for these materials. IPC is not even required to make any down
payment, hence, the undertaking of FIL-ANCHOR to deliver the materials is conditional upon payment by
IPC within the prescribed period. Clearly, petitioner did not fulfill its side of the contract. Accordingly,
the FIL-ANCHORs suspension of its deliveries to IPC whenever the latter failed to pay on time, as in this
case, is legally justified under the second paragraph of Article 1583 of the Civil Code.

In this case, IPC's evidence failed to establish that it had paid for the printing paper covered by the
delivery invoices on time. Consequently, FIL-ANCHOR has the right to cease making further delivery
hence it did not violate the order agreement. On the contrary, it was petitioner which breached the
agreement as it failed to pay on time the materials delivered.

On the second assigned error, FIL-ANCHOR cannot be held liable under the contracts entered into by IPC
with PHILACOR. FIL-ANCHOR is not a party to said agreements. Aforesaid contracts could not affect third
persons because of the basic civil law principle of relativity of contracts which provides that contracts
can only bind the parties who entered into it, and it cannot favor or prejudice a third person, even if he
is aware of such contract and has acted with knowledge thereof. The order agreement entered into by
IPC and FIL-ANCHOR has not been shown as having a direct bearing on the contracts of petitioner with
PHILACOR.

FIL-ANCHOR did not violate the order agreement it had with petitioner. Likewise, it could not be held
liable for petitioner's breach of contract with PHILACOR. It follows that there is no basis to hold FIL-
ANCHOR liable for damages.
32. GEO. W. DAYWALT, plaintiff-appellant, vs. LA CORPORACION DE LOS PADRES AGUSTINOS
RECOLETOS, ET AL., defendants-appellees.
G.R. No. L-13505 February 4, 1919
STREET, J.:

FACTS: 1902, Teodorica Endencia, a resident of Mindoro, executed a contract whereby she obligated
herself to convey to Geo. W. Daywalt a tract of land situated in Mangarin, Bulalacao in said province. It
was agreed that a deed should be executed as soon as the title to the land should be perfected by
proceedings in the Court of Land Registration and a Torrens certificate should be produced therefore in
the name of Teodorica. A decree recognizing the right of Teodorica as owner was entered in said court
in August 1906, but the Torrens certificate was not issued until later.

October 1908, the parties entered into an agreement by which Teodorica agreed that upon receiving the
Torrens title she will deliver the same to the Hongkong and Shanghai Bank in Manila, to be forwarded to
the Crocker National Bank, where it was to be delivered to the plaintiff. The Torrens certificate was in
time issued but it was found by official survey that the area of the tract enclosed in the boundaries
stated in the contract was about 1.248 hectares of 452 hectares as stated in the contract.

Teodorica became reluctant to transfer the whole tract, asserting that she never intended to sell so
large an amount of land. This led to litigation in which Daywalt succeeded, SC ordered Teodorica to
convey the entire tract of land to Daywalt pursuant to the contract which contract.

La Corporacion de los Padres Recoletos, is a religious corporation, was formerly the owner of a large
tract of land, known as the San Jose Estate which was sold to the Government. The same corporation
was at this time also the owner of another estate immediately adjacent to the land which Teodorica had
sold to Daywalt and for many years the Recoletos Fathers had maintained large herds of cattle on the
farms referred to. Their representative, father Isidoro Sanz,had long been well acquainted with
Teodorica and exerted over her an influence and ascendency due to his religious character as well as to
the personal friendship which existed between them.

When the defendant sold the San Jose Estate, it was necessary to bring the cattle off of that property
and, in the first half of 1909, some 2,368 head were removed to the estate of the corporation
immediately adjacent to the property which the plaintiff had purchased from Teodorica. 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 during a
period extending from June 1909 to May 1914.

The plaintiff then seeks to recover from the defendant the sum of P24,000, as damages for the use and
occupation of the land in question by reason of the pasturing of cattle thereon during the period stated
and seeks to recover from the defendant the sum of P500,000, as damages, on the ground that said
corporation, for its own selfish purposes, unlawfully induced Teodorica to refrain from the performance
of her contract for the sale of the land in question and to withhold delivery to the plaintiff of the Torrens
title, and further, maliciously and without reasonable cause, maintained her in her defense to the action
of specific performance which was finally decided in favor of the plaintiff in this court.

RTC ruled in favor of the petitioner.

ISSUE/S: WON Daywalt may to recover from the defendant corporation damages on the ground that it
unlawfully induced Teodorica to refrain from the performance of her contract for the sale of the land in
question.
WON Daywalt may recover damages from Teodorica for breach of contract.

RULING: The SC ruled in the negative.

The determination of the issue requires a consideration of two points. The first is 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. The second is whether the damages which the plaintiff seeks
to recover under this head are too remote and speculative to be the subject of recovery.

Whatever may be the character of the liability which a stranger to a contract may incur by advising or
assisting one of the parties to evade performance, there is one proposition upon which all must agree.
This is, that the stranger cannot become more extensively liable in damages for the nonperformance of
the contract than the party in whose behalf he intermeddles. To hold the stranger liable for damages in
excess of those that could be recovered against the immediate party to the contract would lead to
results at once grotesque and unjust.

In the case at bar, as Teodorica 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 coparticipant 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 to the plaintiff by reason of her failure to surrender the certificate of title and to
place the plaintiff in possession.

The SC ruled in the affirmative.

The extent of the liability for the breach of a contract must be determined in the light of the situation in
existence at the time the contract is made and the damages ordinarily recoverable are in all events
limited to such as might be reasonable are in all events limited to such as might be reasonably foreseen
in the light of the facts then known to the contracting parties. Where the purchaser desires to protect
himself, in the contingency of the failure of the vendor promptly to give possession, from the possibility
of incurring other damages than such as the incident to the normal value of the use and occupation, he
should cause to be inserted in the contract a clause providing for stipulated amount to the paid upon
failure of the vendor to give possession; and not case has been called to our attention where, in the
absence of such a stipulation, damages have been held to be recoverable by the purchaser in excess of
the normal value of use and occupation. On the contrary, the most fundamental conceptions of the law
relative to the assessment of damages are inconsistent with such idea.
33. SO PING BUN, petitioner, vs. COURT OF APPEALS, TEK HUA ENTERPRISES CORP. and MANUEL C.
TIONG, respondents.
G.R. No. 120554 September 21, 1999
QUISUMBING, J.:

FACTS: 1963, Tek Hua Trading Co, through its managing partner, So Pek Giok, entered into lease
agreements with lessor Dee C. Chuan & Sons Inc.. Subjects of 4 lease contracts were premises located
Binondo, Manila. Tek Hua Trading used the areas to store its textiles.

The contracts each had a 1 year term. They provided that should the lessee continue to occupy the
premises after the term, the lease shall be on a month-to-month basis. When the contracts expired, the
parties did not renew the contracts, but Tek Hua Trading continued to occupy the premises.

1976, Tek Hua Trading was dissolved. Its original members, including Manuel C. Tiong, formed Tek Hua
Enterprising Corp., herein respondent corporation.

So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So Pek Giok's grandson, petitioner So
Ping Bun, occupied the warehouse for his own textile business, Trendsetter Marketing.

August 1989, lessor DCCSI sent letters addressed to Tek Hua Enterprises, informing the latter of the
increase in rent effective September 1989. The rent increase was later on reduced and effective January
1990, upon other lessees' demand. Again on December 1990, the lessor implemented a rent increase.
Enclosed in these letters were new lease contracts for signing.

DCCSI warned that failure of the lessee to accomplish the contracts shall be deemed as lack of interest
on the lessee's part, and agreement to the termination of the lease. Private respondents did not answer
any of these letters. Still, the lease contracts were not rescinded.

March 1991, private respondent Tiong sent a letter to petitioner advising him to vacate the warehouse
and all the stocks in Tek Hua Enterprising because he will use the said warehouse for his textile business.
So Ping Bun was given 14 days to vacate the premises but he refused to vacate.

March 1992, petitioner requested formal contracts of lease with DCCSI in favor Trendsetter Marketing,
claiming that after the death of his grandfather he had been occupying the premises and religiously paid
rent. DCCSI acceded to petitioner's request. The lease contracts in favor of Trendsetter were executed.

In the suit for injunction, private respondents pressed for the nullification of the lease contracts
between DCCSI and petitioner.

RTC annulled the 4 Contracts of Lease between So Ping Bun and DCCSI over the premises and ordering
So Ping Bun to pay Tek Hua Enterprising, the sum of P500,000.00 for attorney's fees. The judgment is
without prejudice to the rights of Tek Hua Enterprising and DCCSI to negotiate for the renewal of their
lease contracts over the premises under such terms and conditions as they agree upon.

CA upheld the ruling of the RTC but modified the decision by reducing the award of attorneys fees.

ISSUE/S: WON CA erred in affirming the RTCs decision finding so ping bun guilty of tortuous
interference of contract.
RULING: The SC ruled in the negative.
The issue involves the correct interpretation of the applicable law on tortuous conduct, particularly
unlawful interference with contract.

Damage is the loss, hurt or harm which results from injury and damages are the compensation awarded
for the damage suffered. One becomes liable in an action for damages for a nontrespassory invasion of
another's interest in the private use and enjoyment of asset if (a) the other has property rights and
privileges with respect to the use or enjoyment interfered with, (b) the invasion is substantial, (c) the
defendant's conduct is a legal cause of the invasion, and (d) the invasion is either intentional and
unreasonable or unintentional and actionable under general negligence rules.

The elements of tort interference are: (1) existence of avalid contract; (2) knowledge on the part of the
third person of the existence of contract; and (3) interference of the third person is without legal
justification or excuse.

In the case, petitioner's Trendsetter Marketing asked DCCSI to execute lease contracts in its favor, and
as a result petitioner deprived Tek Hua Enterprising of the latter's property right. Clearly, the three
elements of tort interference above-mentioned are present in the instant case.

Authorities debate on whether interference may be justified where the defendant acts for the sole
purpose of furthering his own financial or economic interest. As a general rule, justification for
interfering with the business relations of another exists where the actor's motive is to benefit himself.
Such justification does not exist where his sole motive is to cause harm to the other.

It is clear that petitioner So Ping Bun prevailed upon DCCSI to lease the warehouse to his enterprise at
the expense of respondent corporation. Though petitioner took interest in the property of Tek Hua
Enterprising and benefited from it, nothing on record imputes deliberate wrongful motives or malice on
him.
34. THE MANILA RAILROAD CO., plaintiff-appellant, vs. LA COMPAIA TRANSATLANTICA, defendant-
appellee. and THE ATLANTIC GULF & PACIFIC CO., defendant-appellant.
G.R. No. L-11318 October 26, 1918
STREET, J.:

FACTS: March 1914, the steamship Alicante, belonging to the Compaia Transatlantica de Barcelona,
arrived at Manila with 2 locomotive boilers aboard, the property of The Manila Railroad Company. The
equipment of the ship for discharging heavy cargo was not sufficiently strong to handle these boilers
and it was therefore necessary for the Steamship Company to procure assistance in the port of Manila.

The Atlantic, Gulf and Pacific Company was accordingly employed by the Steamship Company. The
service to be performed by the Atlantic Company consisted in bringing its floating crane alongside
the Alicante, lifting the boilers of the ship's hold, and transferring them to a barge which would be
placed ready to receive them.

Upon the arrival of the Alicante, the Atlantic company sent out its crane in charge of one Leyden. In
preparing to hoist the first boiler the sling was unfortunately adjusted near the middle of the boiler, and
it was thus raised nearly in a horizontal position. The boiler was too long to clear the hatch in this
position, and after one end of the boiler had emerged on one side of the hatch, the other still remained
below on the other side. When the boiler had been gotten into this position and was being hoisted still
further, a river near the head of the boiler was caught under the edge of the hatch. The weight on the
crane was thus increased by a strain estimated at 15 tons with the result that the cable of the sling
parted and the boiler fell to the bottom of the ship's hold. The sling was again adjusted to the boiler but
instead of being placed near the middle it was now slung nearer one of the ends, as should have been
done at first. The boiler was gain lifted but as it was being brought up, the bolt at the end of the derrick
book broke, and again the boiler fell.

The crane was repaired and the boiler discharged, but it was found to be so badly damaged that it had
to be reshipped to England where it was rebuilt, and afterwards was returned to Manila.

The Railroad Company's damage proved to be P23,343.29 and as to the amount of the damage so
resulting there is practically no dispute. To recover these damages the present action was instituted by
the Railroad Company against the Steamship Company, the latter caused the Atlantic Company to be
brought in as a co-defendant and insisted that whatever liability existed should be fixed upon the
Atlantic Company as an independent contractor who had undertaken to discharge the boilers and had
become responsible for such damage as had been done.

RTC gave judgment in favor of the Railroad Company against the Atlantic Company, but the absolved the
Steamship Company from the complaint, which was latter on affirmed by the CA.

The mishap was undoubtedly due, as the RTC found, to the negligence of one Leyden, the foreman in
charge. The foreman was therefore guilty of negligence in attempting to hoist the boiler the second time
under the conditions that had thus developed. It should be noted that the operation was at all its states
entirely under Leyden's control and, although in the first lift he utilized the ship's tackle to aid in hoisting
the boiler, everything was done under his immediate supervision. The accident is therefore to be
attributed to the failure of Leyden to exercise the degree of care which an ordinarily competent and
prudent person would have exhibited under the circumstances which then confronted him.
ISSUE/S: WON the steamship company liable to the plaintiff by reason of having delivered the boiler in
question in a damaged condition.
WON Atlantic company liable to be made to respond to the steamship company for the amount the
latter may be required to pay to the plaintiff for the damage done.
WON Atlantic company directly liable to the plaintiff.

RULING: The SC ruled in the affirmative as to the contractual relation existed between the Railroad
Company and the Steamship Company and the duties of the latter with respect to the carrying and
delivery of the boilers are to be discovered by considering the terms and legal effect of that contract.
Also, it ruled in the affirmative as to the contractual relation also existed between the Steamship
Company and Atlantic Company and the duties owing by the latter to the former with respect to the
lifting and the transferring of the boiler are likewise to be discovered by considering the terms and legal
effect of the contract between these parties.
On the other hand, it ruled in the negative as to the contractual relation existed directly between the
Railroad Company and the Atlantic Company.

As to Steamship Company and Railroad Company, under the contract for transportation from England to
Manila, Steamship is liable to railroad for the injury done to the boiler while it was being discharged
from the ship. The obligation to transport the boiler necessarily involves the duty to convey and deliver
it in a proper condition according to its nature and conformably with good faith, custom, and the law.
The contract to convey imparts the duty to convey and deliver safely and securely with reference to the
degree of care which, under the circumstances, are required by law and custom applicable to the case.
The duty to carry and to carry safely is all one. Such being the contract of the Steamship Company, said
company is necessarily liable, under articles 1103 and 1104 of the Civil Code, for the consequences of
the omission of the care necessary to the proper performance of this obligation. The contact to
transport and deliver at the port of Manila a locomotive boiler, which was received by it in proper
condition, is not complied with the delivery at the port of destination of a mass of iron the utility of
which had been destroyed.

As to Atlantic Company to respond to the Steamship Company for the damages which the latter will be
compelled to pay to Railroad Company, the former claimed that it is not liable because it had employed
all the diligence of a good father of a family and proper care in the selection of Leyden. The argument
was not favored by the court, because said defense was not applicable in to negligence arising in the
course of the performance of a contractual obligation. The same can be said with respect to the liability
of Atlantic upon its contract with Steamship. There was a distinction between negligence in the
performance of contractual obligation, culpa contractual, and negligence considered as an independent
source of obligation, culpa aquilana. Atlantic was held liable to Steamship for damages brought upon the
latter by the failure of Atlantic to use due care in discharging the boiler, regardless of the fact that the
damage was caused by the negligence of an employee who was qualified for the work, duly chose with
care.

As to Atlantic Company and Railroad Company, since there was no contract between them, it is equally
obvious that, for lack of privity with the contract, the Railroad Company can have no right of action to
recover damages from the Atlantic Company for the wrongful act which constituted the violation of said
contract. The rights of the plaintiff can only be made effective through the Compaia Trasatlantica de
Barcelona with whom the contract of affreightment was made.
[35 = TANIO]

35. DKC HOLDINGS CORPORATION, petitioner, vs. COURT OF APPEALS, VICTOR U. BARTOLOME
and REGISTER OF DEEDS FOR METRO MANILA, DISTRICT III, respondents.
[G.R. No. 118248. April 5, 2000]
YNARES_SANTIAGO, J.:
FACTS:
Petitioner entered into a Contract of Lease with Option to Buy with Encarnacion Bartolome,
whereby petitioner 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,
petitioner undertook to pay P3,000.00 a month as consideration for the reservation of its option. Within
the two-year period, petitioner shall serve formal written notice upon the lessor Encarnacion Bartolome
of its desire to exercise its option. The contract also provided that in case petitioner 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.

Upon the death of Encarnacion, petitioner coursed its payment to private respondent Victor
Bartolome, being the sole heir of Encarnacion, however, refused to accept these payments.

Victor executed an Affidavit of Self-Adjudication over all the properties of Encarnacion, including
the subject lot. Petitioner served upon Victor, via registered mail, a notice that it was exercising its
option to lease the property, tendering the amount of P15,000.00 as rent for the month of March.
Again, Victor refused to accept the tendered rental fee and to surrender possession of the property to
petitioner.

Petitioner thus tender its payment with China Banking Corporation, Cubao Branch, in the name
of Victor Bartolome and deposited therein the rental fee for March as well as reservation fees for the
months of February and March. Petitioner also tried to register and annotate the Contract on the title of
Victor to the property. But the Register of Deeds refused to register or annotate the same or even enter
it in the day book or primary register.

Petitioner filed a complaint for specific performance and damages against Victor and the Register of
Deeds in the Regional Trial Court of Valenzuela which dismissed the Complaint and ordered petitioner to
pay Victor P30,000.00 as attorneys fees. On appeal to the CA, the Decision was affirmed in toto.

ISSUE:

1. WHETHER THE CONTRACT OF LEASE WITH OPTION TO BUY ENTERED INTO BY THE LATE
ENCARNACION BARTOLOME WITH PETITIONER WAS TERMINATED UPON HER DEATH

YES. Both the lower court and the Court of Appeals held that the said contract was terminated
upon the death of Encarnacion Bartolome and did not bind Victor because he was not a party thereto.

Article 1311 of the Civil Code provides, as follows-

 "ART. 1311. 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.

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.

In the case at bar, there is neither contractual stipulation nor legal provision making the rights
and obligations under the contract intransmissible. More importantly, the nature of the rights and
obligations therein are, by their nature, transmissible.

The nature of intransmissible rights as explained by Arturo Tolentino, an eminent civilist, is as follows:

"Among contracts which are intransmissible are those which are purely personal, either
by provision of law, such as in cases of partnerships and agency, or by the very nature
of the obligations arising therefrom, such as those requiring special personal
qualifications of the obligor. It may also be stated that contracts for the payment of
money debts are not transmitted to the heirs of a party, but constitute a charge against
his estate. Thus, where the client in a contract for professional services of a lawyer died,
leaving minor heirs, and the lawyer, instead of presenting his claim for professional
services under the contract to the probate court, substituted the minors as parties for
his client, it was held that the contract could not be enforced against the minors; the
lawyer was limited to a recovery on the basis of quantum meruit."[9]

2. WHETHER THE CONTRACT BINDS VICTOR, IN CASE OF ENCARNACIONS DEMISE

Yes. In the case at bar, there is no personal act required from the late Encarnacion Bartolome.
Rather, the obligation of Encarnacion in the contract to deliver possession of the subject property to
petitioner upon the exercise by the latter of its option to lease the same may very well be performed by
her heir Victor.

As early as 1903, it was held that "(H)e who contracts does so for himself and his heirs." In 1952,
it was ruled that if the predecessor was duty-bound to reconvey land to another, and at his death the
reconveyance had not been made, the heirs can be compelled to execute the proper deed for
reconveyance. This was grounded upon the principle that heirs cannot escape the legal consequence of
a transaction entered into by their predecessor-in-interest because they have inherited the property
subject to the liability affecting their common ancestor.

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.

In the case at bar, the subject matter of the contract is likewise a lease, which is a property right.
The death of a party does not excuse nonperformance of a contract which involves a property right, and
the rights and obligations thereunder pass to the personal representatives of the deceased. Similarly,
nonperformance is not excused by the death of the party when the other party has a property interest
in the subject matter of the contract.[16]

Under both Article 1311 of the Civil Code and jurisprudence, therefore, Victor is bound by the
subject Contract of Lease with Option to Buy.

3. WHETHER THE PETITIONER HAD COMPLIED WITH ITS OBLIGATIONS UNDER THE CONTRACT AND
THE REQUISITES TO EXERCISE ITS OPTION.

YES. The payment by petitioner of the reservation fees during the two-year period within which
it had the option to lease or purchase the property is not disputed. In fact, the payment of such
reservation fees, except those for February and March, 1990 were admitted by Victor. Petitioner also
paid the P15,000.00 monthly rental fee on the subject property by depositing the same in China Bank
Savings Account No. 1-04-02558-I-1, in the name of Victor as the sole heir of Encarnacion Bartolome, for
the months of March to July 30, 1990, or a total of five (5) months, despite the refusal of Victor to turn
over the subject property. Likewise, petitioner complied with its duty to inform the other party of its
intention to exercise its option to lease through its letter dated Match 12, 1990, well within the two-
year period for it to exercise its option. Considering that at that time Encarnacion Bartolome had already
passed away, it was legitimate for petitioner to have addressed its letter to her heir. It appears,
therefore, that the exercise by petitioner of its option to lease the subject property was made in
accordance with the contractual provisions. Concomitantly, private respondent Victor Bartolome has the
obligation to surrender possession of and lease the premises to petitioner for a period of six (6) years,
pursuant to the Contract of Lease with Option to Buy. micks

[36-39 = HUSSAIN]

Case 36: Marlene Dauden-Hernaez vs CFI Judge De Los Angeles and Ramon Valenzuela
GR No. L-27010 April 30, 1969.

FACTS: Petitioner Dauden-Hernaez, a motion picture actress, had filed a complaint against herein
private respondents, Hollywood Far East Productions, Inc., and its President and General Manager,
Ramon Valenzuela, to recover P14,700.00 representing a balance allegedly due said petitioner for her
services as leading actress in two motion pictures produced by the company, and to recover damages.
Upon motion of defendants, the respondent court ordered the complaint dismissed, mainly because the
"claim of plaintiff was not evidenced by any written document, either public or private", and the
complaint "was defective on its face" for violating Articles 1356 and 1358 of the Civil, Code of the
Philippines.

ISSUE: Whether the respondent judge erred in dismissing the complaint of the petitioner on the ground
that the claim of the plaintiff was not evidenced by any written document.

RULING: In general, contracts are valid and binding from their perfection regardless of form whether
they be oral or written. This is plain from Articles 1315 and 1356 of the present Civil Code. Thus, the first
cited provision prescribes:

ART. 1315. 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. (Emphasis supplied)

Concordantly, the first part of Article 1356 of the Code 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.... (Emphasis
supplied)

These essential requisites last mentioned are normally (1) consent (2) proper subject matter, and (3)
consideration or causa for the obligation assumed (Article 1318). 3 So that once the three elements exist,
the contract is generally valid and obligatory, regardless of the form, oral or written, in which they are
couched.lawphi1.nt

To this general rule, the Code admits exceptions, set forth in the second portion of Article 1356:
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....

(a) Contracts for which the law itself requires that they be in some particular form (writing) in order to
make them valid and enforceable (the so-called solemn contracts). Of these the typical example is the
donation of immovable property that the law (Article 749) requires to be embodied in a public
instrument in order "that the donation may be valid", i.e., existing or binding. Other instances are the
donation of movables worth more than P5,000.00 which must be in writing, "otherwise the donation
shall be void" (Article 748); contracts to pay interest on loans (mutuum) that must be "expressly
stipulated in writing" (Article 1956); and the agreements contemplated by Article 1744, 1773, 1874 and
2134 of the present Civil Code.

(b) Contracts that the law requires to be proved by some writing (memorandum) of its terms, as in those
covered by the old Statute of Frauds, now Article 1403(2) of the Civil Code. Their existence not being
provable by mere oral testimony (unless wholly or partly executed), these contracts are exceptional in
requiring a writing embodying the terms thereof for their enforceability by action in court.

The contract sued upon by petitioner herein (compensation for services) does not come under either
exception. It is true that it appears included in Article 1358, last clause, providing that "all other
contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private
one." But Article 1358 nowhere provides that the absence of written form in this case will make the
agreement invalid or unenforceable. On the contrary, Article 1357 clearly indicates that contracts
covered by Article 1358 are binding and enforceable by action or suit despite the absence of writing. The
case was remanded to the court of origin for further proceedings.

Case 37: Leoncio Gabriel vs Monte de Piedad y Caja de Aharros

GR NO. L-47806 April 14, 1941
FACTS: The petitioner was employed as appraiser of jewels in the pawnshop of the respondent.
Petitioner 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. The document
was registered on December 22, 1932. To recover the balance due, an action was instituted against the
petitioner by the respondent Monte de Piedad in the Court of First Instance of Manila. Petitioner
answered, denied under oath the genuiness of the execution of the alleged chattel mortgage attached
thereto. The lower court and the appellate court rendered judgment in favour of the respondent.

ISSUE: Whether the provisions of the chattel mortgage be enforced against the petitioner.

RULING: Petitioner contends that the provisions of the chattel mortgage contract by which he
guaranteed to pay the deficiencies amounting of P14,679.07 are contrary to law, morals and public
policy, and hence, the chattel mortgage contract is ineffective and the principal obligation secured by it
is void.

A contract is to be judge 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. (People vs. Pomar) At any rate, courts should not rashly extend the rule which holds that a
contract is void as against public policy. 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.

Examining the contract at bar, we are of the opinion that it does not in anyway militate against
the public good. Neither does it contravene the policy of the law nor the established interests of society.
The instant petition was dismissed.

Case 38: Pakistan International Airlines vs Blas Ople, Farrales and Mamasig
GR No. 61594 September 28, 1990.

FACTS: Petitioner is a foreign corporation licensed to do business in the Philippines, executed in Manila
two separate contracts of employment in favour of the private respondents. The said contract or
agreement is for a period of three years but can be extended by the mutual consent of the parties.
Respondents then commenced training in Pakistan. After their training period, they began discharging
their jobs as flight attendants. Roughly one year and four months prior to the expiration of the
employment contract, petitioner informed the respondents that their services as flights attendants
would be terminated.
 Private respondents jointly instituted a complaint for illegal dismissal before the Ministry of
Labor and Employment (MOLE). The ministry rendered decision stating that respondents were illegally
dismissed and entitled of reinstatement with full backwages.

ISSUE: Whether the stipulation limiting the period of the employment contract to 3 years is null and void
as violative of the provisions of the Labor Code.

RULING: Petitioner invoked that its relationship with the respondents was governed by the provisions of
the employment contract rather than by the general provisions of the Labor Code.

A contract freely entered into should be respected, as PIA argues, since a contract is the law
between the parties. But the principle of party autonomy in the contracts is not an absolute principle.
The rule in Article 1306 of the Civil Code states that contracting parties may establish such stipulations
as they may deem convenient, provided they are not contrary to law, morals, good customs, public
order or public policy.

In the case at bar, the period specified in the employment contract was designed to circumvent
the security tenure of regular employee which is provided for in Articles 280 and 281 of the Labor Code.
The instant petition was dismissed for lack of merit.

Case 39: Emeterio Cui vs Arellano University

GR No. L-15127 May 30, 1961.

FACTS: Plaintiff finished his law studies in the defendant university up to the first semester of the fourth
year. During all the time the plaintiff was studying law in defendant university he was awarded
scholarship grants for scholastic merit where his semestral tuition fees were returned to him after the
end of every semester. Plaintiff left the defendant university and finished his last semester in law school
in the college of law of the Abad Santos University. After graduating in law from Abad Santos, he applied
to take the bar examination. To secure permission to take the bar he needed the transcripts of his
records in defendant Arellano University. Plaintiff petitioned the latter to issue to him the needed
transcripts. The defendant refused until after he had paid back the P1,033.87 which defendant refunded
to him. As he could not take the bar exam without those transcripts, plaintiff paid to defendant the said
sum under protest. This is the sum which plaintiff seeks to recover from the defendant in this case.
Before defendant awarded to plaintiff the scholarship grants he was made to sign a contract stating that
before the university will grant to him the scholarship, plaintiff hereby waive his right to transfer to
another school without having refunded to the defendant the scholarship cash.

ISSUE: Whether the provision of the contract between the petitioner and the defendant is valid or not.

RULING: The contract between the parties was void as against public policy. It has been consistently
held in America that under the principle relating to the doctrine of public policy, as applied to the law of
contracts, courts of justice will not recognize or uphold a transaction which its object, operation, or
tendency is calculated to be prejudicial to the public welfare, to sound morality or to civic honesty.
 Scholarships are granted not to attract and to keep brilliant students in school for its
propaganda but to reward or help students in whom society has an established interest or first lien. The
defendant was ordered to pay the plaintiff the sum of P1,033.87 with interest.

[40 = TANIO]

40. IGNACIO ARROYO, plaintiff-appellant, vs. ALFRED BERWIN, defendant-appellee.

G.R. No. L-10551 March 3, 1917
CARSON, J.:

FACTS:

The defendant is a procurador judicial in the law office of the Attorney John Bordman
represented Marcela Juanesa in the justice of the peace court of Iloilo in proceeding for theft
prosecuted by the plaintiff Ignacio Arroyo. The said case was decided by the said justice of the peace
against the accused, and the latter appealed to the Court of First Instance of Iloilo.

On the day set for the hearing of the appeal of the said case against Marcela Juaneza for theft,
the defendant requested the plaintiff to agree to dismiss the said criminal proceeding. He stipulated on
August 14, 1914 with the plaintiff in the presence of Roque Samson 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 where his said client ordered the cane cut, which land and which cut cane are
referred to in the cause for theft above-mentioned; 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 theft.

The plaintiff on his part complied with the agreement, and requested the prosecuting attorney
to dismiss the above-mentioned criminal case; that the latter petitioned the court and the court did
dismiss the said cause; that in exchange the defendant does not wish to comply with the above-
mentioned agreement; that the 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.

Therefore, the plaintiff prays the court to render judgment ordering the defendant to comply with the
agreement by causing the latter's said client Marcela Juaneza to sign the document in which she
recognizes the plaintiff's ownership of the land on which she ordered the cane cut and states that she
will not oppose the plaintiff's application for the registration of the said land, and, further, by awarding
to the plaintiff the costs of the present suit, as well as any other relief that justice and equity require.
RTC - dismissed the complaint on the ground of the illegality of the consideration of the alleged
contract, and without stopping to consider any other objection to the complaint than that indicated by
the court below

ISSUE: Whether or not the agreement between the plaintiff and defendant is valid.

NO. 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.

Article 1255 of the Civil Code provides that:

The contracting parties may make the agreement and establish the clauses and conditions which
they may dream advisable, provided they are not in contravention of law, morals, or public
order.

Article 1275 provides that:

Contracts without consideration or with an illicit one have no effect whatsoever. A consideration
is illicit when it is contrary to law and good morals.

[41-44 = JOVELLANOS]

41. FILIPINAS COMPAIA DE SEGUROS, vs. HON. FRANCISCO Y. MANDANAS, in his capacity as
Insurance Commissioner, AGRICULTURAL FIRE INSURANCE & SURETY CO., INC., ET AL.,

Facts:

The power of the Ph Rating Bureau to refuse to do business with insurance companies that are not its
members is valid because it is not contrary to law or public policy as it reasonably restraints competition
merely by fixing rates which it has, in the first place, the license to do.

> Letters (March 11, 1960, April 11, 1960, April 9, 1961) by Insurance Commissioner Mandanas to the Ph
Rating Bureau, requesting the deletion of Art. 22 of the Constitution of the Ph Rating Bureau because it
was allegedly unlawful for allowing the Bureau to refuse representation or reinsurance from companies
not members in good standing of the Bureau ~ otherwise he would suspend the license issued to the
Bureau and its members

> SUIT (May 16, 1961) by non-life insurance companies against Hon. Mandanas for Declaratory Relief re:
constitutionality of Art. 22 of the Constitution of the Ph Rating Bureau, the former alleging its
constitutionality while the former assailing its validity for being an illegal or undue restraint of trade.
Issue: Whether, under the particular circumstances of the case and the nature of the particular contract
involved in it, the contract is, or is not, unreasonable.

Ruling:

NOT ILLEGAL, IMMORAL, UNREASONABLE, or CONTRARY TO PUBLIC POLICY in both objectives and
means.

The test as to whether a given agreement constitutes an unlawful machination or a combination in

restraint of trade is whether, under the particular circumstances of the case and the nature of the
particular contract involved in it, the contract is, or is not, unreasonable (Ferrazini vs. Gsell, 34 Phil. 697,
712713). Restrictions upon trade may be upheld when not contrary to the public welfare and not
greater than is necessary to afford a fair and reasonable protection to the party in whose favor it is
imposed (Ollendorf vs. Abrahamson, 38 Phil. 585). The question to be determined is whether the
restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it
is such as may suppress or even destroy competition (Board of Trade of Chicago vs. U.S., 246 U.S. 231,
62 L. ed. 683 [1918]).

Applying this test to the case at bar, there is nothing unlawful, immoral, unreasonable or contrary to
public policy either in the objectives sought to be attained by the Bureau of Philippine Rating in adopting
Article 22 of its constitution, or in the means availed of to achieve said objectives, or in the
consequences of the accomplishment thereof. Said Article 22 provides that the members of the Bureau
agree not to represent nor to effect reinsurance with, nor to accept reinsurance from, any company,
body, or underwriter licensed to do business in the Philippines not a member in good standing of this
Bureau. Its purpose is not to eliminate competition, but to promote ethical practices among non-life
insurance companies, although incidentally, it may discharge, and hence, eliminate, unfair competition,
through underrating, which, in itself, is eventually injurious to the public. The limitation upon
reinsurance contained in Article 22 does not affect the public at all, for whether there is reinsurance or
not, the liability of the insurer in favor of the insured is the same. What is more, whatever the Bureau
may do in the matter of rate-fixing is not decisive insofar as the public is concerned, for no insurance
company in the Philippines may charge a rate of premium that has not been approved by the Insurance
Commissioner. The said Article 22 does not, therefore, constitute an illegal or undue restraint of trade.

42. Bustamante v. Rosel

Facts:

Norma Rosel entered into a loan agreement with petitioner Natalia Bustamante and her late
husband Ismael C. Bustamante, under the following terms and conditions:

1. That the borrowers are the registered owners of a parcel of land, evidenced by TRANSFER
CERTIFICATE OF TITLE No. 80667 situated along Congressional Avenue.

2. That the borrowers were desirous to borrow the sum of ONE HUNDRED THOUSAND (P100,000.00)
PESOS from the LENDER, for a period of two (2) years, counted from March 1, 1987, with an interest of
EIGHTEEN (18%) PERCENT per annum, and to guaranty the payment thereof, they are putting as a
collateral SEVENTY (70) SQUARE METERS portion, inclusive of the apartment therein, of the aforestated
parcel of land, however, in the event the borrowers fail to pay, the lender has the option to buy or
purchase the collateral for a total consideration of TWO HUNDRED THOUSAND (P200,000.00) PESOS,
inclusive of the borrowed amount and interest therein;

3. That the lender do hereby manifest her agreement and conformity to the preceding paragraph, while
the borrowers do hereby confess receipt of the borrowed amount.

When the loan was about to mature on March 1, 1989, respondents proposed to buy at the pre-set
price of P200,000.00, the seventy (70) square meters parcel of land covered by TCT No. 80667, given as
collateral to guarantee payment of the loan. Petitioner, however, refused to sell and requested for
extension of time to pay the loan and offered to sell to respondents another residential lot located at
Road 20, Project 8, Quezon City, with the principal loan plus interest to be used as down
payment. Respondents refused to extend the payment of the loan and to accept the lot in Road 20 as it
was occupied by squatters and petitioner and her husband were not the owners thereof but were mere
land developers entitled to subdivision shares or commission if and when they developed at least one
half of the subdivision area.
Hence, on March 1, 1989, petitioner tendered payment of the loan to respondents which the latter
refused to accept, insisting on petitioners signing a prepared deed of absolute sale of the collateral.
On February 28, 1990, respondents filed with the RTC QC a complaint for specific performance with
consignation against petitioner and her spouse.
Nevertheless, on March 4, 1990, respondents sent a demand letter asking petitioner to sell the
collateral pursuant to the option to buy embodied in the loan agreement.
On the other hand, on March 5, 1990, petitioner filed in the Regional Trial Court, Quezon City a
petition for consignation, and deposited the amount of P153,000.00 with the City Treasurer of Quezon
City.
When petitioner refused to sell the collateral and barangay conciliation failed, respondents
consigned the amount of P47,500.00 with the trial court. In arriving at the amount deposited,
respondents considered the principal loan of P100,000.00 and 18% interest per annum thereon, which
amounted to P52,500.00. The principal loan and the interest taken together amounted to P152,500.00,
leaving a balance of P 47,500.00.
RTC: Denied the plaintiffs prayer for the defendants execution of the Deed of Sale to Convey the
collateral in plaintiffs favor; Ordering the defendants to pay the loan of P100,000.00 with interest
thereon at 18% per annum.
CA: Reversed. Ordering the defendants to accept the amount of P47,000.00 deposited with the Clerk of
Court of Regional Trial Court of Quezon City under Official Receipt No. 0719847, and for defendants to
execute the necessary Deed of Sale in favor of the plaintiffs over the 70 SQUARE METER portion and the
apartment standing thereon being occupied by the plaintiffs and covered by TCT No. 80667 within
fifteen (15) days from finality hereof.
Issue: Whether petitioner failed to pay the loan at its maturity date and whether the stipulation in the
loan contract was valid and enforceable.
Ruling:
 Petitioner did not fail to pay the loan. The loan was due for payment on March 1, 1989. On said
date, petitioner tendered payment to settle the loan which respondents refused to accept, insisting that
petitioner sell to them the collateral of the loan.
When respondents refused to accept payment, petitioner consigned the amount with the trial
court.
We note the eagerness of respondents to acquire the property given as collateral to guarantee the
loan. The sale of the collateral is an obligation with a suspensive condition. It is dependent upon the
happening of an event, without which the obligation to sell does not arise. Since the event did not occur,
respondents do not have the right to demand fulfillment of petitioners obligation, especially where the
same would not only be disadvantageous to petitioner but would also unjustly enrich respondents
considering the inadequate consideration (P200,000.00) for a 70 square meter property situated at
Congressional Avenue, Quezon City.

Respondents argue that contracts have the force of law between the contracting parties and must be
complied with in good faith. There are, however, certain exceptions to the rule, specifically Article 1306
of the Civil Code, which provides: Article 1306. 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.

43. Cabanting v. BPI

Facts: Cabanting bought from Diamond Motors / BPI a car on installment basis for which a promissory
note with chattel mortgage was executed. One of the stipulations was that any failure to pay an amount
on schedule will make the entire outstanding sum to become due and payable without prior notice and
demand. When the two Cabantings failed to pay some monthly amortizations, BPI sued them for
replevin and damages. Decision was rendered ordering them to pay the cars unpaid value with
damages. The respondents appealed the decision claiming that there has been no proof of prior
demand and that the stipulation on its waiver must be deemed invalid for being a contract of adhesion.

Issue 1: W/N a stipulation waiving the necessity of notice and demand is valid

Held:

Yes. Article 1169 of the Civil Code provides that one incurs in delay or is in default from the time the
obligor demands the fulfillment of the obligation from the obligee. However, Article 1169 (1) also
expressly provides that demand is not necessary under certain circumstances, and one of these
circumstances is when the parties expressly waive demand.

Issue 2: W/N a contract of adhesion such as in this case is valid

Held:

Yes. A contract of adhesion is just as binding as ordinary contracts. Such are not invalid per se and are
not entirely prohibited because the one who adheres to the contract is in reality free to reject it entirely.
If the other party adheres, he gives his consent.

The court may strike down such contracts as void when the weaker party is deprived of the opportunity
to bargain at an equal footing. Here, there is no proof that petitioners were disadvantaged, uneducated
or utterly inexperienced in dealing with financial institutions; thus, there is no reason for the court to
step in and protect the interest of the supposed weaker party.

Issue 3: W/N a prior demand is required in actions for replevin

Held:

No. Prior demand is not a condition precedent to an action for a writ of replevin, since there is nothing
in Section 2, Rule 60 of the Rules of Court that requires the applicant to make a demand on the
possessor of the property before an action for a writ of replevin could be filed.
44. Buenaventura v. Metrobank
Facts:
Teresita Buenaventura executed two Promissory Notes payable to Metropolitan Bank and Trust
Company with interest and credit evaluation and supervision fee. Both PNs provide for penalty of 18%
per annum on the unpaid principal from date of default until full payment of the obligation.
Buenaventura defaulted and despite demands, she failed to pay. Consequently, appellee filed an action
against appellant for recovery of said amounts, interest, penalty and attorney's fees before the Regional
Trial Court. Appellant on the other hand averred that she received from her nephew, Rene Imperial,
three postdated checks drawn against appellee (Tabaco Branch) as partial payments for the purchase of
her properties. That she rediscounted the subject checks with appellee (Timog Branch), for which she
was required to execute the PNs to secure payment thereof. That she is a mere guarantor and cannot be
compelled to pay unless and until appellee shall have exhausted all the properties of Imperial. The RTC
ruled in favor of Metrobank and ordered Buenaventura to pay the bank. On appeal, the Court of Appeals
affirmed the RTCs decision with modification as to the payment of interest. Petitioner insists that the
promissory notes were meant as guaranties to secure payment of the checks by the issuer, Rene
Imperial, hence, her liability was that of a guarantor, and would take effect only upon exhaustion of all
properties and after resort to all legal remedies against Imperial.

Issue:
Whether THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS LIABLE UNDER THE
PROMISSORY NOTES.
 A. The promissory notes executed by petitioner are null and void for being simulated and
fictitious.
B. Metrobank is deemed to have subrogated petitioner as creditor of Mr. Imperial (the
issuer of the checks). Hence, Metrobank's recourse as creditor, is against Mr. Imperial.

Ruling:
The promissory notes were written as follows:

FOR VALUE RECEIVED, I/we jointly and severally promise to pay Metropolitan Bank and Trust Company,
at its office x x x the principal sum of PESOS xxx, Philippine currency, together with interest and credit
evaluation and supervision fee (CESF) thereon at the effective rate of xxx per centum xxx per annum,
inclusive, from date hereof and until fully paid.14
What the petitioner advocates is for the Court to now read into the promissory notes terms and
conditions that would contradict their clear and unambiguous terms in the guise of such promissory
notes being contracts of adhesion. This cannot be permitted, for, even assuming that the promissory
notes were contracts of adhesion, such circumstance alone did not necessarily entitle her to bar their
literal enforcement against her if their terms were unequivocal. It is preposterous on her part to
disparage the promissory notes for being contracts of adhesion, for she thereby seems to forget that the
validity and enforceability of contracts of adhesion were the same as those of other valid contracts.

Accordingly, a contract duly executed is the law between the parties, and they are obliged to comply
fully and not selectively with its terms. A contract of adhesion is no exception.
As a rule, indeed, the contract of adhesion is no different from any other contract. Its interpretation still
aligns with the literal meaning of its terms and conditions absent any ambiguity, or with the intention of
the parties. The terms and conditions of the promissory notes involved herein, being clear and beyond
doubt, should then be enforced accordingly.

Secondly, the petitioner submits that the promissory notes were null and void for being simulated and
fictitious; hence, the CA erred in enforcing them against her.

The submission contradicts the records and the law pertinent to simulated contracts.
Based on Article 1345 of the Civil Code, simulation of contracts is of two kinds, namely: (1) absolute; and
(2) relative. Simulation is absolute when there is color of contract but without any substance, the parties
not intending to be bound thereby. It is relative when the parties come to an agreement that they hide
or conceal in the guise of another contract.

The effects of simulated contracts are dealt with in Article 1346 of the Civil Code, to wit:

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when 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 binds the parties to their real agreement.

The burden of showing that a contract is simulated rests on the party impugning the contract. This is
because of the presumed validity of the contract that has been duly executed.24 The proof required to
overcome the presumption of validity must be convincing and preponderant. Without such proof,
therefore, the petitioner's allegation that she had been made to believe that the promissory notes
would be guaranties for the rediscounted checks, not evidence of her primary and direct liability under
loan agreements, could not stand.

Moreover, the issue of simulation of contract was not brought up in the RTC. It was raised for the first
time only in the CA. Such belatedness forbids the consideration of simulation of contracts as an issue.
Indeed, the appellate courts, including this Court, should adhere to the rule that issues not raised below
should not be raised for the first time on appeal. Basic considerations of due process and fairness impel
this adherence, for it would be violative of the right to be heard as well as unfair to the parties and to
the administration of justice if the points of law, theories, issues and arguments not brought to the
attention of the lower courts should be considered and passed upon by the reviewing courts for the first
time.

Fourth, the petitioner argues that the respondent was immediately . subrogated as the creditor of the
accounts by its purchase of the checks from her through its rediscounting facility; and that legal
subrogation should be presumed because the petitioner, a third person not interested in the obligation,
paid the debt with the express or tacit approval of the debtor.

The argument is barren of factual and legal support.

Legal subrogration finds no application because there is no evidence showing that Imperial, the issuer of
the checks, had consented to the subrogation, expressly or impliedly.36 This circumstance was pointed
out by the RTC itself.37 Also, as the CA emphatically observed,38 the argument was off-tangent because
the suit was not for the recovery of money by virtue of the checks of Imperial but for the enforcement
of her obligation as the maker of the promissory notes.

[45 = UNABIA]

45. PlLAR N. BORROMEO, MARIA B. PUTONG, FEDERICO V. BORROMEO, JOSE BORROMEO, CONSUELO
B. MORALES and CANUTO V. BORROMEO, JR., petitioners, vs. COURT OF APPEALS and JOSE A.
VILLAMOR, '(Deceased) Substituted by FELISA VILLAMOR, ROSARIO V. LIAO LAMCO, MANUEL
VILLAMOR, AMPARO V. COTTON, MIGUEL VILLAMOR and CARMENCITA VILLAMOR, respondents.

G.R. No. L-22962. September 28, 1972.

FERNANDO, J.:

FACTS: Before 1933, Jose Villamor was a distributor of lumber owned by Mr. Miller, an agent of Insular
Lumber Company in Cebu. Jose, being a friend of Canuto Borromeo, used to borrow money from the
latter from time to time. On one occasion, Jose loaned a huge sum for which he mortgaged his house
and land in Cebu but the deed of mortgage could not be registered because it was not properly drawn
up. Mr. Miller filed a civil action against Jose and attached his properties including those mortgaged to
plaintiff. Canuto pressed Jose to settle the loan but the latter offered to execute a document promising
to pay even after 10 years. Upon liquidation, Jose was found to owe P7,220 for which he signed a
promissory note on November 29, 1933 with 12% per annum with the agreement to pay as soon as I
have money. The note also stipulated that Jose hereby relinquish, renounce, or otherwise waive my
rights to the prescriptions established by our Code of Civil Procedure for the collection or recovery of
the above sum at any time even after the lapse of ten years.

Canuto made verbal requests for payment over the years but did not file any complaint within the 10
year period as Jose had no property registered in his name. After the last war, Canuto made several
more demands but to no avail hence the complaint for collection. The CFI Cebu sentenced Jose to pay
Canuto (now represented by petitioners) to pay P7,220 within 90 days from receipt of decision with 12%
per annum after expiration of the period. The CA reversed.

ISSUE: WN the stipulation as to the waiver on prescription is valid.

HELD: YES.

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." It appears that the
appropriate construction of the wording of the document, has all the earmarks of validity and at the
same time is in consonance with the demands of justice and morality.

The first 10 years after execution of the promissory note should not be counted in determining when
the action of creditor. The complaint was filed on January 7, 1953. If the first tenyear period was to be
excluded, the creditor had until November 29, 1953 to start judicial proceedings. There is no legal
obstacle then to the action for collection filed by the creditor.

The CA was too superficial in its analysis and relied on certain words employed in the written instrument
executed by the parties to the total disregard of their intention. It should have been evident by perusal ,
that the creditor moved by ties of friendship was more than willing to give the debtor the utmost
latitude as to when his admittedly scanty resources will allow him to pay. He was not renouncing any
right; he was just being considerate, perhaps excessively so.

[46-49 = MADRIGA]

46. MARCIAL KASILAG, petitioner, vs. RAFAELA RODRIGUEZ, URBANO ROQUE, SEVERO MAPILISAN
and IGNACIO DEL ROSARIO, respondents.

G.R. No. 46623 December 7, 1939 IMPERIAL, J.

FACTS:

On May 16, 1932, Marcial Kasilag and Emiliana Ambrosio entered a contract (Exhibit 1) of mortgage of
improvements of land acquired as homestead (issued on issued on January 11, 1931) to secure the
payment of the indebtedness of P1,000 plus interest. The parties stipulated that Emilina Ambrosio was
to pay the debt with interest within 4 years., and in such case, mortgage would not have any effect.
They also agreed that Emiliana Ambrosio would execute a deed of sale if it would not be paid within 4
years and that she would pay the tax on the land. After a year, it turned out that she was not able to pay
the tax. Hence, they entered a verbal agreement whereby she conveyed to the latter the possession of
the land on the condition that they would not collect the interest of the loan, would attend to the
payment of the land tax, would benefit by the fruits of the land, & would introduce improvement
thereof.

By virtue of this verbal contract, the petitioner entered upon the possession of the land, gathered the
products thereof, did not collect the interest on the loan, and introduced improvements upon the land.

The respondents (children and heirs of the deceased Emiliana Ambrosio) commenced the civil case to
the end that they recover from the petitioner the possession of the land and its improvements.

The court of First Instance of Bataan held that the contract, Exhibit 1, is entirely null and void and
without effect; that the respondents are the owners of the disputed land with its improvements, hence,
they are entitled to the possession thereof.

The CA held that petitioner acted In bad faith in taking possession of the land because he knew that the
contract he made with Emiliana was an absolute sale, and further, that the latter could not sell the land
bec. it is prohibited by Sec. 116 of Act 2874.

Section 116 provides "Except in favor of the Government or any of its branches, units or institutions, or
legally constituted banking corporations, lands acquired under the free patent or homestead provisions
shall not be subject to encumbrance or alienation from the date of the approval of the application and
for a term of five years from and after the date of issuance of the patent or grant, nor shall they become
liable to the satisfaction of any debt contracted prior to the expiration of said period; but the
improvements or crops on the land may be mortgaged or pledged to qualified persons, associations, or
corporations."

The CA ordered the registrar of deeds of Bataan to cancel certificate of title No. 325, in the name of the
deceased Emiliana Ambrosio and to issue in lieu thereof another certificate of title in favor of her heirs
(respondents).

ISSUE:

Whether or not the petitioner should be deemed the possessor of the land in good faith because he was
unaware of any flaw in his title or in the manner of its acquisition by which it is invalidated. (Yes)

RULING:

The cardinal rule in the interpretation of contracts is to the effect that the intention of the contracting
parties should always prevail because their will has the force of law between them. Article 1281 of the
Civil Code consecrates this rule and provides, that if the terms of a contract are clear and leave no doubt
as to the intention of the contracting parties, the literal sense of its stipulations shall be followed; and if
the words appear to be contrary to the evident intention of the contracting parties, the intention shall
prevail.
The contract set out in Exhibit 1 should be interpreted in accordance with these rules. As the terms
thereof are clear and leave no room for doubt, it should be interpreted according to the literal meaning
of its clauses. The words used by the contracting parties in Exhibit 1 clearly show that they intended to
enter into the principal contract of loan in the amount of P1,000, with interest at 12 per cent per
annum, and into the accessory contract of mortgage of the improvements on the land acquired as
homestead, the parties having moreover, agreed upon the pacts and conditions stated in the deed. In
other words, the parties entered into a contract of mortgage of the improvements on the land acquired
as homestead, to secure the payment of the indebtedness for P1,000 and the stipulated interest
thereon. In clause V the parties stipulated that Emiliana Ambrosio was to pay, within four and a half
years, or until November 16, 1936, the debt with interest thereon, in which event the mortgage would
not have any effect; in clause VI the parties agreed that the tax on the land and its improvements,
during the existence of the mortgage, should be paid by the owner of the land; in clause VII it was
covenanted that within thirty days from the date of the contract, the owner of the land would file a
motion in the Court of First Instance of Bataan asking that certificate of title No. 325 be cancelled and
that in lieu thereof another be issued under the provisions of the Land Registration Act No. 496, as
amended by Act No. 3901; in clause VIII the parties agreed that should Emiliana Ambrosio fail to redeem
the mortgage within the stipulated period of four years and a half, she would execute an absolute deed
of sale of the land in favor of the mortgagee, the petitioner, for the same amount of the loan of P1,000
including unpaid interest; and in clause IX it was stipulated that in case the motion to be presented
under clause VII should be disapproved by the Court of First Instance of Bataan, the contract of sale
would automatically become void and the mortgage would subsist in all its force.

Another fundamental rule in the interpretation of contracts, not less important than those indicated, is
to the effect that the terms, clauses and conditions contrary to law, morals and public order should be
separated from the valid and legal contract and when such separation can be made because they are
independent of the valid contract which expresses the will of the contracting parties.

We have seen that subsequent to the execution of the contract, Exhibit 1, the parties entered into
another verbal contract whereby the petitioner was authorized to take possession of the land, to receive
the fruits thereof and to introduce improvements thereon, provided that he would renounce the
payment of stipulated interest and he would assume payment of the land tax. The possession by the
petitioner and his receipt of the fruits of the land, considered as integral elements of the contract of
antichresis, are illegal and void agreements because, as already stated, the contract of antichresis is a
lien and such is expressly prohibited by section 116 of Act No. 2874, as amended. The Court of Appeals
held that the petitioner acted in bad faith in taking possession of the land because he knew that the
contract he made with Emiliana Ambrosio was an absolute deed of sale and, further, that the latter
could not sell the land because it is prohibited by section 116. The Civil Code does not expressly define
what is meant by bad faith, but section 433 provides that "Every person who is unaware of any flaw in
his title, or in the manner of its acquisition, by which it is invalidated, shall be deemed a possessor in
good faith"; and provides further, that "Possessors aware of such flaw are deemed possessors in bad
faith". Article 1950 of the same Code, covered by Chapter II relative to prescription of ownership and
other real rights, provides, in turn, that "Good faith on the part of the possessor consists in his belief
that the person from whom he received the thing was the owner of the same, and could transmit the
title thereto." We do not have before us a case of prescription of ownership, hence, the last article is not
squarely in point. In resume, it may be stated that a person is deemed a possessor in bad faith when he
knows that there is a flaw in his title or in the manner of its acquisition, by which it is invalidated.

The question to be answered is whether or not the petitioner should be deemed a possessor in good
faith because he was unaware of any flaw in his title or in the manner of its acquisition by which it is
invalidated. Ignorance of the flaw is the keynote of the rule. From the facts as found by the CA, we can
neither deduce nor presume that the petitioner was aware of a flaw in his title or in the manner of its
acquisition, aside from the prohibition contained in Sec. 116. This being the case, the question is
whether or not good faith may be premised upon ignorance of the laws.

Gross and inexcusable ignorance of the law may not be the basis of good faith but excusable ignorance
may be such basis (if it is based upon ignorance of a fact.) 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 a lien, was prohibited by Sec. 116. Thus, as to the petitioner, his ignorance of the
provisions of sec. 116 is excusable and may be the basis of good faith

The petitioners being in GF, the respondents may elect to have the improvements introduced by the
petitioner by paying the latter the value thereof, P3,000, or to compel the petitioner to buy and have
the land where the improvements or plants are found, by paying them its market value to be fixed by
the court of origin, upon hearing the parties.

47, CONCEPCION FELIX VDA. DE RODRIGUEZ, plaintiff-appellant, vs. GERONIMO RODRIGUEZ., ET AL.,
defendants-appellees.

G.R. No. L-23002 July 31, 1967 REYES, J.B.L., J.

FACTS:

Concepcion Felix, widow of the late Don Felipe Calderon and with whom she had one living child,
Concepcion Calderon, contracted a second marriage on June 20, 1929, with Domingo Rodriguez,
widower with four children by a previous marriage.

On January 24, 1934, Concepcion Felix appeared to have executed a deed of sale conveying ownership
of two fishponds to her daughter, Concepcion Calderon, for the sum of P2,500.00, which the latter in
turn appeared to have transferred to her mother and stepfather by means of a document dated January
27, 1934. Both deeds, notarized, were registered in the office of the Register of Deeds of Bulacan.

After Domingo Rodriguez died intestate, the widow and the children and grandchildren of the deceased
entered into an extra-judicial settlement of his (Domingo's) estate, consisting of one-half of the
properties allegedly belonging to the conjugal partnership. Among the properties listed as conjugal were
the two parcels of land in Bulacan. 1/5 of the conjugal property went to Conception and the other was
divided amont the children of Domingo.

In 1954 the Rodriguez children granted unto the widow lifetime usufruct over one-third of the fishpond
which they received as hereditary share in the estate of Domingo. The widow also leased from the
Rodriguez children a portion of the fishpond.

At about this time, it seemed that the relationship between the widow and her stepchildren had turned
for the worse. Thus, when she failed to deliver to them the balance of the earnings of the fishponds,her
stepchildren endorsed the matter to their lawyer who, on sent a letter of demand to the widow for
payment thereof.

Concepcion Felix Vda. de Rodriguez filed the present action in the Court of First Instance of Manila
naming as defendant the Rodriguez children to declare null and void the deeds of transfer of plaintiff's
properties to the conjugal partnership was based on the alleged employment or exercise by plaintiff's
deceased husband of force and pressure on her; that the conveyances of the properties from plaintiff
to her daughter and then to the conjugal partnership of plaintiff and her husband are both without
consideration

In upholding the validity of the contracts, the court found that although the two documents were
executed for the purpose of converting plaintiff's separate properties into conjugal assets of the
marriage with Domingo Rodriguez, the consent of the parties thereto was voluntary, contrary to the
allegations of plaintiff and her witness. The court also ruled that having taken part in the questioned
transactions, plaintiff was not the proper party to plead lack of consideration to avoid the transfers; that
contracts without consideration are not inexistent, but are only voidable.

From the decision of the Court of First Instance, plaintiff duly appealed to the SC.

ISSUE:

Whether or not the conveyances in issue were obtained through duress, and were inexistent, being
simulated and without consideration.

RULING:

The charge of simulation is untenable, for the characteristic of simulation is the fact that the apparent
contract is not really desired or intended to produce legal effects or in way alter the juridical situation of
the parties. Thus, where a person, in order to place his property beyond the reach of his creditors,
simulates a transfer of it to another, he does not really intend to divest himself of his title and control of
the property; hence, the deed of transfer is but a sham. But appellant contends that the sale by her to
her daughter, and the subsequent sale by the latter to appellant and her husband, the late Domingo
Rodriguez, were done for the purpose of converting the property from paraphernal to conjugal, thereby
vesting a half interest in Rodriguez, and evading the prohibition against donations from one spouse to
another during coverture (Civil Code of 1889, Art. 1334). If this is true, then the appellant and her
daughter must have intended the two conveyance to be real and effective; for appellant could not
intend to keep the ownership of the fishponds and at the same time vest half of them in her husband.
The two contracts of sale then could not have been simulated, but were real and intended to be fully
operative, being the means to achieve the result desired.

Nor does the intention of the parties to circumvent by these contracts the law against donations
between spouses make them simulated ones. Unfortunately for herein appellant, in contracts
invalidated by illegal subject matter or illegal causa, Articles 1305 and 1306 of the Civil Code then in
force apply rigorously the rule in pari delicto non oritur action, denying all recovery to the guilty parties
inter se. And appellant is clearly as guilty as her husband in the attempt to evade the legal interdiction of
Article 1334 of the Code, already cited. Wherefore, her present action to reivindicate the, conveyed
properties was correctly repulsed by the Court below.

Art. 1306. If the act which constitutes the illicit consideration is neither a crime nor a misdemeanor, the
following rules shall be observed:

1. When both parties are guilty, neither of them can recover what he may have given by virtue of the
contract, or enforce the performance of the undertaking of the other party;

xxx xxx xxx

Article 1306 applies to cases where the nullity arises from the illegality of the consideration or the
purpose of the contract

Finally, it cannot be denied that plaintiff-appellant had knowledge of the nullity of the contract for the
transfer of her properties in 1934, because she was even a party thereto. And yet, her present action
was filed only on May 28, 1962 and after the breaking up of friendly relations between her and
defendants-appellees. Appellant's inaction to enforce her right, for 28 years, cannot be justified by the
lame excuse that she assumed that the transfer was valid. Knowledge of the effect of that transaction
would have been obtained by the exercise of diligence. Ignorance which is the effect of inexcusable
negligence, it has been said, is no excuse for laches. Even assuming for the sake of argument that
appellant held her peace, during the lifetime of her husband, out of legitimate fear for her life, there is
no justification for her future to bring the proper action after his death in 1953. Instead, she entered
into a series of agreements with herein appellees, the children of her husband by a prior marriage, of
partition, usufruct and lease of their share in the fishponds, transactions that necessarily assumed that
Rodriguez had acquired one-half of the litigated fishponds. In the circumstances, appellant's cause has
become a stale demand and her conduct placed her in estoppel to question the Validity of the transfer
of her properties.

In view of the foregoing, the decision appealed from is affirmed. Costs against appellant Concepcion
Felix Vda. de Rodriguez.
48. RAFAEL G. SUNTAY, substituted by his heirs, namely: ROSARIO, RAFAEL, JR., APOLINARIO,
RAYMUND, MARIA VICTORIA, MARIA ROSARIO and MARIA LOURDES, all surnamed SUNTAY,
petitioners, vs. THE HON. COURT OF APPEALS and FEDERICO C. SUNTAY, respondents.
G.R. No. 114950 December 19, 1995 / HERMOSISIMA, JR., J.

FACTS:

Federico Suntay is a wealthy land owner and rice miller from Bulacan. He owned a 5,118 square-meter
land in Bulacan. On it was a rice mill, a warehouse and other improvements.

Federico applied as a miller-contractor of the then National Rice and Com Corporation (NARIC). His
application was prepared by his nephew lawyer Rafael Suntay. But it was disapproved because at that
time he was tied up w/ several unpaid loans.

For purposes of circumvention, he had thought of allowing Rafael to make the application for him.
Rafael prepared an absolute deed of sale whereby Federico, for and in consideration of P20, 000.00
conveyed to Rafael said parcel of land with all its existing structures. Federico claims that the sale was
merely fictitious/simulated and has been executed only for purposes of accommodation.

Less than three months after this conveyance, Rafael sold it back to Federico for the same amount of
P20,000. It was notarized by Atty. Herminio V. Flores. However, the said document was not the said
deed of sale but a certain "real estate mortgage of a parcel of land to secure a loan of P3,500.00 in favor
of the Hagonoy Rural Bank. It could not be found in the notarial register as well

Federico through his new counsel requested that Rafael have TCT No. T-36714 so that he can have the
counter deed of sale in favor registered in his. But the request was turned down.

Federicos counsel filed a case in the CFI. The trial court upheld the validity and genuineness of the deed
of sale executed by Federico in favor of Rafael, but it ruled that the counter-deed, executed by Rafael in
favor of Federico, was simulated and without consideration, hence, null and void ab initio. (it was not
dated, not notarized and above all it has no consideration because plaintiff did not pay defendant the
consideration of the sale in the sum of P20,000.00)

CA ruled the same. BUT it then reversed itself upon petition and said that the first Deed of Sale was a
mere accommodation arrangement executed without any consideration and therefore a simulated
contract of sale. Considering the ff. circumstances: The 2 instruments were executed closely one after
the other, the close relationship between the parties, the value and location of the property purportedly
sold. (P20, 000) and that Rafael also never assumed ownership nor did he gather any benefit.
Rafael Suntay on the other hand insists that the transaction was a veritable sale.

ISSUE
Whether or not the deed of sale executed in favor of Rafael Suntay was valid

HELD
NO
Reasoning The history and relationship of trust, interdependence and intimacy between the late Rafael
and Federico is an unmistakable token of simulation. It has been observed that fraud is generally
accompanied by trust.
The late Rafael insisted that the sale to him of his uncle's property was in fact a "dacion en pago" in
satisfaction of Federico's unpaid attorney's fees. But such claim cannot prosper. He did not even tell
Federico that he considered such to be his fee. Federico was also liquid enough to pay him.

All circumstances point to the conclusion that such was simulated transaction.
Ratio A contract of purchase and sale is void and produces no effect whatsoever where the same is
without cause or consideration in that the purchase price, which appears thereon as paid, has in fact
never been paid by the purchaser to the vendor two veritable legal presumptions: first, that there was
sufficient consideration for the contract and, second, that it was the result of a fair and regular private
transaction. These presumptions if shown to hold, infer prima facie the transactions validity, except
that it must yield to the evidence adduced.

Disposition WHEREFORE, the Amended Decision promulgated by the Court of Appeals on December 15,
1993 in CA-G.R. CV No. 08179 is hereby AFFIRMED IN TOTO.

49. J.R. BLANCO, as the Administrator of the Intestate Estate of MARY RUTH C. ELIZALDE, petitioner,
vs. WILLIAM H. QUASHA, CIRILO F. ASPERILLA, JR., SYLVIA E. MARCOS, DELFIN A. MANUEL, JR., CIRILO
E. DORONILA and PAREX REALTY CORPORATION, respondents.
G.R. No. 133148 November 17, 1999 YNARES-SANTIAGO, J.

FACTS:
Mary Ruth C. Elizalde was an American national who owned a house and lot situated at 515 Buendia
Extension, Forbes Park, Makati. During her lifetime, on May 22, 1975, she, through attorney-in-fact Don
Manuel Elizalde, entered into a Deed of Sale over the property in favor of Parex Realty Corporation
(hereinafter, "Parex"), for and in consideration of the amount of P625,000.00 payable in twenty-five (25)
equal annual installments of P25,000.00 commencing on May 22, 1975 and ending on May 22, 1999

Also on May 22, 1975, simultaneously with the execution of the Deed of Sale, Parex executed a Contract
of Lease 4 with Mary Ruth C. Elizalde, whereby the same parcel of land was leased to the latter for a
term of twenty five (25) years for a monthly rental of P2,083.34, or P25,000.08 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.

Mary Ruth Elizalde executed a Confirmation and Ratification of the Deed of Sale executed in her behalf
by her attorney-in-fact. Mary Ruth C. Elizalde passed away on March 1,

On March 26, 1990, Atty. Daisy P. Arce of the law firm of Quasha, on behalf of some heirs of Mary Ruth
Elizalde, sent a letter to Peter Wohlfeiler, who was handling the legal affairs of the other heirs, informing
him that Elizalde left property situated at 515 Buendia Avenue, Forbes Park, Makati, the land subject of
this case. Petitioner J.R. Blanco, special administrator of the estate of Mary Ruth Elizalde, by letter
demanded from respondents, the reconveyance of the title to the property to the estate of Mary Ruth
Elizalde or, to assign all shares of Parex to said estate.
ISSUE:

Whether or not the sale of the property of Elizalde to Parex was absolutely simulated and fictitious.

HELD

The Supreme Court held that 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. An absolutely simulated or fictitious

contract is void. A relative simulation, when 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 binds the parties to
their real agreement.

By preponderance of evidence, therefore, the defendants were able to prove that the deed of sale
executed by Mary Ruth Elizalde in favor of Parex Realty Corporation is a valid and binding contract which
transferred ownership of the property to the said corporation. As a consequence of this valid sale, the
complaint instituted by the plaintiff must therefore fail, and it goes without saying that the exemplary
damages prayed for in this appeal must be denied. 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. Petitioner argues
that Mary Ruth Elizalde did not receive money in the sale of her property. While that may be true, her
continued occupancy of the premises even after she sold it to Parex constitutes valuable consideration
which she received as compensation for the sale.

[50 = UNABIA]

50. PAULINO GARCIA, plaintiff and appellant, vs. MARIA BISAYA, ET AL., defendants and appellees.

G.R. No. L-8060. September 28 1955

REYES, A., J.:

FACTS: In November 1938, defendants executed in favor of plaintiff a deed of sale covering a parcel of
land. However, said land was allegedly erroneously designated by the parties as unregistered land (not
under Act 496 or the Spanish Mortgage Law) when in fact it was covered by an OCT registered in the
Register of Deeds in Occidental Mindoro. Despite persistent demands from plaintiff to have the error
corrected, the defendants refused to do so. Thus on May 20, 1952, plaintiff filed a complaint against the
defendants. In their answer, defendants denied having executed the deed of sale and pleaded
prescription as a defense. Plaintiff alleged that he "was without knowledge of the error sought to be
corrected at the time the deed of sale was executed and for many years thereafter," having discovered
the said error "only recently". The CFI dismissed the complaint on the ground that plaintiff's action had
already prescribed.

ISSUE: WN the contract should be reformed.

HELD: NO. The complaint does not allege what the real agreement or intention was so the court cannot
determine if the correction will make the contract conform to what was intended.

Both parties regard the present action as one for the reformation of an instrument under Chapter 4,
Title II, Book IV, NCC. Specifically, the object sought is the correction of an alleged mistake in a deed of
sale covering a piece of land. The action being upon a written contract, it should prescribe in 10 years
counted from the day it could have been instituted. However, plaintiff could not have instituted his
action to correct an error in a deed until that error was discovered. Nothing in the pleadings show that
the error was discovered more than 10 years before the present action was filed since the allegation
was that such error was discovered only recently. There being nothing in the pleadings to show that
the error was discovered more than 10 years before the present action was filed, the action should not
have been dismissed as having already prescribed before the factual basis for prescription had been
established and clarified by evidence.

However, appellants complaint states no cause of action, for it fails to allege that the instrument to the
reformed does not express the real agreement or intention of the parties. Such allegation is essential
since the object sought in an action for reformation is to make an instrument conform to the real
agreement or intention of the parties. It is not the function of the remedy of reformation to make a new
agreement, but to establish and perpetuate the true existing one. Furthermore, courts do not reform
instruments merely for the sake of reforming them, but only to enable some party to asserts right under
them as reformed.

[51-55 = MANALILI]

51. YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA and CHARITO

PORMIDA, petitioners, vs. HONORABLE MATEO M. LEANDA, in his capacity as Presiding Judge of RTC,
Tacloban City, Branch 8, and LEYTE GULF TRADERS, INC., respondents.
[G.R. No. 128991. April 12, 2000]
KAPUNAN, J.:
Facts:

On May 15, 1992, respondent Leyte Gulf Traders, Inc. filed a complaint for reformation of instrument
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.

Issue:

Whether the complaint for reformation of instrument has prescribed

Ruling:

Yes
The remedy of reformation of an instrument is grounded on the principle of equity where, in order to
express the true intention of the contracting parties, an instrument already executed is allowed by law
to be reformed. The rationale of the doctrine is that it would be unjust and unequitable to allow the
enforcement of a written instrument which does not reflect or disclose the real meeting of the minds of
the parties.[3] However, an action for reformation must be brought within the period prescribed by law,
otherwise, it will be barred by the mere lapse of time.

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.[12] Prescription is intended to suppress stale and fraudulent claims arising from transactions like
the one at bar which facts had become so obscure from the lapse of time or defective memory.[13] In the
case at bar, 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. Sdaamiso

The prescriptive period of ten (10) years provided for in Art. 1144[16] applies by operation of law, not by
the will of the parties. Therefore, the right of action for reformation accrued from the date of execution
of the contract of lease in 1968.

Even if we were to assume for the sake of argument that the instant action for reformation is not time-
barred, respondent corporations action will still not prosper. Under Section 1, Rule 64 of the New Rules
of Court,[17] an action for the reformation of an instrument is instituted as a special civil action for
declaratory relief. Since the purpose of an action for declaratory relief is to secure an authoritative
statement of the rights and obligations of the parties for their guidance in the enforcement thereof, or
compliance therewith, and not to settle issues arising from an alleged breach thereof, it may be
entertained only before the breach or violation of the law or contract to which it refers.[18] Here,
respondent corporation brought the present action for reformation after an alleged breach or violation
of the contract was already committed by petitioner Bentir. Consequently, the remedy of reformation
no longer lies. Ncmmis

52. ASUNCION ATILANO, CRISTINA ATILANO, ROSARIO ATILANO, assisted by their respective
husbands, HILARIO ROMANO, FELIPE BERNARDO, and MAXIMO LACANDALO, ISABEL ATILANO and
GREGORIO ATILANO
vs.
LADISLAO ATILANO and GREGORIO M. ATILANO
G.R. No. L-22487 May 21, 1969
MAKALINTAL, J.:
Facts:

Eulogio Atilano I purchased from one Gerardo Villanueva, lot No. 535 of the then municipality of
Zamboanga cadastre.

He had the land subdivided into five parts, identified as lots Nos. 535-A, 535-B, 535-C, 535-D and 535-E,
respectively. After the subdivision had been effected, Eulogio Atilano I, for the sum of P150.00, executed
a deed of sale covering lot No. 535-E in favor of his brother Eulogio Atilano II. Three other portions,
namely lots Nos. 535-B, 535-C and 535-D, were likewise sold to other persons, the original owner,
Eulogio Atilano I, retaining for himself only the remaining portion of the land, presumably covered by
the title to lot No. 535-A. Upon his death the title to this lot passed to Ladislao Atilano, defendant in this
case.

Eulogio Atilano II having become a widower upon the death of his wife Luisa Bautista, he and his
children became co-owners over lot No. 535-E.

Then, on July 16, 1959, desiring to put an end to the co-ownership, they had the land resurveyed so that
it could properly be subdivided; and it was then discovered that the land they were actually occupying
on the strength of the deed of sale executed in 1920 was lot No. 535-A and not lot 535-E, as referred to
in the deed, while the land which remained in the possession of the vendor, Eulogio Atilano I, and which
passed to his successor, defendant Ladislao Atilano, was lot No. 535-E and not lot No. 535-A.

The heirs of Eulogio Atilano II, who was by then also deceased, filed the present action alleging, inter
alia, that they had offered to surrender to the defendants the possession of lot No. 535-A and
demanded in return the possession of lot No. 535-E, but that the defendants had refused to accept the
exchange. The plaintiffs' insistence is quite understandable, since lot No. 535-E has an area of 2,612
square meters, as compared to the 1,808 square-meter area of lot No. 535-A.

The trial court rendered judgment for the plaintiffs on the sole ground that since the property was
registered under the Land Registration Act the defendants could not acquire it through prescription.

Issue:

Whether or not the the deed of sale executed in 1920 needs to be reformed

Ruling:

No.

The logic and common sense of the situation lean heavily in favor of the defendants' contention. When
one sells or buys real property a piece of land, for example one sells or buys the property as he
sees it, in its actual setting and by its physical metes and bounds, and not by the mere lot number
assigned to it in the certificate of title. In the particular case before us, the portion correctly referred to
as lot No. 535-A was already in the possession of the vendee, Eulogio Atilano II, who had constructed his
residence therein, even before the sale in his favor even before the subdivision of the entire lot No. 535
at the instance of its owner, Eulogio Atillano I. In like manner the latter had his house on the portion
correctly identified, after the subdivision, as lot No. 535-E, even adding to the area thereof by
purchasing a portion of an adjoining property belonging to a different owner. The two brothers
continued in possession of the respective portions the rest of their lives, obviously ignorant of the initial
mistake in the designation of the lot subject of the 1920 until 1959, when the mistake was discovered
for the first time.

The real issue here is not adverse possession, but the real intention of the parties to that sale. From all
the facts and circumstances we are convinced that the object thereof, as intended and understood by
the parties, was that specific portion where the vendee was then already residing, where he
reconstructed his house at the end of the war, and where his heirs, the plaintiffs herein, continued to
reside thereafter: namely, lot No. 535-A; and that its designation as lot No. 535-E in the deed of sale was
simple mistake in the drafting of the document.1wphi1.et The mistake did not vitiate the consent of
the parties, or affect the validity and binding effect of the contract between them. The new Civil Code
provides a remedy for such a situation by means of reformation of the instrument. This remedy is
available when, there having been a meeting of the funds 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 on accident (Art. 1359, et seq.) In this case, the deed of sale executed in 1920
need no longer reformed. The parties have retained possession of their respective properties
conformably to the real intention of the parties to that sale, and all they should do is to execute mutual
deeds of conveyance.

53. RITA SARMING et al vs. CRESENCIO DY et al

[G.R. No. 133643. June 6, 2002]
QUISUMBING, J.:

Facts:
Petitioners are the successors-in-interest of original defendant Silveria Flores, while respondents
Cresencio Dy and Ludivina Dy-Chan are the successors-in-interest of the original plaintiff Alejandra
Delfino, the buyer of one of the lots subject of this case.
Valentina Unto Flores owned, among others, Lot 5734, covered by OCT 4918-A; and Lot 4163,
covered by OCT 3129-A, both located at Dumaguete City. After her death, her three children, namely:
Jose, Venancio, and Silveria, took possession of Lot 5734 with each occupying a one-third portion. Upon
their death, their children and grandchildren took possession of their respective shares. The other
parcel, Lot 4163 which is solely registered under the name of Silveria, was sub-divided between Silveria
and Jose. Two rows of coconut trees planted in the middle of this lot serves as boundary line.
The grandchildren of Jose and now owners of one-half of Lot 4163, entered into a contract with
plaintiff Alejandra Delfino, for the sale of one-half share of Lot 4163 after offering the same to their co-
owner, Silveria, who declined for lack of money. Silveria did not object to the sale of said portion to
Alejandra Delfino.
When Attorney Pinili, one preparing for the document of sale, asked for the title of the land,
Silveria Flores delivered Original Certificate of Title No. 4918-A, covering Lot No. 5734, and not the
correct title covering Lot 4163. At that time, the parties knew the location of Lot 4163 but not the OCT
Number corresponding to said lot.
Believing that OCT No. 4918-A was the correct title corresponding to Lot 4163, Pinili prepared a
notarized Settlement of Estate and Sale (hereinafter deed) duly signed by the parties on January 19,
1956.As a result, OCT No. 4918-A was cancelled and in lieu thereof, TCT No. 5078 was issued in the
names of Silveria Flores and Alejandra Delfino, with one-half share each. Silveria Flores was present
during the preparation and signing of the deed and she stated that the title presented covered Lot No.
4163.
Alejandra Delfino immediately took possession and introduced improvements on the purchased lot,
which was actually one-half of Lot 4163 instead of Lot 5734 as designated in the deed.
Two years later, Alejandra Delfino discovered that what was designated in the deed, Lot 5734, was
the wrong lot. After inquiring with the Register of Deed it was found out that OCT No. 3129-A covering
Lot 4163 was still on file. Alejandra Delfino paid the necessary fees so that the title to Lot 4163 could be
released to Silveria Flores, who promised to turn it over to Pinili for the reformation of the deed of
sale. However, despite repeated demands, Silveria did not do so, prompting Alejandra and the vendors
to file a complaint against Silveria for reformation of the deed of sale with damages.
The trial court concluded that from the facts and circumstances of the case, it is clear that the
object of the sale, as understood by the parties, was that portion Y of Lot 4163 and that its designation
as Lot 5734 in the document of sale was a simple mistake in the drafting of the document, which
mistake, however, did not vitiate the consent of the parties or affect the validity and the binding effect
of the contract between them. Hence, the remedy of reformation of instrument is proper.[8]

Issue:
Whether or not reformation of instrument is proper
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.[17] As provided in Article 1359 of the Civil
Code:

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.[18]
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.
While intentions involve a state of mind which may sometimes be difficult to decipher, subsequent
and contemporaneous acts of the parties as well as the evidentiary facts as proved and admitted can be
reflective of ones intention. The totality of the evidence clearly indicates that what was intended to be
sold to Alejandra Delfino was Lot 4163 and not Lot 5734. As found by both courts below, there are
enough bases to support such conclusion. We particularly note that one of the stipulated facts during
the pre-trial is that one-half of Lot 4163 is in the possession of plaintiff Alejandra Delfino since 1956 up
to the present.[19] Now, why would Alejandra occupy and possess one-half of said lot if it was not the
parcel of land which was the object of the sale to her? Besides, as found by the Court of Appeals, if it
were true that Silveria Flores was the sole owner of Lot 4163, then she should have objected when
Alejandra Delfino took possession of one-half thereof immediately after the sale. Additionally, we find
no cogent reason to depart from the conclusion of both the Court of Appeals and the trial court, based
on the evidence on record, that Silveria Flores owns only one-half of Lot 4163. The other half belongs to
her brother Jose, represented now by his grandchildren successors-in-interest. As such, the latter could
rightfully sell the land to Alejandra Delfino.
Considering these findings, we see no reason to disturb the trial courts finding, affirmed by the
Court of Appeals, that the object of the contract of sale, as intended and understood by the parties, was
Lot 4163 covered by OCT 3129-A which Alejandra, and now her heirs, have been occupying. The
designation of the lot in the deed of sale as Lot 5734, covered by OCT 4918-A, was a mistake in the
preparation of the document. Thus, we concur in the conclusion reached by the courts a quo that
reformation of the instrument is proper.

54. MANUEL ORIA Y GONZALES

vs.
JOSE McMICKING, as sheriff of the city of Manila,
GUTIERREZ HERMANOS, MIGUEL GUTIERREZ DE CELIS, DANIEL PEREZ, and LEOPOLDO CRIADO
G.R. No. L-7003 January 18, 1912
MORELAND, J.:
Facts::

Gutierrez Hermanos brought actions against Oria Hermanos & Co. for the recovery of sums of money.
Subsequent to the beginning of the actions, the members of the company of Oria Hermanos & Co., on
account of the expiration of the time stated in their agreement of copartnership, dissolved their
relations and entered into liquidation. On the first day of June, 1910, Tomas Oria y Balbas, as managing
partner in liquidation, entered into a contract with the plaintiff in this case, Manuel Orio Gonzales, 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.

Court of First Instance ruled in favor of Gutierrez Hermanos and against Oria Hermanos & Co. for the
sum demanded in the complaint. With the execution having been issued, 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 on the 21st day of October, 19110. On the 18th day of October, 190, 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.

Plaintiff began the present action, which has for its object the issuance of a preliminary injunction to
prevent the sale of the steamship; and, second, the declaration that the plaintiff is the owner of said
steamship and is entitled to the possession of the same, and that the defendant be required to restore
the same to the plaintiff and to pay damages.
Issue:

Whether or not the sale from Oria Hermanos & Co. to Manuel Oria y Gonzalez is valid as against the
creditors of said company.

Ruling:

No. The sale is fraudulent.

In determining whether or not the sale in question was fraudulent as against creditors, these facts must
be kept in mind:

1. At the time of said sale the value of the assets of Oria Hermanos & Co., as stated by the
partners themselves, was P274,000.

2. That at the time of said sale actions were pending against said company by one single creditor
for sums aggregating in amount nearly P160,000.

3. The vendee of said sale was a son of Tomas Oria y Balbas and a nephew of the other two
persons heretofore mentioned which said three brothers together constituted all of the
members of said company.

4. Nothing of value seems to have been delivered by the plaintiff in consideration of said sale
and no security whatsoever was given for the payments therein provided for.

5. The plaintiff is a young man twenty-five years of age. There is no pretense whatsoever that he
owned any property or had any business at the time of the sale. On the contrary it appears
without contradiction that, when the sale took place, he was merely a student without assets
and without gainful occupation.

6. Plaintiff, at the time of the sale, was fully aware of the two suits that have already been begun
against the company whose assets he was purchasing and well knew that if said suits should
terminate in favor of the plaintiffs therein the judgments in which they terminated would have
to be paid out of the property which he was then taking over or they would not be paid at all.

7. Under all the circumstances the sale in question was, so far as the creditors were concerned,
without consideration. To turn over a business worth P274,000 to an "impecunious and
vocationless youth" who knew absolutely nothing about the business he received, and whose
adaptability to the management of that business was entirely unknown, without a penny being
paid down, without any security whatsoever, is a proceeding so unusual, so devoid of care and
caution, and so wholly outside of the well defined lines of ordinary business transactions, as to
startle any person interested in the concern.

8. It is certain that the members of the company of Oria Hermanos & Co. would never have
made a similar contract or executed a similar instrument with a stranger.
 9. The prohibition in the contract against the sale of certain portions of the property by the
plaintiff offers no protection whatever to the creditors. Such prohibitions is not security. The
parties who made the original transfer can waive and release it at pleasure. Such restrictions is
of no value to the creditors of the company. They can not utilize it for the reduction of their
claims or in any other beneficial ways.

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:

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

2. A transfer made by a debtor after suit has been begun and while it is pending against him.

3. A sale upon credit by an insolvent debtor.

4. Evidence of large indebtedness or complete insolvency.

5. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or
greatly embarrassed financially.

6. The fact that the transfer is made between father and son, when there are present other of
the above circumstances.

7. 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. (Regalado vs. Luchsinger & Co., 5 Phil. Rep., 625; art. 1297, Civil Code, par. 1;
Manresa's Commentaries, vol. 8, pp. 713-719.)

Since the records shows 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.

For these reasons the judgment is affirmed, without special finding as to costs. So ordered.

55. MARIA ANTONIA SIGUAN, petitioner, vs. ROSA LIM, LINDE LIM, INGRID LIM and NEIL
LIM, respondents.
[G.R. No. 134685. November 19, 1999]
DAVIDE, JR., C.J.:
Facts:

On 25 and 26 August 1990, Rosa Lim (LIM) issued two Metrobank checks in the sums of P300,000
and P241,668, respectivel. The checks were dishonored for the reason account closed. The trial court
convicted LIM for violation of BP 22. It also appears that on 31 July 1990 LIM was convicted of estafa by
the RTC of Quezon City filed by a certain Victoria Suarez. Court of Appeals affirmed but on appeal,
however, this Court, in a decision acquitted LIM but held her civilly liable in the amount of P169,000, as
actual damages, plus legal interest.
Meanwhile, on 2 July 1991, a Deed of Donation[4] conveying the four parcels of land and
purportedly executed by LIM on 10 August 1989 in favor of her children, Linde, Ingrid and Neil, was
registered with the Office of the Register of Deeds of Cebu City.
On 23 June 1993, petitioner filed an accion pauliana against LIM and her children before Branch 18
of the RTC of Cebu City to rescind the questioned Deed of Donation and to declare as null and void the
new transfer certificates of title issued for the lots covered by the questioned Deed. Petitioner claimed
therein that sometime in July 1991, LIM, through a Deed of Donation, fraudulently transferred all her
real property to her children in bad faith and in fraud of creditors, including her; that LIM conspired and
confederated with her children in antedating the questioned Deed of Donation, to petitioners and other
creditors prejudice; and that LIM, at the time of the fraudulent conveyance, left no sufficient properties
to pay her obligations.
Issue:
Whether the questioned Deed of Donation was made in fraud of petitioner and, therefore, rescissible
Ruling:
No.
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,[12] 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; [13] (4) the act being impugned is fraudulent;[14] (5) the third person who received the property
conveyed, if it is by onerous title, has been an accomplice in the fraud.[15]
The general rule is that rescission requires the existence of creditors at the time of the alleged
fraudulent alienation, and this must be proved as one of the bases of the judicial pronouncement setting
aside the contract.[16] Without any prior existing debt, there can neither be injury nor fraud. While it is
necessary that the credit of the plaintiff in the accion pauliana must exist prior to the fraudulent
alienation, the date of the judgment enforcing it is immaterial. Even if the judgment be subsequent to
the alienation, it is merely declaratory, with retroactive effect to the date when the credit was
constituted.[17]
In the instant case, the alleged debt of LIM in favor of petitioner was incurred in August 1990, while
the deed of donation was purportedly executed on 10 August 1989.
We are not convinced with the allegation of the petitioner that the questioned deed was antedated
to make it appear that it was made prior to petitioners credit. Notably, that deed is a public document, it
having been acknowledged before a notary public.[18] As such, it is evidence of the fact which gave rise
to its execution and of its date, pursuant to Section 23, Rule 132 of the Rules of Court.
It bears repeating that notarial documents, except last wills and testaments, are public documents
and are evidence of the facts that gave rise to their execution and of their date.
In the present case, the fact that the questioned Deed was registered only on 2 July 1991 is not
enough to overcome the presumption as to the truthfulness of the statement of the date in the
questioned deed, which is 10 August 1989. Petitioners claim against LIM was constituted only in August
1990, or a year after the questioned alienation. Thus, the first two requisites for the rescission of
contracts are absent.
Even assuming arguendo that petitioner became a creditor of LIM prior to the celebration of the
contract of donation, still her action for rescission would not fare well because the third requisite was
not met. Under Article 1381 of the Civil Code, contracts entered into in fraud of creditors may be
rescinded only when the creditors cannot in any manner collect the claims due them. Also, Article 1383
of the same Code provides that the action for rescission is but a subsidiary remedy which cannot be
instituted except when the party suffering damage has no other legal means to obtain reparation for the
same. The term subsidiary remedy has been defined as the exhaustion of all remedies by the prejudiced
creditor to collect claims due him before rescission is resorted to.[19] It is, therefore, essential that the
party asking for rescission prove that he has exhausted all other legal means to obtain satisfaction of his
claim.[20] Petitioner neither alleged nor proved that she did so. On this score, her action for the rescission
of the questioned deed is not maintainable even if the fraud charged actually did exist.[21]
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. Besides, the evidence disclose that as of 10 August 1989, when the deed of donation was
executed, LIM had the following properties:
(1) A parcel of land containing an area of 220 square meters, together with the house
constructed thereon, situated in Sto. Nio Village, Mandaue City, Cebu, registered in the
name of Rosa Lim and covered by TCT No. 19706;[22]
(2) A parcel of land located in Benros Subdivision, Lawa-an, Talisay, Cebu;[23]
(3) A parcel of land containing an area of 2.152 hectares, with coconut trees thereon, situated
at Hindag-an, St. Bernard, Southern Leyte, and covered by Tax Declaration No. 13572.[24]
(4) A parcel of land containing an area of 3.6 hectares, with coconut trees thereon, situated at
Hindag-an, St. Bernard, Southern Leyte, and covered by Tax Declaration No. 13571.[25]
In this case, it was not sufficiently established that the properties left behind by LIM were not
sufficient to cover her debts existing before the donation was made. Hence, the presumption of fraud
will not come into play.
Nevertheless, a creditor need not depend solely upon the presumption laid down in Articles 759
and 1387 of the Civil Code. Under the third paragraph of Article 1387, the design to defraud may be
proved in any other manner recognized by the law of evidence. Thus in the consideration of whether
certain transfers are fraudulent, the Court has laid down specific rules by which the character of the
transaction may be determined. The following have been denominated by the Court as badges of fraud:
(1) The fact that the consideration of the conveyance is fictitious or is inadequate;
(2) A transfer made by a debtor after suit has begun and while it is pending against him;
(3) A sale upon credit by an insolvent debtor;
(4) Evidence of large indebtedness or complete insolvency;
(5) The transfer of all or nearly all of his property by a debtor, especially when he is insolvent
or greatly embarrassed financially;
(6) The fact that the transfer is made between father and son, when there are present other of
the above circumstances; and
(7) The failure of the vendee to take exclusive possession of all the property.[28]
The above enumeration, however, is not an exclusive list. The circumstances evidencing fraud are
as varied as the men who perpetrate the fraud in each case. This Court has therefore declined to define
it, reserving the liberty to deal with it under whatever form it may present itself.[29]
Petitioner failed to discharge the burden of proving any of the circumstances enumerated above or
any other circumstance from which fraud can be inferred. Accordingly, since the four requirements for
the rescission of a gratuitous contract are not present in this case, petitioners action must fail.
In her further attempt to support her action for rescission, petitioner brings to our attention the 31
July 1990 Decision[30] of the RTC of Quezon City, Branch 92, in Criminal Case No. Q-89-2216. LIM was
therein held guilty of estafa and was ordered to pay complainant Victoria Suarez the sum of P169,000
for the obligation LIM incurred on 8 October 1987. This decision was affirmed by the Court of
Appeals. Upon appeal, however, this Court acquitted LIM of estafa but held her civilly liable for P169,000
as actual damages.
It should be noted that the complainant in that case, Victoria Suarez, albeit a creditor prior to the
questioned alienation, is not a party to this accion pauliana. Article 1384 of the Civil Code provides that
rescission shall only be to the extent necessary to cover the damages caused. Under this Article, only the
creditor who brought the action for rescission can benefit from the rescission; those who are strangers
to the action cannot benefit from its effects.[31] And the revocation is only to the extent of the plaintiff
creditors unsatisfied credit; as to the excess, the alienation is maintained.[32] Thus, petitioner cannot
invoke the credit of Suarez to justify rescission of the subject deed of donation.

[56-59 = MANTE]

56

G.R. No. L-29155 May 13, 1970

UNIVERSAL FOOD CORPORATION, petitioner,

vs.
THE COURT OF APPEALS, MAGDALO V. FRANCISCO, SR., and VICTORIANO N. FRANCISCO, respondents.

PONENTE: CASTRO, J

FACTS:

Plaintiff Magdalo V. Francisco, Sr. discovered or invented a formula for the manufacture of a food
seasoning (sauce) derived from banana fruits popularly known as MAFRAN sauce; that the manufacture
of this product was used in commercial scale in 1942, and in the same year plaintiff registered his
trademark in his name as owner and inventor with the Bureau of Patents; that due to lack of sufficient
capital to finance the expansion of the business, in 1960, said plaintiff secured the financial assistance of
Tirso T. Reyes who, after a series of negotiations, formed with others defendant Universal Food
Corporation eventually leading to the execution on May 11, 1960 of the aforequoted "Bill of
Assignment":

THAT the Party of the First Part [Magdalo V. Francisco, Sr.] is the sole and exclusive owner of the
MAFRAN trade-mark and the formula for MAFRAN SAUCE;

THAT for and in consideration of the royalty of TWO (2%) PER CENTUM of the net annual profit which
the PARTY OF THE Second Part [Universal Food Corporation] may realize by and/or out of its production
of MAFRAN SAUCE and other food products and from other business which the Party of the Second Part
may engage in as defined in its Articles of Incorporation, and which its Board of Directors shall
determine and declare, said Party of the First Part hereby assign, transfer, and convey all its property
rights and interest over said Mafran trademark and formula for MAFRAN SAUCE unto the Party of the
Second Part;
THAT the payment for the royalty of TWO (2%) PER CENTUM of the annual net profit which the Party of
the Second Part obligates itself to pay unto the Party of the First Part as founder and as owner of the
MAFRAN trademark and formula for MAFRAN SAUCE, shall be paid at every end of the Fiscal Year after
the proper accounting and inventories has been undertaken by the Party of the Second Part and after a
competent auditor designated by the Board of Directors shall have duly examined and audited its books
of accounts and shall have certified as to the correctness of its Financial Statement;

THAT it is hereby understood that the Party of the First Part, to improve the quality of the products of
the Party of the First Part and to increase its production, shall endeavor or undertake such research,
study, experiments and testing, to invent or cause to invent additional formula or formulas, the property
rights and interest thereon shall likewise be assigned, transferred, and conveyed unto the Party of the
Second Part in consideration of the foregoing premises, covenants and stipulations:

THAT in the operation and management of the Party of the First Part, the Party of the First Part shall be
entitled to the following Participation:

(a) THAT Dr. MAGDALO V. FRANCISCO shall be appointed Second Vice-President and Chief Chemist of
the Party of the Second Part, which appointments are permanent in character and Mr. VICTORIANO V.
FRANCISCO shall be appointed Auditor thereof and in the event that the Treasurer or any officer who
may have the custody of the funds, assets and other properties of the Party of the Second Part comes
from the Party of the First Part, then the Auditor shall not be appointed from the latter; furthermore
should the Auditor be appointed from the Party representing the majority shares of the Party of the
Second Part, then the Treasurer shall be appointed from the Party of the First Part;

(b) THAT in case of death or other disabilities they should become incapacitated to discharge the duties
of their respective position, then, their shares or assigns and who may have necessary qualifications
shall be preferred to succeed them;

(c) That the Party of the First Part shall always be entitled to at least two (2) membership in the Board of
Directors of the Party of the Second Part;

(d) THAT in the manufacture of MAFRAN SAUCE and other food products by the Party of the Second
Part, the Chief Chemist shall have and shall exercise absolute control and supervision over the
laboratory assistants and personnel and in the purchase and safekeeping of the Chemicals and other
mixtures used in the preparation of said products;

THAT this assignment, transfer and conveyance is absolute and irrevocable in no case shall the PARTY OF
THE First Part ask, demand or sue for the surrender of its rights and interest over said MAFRAN
trademark and mafran formula, except when a dissolution of the Party of the Second Part, voluntary or
otherwise, eventually arises, in which case then the property rights and interests over said trademark
and formula shall automatically revert the Party of the First Part.

Since the start of the operation of defendant corporation, plaintiff Magdalo V. Francisco, Sr., when
preparing the secret materials inside the laboratory, never allowed anyone, not even his own son, or the
President and General Manager Tirso T. Reyes, of defendant, to enter the laboratory in order to keep
the formula secret to himself. However, said plaintiff expressed a willingness to give the formula to
defendant provided that the same should be placed or kept inside a safe to be opened only when he is
already incapacitated to perform his duties as Chief Chemist, but defendant never acquired a safe for
that purpose. On July 26, 1960, President and General Manager Tirso T. Reyes wrote plaintiff requesting
him to permit one or two members of his family to observe the preparation of the 'Mafran Sauce'
(Exhibit C), but said request was denied by plaintiff. In spite of such denial, Tirso T. Reyes did not compel
or force plaintiff to accede to said request. Thereafter, however, due to the alleged scarcity and high
prices of raw materials, plaintiff was ultimately dismissed.

ISSUES:

1. Whether by virtue of the terms of the Bill of Assignment the respondent Magdalo V. Francisco,
Sr. ceded and transferred to the petitioner corporation the formula for Mafran sauce.
2. Is rescission of the Bill of Assignment proper?

RULINGS:

1. NO. A perceptive analysis of the entire instrument and the language employed therein would lead
one to the conclusion that what was actually ceded and transferred was only the use of the Mafran
sauce formula. This was the precise intention of the parties.

Firstly, one of the principal considerations of the Bill of Assignment is the payment of "royalty of TWO
(2%) PER CENTUM of the net annual profit" which the petitioner corporation may realize by and/or out
of its production of Mafran sauce and other food products, etc. The word "royalty," when employed in
connection with a license under a patent, means the compensation paid for the use of a patented
invention.

Secondly, in order to preserve the secrecy of the Mafran formula and to prevent its unauthorized
proliferation, it is provided in paragraph 5-(a) of the Bill that the respondent patentee was to be
appointed "chief chemist ... permanent in character," and that in case of his "death or other disabilities,"
then his "heirs or assigns who may have necessary qualifications shall be preferred to succeed" him as
such chief chemist.

Thirdly, pursuant to the last paragraph of the Bill, should dissolution of the Petitioner corporation
eventually take place, "the property rights and interests over said trademark and formula shall
automatically revert to the respondent patentee.

Fourthly, it is alleged in paragraph 3 of the respondents' complaint that what was ceded and transferred
by virtue of the Bill of Assignment is the "use of the formula" (and not the formula itself). This
incontrovertible fact is admitted without equivocation in paragraph 3 of the petitioner's answer. Hence,
it does "not require proof and cannot be contradicted."

Fifthly, the facts of the case compellingly demonstrate continued possession of the Mafran sauce
formula by the respondent patentee.

Finally, our conclusion is fortified by the admonition of the Civil Code that a conveyance should be
interpreted to effect "the least transmission of right," 9 and is there a better example of least
transmission of rights than allowing or permitting only the use, without transfer of ownership, of the
formula for Mafran sauce.

2. 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. 12 The question of whether a breach of a contract is substantial depends upon
the attendant circumstances. 13

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. However, in this case the dismissal
of the respondent patentee Magdalo V. Francisco, Sr. as the permanent chief chemist of the corporation
is a fundamental and substantial breach of the Bill of Assignment. He was dismissed without any fault or
negligence on his part. Thus, apart from the legal principle that the option to demand performance or
ask for rescission of a contract belongs to the injured party, 14 the fact remains that the respondents-
appellees had no alternative but to file the present action for rescission and damages. It is to be
emphasized that the respondent patentee would not have agreed to the other terms of the Bill of
Assignment were it not for the basic commitment of the petitioner corporation to appoint him as its
Second Vice-President and Chief Chemist on a permanent basis; that in the manufacture of Mafran
sauce and other food products he would have "absolute control and supervision over the laboratory
assistants and personnel and in the purchase and safeguarding of said products;" and that only by all
these measures could the respondent patentee preserve effectively the secrecy of the formula, prevent
its proliferation, enjoy its monopoly, and, in the process afford and secure for himself a lifetime job and
steady income. The salient provisions of the Bill of Assignment, namely, the transfer to the corporation
of only the use of the formula; the appointment of the respondent patentee as Second Vice-President
and chief chemist on a permanent status; the obligation of the said respondent patentee to continue
research on the patent to improve the quality of the products of the corporation; the need of absolute
control and supervision over the laboratory assistants and personnel and in the purchase and
safekeeping of the chemicals and other mixtures used in the preparation of said product all these
provisions of the Bill of Assignment are so interdependent that violation of one would result in virtual
nullification of the rest.

57

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

MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS, BACOLOD SOUTHERN
LUMBER YARD, and OPPEN, ESTEBAN, INC., plaintiffs-appellees,
vs.
ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO LEON GARIBAY,
TIMOTEO TUBUNGBANUA, and THE PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, defendants,
MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO, defendants-appellants.

PONENTE: FERNANDEZ, J
FACTS:

On January 30, 1951 the defendants Leon Garibay, Margarita G. Saldejeno, and Timoteo Tubungbanua
entered into a Contract of Partnership under the firm name "Isabela Sawmill". The plaintiff Oppen,
Esteban, Inc. sold a Motor Truck and two Tractors to the partnership Isabela Sawmill for the sum of
P20,500.00. In order to pay the said purcahse price, the said partnership agreed to make arrangements
with the International Harvester Company at Bacolod City so that the latter would sell farm machinery
to Oppen, Esteban, Inc. with the understanding that the price was to be paid by the partnership.
International Harvester Company has been paid a total of P19,211.11, leaving an unpaid balance of
P1,288.89. A case was filed by the spouses Cecilio Saldajeno and Margarita G. Saldajeno against the
Isabela Sawmill, Leon Garibay, and Timoteo Tubungbanua. Thereafter, defendants Leon Garibay,
Timoteo Tubungbanua and Margarita G. Saldajeno entered into a "Memorandum Agreement" and a
"Assignment of Rights with Chattel Mortgage whereby the remaining partners, Leon Garibay and
Timoteo Tubungbanua did not divide the assets and properties of the "Isabela Sawmill" between them,
but continued the business of said partnership under the same firm name "Isabela Sawmill". There was
no liquidation of the assets of the partnership. Thereafter, the Provincial Sheriff of Negros Occidental
published two (2) notices that he would sell at public auction on June 5, 1959 at Isabela, Negros
Occidental certain trucks, tractors, machinery, office equipment and other things that were involved in
Civil Case No. 5223 of the Court of First Instance of Negros Occidental, entitled "Margarita G. Saldajeno
vs. Leon Garibay, et al." Later on, defendant Margarita G. Saldajeno executed a deed of sale in favor of
the Pan Oriental Lumber Company transfering to the latter for the sum of P45,000.00 the trucks,
tractors, machinery, and other things that she had purchashed at a public auction.

ISSUE: Whether or not the appellees can bring an action to annual the chattel mortgage of the
properties of the partnership executed by Leon Garibay and Timoteo Tubungbanua in favor of Margarita
G. Saldajeno.

RULING: YES.

As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a contract
prejudices the rights of a third person, he may file an action to annul the contract.

This Court has held that a person, who is not a party obliged principally or subsidiarily under a contract,
may exercised an action for nullity of the contract if he is prejudiced in his rights with respect to one of
the contracting parties, and can show detriment which would positively result to him from the contract
in which he has no intervention. 21

The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel mortgage over the
properties of the partnership "Isabela Sawmill" in favor of Margarita G. Saldajeno by the remaining
partners, Leon Garibay and Timoteo Tubungbanua. Hence, said appelees have a right to file the action to
nullify the chattel mortgage in question.

Had Margarita G. Saldajeno not entered into the memorandum-agreement allowing Leon Garibay and
Timoteo Tubungbanua to continue doing the business of the aprtnership, the applees would not have
been misled into thinking that they were still dealing with the partnership "Isabela Sawmill". Under the
facts, it is of no moment that technically speaking the partnership "Isabela Sawmill" was dissolved by the
withdrawal therefrom of Margarita G. Saldajeno. The partnership was not terminated and it continued
doping business through the two remaining partners. It does not appear that the withdrawal of
Margarita G. Saldajeno from the partnership was published in the newspapers. The appellees and the
public in general had a right to expect that whatever, credit they extended to Leon Garibay and Timoteo
Tubungbanua doing the business in the name of the partnership "Isabela Sawmill" could be enforced
against the proeprties of said partnership. The judicial foreclosure of the chattel mortgage executed in
favor of Margarita G. Saldajeno did not relieve her from liability to the creditors of the partnership.

58

G.R. No. 3246 February 9, 1907

CADWALLADER & COMPANY, plaintiff-appellant,

vs.
SMITH, BELL & COMPANY and HENRY W. PEABODY & COMPANY, defendants-appellees.

PONENTE: TRACEY, J

FACTS:

In May 1902, the Pacific Export Lumber Company of Portland shipped upon the steamer Quito 581 cedar
piles to the defendant, Henry W. Peabody & Company, at Manila, on the sale of which before storage
the consignees were to receive a commission of one half of whatever sum was obtained over $15 for
each pile and 5 per cent of the price of the piles sold after storage. After the arrival of the steamer on
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 apiece; whereupon the
company's agent directed them to make the best possible offer for the piles, in response to which on
August 5 they telegraphed him an offer of $12 apiece. It was accepted by him on August 6, in
consequence of which the defendant paid the Pacific Company $6,972.

It afterwards appeared that on July 9 Peabody & Company had entered into negotiations with the
Insular Purchasing Agent for the sale for the piles at $20 a piece, resulting of August 4 in the sale to the
Government of two hundred and thirteen (213) piles at $19 each. More of them were afterwards sold to
the Government at the same figure and the remainder to other parties at carrying prices, the whole
realizing to the defendants $10,41.66, amounting to $3,445.66 above the amount paid by the defendant
to the plaintiff therefor. Thus it is clear that at the time when the agents were buying from their
principal these piles at $12 apiece 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 defendants should be allowed to retain their commissions on the sale.
RULING: NO.

It is plaint that in 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.

59

G.R. No. 108346 July 11, 2001

Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, petitioners,

vs.
COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO, respondents.

PONENTE: PANGANIBAN, J

FACTS:

David Raymundo [herein private respondent] is the absolute and registered owner of a parcel of land,
together with the house and other improvements thereon, located at 1918 Kamias St., Dasmarias
Village, Makati and covered by TCT No. 142177. Defendant George Raymundo [herein private
petitioners] is David's father who negotiated with plaintiffs Avelina and Mariano Velarde [herein
petitioners] for the sale of said property, which was, however, under lease.

On August 8, 1986, a Deed of Sale with Assumption of Mortgage was executed by defendant David
Raymundo, as vendor, in favor of plaintiff Avelina Velarde, as vendee. It appears that the negotiated
terms for the payment of the balance of P1.8 million was from the proceeds of a loan that plaintiffs
were to secure from a bank with defendant's help. Defendants had a standing approved credit line with
the Bank of the Philippine Islands (BPI). The parties agreed to avail of this, subject to BPI's approval of an
application for assumption of mortgage by plaintiffs. Pending BPI's approval o[f] the application,
plaintiffs were to continue paying the monthly interests of the loan secured by a real estate
mortgage.However, plaintiffs were advised that the Application for Assumption of Mortgage with BPI,
was not approved. This prompted plaintiffs not to make any further payment. On January 5, 1987,
defendants, thru counsel, wrote plaintiffs informing the latter that their non-payment to the mortgage
bank constitute[d] non-performance of their obligation. On January 8, 1987 defendants sent plaintiffs a
notarial notice of cancellation/rescission of the intended saleof the subject property allegedly due to the
latter's failure to comply with the terms and conditions of the Deed of Sale with Assumption of
Mortgage and the Undertaking.
Consequently, petitioners filed on February 9, 1987 a Complaint against private respondents for specific
performance, nullity of cancellation, writ of possession and damages.

ISSUES:

1. Whether or not non-payment of the mortgage obligation resulted in a breach of the contract.
2. Whether the rescission of the contract by private respondents was valid.
3. Whether the three new conditions constitute an attempt to novate necessitating a new
agreement between the parties.

RULINGS:

1. YES. Petitioner aver that their nonpayment of private respondents' mortgage obligation did not
constitute a breach of contract, considering that their request to assume the obligation had been
disapproved by the mortgagee bank. Accordingly, payment of the monthly amortizations ceased to
be their obligation and, instead, it devolved upon private respondents again.

However, petitioners did not merely stop paying the mortgage obligations; they also failed to pay
the balance of the purchase price. As admitted by both parties, their agreement mandated that
petitioners should pay the purchase price balance of P1.8 million to private respondents in case the
request to assume the mortgage would be disapproved. Thus, on December 15, 1986, when
petitioners received notice of the bank's disapproval of their application to assume respondents'
mortgage, they should have paid the balance of the P1.8 million loan.

Instead of doing so, petitioners sent a letter to private respondents offering to make such payment
only upon the fulfillment of certain conditions not originally agreed upon in the contract of sale.
Such conditional offer to pay cannot take the place of actual payment as would discharge the
obligation of a buyer under a contract of sale.

In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a determinate
things, and the buyer to pay therefor a price certain in money or its equivalent.13

Private respondents had already performed their obligation through the execution of the Deed of
Sale, which effectively transferred ownership of the property to petitioner through constructive
delivery. Prior physical delivery or possession is not legally required, and the execution of the Deed
of Sale is deemed equivalent to delivery.14

Petitioners, on the other hand, did not perform their correlative obligation of paying the contract
price in the manner agreed upon. Worse, they wanted private respondents to perform obligations
beyond those stipulated in the contract before fulfilling their own obligation to pay the full purchase
price.

2. YES. As pointed out earlier, the breach committed by petitioners was not so much their nonpayment
of the mortgage obligations, as their nonperformance of their reciprocal obligation to pay the
purchase price under the contract of sale. Private respondents' right to rescind the contract finds
basis in Article 1191 of the Civil Code, which explicitly provides as follows:
 "Art. 1191. -- The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

The injured party may choose between fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission even after he has chosen
fulfillment, if the latter should become impossible."

The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated
on a breach of faith by the other party who violates the reciprocity between them.16 The breach
contemplated in the said provision is the obligor's failure to comply with an existing
obligation.17 When the obligor cannot comply with what is incumbent upon it, the obligee may seek
rescission and, in the absence of any just cause for the court to determine the period of compliance,
the court shall decree the rescission.18

In the present case, private respondents validly exercised their right to rescind the contract, because
of the failure of petitioners to comply with their obligation to pay the balance of the purchase price.
Indubitably, the latter violated the very essence of reciprocity in the contract of sale, a violation that
consequently gave rise to private respondent's right to rescind the same in accordance with law.

True, petitioners expressed their willingness to pay the balance of the purchase price one month
after it became due; however, this was not equivalent to actual payment as would constitute a
faithful compliance of their reciprocal obligation. Moreover, the offer to pay was conditioned on the
performance by private respondents of additional burdens that had not been agreed upon in the
original contract. Thus, it cannot be said that the breach committed by petitioners was merely slight
or casual as would preclude the exercise of the right to rescind.

In the instant case, 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.

Mutual Restitution

Required in Rescission

As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal
obligation, not a violation of the terms and conditions of the mortgage contract. Therefore, the
automatic rescission and forfeiture of payment clauses stipulated in the contract does not apply.
Instead, Civil Code provisions shall govern and regulate the resolution of this controversy.

Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual
restitution is required to bring back the parties to their original situation prior to the inception of the
contract. Accordingly, the initial payment of P800,000 and the corresponding mortgage payments in the
amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by petitioners should be
returned by private respondents, lest the latter unjustly enrich themselves at the expense of the former.

Rescission creates the obligation to return the object of the contract. It can be carried out only when the
one who demands rescission can return whatever he may be obliged to restore.20 To rescind is to
declare a contract void at its inception and to put an end to it as though it never was. It is not merely to
terminate it and release the parties from further obligations to each other, but to abrogate it from the
beginning and restore the parties to their relative positions as if no contract has been made.

3. NO. Suffice it to say that the three conditions appearing on the January 7, 1987 letter of petitioners
to private respondents were not part of the original contract. By that time, it was already incumbent
upon the former to pay the balance of the sale price. They had no right to demand preconditions to
the fulfillment of their obligation, which had become due.

[60 = UNABIA]

60. UY Soo LIM, plaintiff and appellant, vs. BENITO TAN UNCHUAN, FRANCISCA PASTRANO and
BASILIO CEFRANO UY BUNDAN, defendants and appellees.

G.R. No. 12605. September 7, 1918.

FISHER, J.:

FACTS: At 13 y/o, Santiago Pastrano Uy Toco, a Chinese, came from China to reside in the Philippines
where lived until his death in 1901. In 1882, he married Candida Vivares and they had 2 daughters:
Francisca and Concepcion. Santiago Pastrano possessed very little propertya tienda worth about
P2,000 and the large estate he left upon death was acquired during his marriage with Candida Vivares.
In 1891, Santiago went back to China where he remained for less than a year and entered into illicit
relations with a Chinese, Chan Quieg/ Chan Ni Yu. He never saw Chan Quieg again but received letters
informing him that he had a son, Uy Soo Lim, but died without ever seeing him but included him in his
will attempting to dispose a large portion of his estate in favour of Uy Soo Lim. The will was duly
probated with Benito Tan Unchuan (husband of Francisca) named as executor and Basilio Uy Bundan as
administrator for the properties left to then minors Francisca, Concepcion, and Uy Soo Lim.

In May 1911, Candida claimed the right as the widow of the deceased to 1/2 of all the estate, and asked
that the administration of said estate be reopened and the rights of the persons readjudged and
determined. In June, Francisca and Concepcion opposed the distribution of the estate, alleging that Uy
Soo Lim was not entitled. Chan Quieg also appeared in 1911 alleging her claim to1/2 of the estate since
she had lived martially with Santiago in Amoy, China which union constituted a valid marriage under the
laws and customs of China. Prior to all the protests, Uy Soo Lim had already drawn from the estate for
his personal use P26,800 and was aware he had a large fortune waiting. He came to Manila in March
1911 to frustrate the efforts to remove or reduce his interests in the will represented by 2 lawyers and a
certain Choa Tek Hee.

In October 1911, all parties except Chan Quieg agreed to submit the entire matter to the judgment of 3
respectable Chinese merchants designated who were not arbitrators but advisers without any
stipulation that the findings be binding. The conclusion was that P82,500 should be accepted by plaintiff
in full satisfaction and relinquishment of all his right, title, and interest in and to the estate this was
accepted by plaintiff and he executed a deed wherein he relinquished and sold to Francisca all his rights.
In December 1911, Candida and Concepcion executed separate deeds and relinquished and sold to
Francisca all their rights in the estate. In November, Chan Quieg, temporarily in Manila, also executed a
similar deed. In December, the court ordered Francisca the sole owner of all the property in the estate.
In 1914, Uy Soo Lim commenced an action in the CFI to vacate the orders and to rescind and annul his
contract with Francisca on the ground that he had been induced by deceit or undue influence.

The CFI held that there was no undue influence or deceit as the plaintiff had entered into the contract
deliberately.

ISSUE: WN the contract can be rescinded on the ground of minority.

HELD: NO. The trial court found that plaintiff was a minor at the time of the execution of the contract in
question, but that he not only failed to repudiate it promptly upon reaching his majority but tacitly
ratified it by disposing of the greater part of the proceeds after he became of age and after he had full
knowledge of the facts upon which he now seeks to disaffirm the agreement. Records show that Uy Soo
Lim had proceeded to dispose and use the money obtained from the contract and had even filed a
collection suit against his former representative, Choa Tek Hee, which the court awarded. His handling
of his money even while a minor are inconsonant with his claim of minority as a ground for nullification
of the contract.

Plaintiff not only showed a personal knowledge of his rights under this contract prior to and at the time
of reaching majority, but he was surrounded by able advisers, legal and otherwise, retained to protect
his interests. As a result of his failure to disaffirm promptly on reaching majority, he received a balance
of P30,000 upon the contract, which amount certainly would not have been paid if it had been known
that he was about to attempt to repudiate his agreement. This amount was not only collected by Uy Soo
Lim after reaching majority, but was effectually disposed of quickly.

The privilege granted minors of disaffirming their coutracts upon reaching majority is subject to prompt
election in the matter.

Uy Soo Lim should not only have refunded all moneys in his possession upon filing his action to rescind,
but by insisting upon receiving and spending such consideration after reaching majority, knowing the
rights conferred upon him by law, he must be held to have forfeited any right to bring such action.

On the assumption, therefore, that plaintiff might have had a right to rescind this contract on the
ground of minority, his action fails:

1. (1) Because, with a full knowledge of his rights in the premises, he f ailed to disaffirm his
contract within a reasonable time after reaching majority; and
2. (2) Because he not only failed to tender, or offer to produce and pay the consideration in esse
when he reached majority, and when he filed his action, but proceeded, after such events, to
demand, collect and dispose of such consideration, when according to his own statement under
oath he had no other funds with which to make reimbursement.

Judgment affirmed.
[61-64 = MORANO]
61. ROSARIO CARBONNEL, plaintiff-appellant, vs.
JOSE PONCIO, RAMON INFANTE, and EMMA INFANTE, defendants-appellees.
G.R. No. L-11231 May 12, 1958

On January 27, 1955, Plaintiff Rosario Carbonnel purchased from defendant Jose Poncio, at P9.50 a
square meter, a parcel of land of about 195 square meters, more or less, located in San Juan del Monte,
Rizal with Transfer Certificate of Title No. 5040 (now No. 37842), excluding the improvements thereon;

Plaintiff paid P247.26 on account of the price and assumed Poncio's obligation with the Republic Savings
Bank amounting to P1,177.48, with the understanding that the balance would be payable upon
execution of the corresponding deed of conveyance; that one of the conditions of the sale was that
Poncio would continue staying in said land for one year.

However, Poncio refuses to execute the corresponding deed of sale, despite repeated demand; that
plaintiff has thereby suffered damages and has even conveyed the same property to defendants Ramon
R. Infante and Emma L. Infante, who knew, of the first sale to plaintiff; and that the Infantes had
thereby, caused damages to plaintiff in the sum of P5,000.

Plaintiff prayed, that she be declared owner of the land in question; that the sale to the Infantes be
annulled; that Poncio be required to execute the corresponding deed of conveyance in plaintiff's favor;
that the Register of Deeds of Rizal be directed to issue the corresponding title in plaintiff's name; and
that defendants be sentenced to pay damages.

Defendants moved to dismiss said complaint upon the ground that plaintiff's claim is unenforceable
under the Statute of Frauds Thereafter, the Infantes filed an answer denying, most of the allegations of
said complaint and alleged, by way of special defense, that they purchased the land in question in good
faith, for value, and without knowledge of the alleged sale to plaintiff; and that plaintiff's claim is
unenforceable under the Statute of Frauds.

By way of special defenses, Poncio alleged that he had consistently turned down several offers, made by
plaintiff, to buy the land in question, at P15 a square meter, for he believes that it is worth not less than
P20 a square meter; that Mrs. Infante, likewise, tried to buy the land at P15 a square meter; that, on or
about January 27, 1955, he was advised by plaintiff that should she decide to buy the property at P20 a
square meter, she would allow him to remain in the property for one year; that plaintiff then induced
Poncio to sign a document, copy of which is probable, the one appended to the second amended
complaint; that Poncio signed it "relying upon the statement of the plaintiff that the document was a
permit for him to remain in the premises in the event that defendant decided to sell the property to the
plaintiff at P20 a square meter"; that on January 30, 1955, Mrs. Infante improved her offer and he
agreed to sell the land and its improvements to her for P3,535; that Poncio has not lost "his mind," to
sell his property, worth at least P4,000, for the paltry sum of P1,177.48, the amount of his obligation to
the Republic Savings Bank; and that plaintiff's action is barred by the Statute of Frauds. Poncio similarly
set up a counterclaim for damages.
The lower court issued an order dismissing plaintiff's complaint, without costs, upon the ground that her
cause of action is unenforceable under the Statute of Frauds. The counterclaims were, also, dismissed.

Issue :

Whether the Statute of Frauds is applicable thereto.

Held:

No, since the Statute of Frauds is applicable only to executory contracts, not to contracts that are totally
or partially performed.

The agreement signed by the defendant in the Batanes dialect, which, according to plaintiff, is the one
spoken by, Poncio, he being a native of said region states that Poncio would stay in the land sold by him
to plaintiff for one year, from January 27, 1955, free of charge, and that, if he cannot find a place where
to transfer his house thereon, he may remain in said lot under such terms as may be agreed upon.

Incidentally, the allegation in Poncio's answer to the effect that he signed the agreement under the
belief that it "was a permit for him to remain in the premises in the event" that "he decided to sell the
property" to the plaintiff at P20 a sq. m." is, on its face, somewhat difficult to believe.

Indeed, if he had not decided as yet to sell the land to plaintiff, who, had never increased her offer of
P15 a square meter, there was no reason for Poncio to get said, Permit from her. Upon the other hand,
if plaintiff intended to mislead Poncio, she would have caused the agreement to be drafted, probably in
English, instead of taking the trouble of seeing to it that it was written precisely in his native dialect, the
Batanes. Moreover, Poncio's signature suggests that he is neither illiterate nor so ignorant as to sign a
document without reading its contents, apart from the fact that Meonada, the witness had read the
document to him and given him a copy thereof, before he signed thereon, according to her testimony.

The only allegation in plaintiff's complaint that bears any relation to her claim that there has been
partial performance of the supposed contract of sale, is the notation of the sum of P247.26 in the bank
book of defendant Jose Poncio. The noting or jotting down of the sum of P247.26 in the bank book of
Jose Poncio does not prove the fact that said amount was the purchase price of the property in
question. For all we knew, the sum of P247.26 which plaintiff claims to have paid to the Republic Savings
Bank for the account of the defendant, assuming that the money paid to the, Republic Savings Bank
came from the plaintiff, was the result of some usurious loan or accommodation, rather than earnest
money or part payment of the land. Neither is a competent or satisfactory evidence to prove the
conveyance on the land in question the fact that the bank book account of Jose Poncio happens to be in
the possession of the plaintiff.
62. THE PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs.
THE PHILIPPINE VEGETABLE OIL CO., INC., defendant-appellee.
G.R. No. L-25400 January 14, 1927

In 1920, the Philippine Vegetable Oil, found itself in financial straits. It was in debt to the extent of
approximately P30,000,000. The Philippine National Bank was the largest creditor. The Vegetable Oil
Company owed the bank P17,000,000. Over P13,000,000 were due the other creditors. The Philippine
National Bank was secured principally by a real and chattel mortgage for P3,500,000. On January 10,
1921, the Vegetable Oil Company executed another chattel mortgage in favor of the bank on its
vessels Tankerville and H. S. Everett to guarantee the payment of sums not to exceed P4,000,000.

In the latter part of 1920 and the early part of 1921 the Vegetable Oil Company was confronted by the
Philippine National Bank, and the various creditors of the Vegetable Oil Company. Bankruptcy was
imminent.

On January 1, 1921, Mr. Whitaker made his first offer to pledge certain private properties to secure the
creditors of the Oil Company. In February of the same year, a creditors' meeting was held. At the
instance of Mr. Whitaker but inspired to such action by the bank, a receiver for the Vegetable Oil
Company was appointed by the Court of First Instance of Manila on March 11, 1921.

During the period when a receiver was in control of the property of the Vegetable Oil Company, a
number of events occurred. The first was the agreement perfected by the Vegetable Oil Company, Mr.
Whitaker, and some of the creditors of the Oil Company on June 27, 1921, the creditors transferred to
Mr. Whitaker a part of their claims against the Vegetable Oil Company in consideration of the execution
by Mr. Whitaker of a trust deed of his property.

The Philippine National Bank was not a direct party to the agreement although the officials of the bank
had full knowledge of its accomplishment and the general manager of the bank placed his O. K. at the
end of the final draft. The next move of the bank was to obtain a new mortgage from the Vegetable Oil
Company on February 20, 1922. Shortly thereafter, on February 28, 1922, the receivership for the
Vegetable Oil Company was terminated. The bank suspended the operation of the Vegetable Oil
Company in May, 1922, and definitely closed the Oil Company's plant on August 14, 1922.

On May 7, 1924 PNB foreclose its mortgage on the property of the Vegetable Oil Company. The
Vegetable Oil Company on its part countered with certain special defenses with the interposition of a
counterclaim for P6,000,000. Phil. C. Whitaker presented a complaint in intervention.

The judgment rendered was in favor of the plaintiff and against the defendant which was ordered to pay
the sum of P15,787,454.54, representing the liquidation between the plaintiff and the defendant, with
legal interest beginning with May 8, 1923, together with P25,000 attorney's fees, and costs, with the
addition of the usual order to foreclose the mortgage. The counterclaim of the defendant and the
complaint in intervention were dismissed.
Issue:

Whether Philippine National Bank ever entered into any valid agreement by which it bound itself to
provide the necessary operating capital of the Philippine Vegetable Oil Co., Inc.

Held:

Statute of Frauds applies only to agreements not to be performed on either side within a year from the
making thereof. Agreements to be fully performed on one side within the year are taken out of the
operation of the statute. As intervenor's theory proceeds on the assumption that Mr. Whitaker has
entirely performed his part of the agreement, equity would argue that all evidence be admitted to prove
the alleged agreement. Surely since the Statute of Frauds was enacted for the purpose of preventing
frauds, it should not be made the instrument to further them.

The Charter of the Philippine National Bank, Act No. 2612, section 20, as amended by Act No. 2938,
provides that "The General Manager of the Bank, shall, among others, have the following powers and
duties: . . . (b) To make, with advice and consent of the board of directors, all contracts on beheld of the
said bank and to enter into all necessary obligations by this Act required or permitted."

In other words, No contract entered into by the General Manager of the Bank would be valid unless
made with the advice and consent of its Board of Directors. What the Board of Directors had decreed
was that the Vegetable Oil Company be financed under the receivership to the extent of P500,000, a
sum which was later increased. The Board not alone specified the amounts of the loans but cautiously
added that the General Manager "report and secure the approval of the Board for necessary credits
from time to time." There was no indication in any action taken by the Board of Directors that it had
ever consented to an agreement for practically unlimited backing of the Vegetable Oil Company, or that
it had ratified any such promise made by its General Manager.

Hence, The Philippine National Bank-Philippine Vegetable Oil Co., mortgage of February 20, 1922, has
not been legally executed by the Philippine Vegetable Oil Co., Inc., and consequently cannot be given
effect. But the prior mortgages held by the Philippine National Bank of April 11, 1919, November 18,
1920, and January 10, 1921, remain in force and may be foreclosed.

63. LIMKETKAI SONS MILLING INC., petitioner, vs. COURT OF APPEALS, ET AL., respondents.

[G.R. No. 118509. March 29, 1996]

A Deed of Trust dated May 14, 1976, entered into between Philippine Remnants Co. Inc., as grantor, and
respondent BPI, as trustee, stating that subject property covered by TCT 493122 (formerly TCT No.
27324) has [been] assigned, transferred, conveyed and set over unto the Trustee expressly authorizing
and empowering the same in its own name to sell and dispose of said trust property or any lot or parcel
thereof and to facilitate [the] sale of the trust property, the Trustee may engage the services of real
estate broker or brokers, under such terms and conditions which the Trustee may deem proper, to sell
the Trust property or any lot or parcel thereof.

A Letter of Authority for the petitioner issued by respondent BPI to Pedro A. Revilla, Jr., a real estate
broker, to sell the property pursuant to the Deed of Trust.

Exhibit D is a letter addressed by Pedro Revilla, Jr. to respondent BPI informing the latter that he has
procured a prospective buyer.

Exhibit E is the written proposal submitted by Alfonso Y. Lim in behalf of petitioner Limketkai Sons
Milling, Inc., offering to buy the subject property at P1,000.00/sq. m.

Exhibit F is respondent BPIs letter addressed to petitioner pointing out that petitioners proposal
embodied in its Letter (Exhibit E) has been rejected by the respondent BPIs Trust Committee.

Exhibit G is petitioners letter dated July 22, 1988 reiterating its offer to buy the subject property at
P1,000/sq. m. but now on cash basis.

Exhibit H refers to respondent BPIs another rejection of petitioners offer to buy the property at
P1,000/sq. m.

Exhibit I is a letter by petitioner addressed to respondent BPI claiming the existence of a perfected
contract of sale of the subject property between them.

Issue:

Whether or not a contract of sale of the subject parcel of land existed between the petitioner and
respondent BPI.

Held:

These exhibits, do not reveal a perfection of the purported contract of sale. Article 1458 of the Civil
Code defines a contract of sale as follows:

ART. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money
or its equivalent.

A contract of sale may be absolute or conditional.

Article 1475 of the same code specifically provides when a contract of sale is deemed perfected, to wit:

ART. 1475. The contract of sale is perfected at the moment there is 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.

In Toyota Shaw, Inc. v. Court of Appeals, the Court had already ruled that a definite agreement on the
manner of payment of the price is an essential element in the formation of a binding and enforceable
contract of sale. Petitioners exhibits did not establish any definitive agreement or meeting of the minds
between the concerned parties as regards the price or term of payment. Instead, what merely appears
therefrom is respondent BPIs repeated rejection of the petitioners proposal to buy the property at
P1,000/ sq. In addition, even on the assumption that Exhibit E reflects that respondent BPI offered to
sell the disputed property for P1,000/sq. m., petitioners acceptance of the offer is conditioned upon or
qualified by its proposed terms to which respondent BPI must first agree with.

In addition, the petitioners case failed to hurdle the strict requirements of the Statute of Frauds. Article
1403 of the Civil Code states:

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

(1) xxx xxx xxx

(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 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:

xxx xxx xxx

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

xxx xxx xxx.

In this case there is a patent absence of any deed of sale categorically conveying the subject property
from respondent BPI to petitioner. Exhibits E, G, I which petitioner claims as proof of perfected contract
of sale between it and respondent BPI were not subscribed by the party charged, i.e., BPI, and did not
constitute the memoranda or notes that the law speaks of. To consider them sufficient compliance with
the Statute of Frauds is to betray the avowed purpose of the law to prevent fraud and perjury in the
enforcement of obligations.

64. SWEDISH MATCH, AB, JUAN ENRIQUEZ, RENE DIZON, FRANCISCO RAPACON, FIEL SANTOS, BETH
FLORES, LAMBRTO DE LA EVA, GLORIA REYES, RODRIGO ORTIZ, NICANOR ESCALANTE, PETER
HODGSON, SAMUEL PARTOSA, HERMINDA ASUNCION, JUANITO HERRERA, JACOBUS NICOLAAS,
JOSEPH PEKELHARING (now Representing himself without court sanction as JOOST PEKELHARING),
MASSIMO ROSSI and ED ENRIQUEZ, petitioners, vs. COURT OF APPEALS, ALS MANAGEMENT &
DEVELOPMENT CORPORATION and ANTONIO K. LITONJUA, respondents.
[G.R. No. 128120. October 20, 2004]

Swedish Match AB (SMAB) had 3 subsidiary corporations in the Philippines, all organized under
Philippine laws, to wit: Phimco Industries (Phimco), Provident Tree Farms (PTF), and OTT/Louie. STORA,
the parent company of SMAB, decided to sell SMAB of Sweden and its worldwide match, lighter, and
shaving products operation to Swedish Match NV (SMNV).

Ed Enriquez, VP of Swedish Match Sociedad Anonimas (SMSA) which is SMABs management company,
was held under strict instructions that the sale of Phimco shares should be executed on or before 30
June 1990 in view of the tight loan covenants of SMNV. He came to the Philippines and informed the
Philippine financial and business circles that the Phimco shares were for sale. Several interested parties
tendered offers to acquire the Phimco shares one of which was private respondent, Antonio Litonjua,
the president and general manager of ALS Management & Development Corporation.

On November 1989, Litonjua submitted to SMAB a firm offer to buy all of the latters shares in Phimco
and all of Phimcos shares in PTF and OTT for P750,000,000.00. However, CEO Massimo Rossi informed
respondents that their price offer was below their expectations. Again, on May 1990, Litonjua offered to
buy the disputed shares, excluding the lighter division for US$36M. Rossi wrote that ALS should
undertake a due diligence process or pre-acquisition audit and review of the draft contract for the
Match and Forestry activities of Phimco at ALS convenience. 2 days prior to the deadline for submission
of the final bid, Litonjua told Rossi that they would be unable to submit the final offer by 30 June 1990,
considering that the acquisition audit of Phimco and the review of the draft agreements had not yet
been completed. Thus, Enriquez sent notice to Litonjua that they would be constrained to entertain bids
from other parties in view of Litonjuas failure to make a firm commitment for the shares of Swedish
Match. In his letter, Litonjua asserted that they submitted the best bid and that they were already
finalizing the terms of the sale.

More than 2 months from receipt of Litonjuas last letter, Enriquez advised the former that the
proposed sale of SMABs shares in Phimco with local buyers did not materialize. Enriquez then invited
Litonjua to resume negotiations with SMAB for the sale of Phimco shares. He indicated that SMAB would
be prepared to negotiate with ALS on an exclusive basis for a period of 15 days from 26 September 1990
subject to the terms contained in the letter. Additionally, Enriquez clarified that if the sale would not be
completed at the end of the 15-day period, SMAB would enter into negotiations with other buyers.
Litonjua emphasized that the new offer constituted an attempt to reopen the already perfected contract
of sale of the shares in his favor. CA ruled that the series of written communications between
petitioners and respondents collectively constitute a sufficient memorandum of their agreement under
Article 1403 of the Civil Code. Thus, letters exchanged by and between the parties, taken together, were
sufficient to establish that an agreement to sell the disputed shares to respondents was reached. On the
other hand, petitioners stress that Litonjua made it clear in his letters that the quoted prices were
merely tentative and still subject to further negotiations between him and the seller. They point out that
there was no meeting of the minds on the essential terms and conditions of the sale because SMAB did
not accept respondents offer that consideration would be paid in Philippine pesos. They argued as well
that the foregoing circumstances prove that they failed to reach an agreement on the sale of the Phimco
shares.

Issue:

Whether the appellate court erred in reversing the trial courts decision dismissing the complaint for
being unenforceable under the Statute of Frauds

Held:

Yes. The Statute of Frauds embodied in Article 1403, paragraph (2), of the Civil Code requires certain
contracts enumerated therein to be evidenced by some note or memorandum in order to be
enforceable. The term Statute of Frauds is descriptive of statutes which require certain classes of
contracts to be in writing. The Statute does not deprive the parties of the right to contract with respect
to the matters therein involved, but merely regulates the formalities of the contract necessary to render
it enforceable. Evidence of the agreement cannot be received without the writing or a secondary
evidence of its contents.

The Statute, however, simply provides the method by which the contracts enumerated therein may be
proved but does not declare them invalid because they are not reduced to writing. By law, contracts are
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. Consequently, the effect of non-compliance with the requirement of the
Statute is simply that no action can be enforced unless the requirement is complied with. Clearly, the
form required is for evidentiary purposes only. Hence, if the parties permit a contract to be proved,
without any objection, it is then just as binding as if the Statute has been complied with.

The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending
for their evidence on the unassisted memory of witnesses, by requiring certain enumerated contracts
and transactions to be evidenced by a writing signed by the party to be charged.

However, for a note or memorandum to satisfy the Statute, it must be complete in itself and cannot rest
partly in writing and partly in parol. The note or memorandum must contain the names of the parties,
the terms and conditions of the contract, and a description of the property sufficient to render it
capable of identification. Such note or memorandum must contain the essential elements of the
contract expressed with certainty that may be ascertained from the note or memorandum itself, or
some other writing to which it refers or within which it is connected, without resorting to parol evidence

Contrary to the Court of Appeals conclusion, the exchange of correspondence between the parties
hardly constitutes the note or memorandum within the context of Article 1403 of the Civil Code. Rossis
letter dated 11 June 1990, heavily relied upon by respondents, is not complete in itself. First, it does not
indicate at what price the shares were being sold. In paragraph (5) of the letter, respondents were
supposed to submit their final offer in U.S. dollar terms, at that after the completion of the due diligence
process. The paragraph undoubtedly proves that there was as yet no definite agreement as to the price.
Second, the letter does not state the mode of payment of the price. In fact, Litonjua was supposed to
indicate in his final offer how and where payment for the shares was planned to be made

Evidently, the trial courts dismissal of the complaint on the ground of unenforceability under the Statute
of Frauds is warranted

Even if we were to consider the letters between the parties as a sufficient memorandum for purposes of
taking the case out of the operation of the Statute the action for specific performance would still fail.

[65-68 = PANGAN]

65. DIONISIO RELLOSA, Petitioner, vs. GAW CHEE HUN, Respondent.

G.R. No. L-1411; September 29, 1953.
BAUTISTA ANGELO, J.:

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, for the sum of P25,000. The vendor Rellosa remained in
possession of the property under a contract of lease entered into on the same date between the same
parties.

Later on, Rellosa instituted an action in the CFI of Manila seeking the annulment of the sale as well as
the lease covering the land and the house, and praying that once the sale and the lease are declared null
and void, the vendee be ordered to return to vendor the duplicate of the title covering the property, and
be restrained from in any way dispossessing the latter of said property. Rellosa alleged 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, and since
the 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 the Constitution, then.

Defendant set up a special defense that the sale referred to in the complaint was absolute and
unconditional and was in every respect valid and binding between the parties, it being not contrary to
law, morals and public order, and that plaintiff is guilty of estoppel for having executed a deed of lease
over the property, he thereby recognized the title of defendant to that property.

The CFI of Manila declared both the sale and the lease valid and binding and dismissed the complaint. As
this decision was affirmed in toto by the Court of Appeals, plaintiff sued out the present petition for
review.

ISSUES:
(1) Is the sale in question valid?
(2) Can petitioner Rellosa have the sale declared null and void and recover the property?

RULING:
(1) NO, the sale in question is null and void, having been entered into in violation of the
Constitution.
 The law that should govern the particular transaction is not the above directive (Seirei No.6), but the
Constitution adopted by the then Republic of the Philippines on September 4, 1943, it appearing that
the aforesaid transaction was executed on February 2, 1944. Said Constitution, in its Article VIII, Section
5, provides that "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",
which provisions are similar to those contained in our present Constitution. As to whether the phrase
"private agricultural land" employed in said Constitution includes residential lands, as the one involved
herein, it has already been interpreted in the affirmative sense by the Supreme Court in the case of
Krivenko vs. Register of Deeds, 79 Phil. 461.

(2) NO, the plaintiff cannot maintain the action under the principle of pari delicto.

Following the doctrine laid down in the case of Trinidad Gonzaga de Cabauatan, et al. vs. Uy Hoo, et
al., 88 Phil. 103, "We can, therefore, say that even if the plaintiffs can still invoke the Constitution, or the
doctrine in the Krivenko Case, 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. As this court well said: 'A party to an illegal
contract cannot come into a court of law and ask to have his illegal objects carried out. The law will
not aid either party to an illegal agreement; it leaves the parties where it finds them.' The rule is
expressed in the maxims: 'Ex dolo malo non oritur actio,' and 'In pari delicto potior est conditio
defendentis.'

The doctrine above adverted to is the one known as In Pari Delicto. "The proposition is universal that no
action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific
performance, or to recover the property agreed to be sold or delivered, or the money agreed to be paid,
or damages for its violation. The rule has sometimes been laid down as though it were equally universal,
that where the parties are in pari delicto, no affirmative relief of any kind will be given to one against
the other."

It is true that this doctrine is subject to one important limitation, namely, "whenever public policy is
considered as advanced by allowing either party to sue for relief against the transaction". But not all
contracts which are illegal because opposed to public policy come under this limitation. The cases in
which this limitation may apply only "include the class of contracts which are intrinsically contrary to
public policy, contracts in which the illegality itself consists in their opposition to public policy, and any
other species of illegal contracts in which, from their particular circumstances, incidental and collateral
motives of public policy require relief." Examples of this class of contracts are usurious contracts,
marriage-brokerage contracts and gambling contracts.

The Court ruled that the contract in question does not come under this exception because it is not
intrinsically contrary to public policy, nor one where the illegality itself consists in its opposition to
public policy. It is illegal not because it is against public policy but because it is against the Constitution.
Nor may it be contended that to apply the doctrine of pari delicto would be tantamount to contravening
the fundamental policy embodied in the constitutional prohibition in that it would allow an alien to
remain in the illegal possession of the land, because in this case the remedy is lodged elsewhere. To
adopt the contrary view would be merely to benefit petitioner and not to enhance public interest.
In view of the foregoing, the Supreme Court held that the sale in question is null and void, but plaintiff is
barred from taking the present action under the principle of pari delicto.

The decision appealed from was affirmed without pronouncement as to costs.

66. PHILIPPINE BANKING CORPORATION, representing the estate of JUSTINA SANTOS Y CANON
FAUSTINO, deceased, plaintiff-appellant, vs. LUI SHE in her own behalf and as administratrix of the
intestate estate of Wong Heng, deceased,defendant-appellant.
G.R. No. L-17587; September 12, 1967
CASTRO, J.:

Justina Santos and her sister were the owners in common of a piece of land in Manila. In it are two
residential houses with entrance on Florentino Torres street and the Hen Wah Restaurant with entrance
on Rizal Avenue. The sisters lived in one of the houses, while Wong Heng, a Chinese, lived with his family
in the restaurant. Wong had been a long-time lessee of a portion of the property.

Justina became the owner of the entire property as her sister died with no other heir. Being at the time
90 years old, blind, crippled and an invalid, Justina was left with no other relative to live with. Her only
companions in the house were her 17 dogs and 8 maids. Her otherwise dreary existence was brightened
now and then by the visits of Wong's four children who had become the joy of her life. Wong himself
was the trusted man to whom she delivered various amounts for safekeeping, including rentals from her
property at the corner of Ongpin and Salazar streets and the rentals which Wong himself paid as lessee
of a part of the Rizal Avenue property. Wong also took care of the payment; in her behalf, of taxes,
lawyers' fees, funeral expenses, masses, salaries of maids and security guard, and her household
expenses.

In grateful acknowledgment of the personal services of Wong to her, Justina executed a contract of
lease for 50 years in favor of Wong, covering the portion then already leased to him and another portion
fronting Florentino Torres street, although the lessee was given the right to withdraw at any time from
the agreement. Later on, the contract was amended to cover the entire property, including the portion
on which the house of Justina stood. For his part Wong undertook to pay, out of the rental due from
him, an amount not exceeding P1,000 a month for the food of her dogs and the salaries of her maids.

Justina 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 also conditioned on his obtaining Philippine citizenship pending in the
CFI of Rizal. However, this application for naturalization was withdrawn when it was discovered that he
was not a resident of Rizal. Then, Justina 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.

Justina executed two other contracts, one extending the term of the lease to 99 years, and another
fixing the term of the option of 50 years.
In her two wills, she begged 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.

Justina filed an action before the CFI of Manila. The complaint alleged that the contracts were obtained
by Wong "through fraud, misrepresentation, inequitable conduct, undue influence and abuse of
confidence and trust of and (by) taking advantage of the helplessness of the plaintiff and were made to
circumvent the constitutional provision prohibiting aliens from acquiring lands in the Philippines and
also of the Philippine Naturalization Laws."

In his answer, Wong admitted that he enjoyed her trust and confidence as proof of which he
volunteered the information that, in addition to the sum of P3,000 which he said she had delivered to
him for safekeeping, another sum of P22,000 had been deposited in a joint account which he had with
one of her maids. But he denied having taken advantage of her trust in order to secure the execution of
the contracts in question. As counterclaim he sought the recovery of P9,210.49 which he said she owed
him for advances.

The lower court declared that all the documents mentioned in the case, with the exception of the first
which is the lease contract, are null and void. Wong Heng was condemned to pay unto plaintiff thru
guardian of her property the sum of P55,554.25 with legal interest, and he was also ordered to pay the
sum of P3,120.00 for every month of his occupation as lessee under the document of lease herein
sustained, from 15 November 1959, and the moneys he has consigned since then shall be imputed to
that; costs against Wong Heng.

From this judgment both parties appealed directly to the Supreme Court. After the case was submitted
for decision, both parties died. Wong was substituted by his wife, Lui She, the other defendant in this
case, while Justina Santos was substituted by the Philippine Banking Corporation (PBC).

ISSUES:
1) Does the lease contract in question lack mutuality?
2) Is the lease contract obtained in violation of the fiduciary relationship between Wong and
Justina Santos?
3) Is the lease contract valid?
4) Can the general rule on in pari delicto apply in this case?

RULING:
1) NO, the lease contract does not lack mutuality. The lease contract states that "The lessee may
at any time withdraw from this agreement." It is claimed that this stipulation offends article 1308 of the
Civil Code which provides that "the contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them."

The SC had occasion to delineate the scope and application of article 1308 in the early case of Taylor v.
Uy Tieng Piao, where it ruled that Article 1256 [now art. 1308] of the Civil Code creates no impediment
to the insertion in a contract for personal service of a resolutory condition permitting the cancellation of
the contract by one of the parties. Such a stipulation, as can be readily seen, does not make either the
validity or the fulfillment of the contract dependent upon the will of the party to whom is conceded the
privilege of cancellation; for where the contracting parties have agreed that such option shall exist, the
exercise of the option is as much in the fulfillment of the contract as any other act which may have been
the subject of agreement. Indeed, the cancellation of a contract in accordance with conditions agreed
upon beforehand is fulfillment.

And so it was held in Melencio v. Dy Tiao Lay that a "provision in a lease contract that the lessee, at any
time before he erected any building on the land, might rescind the lease, can hardly be regarded as a
violation of article 1256 [now art. 1308] of the Civil Code."

2) NO, the lease contract was not obtained in violation of fiduciary relationship between the
parties. It is next contended that the lease contract was obtained by Wong in violation of his fiduciary
relationship with Justina Santos, contrary to article 1646, in relation to article 1941 of the Civil Code,
which disqualifies "agents (from leasing) the property whose administration or sale may have been
entrusted to them." But Wong was never an agent of Justina Santos. The relationship of the parties,
although admittedly close and confidential, did not amount to an agency so as to bring the case within
the prohibition of the law.

Counsel for Justina Santos cites the testimony of Atty. Tomas S. Yumol who said that he prepared the
lease contract on the basis of data given to him by Wong and that she told him that "whatever Mr.
Wong wants must be followed."

Wong might indeed have supplied the data which Atty. Yumol embodied in the lease contract, but to say
this is not to detract from the binding force of the contract. For the contract was fully explained to
Justina Santos by her own lawyer. One incident, related by the same witness, makes clear that she
voluntarily consented to the lease contract. This witness said that the original term fixed for the lease
was 99 years but that as he doubted the validity of a lease to an alien for that length of time, he tried to
persuade her to enter instead into a lease on a month-to-month basis. She was, however, firm and
unyielding. Instead of heeding the advice of the lawyer, she ordered him, "Just follow Mr. Wong Heng."

Atty. Yumol further testified that she signed the lease contract in the presence of her close friend,
Hermenegilda Lao, and her maid, Natividad Luna, who was constantly by her side. The truth is that even
after giving his client time to think the matter over, the lawyer could not make her change her mind.
This persuaded the lower court to uphold the validity of the lease contract against the claim that it was
procured through undue influence.

As it was with the lease contract, so it was with the rest of the contracts the consent of Justina Santos
was given freely and voluntarily.

3) NO, the lease contract in question is not valid. For the testimony of Atty.Yumol, while dispelling
doubt as to the intention of Justina Santos, at the same time gives the clue to what we view as a scheme
to circumvent the Constitutional prohibition against the transfer of lands to aliens. "The illicit purpose
then becomes the illegal causa" rendering the contracts void.

Taken singly, 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. As this Court said in Krivenko v. Register
of Deeds:20

[A]liens are not completely excluded by the Constitution from the use of lands for residential
purposes. Since their residence in the Philippines is temporary, they may be granted temporary
rights such as a lease contract which is not forbidden by the Constitution. Should they desire to
remain here forever and share our fortunes and misfortunes, Filipino citizenship is not
impossible to acquire.

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,21 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 ( jus possidendi, jus utendi, jus fruendi and jus
abutendi) but also of the right to dispose of it ( jus disponendi) rights the sum total of which make up
ownership. It is just as if today the possession is transferred, tomorrow, the use, the next day, the
disposition, and so on, until ultimately all the rights of which ownership is made up are consolidated in
an alien. And yet this is just exactly what the parties in this case did within the space of one year, with
the result that Justina Santos' ownership of her property was reduced to a hollow concept. If this can be
done, then the Constitutional ban against alien landholding in the Philippines, as announced in Krivenko
v. Register of Deeds,22 is indeed in grave peril.

4) NO. It does not follow from what has been said, however, that because the parties are in pari
delicto they will be left where they are, without relief. For one thing, the original parties who were guilty
of a violation of the fundamental charter have died and have since been substituted by their
administrators to whom it would be unjust to impute their guilt.23 For another thing, and this is not only
cogent but also important, 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"24 is an expression
of public policy to conserve lands for the Filipinos.

That policy would be defeated and its continued violation sanctioned if, instead of setting the contracts
aside and ordering the restoration of the land to the estate of the deceased Justina Santos, this Court
should apply the general rule of pari delicto. To the extent that our ruling in this case conflicts with that
laid down in Rellosa v. Gaw Chee Hun and subsequent similar cases, the latter must be considered as pro
tanto qualified.

Accordingly, the contracts in question were annulled and set aside and the land subject-matter of the
contracts was ordered returned to the estate of Justina Santos as represented by the Philippine Banking
Corporation.

67. ALFRED FRITZ FRENZEL, petitioner, vs. EDERLINA P. CATITO, respondent.

[G.R. No. 143958; July 11, 2003]
CALLEJO, SR., J.:

FACTS:
 Petitioner Alfred Fritz Frenzel is an Australian citizen of German descent. He arrived in the
Philippines in 1974, and married Teresita Santos, a Filipino citizen. In 1981, Alfred and Teresita
separated from bed and board without obtaining a divorce.
Sometime in February 1983, Alfred arrived in Sydney, Australia for a vacation, where he met
Ederlina Catito, a Filipina and a native of Bajada, Davao City. Unknown to Alfred, she resided for a time
in Germany and was married to Klaus Muller, a German national. She left Germany and tried her luck in
Sydney, Australia, where she found employment as a masseuse in the Kings Cross nightclub, where she
met Alfred. She was fluent in German, and Alfred enjoyed talking with her.
Alfred was so enamored with Ederlina that he persuaded her to stop working at Kings Cross, return
to the Philippines, and engage in a wholesome business of her own. Alfred gave her money for her plane
fare to the Philippines. Within two weeks of Ederlinas arrival in Manila, Alfred joined her.
Alfred told Ederlina that he was married but that he was eager to divorce his wife in Australia.
Alfred proposed marriage to Ederlina, but she replied that they should wait a little bit longer.
Alfred bought several properties in Ederlinas name, such as the building in Ermita, Manila, where
she put up a beauty parlor and had it registered with the Department of Trade and Industry under her
name; and some equipment and furnitures for the parlor. He also decided to purchase a house and lot in
San Francisco del Monte, Quezon City for her. Since Alfred knew that as an alien he was disqualified
from owning lands in the Philippines, he agreed that only Ederlinas name would appear in the deed of
sale as the buyer of the property, as well as in the title covering the same. After all, he was planning to
marry Ederlina and he believed that after their marriage, the two of them would jointly own the
property.
Alfred decided to stay in the Philippines for good and live with Ederlina. He returned to Australia
and sold his fiber glass pleasure boat, and he also sold his television and video business in Papua New
Guinea. He had his personal properties shipped to the Philippines and stored at No. 14 Fernandez
Street, San Francisco del Monte, Quezon City. The proceeds of the sale were deposited in Alfreds
account with the HSBC, Kowloon Branch. Several checks were credited to his HSBC bank account from
Papua New Guinea Banking Corporation, Westpac Bank of Australia and New Zealand Banking Group
Limited and Westpac BankPNG-Limited. Alfred also had a peso savings account with HSBC, Manila.
Once, when Alfred and Ederlina were in Hong Kong, they opened another account with HSBC,
Kowloon, in the name of Ederlina. Alfred transferred his deposits from his savings account with the said
bank to this new account.
On July 28, 1984, Alfred received a letter from Klaus Muller, informing Alfred that he (Klaus) and
Ederlina had been married on October 16, 1978 and had a blissful married life until Alfred intruded
therein. Klaus stated that he discovered the amorous relationship of the two sometime in November
1983 when he arrived in Manila. He also begged Alfred to leave Ederlina.
Alfred inquired from Sally MacCarron, a close friend of Ederlina, if there was any truth to Klaus
statements and Sally confirmed that Klaus was married to Ederlina. When Alfred confronted Ederlina,
she admitted that she and Klaus were, indeed, married. But she assured Alfred that she would divorce
Klaus. He retained the services of Rechtsanwltin Banzhaf with offices in Berlin, as her counsel who
informed her of the progress of the proceedings. Alfred paid for the services of the lawyer.
Alfred decided to purchase another house and lot, in the name of Ederlina as the sole vendee, and
Alfred paid for the property. Alfred purchased another parcel of land from located in Moncado, Babak,
Davao. Alfred once more agreed for the name of Ederlina to appear as the sole vendee in the deed of
sale.
Meanwhile, Ederlina deposited on December 27, 1985, the total amount of US$250,000 with the
HSBC Kowloon under Joint Deposit Account No. 018-462341-145.[24]
The couple decided to put up a beach resort on in Camudmud, Babak, Davao. Alfred purchased the
property and the owners-vendors issued a receipt therefor.
Ederlina often wrote letters to her family informing them of her life with Alfred. In a letter, she
wrote about how Alfred had financed the purchases of some real properties, the establishment of her
beauty parlor business, and her petition to divorce Klaus.
In the meantime, Ederlinas petition for divorce was denied because Klaus opposed the same. A
second petition filed by her met the same fate. Klaus wanted half of all the properties owned by Ederlina
in the Philippines before he would agree to a divorce. Worse, Klaus threatened to file a bigamy case
against Ederlina.
Alfred proposed the creation of a partnership to Ederlina, or as an alternative, the establishment of
a corporation, with Ederlina owning 30% of the equity thereof. She initially agreed but she changed her
mind at the last minute when she was advised to insist on claiming ownership over the properties
acquired by them during their coverture.
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. In one of her letters to Alfred, Ederlina complained that he had ruined her life. She
admitted that the money used for the purchase of the properties in Davao were his. She offered to
convey the properties deeded to her by Atty. Mardoecheo Camporedondo and Rodolfo Morelos, asking
Alfred to prepare her affidavit for the said purpose and send it to her for her signature.[30] The last straw
for Alfred came on September 2, 1985, when someone smashed the front and rear windshields of
Alfreds car and damaged the windows. Alfred thereafter executed an affidavit-complaint charging
Ederlina and Sally MacCarron with malicious mischief.[31]
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.[32]
Alfred filed a Complaint against Ederlina, with the RTC of Quezon City, for recovery of real and
personal properties located in Quezon City and Manila. In his complaint, Alfred alleged, inter alia, that
Ederlina, without his knowledge and consent, managed to transfer funds from their joint account in
HSBC Hong Kong, to her own account with the same bank. Using the said funds, Ederlina was able to
purchase the properties subject of the complaints. He also alleged that the beauty parlor in Ermita was
established with his own funds, and that the Quezon City property was likewise acquired by him with his
personal funds. Ederlina failed to file her answer and was declared in default. Alfred adduced his
evidence ex-parte.
In the meantime, Alfred also filed a complaint against Ederlina with the RTC of Davao City, for
specific performance, declaration of ownership of real and personal properties, sum of money, and
damages. He alleged, inter alia, in his complaint that during the period of their common-law
relationship, plaintiff solely through his own efforts and resources acquired in the Philippines real and
personal properties valued more or less at P724,000.00; and that Ederlina, his common-law wife or live-
in partner did not contribute anything financially to the acquisition of the said real and personal
properties.
In her answer, Ederlina denied all the material allegations in the complaint, insisting that she
acquired the said properties with her personal funds, and as such, Alfred had no right to the same. She
alleged that the deeds of sale, the receipts, and certificates of titles of the subject properties were all
made out in her name. By way of special and affirmative defense, she alleged that Alfred had no cause
of action against her. She interposed counterclaims against the petitioner.
In the meantime, the petitioner filed a Complaint dated August 25, 1987, against the HSBC in the
RTC of Davao City for recovery of bank deposits and damages.
On April 28, 1986, the RTC of Quezon City rendered its decision in favor of Alfred. On the pother
hand however, after due proceedings in the RTC of Davao City, the trial court rendered judgment on
September 28, 1995 in favor of Ederlina.
The RTC of Davao ruled that based on documentary evidence, the purchaser of the three parcels of
land subject of the complaint was Ederlina. The court further stated that even if Alfred was the buyer of
the properties, he had no cause of action against Ederlina for the recovery of the same because as an
alien, he was disqualified from acquiring and owning lands in the Philippines. The sale of the three
parcels of land to the petitioner was null and void ab initio. Applying the pari delicto doctrine, the
petitioner was precluded from recovering the properties from the respondent.
Alfred appealed the decision to the Court of Appeals (CA) and it rendered a decision affirming in
toto the decision of the RTC. The appellate court ruled that the petitioner knowingly violated the
Constitution; hence, was barred from recovering the money used in the purchase of the three parcels of
land. It held that to allow the petitioner to recover the money used for the purchase of the properties
would embolden aliens to violate the Constitution, and defeat, rather than enhance, the public policy.
Hence, the petition at bar.

ISSUES:
Did the CA erred in applying the rule of in pari delicto because the parties are not equally guilty but
rather it was the respondent Ederlina, who employed fraud as when she did not inform petitioner that
she was already married to another German national and without such fraudulent design petitioner
could not have parted with his money for the purchase of the properties?
RULING:
NO. The CA did not err in applying the rule of in pari delicto. Section 14, Article XIV of the 1973
Constitution provides, as follows:

Save in cases of hereditary succession, no private land shall be transferred or conveyed

except to individuals, corporations, or associations qualified to acquire or hold lands in the
public domain.

Lands of the public domain, which include private lands, may be transferred or conveyed only to
individuals or entities qualified to acquire or hold private lands or lands of the public domain. Aliens,
whether individuals or corporations, have been disqualified from acquiring lands of the public
domain. Hence, they have also been disqualified from acquiring private lands.

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.[52] 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.[54]The law will not aid either party to an illegal contract or agreement; it leaves the parties
where it finds them.[55] Under Article 1412 of the New Civil Code, the petitioner cannot have the subject
properties deeded to him or allow him to recover the money he had spent for the purchase
thereof.[56] Equity as a rule will follow the law and will not permit that to be doneindirectly which,
because of public policy, cannot be done directly.[57] Where the wrong of one party equals that of the
other, the defendant is in the stronger position ... it signifies that in such a situation, neither a court of
equity nor a court of law will administer a remedy.[58] The rule is expressed in the maxims: EX DOLO
MALO NON ORITUR ACTIO and IN PARI DELICTO POTIOR EST CONDITIO DEFENDENTIS.[59]

The petitioner cannot feign ignorance of the constitutional proscription, nor claim that he acted in
good faith, let alone assert that he is less guilty than the respondent. The petitioner is charged with
knowledge of the constitutional prohibition.[60] As can be gleaned from the decision of the trial court,
the petitioner was fully aware that he was disqualified from acquiring and owning lands under Philippine
law even before he purchased the properties in question; and, to skirt the constitutional prohibition, the
petitioner had the deed of sale placed under the respondents name as the sole vendee thereof.

Such being the case, the plaintiff is subject to the constitutional restrictions governing the acquisition of
real properties in the Philippines by aliens.

The petitioners claim that he acquired the subject properties because of his desire to marry the
respondent, believing that both of them would thereafter jointly own the said properties, is belied by his
own evidence. It is merely an afterthought to salvage a lost cause. The petitioner admitted on cross-
examination that he was all along legally married to Teresita Santos Frenzel, while he was having an
amorous relationship with the respondent.
The respondent was herself married to Klaus Muller, a German citizen. Thus, the petitioner and the
respondent could not lawfully join in wedlock. The evidence on record shows that the petitioner in fact
knew of the respondents marriage to another man, but nonetheless purchased the subject properties
under the name of the respondent and paid the purchase prices therefor. Even if it is assumed gratia
arguendi that the respondent and the petitioner were capacitated to marry, the petitioner is still
disqualified to own the properties in tandem with the respondent.
The petitioner cannot find solace in Article 1416 of the New Civil Code which reads:

Art. 1416. When the agreement is not illegal per se but is merely prohibited, and the
prohibition by the law is designed for the protection of the plaintiff, he may, if public policy is
thereby enhanced, recover what he has paid or delivered.[64]
 The provision applies only to those contracts which are merely prohibited, in order to benefit
private interests. It does not apply to contracts void ab initio. The sales of three parcels of land in favor
of the petitioner who is a foreigner is illegal per se. The transactions are void ab initio because they were
entered into in violation of the Constitution. Thus, to allow the petitioner to recover the properties or
the money used in the purchase of the parcels of land would be subversive of public policy.
Neither may the petitioner find solace in Rep. Act No. 133, as amended by Rep. Act No. 4882, which
reads:

SEC. 1. Any provision of law to the contrary notwithstanding, private real property may
be mortgaged in favor of any individual, corporation, or association, but the mortgagee or his
successor-in- interest, if disqualified to acquire or hold lands of the public domain in the
Philippines, shall not take possession of the mortgaged property during the existence of the
mortgage and shall not take possession of mortgaged property except after default and for the
sole purpose of foreclosure, receivership, enforcement or other proceedings and in no case for a
period of more than five years from actual possession and shall not bid or take part in any sale
of such real property in case of foreclosure: Provided, That said mortgagee or successor-in-
interest may take possession of said property after default in accordance with the prescribed
judicial procedures for foreclosure and receivership and in no case exceeding five years from
actual possession.[65]

From the evidence on record, the three parcels of land subject of the complaint were not
mortgaged to the petitioner by the owners thereof but were sold to the respondent as the vendee,
albeit with the use of the petitioners personal funds.
Futile, too, is petitioners reliance on Article 22 of the New Civil Code which reads:

Art. 22. Every person who through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense of the latter without just or legal
ground, shall return the same to him.[66]

The provision is expressed in the maxim: MEMO CUM ALTERIUS DETER DETREMENTO PROTEST (No
person should unjustly enrich himself at the expense of another). An action for recovery of what has
been paid without just cause has been designated as an accion in rem verso.[67] This provision does not
apply if, as in this case, the action is proscribed by the Constitution or by the application of the pari
delicto doctrine.[68] It may be unfair and unjust to bar the petitioner from filing an accion in rem
verso over the subject properties, or from recovering the money he paid for the said properties, but, as
Lord Mansfield stated in the early case of Holman vs. Johnson:[69] The objection that a contract is
immoral or illegal as between the plaintiff and the defendant, sounds at all times very ill in the mouth of
the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in
general principles of policy, which the defendant has the advantage of, contrary to the real justice, as
between him and the plaintiff.
68. SERAFIN MODINA, petitioner vs. COURT OF APPEALS AND ERNESTO HONTARCIEGO, PAUL
FIGUEROA, TEODORO HIPALLA AND RAMON CHIANG, MERLINDACHIANG, respondents.
G.R. No. 109355. October 29, 1999
PURISIMA, J.:

FACTS:
 The parcels of land in question are those under the name of Ramon Chiang (CHIANG). He theorized
that subject properties were sold to him by his wife, Merlinda Plana Chiang (MERLINDA), as evidenced
by a Deed of Absolute Sale dated December 17, 1975, and were subsequently sold by CHIANG to the
petitioner Serafin Modina (MODINA), as shown by the Deeds of Sale, dated August 3, 1979 and August
24, 1979, respectively.

MODINA brought a Complaint for Recovery of Possession with Damages against the private
respondents, Ernesto Hontarciego, Paul Figueroa and Teodoro Hipalla, docketed as Civil Case No. 13935
before the RTC of Iloilo City.

Upon learning the institution of the said case, MERLINDA presented a Complaint-in-intervention,
seeking the declaration of nullity of the Deed of Sale between her husband and MODINA on the ground
that the titles of the parcels of land in dispute were never legally transferred to her husband. Fraudulent
acts were allegedly employed by him to obtain a Torrens Title in his favor. However, she confirmed the
validity of the lease contracts with the other private respondents.

MERLINDA also admitted that the said parcels of land were those ordered sold by then CFI of Iloilo
in Special Proceeding No. 2469 in Intestate Estate of Nelson Plana where she was appointed as the
administratix, being the widow of the deceased, her first husband. An Authority to Sell was issued by the
said Probate Court for the sale of the same properties.

After due hearing, the Trial Court decided in favor of MERLINDA, (1) declaring as void and inexistent
the sale of lots by Merlinda Plana in favor of Ramon Chiang as well as the Certificates of Title Nos. T-
86912, T-86913, T-86914 and T-86915 in the name of Ramon Chiang; (2) declaring as void and inexistent
the sale of the same properties by Ramon Chiang in favor of Serafin Modina, as well as the Certificates
of Title Nos. T-102631, 102630, 102632 and 102890 in the name of Serafin Modina; (3) ordering the
Register of Deeds of Iloilo to cancel said certificates of title in the names of Ramon Chiang and Serafin
Modina and to reinstate the Certificates of Title Nos. T-57960, T-57962, T-57963 and T-57864 in the
name of Nelson Plana; (4) ordering Serafin Modina to vacate and restore possession of the lots in
question to Merlinda Plana Chiang; (5) ordering Ramon Chiang to restitute and pay to Serafin Modina
the sum of P145,800.00 and; (6) ordering Serafin Modina to pay Ernesto Hontarciego the sum of
P44,500.00 as actual and compensatory damages plus the sum of P5,000.00, for and as attorneys fees,
with costs in favor of said defendants against the plaintiff.

On appeal, the Court of Appeals affirmed the aforesaid decision in toto. Dissatisfied therewith,
petitioner filed this present Petition for Review under Rule 45 seeking to set aside the assailed decision
of the Court of Appeals.

ISSUES:
(1) Should the sale of subject lots should be nullified?
(2) Is the petitioner a purchaser in good faith?

RULING:

(1) YES. The sale of subjects land must be nullified. The contract between CHIANG and MERLINDA is
void, and so CHIANG cannot transfer by way of sale the titles to the land to MODINA.
 The Court of Appeals adopted the following findings a quo: that there is no sufficient evidence
establishing fault on the part of MERLINDA, and therefore, the principle of in pari delicto is inapplicable
and the sale was void for want of consideration. In effect, MERLINDA can recover the lots sold by her
husband to petitioner MODINA. However, the Court of Appeals ruled that the sale was void for violating
Article 1490 of the Civil Code, which prohibits sales between spouses.

The principle of in pari delicto non oritur actio denies all recovery to the guilty parties inter se. It
applies to cases where the nullity arises from the illegality of the consideration or the purpose of the
contract. When two persons are equally at fault, the law does not relieve them. The exception to this
general rule is when the principle is invoked with respect to inexistent contracts.

Under Article 1409 of the New Civil Code, enumerating void contracts, a contract without
consideration is one such void contract. One of the characteristics of a void or inexistent contract is that
it produces no effect. So also, inexistent contracts can be invoked by any person whenever juridical
effects founded thereon are asserted against him. A transferor can recover the object of such contract
by accion reivindicatoria and any possessor may refuse to deliver it to the transferee, who cannot
enforce the transfer.

Thus, petitioners insistence that MERLINDA cannot attack subject contract of sale as she was a
guilty party thereto is equally unavailing.

But the pivot of inquiry here is whether MERLINDA is barred by the principle of in pari delicto from
questioning subject Deed of Sale.

It bears emphasizing that as the contracts under controversy are inexistent contracts within legal
contemplation, Articles 1411 and 1412 of the New Civil Code are inapplicable. In pari delicto doctrine
applies only to contracts with illegal consideration or subject matter, whether the attendant facts
constitute an offense or misdemeanor or whether the consideration involved is merely rendered illegal.

The statement below that it is likewise null and void for being violative of Article 1490 should just
be treated as a surplusage or an obiter dictum on the part of the Trial Court as the issue of whether the
parcels of land in dispute are conjugal in nature or they fall under the exceptions provided for by law,
was neither raised nor litigated upon before the lower Court. Whether the said lots were ganancial
properties was never brought to the fore by the parties and it is too late to do so now.

Futhermore, if this line of argument be followed, the Trial Court could not have declared subject
contract as null and void because only the heirs and the creditors can question its nullity and not the
spouses themselves who executed the contract with full knowledge of the prohibition.[14]

Records show that in the complaint-in-intervention of MERLINDA, she did not aver the same as a
ground to nullify subject Deed of Sale. In fact, she denied the existence of the Deed of Sale in favor of
her husband. In the said Complaint, her allegations referred to the want of consideration of such Deed
of Sale. She did not put up the defense under Article 1490, to nullify her sale to her husband CHIANG
because such a defense would be inconsistent with her claim that the same sale was inexistent.

The Trial Court debunked petitioners theory that MERLINDA intentionally gave away the bulk of her
and her late husbands estate to defendant CHIANG as his exclusive property, for want of evidentiary
anchor. They insist on the Deed of Sale wherein MERLINDA made the misrepresentation that she was a
widow and CHIANG was single, when at the time of execution thereof, they were in fact already
married. Petitioner insists that this document conclusively established bad faith on the part of
MERLINDA and therefore, the principle of in pari delicto should have been applied.

These issues are factual in nature and it is not for this Court to appreciate and evaluate the pieces
of evidence introduced below. An appellate court defers to the factual findings of the Trial Court, unless
petitioner can show a glaring mistake in the appreciation of relevant evidence.

Since one of the characteristics of a void or inexistent contract is that it does not produce any
effect, MERLINDA can recover the property from petitioner who never acquired title thereover.

(2) NO. Petitioner Modina is not a purchaser in good faith. As a general rule, in a sale under the
Torrens system, a void title cannot give rise to a valid title. The exception is when the sale of a person
with a void title is to a third person who purchased it for value and in good faith.

A purchaser in good faith is one who buys the property of another without notice that some other
person has a right to or interest in such property and pays a full and fair price at the time of the
purchase or before he has notice of the claim or interest of some other person in the property.

In the case under scrutiny, petitioner cannot claim that he was a purchaser in good faith. There are
circumstances which are indicia of bad faith on his part, to wit: (1) He asked his nephew, Placido Matta,
to investigate the origin of the property and the latter learned that the same formed part of the
properties of MERLINDAs first husband; (2) that the said sale was between the spouses; (3) that when
the property was inspected, MODINA met all the lessees who informed that subject lands belong to
MERLINDA and they had no knowledge that the same lots were sold to the husband.

It is a well-settled rule that a purchaser cannot close his eyes to facts which would put a reasonable
man upon his guard to make the necessary inquiries, and then claim that he acted in good faith. His
mere refusal to believe that such defect exists, or his wilful closing of his eyes to the possibility of the
existence of a defect in his vendors title, will not make him an innocent purchaser for value, if it
afterwards develops that the title was in fact defective, and it appears that he had such notice of the
defect as would have led to its discovery had he acted with that measure of precaution which may
reasonably be required of a prudent man in a like situation.

WHEREFORE, the Petition was DENIED and the decision of the Court of Appeals was AFFIRMED.