Problem O, lot owner, contracted with B, builder,

to build a multi-storey building designed by A, architect. A

was paid a fee to supervise the construction and execution of his
design. When completed, O accepted the work and occupied the
building, but within one year, it collapsed in an earthquake that
destroyed only the building and not the surrounding buildings.
Construction was faulty. The building cost P3,000,000.00, but
reconstruction cost would reach P10,000,000.00.
Question No. 1. What are the rights of O against A
and B? Explain briefl y. (1981 Bar Problem)
Answer O can hold A and B solidarily liable for
damages. This is clear from the Civil Code, which declares
that the contractor is liable for damages if within fi fteen years
from the completion of the edifi ce or structure, the same should
collapse on account of defects in the construction. lf the engineer
or architect who drew up the plans and specifi cations of the
building supervises the construction, he shall be solidarily liable
with the contractor. Acceptance of the building, after completion,
does not imply waiver of the cause of action. However, the action
must be brought within ten years following the collapse of the
building.
Question No. 2 Could O demand reconstruction of the
building? On what ground? Amplify. (1981 Bar Problem)
Answer O can demand reconstruction of the building.
The obligation of both A and B is an obligation to do. Consequently,
Art. 1167 of the Civil Code is applicable. According to
this article, if a person obliged to do something does it in contravention
of the tenor of the obligation, the same shall be executed
at his cost. It is obvious that the builder B and the architect
A performed their jobs in contravention of the tenor of the obligation.
As a matter of fact, had the building not collapsed, under
the same article, it may even be decreed that what has been
poorly done be undone. Consequently, C can now demand for
the reconstruction of the building by A and B or by another
at their cost.
Problem X delivered a play station to Y for repair, Y did
not fi nish the job. Finally, despite repeated reminders of X for Y
to fi nish the job, Y returned the play station with his job undone
and where some parts were missing. Z then repaired the play
station. Z charged X the amount of P500.00 for the repair and
the amount of P300.00 for the missing parts. The lower court
ruled that Y should pay only P300.00.
Question Is Y liable also for the cost of the repair or the
amount of P300.00?
Answer Yes. Since Y failed to repair the play station,
with some missing parts, Y contravened the tenor of his
obligation. Y is liable for such contravention under Art. 1167 of
the Civil Code, considering that the obligation of Y was to repair
the play station. He is likewise liable under Art. 1170 of the
Code for the missing parts considering that Y failed to return
the play station in the same condition as when it was received.

(Tanguilig vs. Court of Appeals, 266 SCRA 78 [1997].)

Problem Taxi driver D, driving recklessly, killed
pedestrian P and his passenger Y. Discuss the source of the
obligation of D and of his employer to P and to Y, and the defense
available to the employer. (1977 Bar Problem)
Answer There are three overlapping sources of the
obligation of D and of his employer. They are:
(1) Under the Revised Penal Code: The heirs of P and Y
may proceed against D and his employer under the Penal Code.
In this case, the source of the liability of D and of his employer is
the crime committed by D (culpa criminal). The liability of D is
direct and primary (Art. 100, RPC); the liability of his employer
is subsidiary (Art. 103, RPC). The latter cannot relieve himself
of liability by proving due diligence of a good father of a family.
This is so because of the very nature of his obligation.
(2) Under the Civil Code:
(a) Heirs of P: The heirs of pedestrian P may proceed
against both D and his employer, or against the latter only. In
this case, the source of the liability of D and his employer is the
quasi-delict (culpa aquiliana) committed by D (Arts. 2176, 2180,
CC). The liability of both is direct and primary. Ds employer
can relieve himself of liability by proving due diligence of a good
father of a family in the selection and supervision of his drivers
(Art. 2180, CC).
(b) Heirs of Y: On the other hand, the heirs of Y may
proceed against Ds employer only. The source of the liability
of Ds employer, in this case, is the breach of his contract of
carriage with Y (culpa contractual). His liability is direct and
primary. He cannot relieve himself of liability by proving due
diligence of a good father of a family (Art. 1759, CC). This is so
because under our law on common carriers, we do not adhere to
the principle of respondeat superior; we adhere to the principle
that there is always an implied duty of a common carrier to
carry the passenger safely to his place of destination. However,
although not available as a defense, such proof of due diligence
may serve to mitigate the employers liability.
Problem A was injured while he was a passenger in
a bus operated by X Co. The proximate cause of the accident
was the failure of the steering knuckle to work causing the
driver to lose control of the wheel as a result of which the bus
fell into a ditch. Can the operator now relieve itself of liability
by claiming that the real cause of the accident was a fortuitous
event? Suppose that the proximate cause of the accident was a
tire blowout, would that make a different in your answer?
Answer The operator cannot relieve itself of liability by
claiming that the real cause of the accident was a fortuitous
event. The weight of authority sustains the view that a
passenger is entitled to recover damages from the carrier for
an injury resulting from a defect in an equipment purchased
from a manufacturer, unless extraordinary diligence has
been exercised with regard to inspection and application

of the necessary tests. For the purpose of this doctrine, the

manufacturer is considered in law the agent of the carrier. The
rationale of the carriers liability is that the passenger has no
privity with the manufacturer and, therefore, has no remedy
whatever against him, while the carrier usually has. (Necesito
vs. Paras, 104 Phil. 75.) If the proximate cause of the accident
so long as it can be established that the bus involved in the
accident was running fast immediately before the accident and
that the cause of the blowout could have been discovered if the
bus had been subjected to a more rigid check-up before its use.
This was the doctrine enunciated in La Mallorca vs. De Jesus
(17 SCRA 23).
(Note: The question of whether or not a defective part of
a vehicle, such as a defective brake, or a tire blowout can be
classifi ed per se as a fortuitous event was again taken up by
the SC in Tugade vs. CA , 85 SCRA 226. In this case, a Holden
car was badly damaged when it was bumped from behind by a
Blue Car Taxi driven by petitioner. The latter admits that the
accident was caused by the faulty brakes of the taxicab but he
contends that the sudden malfunctioning of the brakes at that
particular moment before the accident was something which
even the due diligence of a good father of a family could not
have prevented. Consequently, the cause of the accident is a
fortuitous event. He then invokes a long line of decisions of the
CA in order to support his theory.
Problem What are the exceptions to the rule that the
obligor or debtor cannot be held liable for breach of the obligation
by reason of a fortuitous event? Illustrate.
Answer The exceptions to the rule that the obligor
or debtor cannot be held liable for breach of the obligation by
reason of a fortuitous event are as follows:
(1) Where such liability is expressly specifi ed by the
law. This may be illustrated by provisions of the NCC, such as
those found in Arts. 552, par. 2, 1165, par. 3, 1268, 1942, 1979,
2147, 2148, and 2159, NCC.
(2) Where such liability is declared by stipulation of the
parties. Thus, if the contracting parties expressly agree that the
debtor can be held liable even in case of fortuitous events, such
an agreement shall be binding.
(3) Where the nature of the agreement requires the
assumption of risk. This is an aspect of what is known as the
doctrine of assumption of risk. As applied to obligations, it refers
to a situation in which the obligor or debtor, with full knowledge
of the risk, voluntarily enters into some obligatory relation with
the creditor or obligee. It is based on the principle of volenti
non fi t injuria no wrong is done to one who consents. This is
illustrated by obligations arising from insurance contracts and
workmens compensation acts.
Problem Cite three instances where a person is made
civilly liable for failure to comply with his obligations although
he was prevented from doing so by a fortuitous event. (1983)

Answer In the following instances, a person is still civilly

liable for failure to comply with his obligation although he was
prevented from doing so by a fortuitous event:
(1) When by law, the debtor is liable even for fortuitous
events;
(2) When by stipulation of the parties, the debtor is
liable even for fortuitous events;
(3) When the nature of the obligation requires the
assumption of risk;
(4) When the object of the obligation is lost and the loss
is due partly to the fault of the debtor;
(5) When the object of the obligation is lost and the loss
occurs after the debtor has incurred in delay;
(6) When the debtor promised to deliver the same thing
to two or more persons who do not have the same interest;
(7) When the obligation to deliver arises from a criminal
offense; and
(8) When the obligation is generic.
(Note: Any 3 of the 8 should be a correct answer. Nos. 1, 2
and 3 are based on Arts. 1174 and 1262, NCC; Nos. 4, 5, and 6
are based on Arts. 1165 and 1262, NCC; while Nos. 7 and 8 are
based on Arts. 1268 and 1263, NCC.)
Problem Jacinto Tanguilig constructed a windmill system
for Vicente Herce, Jr. for P60,000 with a one-year guaranty.
Herce made a downpayment of P30,000 and an installment payment
of P15,000, leaving a balance of P15,000. He refused to
pay the balance because the windmill system collapsed after a
strong wind hit the place. Is Tanguilig exempt from liability due
to fortuitous event?
Answer No. In order for a party to claim exemption from
liability due to fortuitous event, one requisite is that the event
must be either unforeseeable or unavoidable. A strong wind in
this case cannot be fortuitous, unforeseeable, or unavoidable.
On the contrary, a strong wind should be present in places
where windmills are constructed, otherwise the windmills will
not turn. Given the newly-constructed windmill system, the
same would not have collapsed had there been no inherent
defect in it which could only be attributable to Tanguilig. When
the windmill failed to function properly, it became incumbent
upon Tanguilig to repair it in accordance with his guaranty and
bear the expenses therefor. (Tanguilig vs. CA and Herce, G.R.
No. 117190, Jan. 2, 1997).)
Problem Give the effects of potestative, casual and
mixed conditions upon the obligation.
Answer If the condition is potestative in the sense that
its fulfi llment depends exclusively upon the will of the debtor,
the conditional obligation shall be void. (Art. 1182, NCC.)
If the condition is potestative in the sense that its fulfi llment
depends exclusively upon the will of the creditor, the conditional
obligation shall be valid. This is so because the provision of the
fi rst sentence of Art. 1182 extends only to conditions which

are potestative to the obligor or debtor. Besides, the creditor is

naturally interested in the fulfi llment of the condition since it
is only by such fulfi llment that the obligation arises or becomes
effective. (Art. 1181, NCC; 8 Manresa, 5th Ed., Bk. 1, p. 327.)
If the condition is casual in the sense that its fulfi llment
depends upon chance and/or upon the will of a third person, the
obligation shall be valid. (Art. 1182, NCC.)
If the condition is mixed in the sense that its fulfi llment
depends partly upon the will of a party to the obligation and
partly upon chance and/or the will of a third person, the
obligation shall be valid. (Smith, Bell & Co. vs. Sotelo, 44 Phil.
875; Hermosa vs. Longara, 93 Phil. 971.)
Problem Suppose that the debtor executed a promissory
note promising to pay his obligation to the creditor as soon as
he has received funds derived from the sale of his property in a
certain place, is the condition potestative or mixed?
Answer According to the Supreme Court in the case
of Hermosa vs. Longara, 93 Phil. 971, the condition is mixed
because its fulfi llment depends not only upon the will of the
debtor but also upon the concurrence of other factors, such as
the acceptability of the price and other conditions of the sale,
as well as the presence of a buyer, ready, able and willing to
purchase the property.
Problem Suppose that in the above problem, the debtor
promised to pay his obligation if a house belonging to him is
sold, will that make a difference in your answer?
Answer It will not make a difference in my answer.
The condition is still mixed because its fulfi llment depends not
only upon the will of the debtor but also upon the concurrence
of other factors, such as the acceptability of the price and other
conditions of the sale, as well as the presence of a buyer, ready,
able and willing to purchase the property.
True, apparently, in Osmea vs. Rama (14 Phil. 99), the
Supreme Court declared that the above condition is potestative
with respect to the debtor, but a closer perusal of the case
will show that the declaration or statement was merely an
assumption and the same was not the actual ruling. (Hermosa
vs. Longara.)
Hence, the condition is valid. And it cannot be said that if
the debtor so desires, he can always prevent the sale. According
to the NCC (Art. 1186.), if he prevents the consummation of the
sale voluntarily, the condition would be deemed or considered
complied with. (Ibid.)
Problem Suppose that in the above problem, the debtor
promised to pay his obligation as soon as he has received the
funds derived from the sale of the property if he fi nally decides
to sell it, will that make a difference in your answer?
Answer Yes. In such case, it is evident that the condition
is potestative with respect to the debtor because its fulfi llment
would then depend exclusively upon his will. Consequently, the
condition is void. (Hermosa vs. Longara.) The validity of the

obligation is, of course, not affected, because the rule stated

in Art. 1182 of the NCC to the effect that when the fulfi llment
of the condition depends upon the sole will of the debtor, the
conditional obligation itself shall be void, is applicable only
when the obligation shall depend for its perfection upon the
fulfi llment of the condition and not when the obligation is a preexisting
one. (See Trillana vs. Quezon Colleges, 93 Phil. 383.)
Problem Art. 1182 of the New Civil Code declares that
when the fulfi llment of the condition depends upon the sole will of the
debtor, and conditional obligation shall be void. Is this
rule absolute in the sense that it is applicable to all conditional
obligations regardless of the nature of the condition as well as of
the obligation?
Answer The rule is not absolute. There are 2 wellknown
limitations. They are as follows:
The rule is applicable only to a suspensive condition. Hence,
if the condition is resolutory and potestative, the obligation is
valid even if the fulfi llment of the condition is made to depend
upon the sole will of the debtor. This is logical because it is but
natural that the debtor is interested in the fulfi llment of the
condition since it is only by such fulfi llment that he can reacquire
the rights which have already been vested in the creditor upon
the constitution of the obligation. In other words, the position of
the debtor when the condition is resolutory is exactly the same
as the position of the creditor when the condition is suspensive.
(Taylor vs. Uy Tieng Piao, 43 Phil. 873.)
The rule that even the obligation itself shall be void is
applicable only to an obligation which depends for its perfection
upon the fulfi llment of the potestative condition and not to a
pre-existing obligation. Thus, if the debtor binds himself to
pay a previous indebtedness as soon as he decides to sell his
house, although the condition is void because of its potestative
character, the obligation itself is not affected since it refers to
a pre-existing indebtedness. (Trillana vs. Quezon Colleges, 93
Phil. 383.
Problem Before the war, the Phil. Long Distance Co.
(PLDT) adopted a pension plan for its employees by virtue of
which all employees who have reached the age of 50 years and
who have rendered 20 years or more service may be retired with
a pension. After the war, the Board of Directors of the Company
passed a resolution abrogating the pension plan. Subsequently,
sixty employees who were affected fi led a complaint against
the Company claiming monetary benefi ts under the pension
plan. The Company interposed the following defenses: (1) that
the obligation to pay a pension to the plaintiffs is subject to
certain suspensive conditions; consequently, such plaintiffs
have no personality to ask for monetary benefi ts until after
such conditions are fulfi lled; (2) that even granting without
admitting that they have, they are not entitled to such benefi ts
until after the conditions are fulfi lled; and (3) that war losses
had extinguished the Companys obligation to proceed with the

pension plan. If you are the judge, how will you decide the case?
Reasons.
Answer The facts of the above problem are exactly the
same as those in the case of PLDT Co. vs. Jeturian, et al., 97
Phil. 981, where the Supreme Court decided in favor of the
plaintiffs. For purposes of clarity, let us take up the defenses
advanced by the defendant company separately.
(1) The 1st defense is untenable. While it is true that
when an obligation is subject to a suspensive condition, what
is acquired by the creditor is only a mere hope or expectancy,
nevertheless, it is a hope or expectancy that is protected by the
law. According to Art. 1188 of the NCC, the creditor may, before
the fulfi llment of the condition, bring the appropriate actions for
the preservation of his right.
(2) The second defense is untenable. According to Art.
1186 of the NCC, the condition shall be deemed fulfi lled when
the obligor voluntarily prevents its fulfi llment. The act of the
Board of Directors of the Phil. Long Distance Co. in abrogating
the pension plan certainly falls within the sphere or purview of
this rule.
(3) The third defense is also untenable. This is so
because the defense of fortuitous event is available only if the
obligation is determinate and not if the obligation is generic.
Here, the obligation is clearly generic since it involves the
payment of money.
From the foregoing, it is clear that the case should be
decided in favor of the plaintiffs.
Problem Suppose that an obligation is subject to a
suspensive condition, but before the fulfi llment of the condition
the object of the obligation was lost or it has deteriorated, or
improvements were made thereon, what is the effect of such
loss, or deterioration, or improvements if the condition is fi nally
fulfi lled?
Answer When the conditions have been imposed with
the intention of suspending the effi cacy of an obligation to give,
the following rules shall be observed in case of the improvement,
loss or deterioration of the thing during the pendency of the
condition:
(1) If the thing is lost without the fault of the debtor, the
obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he
shall be obliged to pay damages; it is understood that the thing
is lost when it perishes, or goes out of commerce, or disappears
in such a way that its existence is unknown or it cannot be
recovered;
(3) When the thing deteriorates without the fault of the
debtor, the impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the
creditor may choose between the rescission of the obligation and
its fulfi llment, with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the

improvement shall inure to the benefi t of the creditor;

(6) If it is improved at the expense of the debtor, he
shall have no other right than that granted to the usufructuary.
(Art. 1189, NCC.)
Problem Are the above rules also applicable if the
condition is resolutory?
Answer Yes. (Art. 1190, NCC.) However, in applying
these rules, the debtor is the person obliged to return the
object of the obligation in case of fulfi llment of the condition,
while the creditor is the person to whom the thing or object
must be returned.
Problem What is the effect if one of the obligors in
reciprocal obligations should not comply with what is incumbent
upon him?
Answer 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 the fulfi llment and
the rescission of the obligation, with the payment of damages
in either case. He may also seek rescission, even after he has
chosen fulfi llment, if the latter should become impossible.
The court shall decree the rescission, unless there be just
cause authorizing the fi xing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in accordance
with Articles 1385 and 1388 and the Mortgage Law. (Art. 1191,
NCC.)
Problem A sold a parcel of land to B for P20,000. In the
deed of sale, there is a stipulation that the purchase price shall
be paid on a certain date and that in case of failure to pay on
such a date, A can rescind the contract. Suppose that B fails to
pay on the date stipulated in the contract, is Article 1191 of the
NCC applicable? Why?
Answer Art. 1191 is not applicable. Where the contract
itself contains a resolutory provision by virtue of which the
obligation may be cancelled or extinguished in case of breach,
judicial permission to rescind the contract is no longer necessary.
(Hanlon vs. Hausermann, 40 Phil. 796; De la Rama Steamship
Co. vs. Tan, 99 Phil. 1034.) The use of the word implied in the
article supports this conclusion. The right to rescind is implied
only if not expressly granted; no right can be said to be implied
if expressly recognized. Consequently, in the instant case, Art.
1191 is not applicable. The rule that is applicable is found in
Art. 1592 under the law on sales.
Problem L leased a house to J. The contract stipulates
that in case of non-payment of the rent, L can eject L without
court action. J defaulted for two months. As a result, L ejected
him. Can J claim damages because the renunciation of his day
in court as stipulated in the contract is void? (1977)
Answer J cannot claim damages because the renunciation
of his day in court as stipulated in the contract is void. True,

under the NCC, in reciprocal obligations there is always a tacit

resolutory condition that if one party is unable to comply with
what is incumbent upon him, the injured party has the power
to rescind the obligation. (Art. 1191.) This is reiterated in the
law on lease. (Art. 1659.) True also, it is a well-settled rule that
the injured party must invoke judicial aid. But then, this rule
can be applied only to a case where the obligation is silent with
respect to the power to rescind. The right to rescind is implied
only if not expressly granted; no right can be said to be implied
if expressly recognized. This is also well-settled. In the instant case, the
right of L to eject J without a court action in case of
non-payment of the rent was expressly recognized in the contract
itself. What L did was merely to enforce what was agreed
upon.
Problem (a) Are the provisions of Art. 1191 of the New
Civil Code applicable to obligations arising from contracts of
lease or of partnership? Explain.
(b) What must be the nature or character of the breach
which will justify the injured party in bringing an action either
for fulfi llment of the obligation plus damages or for rescission
plus damages?
Answer (a) In the case of obligations arising from a
contract of lease, what are applicable are the provisions of Art.
1659 of the New Civil Code and not those of Art. 1191. Although
Art. 1659 is practically a restatement of Art. 1191, yet there
is a difference. Under Art. 1191, courts have the discretionary
power to refuse the rescission of contracts if in their judgment
the circumstances of the case warrant the fi xing of a term within
which the obligor may fulfi ll the obligation, while under Art.
1659, there is no such discretionary power granted to courts.
(Mina and Bacalla vs. Rodriguez, CA, 40 Off. Gaz. 65.)
In the case of obligations arising from a contract of
partnership, as a general rule, Art. 1191 is applicable. However,
this article cannot be applied where one of the partners fails to
pay the whole amount which he has bound to contribute to the
common fund. This is so because in such case Arts. 1786 and
1788 of the NCC are applicable. These provisions are particular
provisions. Consequently, they prevail over the general
provisions of Art. 1191 which refer to the resolution of reciprocal
obligations in general. (Sancho vs. Lizarraga, 55 Phil. 601.)
(b) The general rule is that rescission will not be permitted
for a slight or casual breach of the contract, but only for
such breaches as are substantial or fundamental as to defeat the
object of the parties in making the agreement. Consequently, a
delay in payment for a small quantity of molasses for some 20
days is not such a violation of an essential condition as warrants
rescission for non-performance. (Song Fo vs. HawaiianPhilippine Co., 47 Phil. 821; Villanueva vs. Yulo, L-12985, Dec.
29, 1959; Universal Food Corp. vs. Court of Appeals, 33 SCRA
1.)
Problem X Co. and Y Co. entered into a contract

whereby the latter agreed that the sugar cane which it will
produce shall be milled by the former for a period of 30 years. It
was stipulated that in case of any fortuitous event, the contract
shall be suspended during said period. For 4 years during the
last war and for 2 years after liberation when the mill of X Co.
was being rebuilt, Y Co. failed to deliver its sugar cane to the
central of X Co. After the expiration of the 30-year period, Y
Co. stopped the delivery of its sugar cane to the central of X Co.
Subsequently, X Co. brought an action against Y Co. in order
to compel the latter to deliver its sugar cane for 6 additional
years on the ground that the fortuitous event had the effect of
stopping the running of the term or period agreed upon. Will the
action prosper? Reasons.
Answer The facts stated in the above problem are exactly
the same as those in the case of Victorias Planters vs. Victorias
Milling Co., 97 Phil. 318, where the SC held that the effect of
a fortuitous event upon the term or period agreed upon is not
to stop the running of the term or period but merely to relieve
the contracting parties from the fulfi llment of their respective
obligations during the pendency of the event. According to the
SC:
Fortuitous event relieves the obligor from fulfi lling
a contractual obligation. The stipulation in the contract
that in the event of fl ood, typhoon, earthquake, or
other force majeure, war, insurrection, civil commotion,
organized strike, etc., the contract shall be deemed
suspended during said period, does not mean that the
happening of any of these events stops the running of the
period agreed upon. It only relieves the parties from the
fulfi llment of their respective obligations during that time
the planters from delivering sugar cane and the central
from milling it. x x x To require the planters to deliver
the sugar cane which they failed to deliver during the four
years of the Japanese occupation and the two years after
liberation when the mill was being rebuilt is to demand
from the obligors the fulfi llment of an obligation which
was impossible of performance at the time it became due.
Memo tenetur ad impossibilia. x x x The performance of
what the law has written off cannot be demanded and
required. The prayer that the plaintiffs be compelled to
deliver was impossible, if granted, would in effect be an
extension of the term of the contract entered into by and
between the parties.
Problem M and N were very good friends. N borrowed
P10,000.00 from M. Because of their close relationship,
the promissory note executed by N provided that he would pay
the loan whenever his means permit. Subsequently, M and
N quarelled. M now asks you to collect the loan because he is
in dire need of money.
What legal action, if any, would you take in behalf of M?
(1980 Bar Problem)

Answer M must bring an action against N for the

purpose of asking the court to fi x the duration of the term or
period for payment. According to the Civil Code, when the
debtor binds himself to pay when his means permit him to do so,
the obligation shall be deemed to be one with a period, subject
to the provisions of Art. 1197. In other words, it shall be subject
to those provisions of the Code with respect to obligations with a
term or period which must be judiciary fi xed. Thus, in the instant
case, the court shall determine such period as may under the
circumstances have been probably contemplated by the parties.
Once determined or fi xed, it becomes a part of the covenant
of the two contracting parties. It can no longer be changed by
them. If the debtor defaults in the payment of the obligation
after the expiration of the period fi xed by the court, the creditor
can then bring an action against him for collection. Any action
for collection brought before that would be premature. This is
well-settled.
(Note: The above answer is based on Arts. 1180 and
1197 of the Civil Code and on Gonzales vs. Jose, 66 Phil. 369;
Concepcion vs. People of the Phil. 74 Phil. 62; Pages vs. Basilan,
104 Phil. 882, and others.)
Alternative Answer Normally, before an action for
collection may be maintained by M against N, the former
must fi rst bring an action against the latter asking the court to
fi x the duration of the term or period of payment. However, an
action combining such action with that of an action for collection
may be allowed if it can be shown that a separate action for
collection would be a mere formality because no additional proofs
other than the admitted facts will be presented and would serve
no purpose other than to delay. Here, there is no legal obstacle
to such course of action.
(Note: The above alternative answer is based on Borromeo
vs. Court of Appeals, 47 SCRA 65.
Probably, if we combine the two answers given above, the
result would be a much more impressive answer.)
Problem A Corporation, engaged in the sale of subdivision
residential lots, sold to B a lot of 1,000 square meters.
The contract provides that the corporation should put up an artesian
well with tank, within a reasonable time from the date
thereof and suffi cient for the needs of the buyers. Five years
thereafter, and no well and tank have been put up by the corporation,
B sued the corporation for specifi c performance. The
corporation set up a defense that no period having been fi xed,
the court should fi x the period. Decide with reason. (1982 Bar
Problem)
Answer The action for specifi c performance should be
dismissed on the ground that it is premature. It is clear that
the instant case falls within the purview of obligations with a
term or period which must be judicially fi xed. Thus, B instead
of bringing an action for specifi c performance, should bring an
action asking the court to determine the period within which

A Corporation shall put up the artesian well with tank. Once

the court has fi xed the period, then such period as fi xed by the
court will become a part of the covenant between the contracting
parties. It can no longer be changed by them. If the Corporation
does not put up the artesian well with tank within the period
fi xed by the court, B can then bring an action for specifi c
performance.
Alternative Answer Normally, before an action for
specifi c performance may be maintained by B against A
Corporation, the former must fi rst bring an action against the
latter asking the court to fi x the duration of the term or period to
install the artesian well with tank. However, an action combining
such action with that of an action for specifi c performance may
be allowed if it can be shown that a separate action for specifi c
performance would be a mere formality because no additional
proofs other than the admitted facts will be presented and would
serve no purpose other than to delay. Here, there is no obstacle
to such cause of action.
(Note: The above answers are based on Art. 1197 of the
Civil Code and on decided cases. Either answer should be
considered correct.)
Problem A executed in favor of B a promissory note for
P10,000, payable after two years, secured by a mortgage on a
certain building valued at P20,000. One year after the execution
of the note, the mortgaged building was totally destroyed by a
fi re of accidental origin. Can B demand from A the payment of
the value of the note immediately after the burning without
waiting for the expiration of the term? Reasons. (1932 Bar
Problem)
Answer Yes, B can demand from A the payment of
the value of the note immediately after the burning without
waiting for the expiration of the term, unless A immediately
gives another security or guaranty which is equally satisfactory.
This is clear from the provision of No. 3 of Art. 1198 of the Civil
Code which declares that when by his own acts the debtor has
impaired the guaranty or security, or when through a fortuitous
event the guaranty or security disappears, the debtor shall lose
the benefi t of the term or period. It must be observed that there
is a difference between the effect of impairment and the effect of
disappearance as applied to the security or guaranty. The rules
may be restated as follows: (1) If the guaranty or security is
impaired through the fault of the debtor, he shall lose his right
to the benefi t of the period; however, if it is impaired without
his fault, he shall retain his right. (2) If the guaranty or security
disappears through any cause, even without any fault of the
debtor, he shall lose his right to the benefi t of the period. In
either case, however, the debtor shall not lose his right to the
benefi t of the period if he gives a new guaranty or security.
Problem A sold his entire interest in 24,000 tons of
iron ore to B for P75,000, P10,000 of which was actually paid
upon the signing of the contract. With respect to the balance of

P65,000, it was agreed that it will be paid from the fi rst amount
derived from the sale of the ore. To insure payment thereof, B
delivered to A a surety bond which provided that the liability of
the surety liability would automatically expire after the lapse of
two years. Inasmuch as the ore had not yet been sold and the
surety bond had expired without being renewed and the balance
had not yet been paid in spite of repeated demands, A fi nally
brought an action against B for the recovery of said balance.
B, however, interposed the defense that his obligation to pay
is conditional and that inasmuch as the condition has not yet
been fulfi lled, therefore, it is not yet due and demandable. Is
this defense tenable?
Answer This defense is untenable. The sale of the iron
ore is not a condition precedent to the payment of the balance
but only a suspensive term or period. There is no uncertainty
whatsoever with regard to the fact of payment; what is
undetermined is merely the exact date of payment. Normally,
therefore, A will have to wait for the actual sale of the iron ore
before he can demand from B for the payment of the unpaid
balance. However, inasmuch as by his own act B has impaired
the guaranty or security after its establishment without giving
another one which is equally satisfactory, it is clear that he has
now lost the benefi t of the term or period. Consequently, the
case now falls squarely within the purview of pars. 2 and 3 of
Art. 1198 of the NCC. (Gaite vs. Fonacier, 112 Phil. 728.)
Problem No. 1. A, B, and C executed a promissory note
binding themselves to pay P9,000 to X, Y, and Z. The note is now
due and demandable.
(a) Can the creditors proceed against A alone for
payment of the entire obligation? Why?
(b) Can X alone proceed against A, B and C for payment
of the entire obligation? Why?
(c) Suppose that X proceeds against A alone for
payment, how much can he collect? Why?
(d) Suppose that C is insolvent, can A and B be held
liable for his share in the obligations? Why?
(e) Suppose that the obligation was about to prescribe,
but X wrote a letter to A demanding for payment of the entire
debt, will this have the effect of interrupting the running of the
period of prescription? Why?
Answer (a) The creditors cannot proceed against A alone
for the payment of the entire obligation. Since the promissory
note is silent with respect to the right of the creditors as well as
the liability of the debtors, the obligation is, therefore, presumed
to be joint (Art. 1207, CC). Consequently, the only right of such
creditors if they proceed against A alone for payment would be
to collect from him P3,000, which is his proportionate share in
the obligation. (Ibid.) Once the amount is collected, it will then
be divided equally among X, Y and Z. This is so because, under
the law, in the absence of any legal provision or stipulation of
the parties to the contrary, the credit or debt shall be presumed

to be divided into as many equal shares as there are creditors

or debtors, the creditors or debts being considered distinct from
one another (Art. 1208, CC).
(b) X alone cannot proceed against A, B and C for the
payment of the entire obligation for the same reason stated in
the previous paragraph. The most that he will be able to collect
from the three debtors will be his proportionate share in the
obligation which is P3,000 (Arts. 1207, 1208, CC). As far as the
debtors are concerned, because of the principle that in joint
obligations the credit or debt shall be presumed to be divided
into as many equal shares as there are creditors or debtors, the
credits or debts being considered distinct from one another (Art.
1208, CC), the liability of each will be only with respect to his
share in the P9,000. Consequently, X can collect only P1,000
from A, P1,000 from B, and P1,000 from C.
(c) If X proceeds against A alone for payment, the most
that he will be able to collect will be only P1,000. The reason has
already been stated in the previous paragraph.
(d) If C is insolvent, his co-debtors cannot be held liable
for his share in the obligations. This necessarily follows from
the principle that in joint obligation, the credit or debt shall
be presumed to be divided into as many equal shares as there
are creditors or debtors, the credits or debts being considered
distinct from one another (Art. 1208, CC).
(e) The demand made by X upon A, for the purpose
of interrupting the running of the period of prescription, shall
prejudice the latter only, but not the other debtors. Consequently,
if after ten years, X, Y and Z should bring an action against A,
B and C to collect the debt, the defense of prescription would be
absolute insofar as B and C are concerned, but partial insofar as
A is concerned. In other words, A can still be compelled to pay
P1,000 to X. The reason for this is the fact that the principle of
mutual agency is not applicable in joint obligations. (Agoncillo
vs. Javier, 38 Phil. 424.)
Problem No. 2. X, Y and Z owe A and B P12,000 in a
joint obligation. How many obligations exist in this case, who
are the parties in each obligation and for how much? Why?
(1971 Bar Problem)
Answer There are six obligations in the above case. The
parties and the amount of each obligation are:
(1) X as debtor for P2,000 in favor of A as creditor;
(2) X as debtor for P2,000 in favor of B as creditor;
(3) Y as debtor for P2,000 in favor of A as creditor;
(4) Y as debtor for P2,000 in favor of B as creditor;
(5) Z as debtor for P2,000 in favor of A as creditor;
(6) Z as debtor for P2,000 in favor of B as creditor.
The above answers are clearly deducible from Art. 1208
of the Civil Code which declares that if the obligation is joint,
the credit or debt shall be presumed to be divided into as many
equal shares as there are creditors or debtors, the credits or
debts being considered as distinct from one another, subject

to the Rules of Court governing the multiplicity of suits. Take

the credit of P12,000 for instance. Since there are two creditors
there will also be two credits of P6,000 for each creditor. In the
case of the debt of P12,000, since there are three debtors there
will also be three debts of P4,000 against each debtor. Now, as
far as A, the fi rst creditor, is concerned, if he wants to collect his
credit of P6,000, he must proceed against all the debtors. Thus
he will be able to collect P2,000 from X, P2,000 from Y, another
P2,000 from Z. The same is true in the case of B, the second
creditor
Problem A, B and C borrowed P12,000 from X on June
1, 1966. They executed a promissory note binding themselves
jointly and severally to pay the obligation on June 1, 1968. For
failure to pay, X brought an action against A for payment of
the entire obligation plus interests. A interposed the following
defenses: (1) that B was only a minor at the time of the
celebration of the contract and that such fact was known to X;
and (2) that X had granted an extension of two years to C within
which to pay.
(1) Can A avail himself of these defenses?
(2) Granting that A can avail himself of these defenses,
what would be the effect upon his liability, assuming that he can
establish both defenses by competent evidence? Reasons.
Answer (a) A can avail himself of these defenses. Under
Art. 1222 of the Civil Code, there are three kinds of defenses
which are available to a solidary debtor if the creditor proceeds
against him alone for payment of the entire obligation. They
are: fi rst, defenses derived from the nature of the obligation;
second, defenses personal to him or pertaining to his share; and
third, defenses personal to the others, but only as regards that
part of the debt for which the latter are responsible. It is evident
that both defenses interposed by A fall within the purview of the
third.
(b) Since A can avail himself of both defenses, and since
such defenses are not absolute but merely partial in character,
undoubtedly, X can collect from A the following: (a) P4,000
corresponding to the share of A in the obligation; and (b) an
amount equivalent to the extent that B had been benefi tted by
his share in the obligation, applying the rule enunciated in Art.
1399 regarding the effect if the defect of a contract consists in
the incapacity of one of the contracting parties. As far as the
share corresponding to C is concerned, X must wait for the
expiration of the two years extension which he had given to C
before he can collect such share from A.
Problem No. 1 In 1972, D executed a promissory note
promising to pay to C P10,000 within a period of four years.
The payment of the debt was guaranteed by G. In 1976, P, a
third person, paid the entire amount of the indebtedness with
the knowledge and consent of D. What are the respective rights
and obligations of the parties?
Answer P shall be subrogated to all of the rights of C,

not only against D, but also against G. This is so, because the
law expressly states that if a third person pays the obligation
with the express or tacit approval of the debtor, he shall be
legally subrogated to all of the rights of the creditor, not only
against the debtor, but even against third persons, be they
guarantors or possessors of mortgages.31 Consequently, P can
demand reimbursement from D of the P10,000 which he had
paid to C.32 If D cannot pay because of insolvency, he can still
proceed against G for the recovery of the amount.33
Problem No. 2 If in the above problem, C had condoned
one-half of the obligation in 1975, and subsequently, in 1976,
P, unaware of the partial remission of the indebtedness, paid,
without the knowledge and consent of D, the entire amount of
P10,000 to C, who accepted it, what would be the effect of such
payment upon the rights and obligations of the parties?
Answer With respect to D, the only right which P has
against him is to recover P5,000, because, it is only to that extent
that he had been benefi ted by the payment.34 With respect to
G, if D cannot pay the P5,000 because of insolvency, P can no
longer proceed against him, because the payment was made
without the knowledge and consent of D, and consequently, he
cannot be subrogated to the rights of C against G.35 With respect
to C, however, undoubtedly, P can still proceed against him for
the recovery of P5,000, applying the principle that no person can
unjustly enrich himself at the expense of another.3
Problem S, an American resident of Manila, about
to leave on a vacation, sold his car to B for US$2,000.00,
the payment to be made ten days after delivery to X, a third
party depositary agreed upon, who shall deliver the car to B
upon receipt of X of the purchase price. It was stipulated that
ownership is retained by S until delivery of the car to X. Five
days after delivery of the car to X, it was destroyed in a fi re
which gutted the house of X, without the fault of either X or
B.
Question No. 1 Is buyer B still legally obligated to pay
the purchase price? Explain. (1981 Bar Problem)
Answer Yes, buyer B is still legally obligated to pay
the purchase price. It must be observed that S had already
delivered the car to X, the third party depositary or bailee.
It was agreed that ownership is retained by S until delivery
to X. Therefore, in effect, there was already a transfer of the
right of ownership over the car to B. Consequently, B shall
assume the fortuitous loss of the car. As a matter of fact, even
if it was agreed that S shall retain the ownership of the car until the
purchase price has been paid by B, the end result
will still be the same. Since, evidently, the purpose is to secure
performance by the buyer of his obligation to pay the purchase
price, by express mandate of the law, the fortuitous loss of the
car shall be assumed by B.
Question No. 2 May seller S demand payment in U.S.

dollar? Why? (1981 Bar Problem)

Answer The seller S cannot demand payment in U.S.
dollars. According to the law, an agreement that payment shall
be made in currency other than Philippine currency is void
because it is contrary to public policy. That does not mean,
however, that S cannot demand payment from B. He can
demand payment, but not in American dollars. Otherwise,
there would be unjust enrichment at the expense of another.
Payment, therefore, should be made in Philippine currency.
(Note: The above answer is based on R.A. No. 529 and on
Ponce vs. Court of Appeals, 90 SCRA 533.)
Problem The debtor owes his creditor several debts, all
of them due, to wit: (1) an unsecured debt; (2) a debt secured
with a mortgage of the debtors property; (3) a debt bearing
interest; (4) a debt in which the debtor is solidarily liable with
another.
Partial payment was made by the debtor. Assuming that
the debtor had not specifi ed the debts to which the payment
should be applied and, on the other hand, the creditor had not
specifi ed in the receipt he issued the application of payment,
state the order in which the payment should be applied and your
reasons therefore. (1982 Bar Problem)
Answer In this case, according to the Civil Code, the
debt, which is most onerous to the debtor, among those due,
shall be deemed satisfi ed.
Analyzing the four debts stated in the problem, the most
onerous is No. 4, the second most onerous is No. 2, the third most
onerous is No. 3, and the least onerous is No. 1. Consequently,
the payment should be applied in that order.
(Note: The above answer is based on Art. 1254 of the Civil
Code, and on decided cases and commentaries of recognized
commentators.)
Problem B borrowed from C P1,000.00 payable in
one year. When C was in the province, Cs 17-year-old son
borrowed P500.00 from B for his school tuition. However, the
son spent it instead nightclubing. When the debt to C fell
due, B tendered only P500.00, claiming compensation on the
P500.00 borrowed by Cs son.
Question No. 1 Is there legal compensation? Why? (1981
Bar Problem)
Answer There is no legal compensation. Under the
Civil Code, in order that there will be a valid and effective
compensation, it is essential that there must be two parties, who
in their own right, are principal creditors and principal debtors
of each other. In the instant case, C cannot be considered as a
party to the act of his 17-year-old son in borrowing P500.00 from
B. Consequently, he did not become a principal debtor of B;
neither did B become a principal creditor of C. Therefore,
there can be no partial compensation of the P1,000.00 borrowed
by B from C.
(Note: The above answer is based on Arts. 1278 and 1279,

No. 1, of the Civil Code and on decided cases.) Question No. 2 Suppose
the minor son actually used
the money for school tuition, would the answer be different?
Reasons. (1981 Bar Problem)
Answer There would be no difference in my answer.
There will still be no legal compensation. The fact that Cs son
actually used the P500.00 for his school tuition did not make C
a party to the contract between his son and B. Therefore, C
is not the principal debtor of B with respect to said amount.
(Note: The above answer is based on Arts. 1278 and 1279,
1, Civil Code.)
Problem Suppose that under the judgment obligation,
the liability of the judgment debtor is for the amount of P6,000,
but both judgment debtor and judgment creditor subsequently
entered into a contract reducing the liability of the former to
only P4,000, is there an implied novation which will have the
effect of extinguishing the judgment obligation and creating a
modifi ed obligatory relation? Reasons.
Answer There is no implied novation in this case. We
see no valid objection to the judgment debtor and the judgment
creditor in entering into an agreement regarding the monetary
obligation of the former under the judgment referred to. The
payment by the judgment debtor of the lesser amount of P4,000,
accepted by the creditor without any protest or objection and
acknowledged by the latter as in full satisfaction of the money
judgment, completely extinguished the judgment debt and
released the debtor from his pecuniary liability.
Novation results in two stipulations one to extinguish
an existing obligation, the other to substitute a new one in its
place. Fundamentally, it is that novation effects a substitution
or modifi cation of an obligation by another or an extinguishment
of one obligation by the creation of another. In the case at
hand, we fail to see what new or modifi ed obligation arose out
of the payment by the judgment debtor of the reduced amount
of P4,000 to the creditor. Additionally, to sustain novation
necessitates that the same be so declared in unequivocal terms
clearly and unmistakably shown by the express agreement of
the parties or by acts of equivalent import or that there is
complete and substantial incompatibility between the two
obligations. (Sandico vs. Piguing, 42 SCRA 322.)
Question Was there a novation of the mortgage loan
contract?
Answer No. Well-settled is the rule that with respect to
obligations to pay a sum of money, the obligation is not novated
by an instrument that expressly recognizes the old, changes only
the terms of payment, adds other obligations not incompatible
with the old ones, or the new contract merely supplements the
old one.
BPI FSB and Transbuilders only extended the repayment
term of the loan from one year to 20 quarterly installments
at 18% per annum. There was absolutely no intention by the

parties to supersede or abrogate the old loan contract secured

by the REM executed by the petitioners in favor of BPI FSB. In
fact, the intention of the new agreement was precisely to revive
the old obligation after the original period expired and the loan
remained unpaid. In the absence of an express agreement,
novation takes place only when the old and the new obligations
are incompatible on every point.
Problem ABC Trading Co., a domestic corporation
engaged in the sale of automobile spare parts, opened with X
Bank a letter of credit up to the extent of $450,000.00 for a period
of one year. To secure payment thereof, it executed a chattel
mortgage over its stock-in-trade valued at P500,000.00. On May
15 and June 15, 1981, Y, president and general manager of
ABC Trading, drew against this letter of credit by means of
promissory notes in the total amount of P430,000.00, payable
within 30 days from the respective dates of the promissory notes
with interest of 10%. Upon maturity of said notes, ABC Trading
failed to pay, but was able to negotiate for an extension of six
(6) months within which to pay said amount, in return for the
additional security posted by Mr. Y consisting of a real estate
mortgage over his land in Manila. At the end of 6 months, ABC
Trading Co. failed to pay the amount due despite repeated
demands by X Bank. Y Bank fi led an action for foreclosure
of the chattel mortgage executed by ABC. Trading ABC Trading
opposed said action contending that the chattel mortgage has
been novated by the real estate mortgage executed by X Bank.
Is the contention of ABC Trading Co. tenable? Reasons.
Answer The contention of ABC Trading Co. that the
chattel mortgage has been novated by the real estate mortgage
executed by Mr. R in favor of X Bank is untenable. Wellsettled
is the rule that in order that there will be a novation there
must be complete incompatibility between the two obligations.
And the test of incompatibility is simple. The test is whether the
two obligations can stand together. If they can stand together,
then there is no incompatibility. If there is incompatibility, then
there is novation. Applying the test to the instant case, it is clear
that the two obligations can stand together. Therefore, there is
no novation.
(Note: The above answer is based on Arts. 1291[1], and
1292 of the Civil Code and on decided cases, such as Bank of P.I.
vs. Herridge, 47 Phil. 57; Ynchausti and Co. vs. Yulo, 34 Phil.
978; Pascual vs. Lacsamana, 100 Phil. 391; La Tondea vs. Alto
Surety & Ins. Co., 101 Phil. 879.)
Problem A obtained a favorable judgment against
B from the Court of First Instance of Manila for the sum of
P2,000. Subsequently, a writ of execution was issued and a jeep
belonging to the latter was seized by the sheriff. However, the
two (A and B) arrived at an arrangement by virtue of which B
executed a chattel mortgage on the jeep stipulating, inter alia
that B shall satisfy the judgment in two equal installments payable
at designated periods. B failed to pay the fi rst installment,

and as a result, A obtained an alias writ of execution and levied

upon certain personal properties of B. The latter fi led an urgent
motion for suspension of the execution sale on the ground of payment
of the judgment obligation. He maintains that the execution
of the deed of chattel mortgage has extinguished the judgment
debt because of implied novation. Is this correct? Reasons.
Answer The contention of B that the mortgage obligation
has extinguished the judgment obligation because of implied
novation is not correct.
The defense of implied novation requires clear and
convincing proof of complete incompatibility between the two
obligations. The law requires no specifi c form for an effective
novation by implication. The test is whether the two obligations
can stand together. If they cannot, incompatibility arises,
and the second obligation novates the fi rst. If they can stand
together, no incompatibility results and novation does not take
place.
Applying this test, we see no substantial incompatibility
between the mortgage obligation and the judgment obligation
suffi cient to justify a conclusion of implied novation. The
stipulation for the payment of the obligation under the terms of
the deed of chattel mortgage serves only to provide an express
and specifi c method for its extinguishment payment in two
equal installments. The chattel mortgage simply gave the
judgment debtor a method and more time to enable him to fully
satisfy the judgment indebtedness. (Millar vs. Court of Appeals,
38 SCRA 642.)
Problem No. 1 A owed B a certain sum of money. C
wrote B a letter stating that he would be the one to take care of
As debt as soon as A had made a shipment of logs to Japan.
A never made such shipment. C did not pay B. Is C liable
to B? Explain. (1975 Bar Problem)
Answer C is not liable to B. In the fi rst place, in order
that C may be held liable to B, there should have been a
substitution of debtor through expromision within the meaning
of Art. 1291, No. 2, and Art. 1293 of the Civil Code resulting
in novation of the obligation. Here, there was none. C merely
wrote a letter to the creditor B stating that he would take care
of As debt. The problem does not even say that B gave his
assent or consent to Cs statement. In the second place, even
assuming that there was a substitution of debtor, Cs liability
depends upon a suspensive condition, that he would take care of
As debt as soon as A had made a shipment of logs to Japan.
A never made such shipment. Therefore, Cs liability never
became effective. (Villanueva vs. Girged, 110 Phil. 478.)
Problem No. 2 A borrowed from B the sum of
P3,000.00. Three days after, A in a letter authorized the
Philippine National Bank to pay his debt to B out of whatever
crop loan might be granted to him by said Bank. On the same
day, the Bank agreed but the Bank paid B only P2,000.00.
On the date of maturity, B sued the Bank and A for the

remaining P1,000.00. Is the Bank liable to B? (1975 Bar

Problem.)
Answer The Bank is not liable to B for the remaining
P1,000.00. Even assuming that B gave his consent to As
proposal that the Bank shall pay his indebtedness of P3,000.00,
in reality, there was no substitution of debtor by delegacion
within the meaning of Arts. 1291, No. 2, and 1293 of the Civil
Code resulting in a novation of the obligation. The Bank never
assumed payment of the obligation. There was merely an
authorization, which was accepted by the Bank, that the latter
shall pay As debt out of whatever crop loan would be granted
to him by the Bank. As it turned out, the Bank agreed to lend
A only P2,000.00, and said amount was paid directly to B in
accordance with the Banks promise. Beyond that amount, the
Bank cannot be held liable. (Hodges vs. Rey, 111 Phil. 219.)
Ferrazzini vs. Gsell
In the contract entered into between plaintiff and
defendant the former agreed to pay P10,000 to the latter as
liquidated damages for each and every breach of a clause of the
contract which provides that during the period of employment
and for a period of fi ve years after the termination thereof for
any cause or reason whatsoever, the plaintiff should neither
engage or interest himself in any business enterprise similar
to or incompetition with those operated by the defendant, nor
enter into the employment of any enterprise in the Philippines
except after obtaining the written permission of the defendant.
The question now arises as to whether the stipulation above set
forth is valid and binding upon the plaintiff.
Held: The contract under consideration is clearly one in
undue or unreasonable restraint of trade and therefore against
public policy. It is limited as to time and space but not as to
trade. It is not necessary for the protection of the defendant, as
this is provided for in another part of the clause. It would force
the plaintiff to leave the Philippine Islands in order to obtain a
livelihood in case the defendant declined to give him the written
permission to work elsewhere in this country.
Del Castillo vs. Richmond
The records show that in the contract entered into between
plaintiff and defendant, the former agreed that he shall not open
or own, nor have any interest directly or indirectly in any other
drugstore either in his own name or in the name of another; nor
have any connection with or be employed by any other drugstore
either as pharmacist or in any capacity in any drugstore within
a radius of four miles from the municipality of Legaspi, province
of Albay, so long as the defendant or his heirs may own or have
an interest in a drugstore in the said municipality. The question
that is raised is whether or not such an agreement is valid and
binding upon the plaintiff. Held: The law concerning contracts which tend
to
restrain business trade has gone through a long series of
changes from time to time within the changing conditions of

trade and commerce. With trifl ing exceptions, said changes

have been a continuous development of a general rule. The early
cases show plainly a disposition to avoid and annul all contracts
which prohibited or restrained any one from using a lawful
trade at any time or at any place as being against the benefi t
of the state. Later, however, the rule became well established
that if the restraint was limited to a certain time and within
a certain place such contracts were valid and not against the
benefi t of the state. Later cases, and we think the rule is now
well established, have held that a contract in restraint of trade
is valid provided there is a limitation upon either time or place.
A contract, however, which restrains a man from entering into a
business or trade without either a limitation as to time or place,
will be held invalid.
The public welfare, of course, must always be considered,
and if it be not involved and the restraint upon one party is not
greater than protection to the other requires, contracts like the
one we are discussing will be sustained. The general tendency,
we believe, of modern authority, is to make the test whether
the restraint is reasonably necessary for the protection of the
contracting parties. If the contract is reasonably necessary to
protect the interest of the parties, it will be upheld. In all cases
like the present, the question is whether, under the particular
circumstances of the case and the nature of the particular
contract involved in it, the contract is reasonable. Of course, in
establishing whether the contract is reasonable or unreasonable,
the nature of the business must also be considered.
Art. 1306369
Considering the nature of the business in which the
defendant is engaged, in relation with the limitation placed upon
the plaintiff both as to time and place, we are of the opinion, and
so decide, that such limitation is legal and reasonable and not
contrary to public policy.
Cui vs. Arellano University
2 SCRA 205
Plaintiff took up law at the Arellano University. He left the
University and enrolled for the last semester of his fourth year
at the Abad Santos Law School. Subsequently, he passed the
bar examinations. During his stay at the Arellano University,
he was a constant recipient of scholarship grants. However, he
was made to sign a waiver of his right to transfer to another
school unless he refunds to the University the equivalent of
his scholarship grants. Since, in taking the bar examinations,
he had to secure his transcript of records from the University,
he was required to make the refund, which he did, but under
protest. Subsequently, he brought this action to recover the
amount which he had paid. Will the action prosper?
Held: The action will prosper. The waiver signed by
plaintiff is contrary to public policy and, therefore, null and
void. Scholarship grants as pointed out by the Director of the
Bureau of Private Schools in Memorandum No. 38, are awarded

in recognition of merit and not to attract and keep brilliant

students in school for their propaganda value. To look at such
grants as a business scheme designed to increase the business
potential of an educational institution is not only inconsistent
with sound public policy but also good morals. Perez vs. Pomar
2 Phil. 682
The evidence shows that the plaintiff rendered services to
the defendant as interpreter during a certain period. Although it
is proven that such services were accepted by the said defendant,
it does not appear that any express contract, written or verbal,
was ever entered into. The question now is whether there is a
binding contract which will justify a court of law in fi xing a just
compensation for the plaintiff.
Held: Whether the service was solicited or offered,
the fact remains that Perez rendered to Pomar services as
interpreter. As it does not appear that he did this gratuitously
the duty is imposed upon the defendant, he having accepted the
benefi t of the services, to pay a just compensation, by virtue of
the innominate contract of facio ut des implicitly established.
The obligations arising from this contract are reciprocal,
and, apart from the general provisions with respect to contracts
and obligations, the special provisions concerning contracts for
lease of service are applicable by analogy.
In this special contract, as determined by Article 1544
(now Art. 1644) of the Civil Code, one of the parties undertakes
to render to the other services for a period certain. The tacit
agreement and consent of both parties with respect to the
services rendered by the plaintiff and the reciprocal benefi ts
accruing to each are the best evidence of the fact that there was
an implied contract suffi cient to create a legal bond, from which
arose enforceable rights and obligations of a bilateral character.
In contracts, the will of the contracting parties is law.
If it is a fact suffi ciently proven that the defendant Pomar, on
various occasions, consented to accept an interpreters services,
rendered in his behalf and not gratuitously, it is but just that he
should pay a reasonable remuneration therefore, because it is a
well-known principle of law that no one should be permitted to
enrich himself to the damage of another. Problem A and B entered into
a contract of compromise.
In the contract, there is a stipulation wherein the parties ceded
a house and lot to X. Upon the signing of the contract, X entered
into the possession of the property. Ten years later, after
the death of both A and B, their heirs revoked the benefi cial
stipulation. Subsequently, they brought an action against X for
the recovery of the property. Will the action prosper?
Answer The action will not prosper. The stipulation in
the instant case is a stipulation pour autrui. All of the requisites of a valid
and enforceable stipulation pour autrui are present.
It is a part, not the whole, of a contract; it is not conditioned or
compensated by any kind of obligation whatever, and neither
A nor B bears the legal representation or authorization of X.

Additionally, there was an implied acceptance by X when

he entered into the possession of the property. That implied
acceptance is recognized by the law is now well-settled. Therefore,
the act of the heirs of A and B in revoking the stipulation is an
absolute nullity. Since the stipulation was accepted by X, it is
crystal clear that there was a perfected agreement, with A and
B as stipulators or benefactors and X as benefi ciary, although
still constituting a part of the main contract. Consequently,
the cardinal rules of contracts, such as the obligatory force of
contracts and the mutuality of contracts based on the essential
equality of the parties are directly applicable to the benefi cial
stipulation itself. It can no longer be revoked.
(Note: The above answer is based upon Florentino vs.
Encarnacion, supra, and other cases.)
Coquia vs. Fieldmens Insurance Co.
26 SCRA 178
On Dec. 1, 1961, the Fieldmens Insurance Co. issued
in favor of the Manila Yellow Taxicab Co. a common carrier
accident insurance policy, covering the period from Dec. 1,
1961 to Dec. 1, 1962. It was stipulated in said policy that the
Company will indemnify the Insured in the event of accident
against all sums which the Insured will become legally liable
to pay for death or bodily injury to any fare-paying passenger
including the driver, conductor and/or inspector who is riding
in the motor vehicle insured at the time of accident or injury.
On Feb. 10, 1962, as a result of a vehicular accident, Carlito
Coquia, driver of one of the vehicles covered by said policy, was
killed. Because of the failure of the Company and the Insured
to agree with respect to the amount to be paid to the heirs of
the driver, the Insured and the parents of Carlito, the Coquias,
fi nally brought this action against the Company to collect the
proceeds of the aforementioned policy. The latter now contends,
among others, that the Coquias have no cause of action because
they have no contractual relation with the Company.
Held: Although 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 Art. 1311 of
the Civil Code of the Philippines. This is but a restatement of
a well-known principle concerning contracts pour autrui, the
enforcement of which may be demanded by a third party for
whose benefi t it was made, although not a party to the contract,
before the stipulation in his favor has been revoked by the
contracting parties. Does the policy in question belong to such
class of contracts pour autrui?
The policy provides, inter alia, that the Company will indemnify
any authorized driver who is driving the motor vehicle
of the Insured and, in the event of death of said driver, the Company
shall, likewise, indemnify his personal representatives.
Thus, the policy is typical of contracts pour autrui, this
character being made more manifest by the fact that the deceased
driver, paid fi fty percent of the premiums, which were

deducted from his weekly commissions. Under these conditions,

the Coquias who, admittedly are the sole heirs of the deceased
have a direct cause of action against the Company, and, since
they could have maintained this action by themselves, without
the assistance of the Insured, it goes without saying that they
could and did properly join the latter in fi ling the complaint
hereon.
Constantino vs. Espiritu
39 SCRA 206
A, married to B, executed a fi ctitious deed of sale of a twostorey
house and four subdivision lots in favor of his mistress,
M, who at that time was pregnant, with the understanding that
the latter shall hold the properties in trust for their unborn
illegitimate child. After securing a new transfer certifi cate of title
in her name, M mortgaged the properties twice to a bank, and
subsequently, she tried to sell them. A then brought an action
against her praying for the issuance of a writ of preliminary
injunction restraining her from further alienating or disposing
of the properties and for judgment ordering her to convey the
properties to their illegitimate child, X, who by that time was
already fi ve years old. A motion to dismiss was fi led on the
ground that the illegitimate child, who is the benefi ciary of the
alleged trust, is not included as a party-plaintiff, and that the
action in question is unenforceable under the Statute of Frauds.
Subsequently, A amended his complaint so as to include X as
party-plaintiff. The lower court, however, dismissed the case.
A raised the case by direct appeal to the Supreme Court on the
following questions of law:
(a) Is there a valid cause of action in the instant case?
(b) Is the action unenforceable under the Statute of
Frauds?
Held: (a) There is a valid cause of action in the instant
case. Upon the facts alleged in the complaint, the contract
between appellant and appellee was a contract pour autrui,
although couched in the form of an absolute deed of sale,
and that appellants action was, in effect, one for specifi c
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 amplifi es this settled rule only in the sense that the third
person for whose benefi t the contract was entered into may
also demand its fulfi llment 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 benefi ciary 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 latters adjudication would be complete and
binding upon them.

(b) On the other hand, the contention that the contract

in question is not enforceable by action by reason of provisions
of the Statute of Frauds does not appear to be indubitable, it
being clear upon the facts alleged in the amended complaint
that the contract between the parties had already been partially
performed by the execution of the deed of sale, the action brought
below being only for the enforcement of another phase thereof,
namely, the execution by appellee of a deed of conveyance in
favor of the benefi ciary thereunder.
Badillo vs. Ferrer
152 SCRA 407, 409
Facts: Macario died intestate in 1966, leaving a widow,
Clavita and fi ve minor children. He left a parcel of land. In 1967,
Clarita, in her own behalf and as natural guardian of the minor
plaintiff executed a deed of extra-judicial partition and sale of
the property through which she sold the property to Gregorio.
Modesta, a sister of Macario, was able to obtain guardianship
over the property and persons of the minor children on 1968.
In 1970, Modesta caused the minor children to fi le a
complaint to annul the sale of their participation in the property
and asked that as co-owner they be allowed to execute the right
of legal redemption with respect to Claritas participation
therein. The trial court annulled the sale to Gregorio of the
minor childrens participation in the property and allowed them
to redeem the participation of their mother therein.
Held: This contention is untenable.
The Deed of Extrajudicial Partition and Sale is not a
voidable or an annullable contract under Article 1390 of the
New Civil Code. Article 1390 renders a contract voidable if one
of the parties is incapable of giving consent to the contract or if
the contracting partys consent is vitiated by mistake, violence,
intimidation, undue infl uence or fraud. In this case, however,
the appellee minors are not even parties to the contract involved.
Their names were merely dragged into the contract by their
mother who claimed a right to represent them, purportedly in
accordance with Article 320 of the New Civil Code.
has no authority or legal representation, or who has acted
beyond his powers, shall be unenforceable, unless it is ratifi ed,
expressly or impliedly, by the person on whose behalf it has been
executed, before it is revoked by the other contracting party.
Clearly, Clarita Ferrer Badillo has no authority or has
acted beyond her powers in conveying to the appellants that 5/12
undivided share of her minor children in the property involved
in this case. The powers given to her by the laws as the natural
guardian covers only matters of administration and cannot
include the power of disposition. She should have fi rst secured
the permission of the court before she alienated that portion of
the property in question belonging to her minor children.
The appellee minors never ratifi ed this Deed of Extrajudicial
Partition and Sale. In fact, they question its validity
as to them. Hence, the contract remained unenforceable or

unauthorized. No restitution may be ordered from the appellee

minors either as to that portion of the purchase price which
pertains to their share in the property or at least as to that
portion which benefi ted them because the law does not sanction
any.
De Lim vs. Sun Life Assurance Co.
41 Phil. 263
On July 6, 1917, Luis Lim applied to the defendant
company for a policy of insurance of his life in the sum of
P5,000. In his application, he designated his wife, Pilar C.
de Lim, plaintiff herein, as benefi ciary. The fi rst premium
of P33 was paid, and upon payment, the company issued a
provisional policy accepting the application provided that
the Company shall confi rm this agreement by issuing a policy
on said application when the same shall be submitted to the
Head Offi ce in Montreal. Should the Company not issue such
a policy, then this agreement shall be null and void ab initio x
x x . A period of four months from the date of the application
was also stated as the period within which the Company shall
issue the policy. Luis Lim, however, died on August 24, 1917,
after the issuance of the provisional policy but before approval
of the application by the head offi ce of the insurance company.
The instant action is brought by the benefi ciary to recover from
the insurance company the sum of P5,000, the amount stated in
the provisional policy. The question now is whether or not the
contract has been perfected.
Held: Our duty in this case is to ascertain the correct
meaning of the document above quoted. Certainly, language
could hardly be used which would more clearly stipulate that
the agreement should not go into effect until the home offi ce
of the company should confi rm by issuing a policy. As we read
and understand the so-called provisional policy it amounts to
nothing but an acknowledgment on behalf of the company,
that it had received from the person named therein the sum of
money agreed upon as the fi rst years premium upon a policy to
be issued upon the application, if the application is accepted by
the company.
It is of course a primary rule that a contract of insurance,
like other contracts, must be assented to by both parties
either in person or by their agents. So long as an application
for insurance has not been either accepted or rejected, it is
merely an offer or proposal to make a contract. The contract, to
be binding from the date of the application, must have been a
completed contract, one that leaves nothing to be done, nothing
to be passed upon, or determined, before it shall take effect.
There can be no contract of insurance unless the minds of the
parties have met in agreement. Our view is, that a contract of
insurance was not here consummated by the parties.
The theory is also illustrated in the case of Francisco vs.
GSIS.23 In this case, the plaintiffs offer of compromise with respect
to the settlement of an obligation which had already matured was

accepted by the Government Service Insurance System by means of

a telegram signed by the Board Secretary. For a year, the System
receipted payments made pursuant to the compromise agreement.
Is there a perfected contract in this case inspite of the fact that the
General Manager of the System denied that he authorized the Board
Secretary to send the telegram? According to the Supreme Court
there is already a perfected contract of compromise applying the
provision of the second paragraph of Art. 1319 of the New Civil Code.
It is of course a familiar doctrine that if a corporation knowingly
permits one of its offi cers, or any other agent, to do acts within the
scope of an apparent authority, and thus holds him out to the public
as possessing the power to do those acts, the corporation will, as
against anyone who has in good faith dealt with the corporation
through such agent, be estopped from denying his authority. Hence,
even if it were the Board Secretary who sent the telegram, the
corporation could not evade the binding effect which it produced.
The cognition theory, as embodied in the second paragraph of
Art. 1319 of the Code, is very well illustrated in the case of Enriquez
vs. Sun Life Assurance Co.22 The facts of this case are as follows: The
records show that on September 24, 1917, Joaquin Herrer applied
to the defendant company through its local offi ce in Manila for a life
annuity. He paid the sum of P6,000 and was issued a provisional
receipt. The application was immediately forwarded to the head
offi ce of the company in Montreal, Canada. On November 26, 1917,
the head offi ce gave notice of acceptance by cable to Manila. Whether
notice of this acceptance was sent to Herrer by the Manila offi ce is
a disputed question. On December 4, 1917, the policy was issued
at Montreal. On December 18, 1917, the lawyer of Herrer wrote to
the Manila offi ce that Herrer desired to withdraw his application.
The following day the local offi ce replied to the lawyer stating that
the policy had been issued, and called attention to the notifi cation
of November 26, 1917. This letter was received by the lawyer on
December 21, 1917. Herrer, however, died on December 20, 1917.
This action was subsequently commenced by the administrator of
the estate of Herrer to recover the sum of P6,000 from the defendant
company. The defendant company, however, contended that the
plaintiff cannot recover the amount on the ground that the contract
of life annuity had already been perfected. Holding that it is the
provision of the second paragraph of Art. 1262 (now Art. 1319) of
the Civil Code and not Art. 54 of the Code of Commerce that will
apply, and that the letter of November 26, 1917, was never actually
mailed, and thus, was never received by the applicant, the Supreme
Court, speaking through Justice Malcolm, ruled that the contract
was not perfected because it has not been proved satisfactorily that
the acceptance of the application ever came to the knowledge of the
applicant.
Under Article 1262, paragraph 2 (now Art. 1319, par. 2)
of the Civil Code, an acceptance by the latter does not have any
effect until it comes to the knowledge of the offeror. Therefore,
before he learns of the acceptance, the latter is not yet bound by
it and can still withdraw the offer. Consequently, when Mr. Arias

wrote Mr. Laudico, withdrawing the offer, he had the right to do

so, inasmuch as he had not yet received notice of the acceptance.
And when the notice of the acceptance was received by Mr.
Arias, it no longer had any effect, as the offer was not then in
existence, the same having already been withdrawn. There was
no meeting of the minds through offer and acceptance, which is
the essence of the contract. While there was an offer, there was
no acceptance, and when the latter was made and could have
binding effect, the offer was then lacking. Though both the offer
and the acceptance existed, they did not meet to give birth to a
contract.
Problem Gigi offered to construct the house of Chito
for a very reasonable price of P1 Million, giving the latter 10
days within which to accept or reject the offer. On the fi fth day,
before Chito could make up his mind, Gigi withdrew the offer.
What is the effect of the withdrawal of Gigis offer? (2005 Bar
Problem)
Answer The withdrawal of Gigis offer will cause the
offer to cease in law. Hence, even if subsequently accepted, there
could be no concurrence of the offer and the acceptance . In the
absence of concurrence of offer and acceptance, there can be no
consent. (Laudico vs. Arias Rodriguez, G.R. No.16530, March
31, 1922). Without the consent, there is no perfected contract
for the construction of the house of Chito. (Salonga vs. Farrales,
Art. 1319
G.R. No. L-47088, July 10, 1981). Article 1318 of the Civil Code
provides that there can be no contract unless the following
requisites concur : (1) consent of the parties; (2) object certain
which is the subject matter of the contract; and (3) cause of the
obligation.
Gigi will not be liable to pay Chito any damages for
withdrawing the offer before the lapse of the period granted.
In this case, no consideration was given by Chito for the option
given. Thus, there is no perfected contract of option for lack of
cause of obligation. Gigi cannot be held to have breached the
contract. Thus, he cannot be held liable for damages (Suggested
Answers to the 2005 Bar Examination Questions, Philippine
Association of Law Schools).
Problem In an offer to sell, parties failed to agree on the
size of the land to be sold. Is there a meeting of the minds of the
parties that would perfect a contract?
Answer There is no consent that would perfect a contract
as there is no agreement on the exact area to be sold. Contracts
that are consensual in nature are perfected upon mere meeting
of the minds. A contract is produced once there is concurrence
between the offer and the acceptance upon the subject matter,
consideration, and terms of payment. The offer must be certain.
To convert the offer into a contract, the acceptance must be
absolute and must not qualify the terms of the offer. It must
be plain, unequivocal, unconditional, and without variance of
any sort from the proposal, constitutes a counter-offer and is a

rejection of the original offer. Hence, when something is required

is desired which is not exactly what is proposed in the offer,
such acceptance is not suffi cient to generate consent because
any modifi cation or variation from the terms of the offer.
Problem A gasoline manufacturing company (TPMC)
obatined a loan from PNB and executed a real estate mortgage
over its parcel of land in Paranque City to secure its loan. When
the loan matured, PNB sent collection letters to TPMC. In reply,
TPMC proposed to pay its obligations by way of a dacion en pago
conveying its TCT No. 122533.Instead of accepting the offer, PNB
fi led a petition for extrajudicial foreclosure of the REM. TPMC
fi led a complaint for annulment of extrajudicial foreclosure sale
alleging that its debt has already been extinguished by its offer
of dacion en pago. PNB contended that the proposal of TPMC to
pay by way of dacion en pago did not extinguish its obligation as
it was not accepted by PNB. Hence, the extrajudicial foreclosure
sale was proper.Was PNB correct?
Answer Yes, TPMC has no clear right to an injunctive
relief because its proposal to pay by way of dacion en pago did
not extinguish its obligation. Undeniably, TPMCs proposal to
pay by way of dacion en pago was not accepted by PNB.
Dacion en pago is a special mode of payment whereby
the debtor offers another thing to the creditor who accepts it
as equivalent of payment of an outstanding obligation. The
undertaking is really one of sale, that is, the creditor is really
buying the thing or property of the debtor , payment for which
is to be charged against the debtors debt. As such, the essential
elements of a contract of sale, namely, consent, object certain
and cause or consideration must be present. It is only when the
ESSENTIAL REQUISITES OF CONTRACTS Art. 1320
Consent
thing offered as an equivalent is accepted by the creditor that
novation takes place, thereby, totally extinguishing the debt.
Thus, the unaccepted proposal neither novates the parties
mortgage contract nor suspends its execution as there was
no meeting of the minds between the parties on whether the
loan will be extinguished by way of dacion en pago (Technogas
Philippines Mfg. Corp. vs. Philippine National Bank, G. R. No.
161004, April 14, 2008).
Problem No. 1 A, who resides in Manila, wrote to his
friend B, who is residing in Cotabato City, stating in the letter
that he (A) is donating to him (B) one new car worth P25,000.
Upon receipt of the letter, B, called A by long distance telephone
telling A that he is accepting the donation. The same day B wrote
and mailed a letter to A accepting the donation. Immediately
after mailing the letter, B died of a heart failure. Who is entitled
to the car now, A or the heirs of B? Reasons. (1962 Bar Problem)
Answer A is entitled to the car. The reason is that
the donation in the instant case cannot produce any effect
whatsoever. According to Art. 748 of the Civil Code, if the value
of the personal property donated exceeds P5,000, the donation

and the acceptance shall be in writing; otherwise, the donation

is void. True, the acceptance by B was actually written and
mailed. But immediately after mailing the letter of acceptance,
B died. The effect is to bring into play the provision of Art. 1323
of the Civil Code which is certainly applicable here, considering
the provision of Art. 732. According to Art. 1323, an offer
becomes ineffective upon the death, civil interdiction, insanity,
or insolvency of either party before acceptance is conveyed.
Analyzing the provision, it is clear that the offer of A has become
ineffective and that the contract of donation, as a consequence,
has never been perfected.
Problem No. 2 A donated a piece of land to B in a donation
inter vivos. B accepted the donation in a separate instrument
but A suddenly died in an accident before the acceptance could
be communicated to him. Is the donation valid? Reasons. (1971
Bar Problem)
Answer Even assuming that both the donation and
the acceptance are contained in a public instrument, which the
law requires (Art. 749, CC), the donation is not valid for the
following reasons:
(1) Under Art. 749 of the Civil Code which enunciates
the different formalities required in the execution of donations
inter vivos, the law declares that if the acceptance is made in a
separate public instrument, the donor shall be notifi ed thereof in
authentic form, and this step shall be noted in both instruments.
It is obvious that in the instant case the requirement of
notifi cation of the donor in authentic form (constancia autentica)
has not been complied with. It is of course axiomatic under the
law on donations that all of the formalities prescribed in Art.
749 of the Code are essential for validity.
(2) Art. 734 of the Civil Code declares that a donation is
perfected from the moment the donor knows of the acceptance
by the donee. It is also obvious that in the instant case A never
came to know of the acceptance by B because he suddenly died
in an accident before such acceptance could be communicated to
him. Consequently, the contract of donation was never perfected.
(3) And fi nally, Art. 1323 of the Civil Code is decisive.
This article (which is certainly applicable here considering
the provision of Art. 732 of the Code) declares that an offer
becomes ineffective upon the death, civil interdiction, insanity
or insolvency of either party before acceptance is conveyed
The above interpretation, however, was fi nally abandoned in
Sanchez vs. Rigos (G.R. No. L-25494, June 14, 1972, 45 SCRA 368).
In this case, the Supreme Court ruled that in unilateral offers to
buy or to sell, 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 his withdrawal, his
promise partakes of the nature of an offer to sell which, if accepted,
results in a perfected contract of sale. Stated in another way, if the
option is without a consideration, it is a mere offer to sell which is
not binding until accepted. If, however, acceptance is made before

a withdrawal, it constitutes a binding contract of sale. There is

already a concurrence of both offer and acceptance. Under Art. 1319
of the Civil Code, the contract is perfected.
Problem A agreed to sell to B a parcel of land for
P5,000.00. B was given up to May 6, 1975 within which to
could not produce the money on or before said date, no liability
would attach to him. Before May 6, 1975, A backed out of the
agreement. Is A obliged to sell the property to B? Explain.
(1975 Bar Problem)
Answer Assuming that the offer of A to sell the land to
B is merely a unilateral offer to sell, and that there is still no
bilateral agreement in the sense that B had already agreed to
buy the land, A is not obliged to sell the property to B. In such
case, it is clear that the general rule stated in Art. 1324 and the
particular rule stated in Art. 1479, par. 2, of the Civil Code are
applicable. As a matter of fact, even if B has formally accepted
the option given to him by A, such acceptance would be of no
moment since the option is not supported by any consideration
distinct from the purchase price. A can always change his mind
at any time. The option does not bind him for lack of a cause or
consideration. It would have been different if B had accepted
the offer to sell within the period of the option before said offer
was withdrawn by A. In such a case, a contract of sale would
have been generated right then and there. As it turned out, A
withdrew his offer in time. (See Sanchez vs. Rigor, 45 SCRA
368)
(Note: In Sanchez vs. Rigos, supra, the Supreme Court
fi nally resolved a question which arose out of the use of the word
accepted in modifying the phrase unilateral promise to buy or
to sell in Art. 1479, par. 2, of the Civil Code. Accepted refers
to the option, not to the offer, to buy or to sell; in other words, it
refers to the acceptance by either prospective vendee or vendor
of the option of, let us say, ninety days within which he shall
decide whether or not he shall buy or sell the thing. Thus, if
A offers to sell a lot to B for P200,000, and gives the latter
an option of ninety days within which to decide whether or not
he shall buy the property, and the latter accepts the option, two
possible situations may arise:
(1) In accepting the option, B pays to A an option
money of, let us say, P5,000 which is distinct from the purchase
price. In such case, there is already a perfected preparatory
contract of option. A is bound by his offer. B shall now decide
within the period of the option whether or not he shall buy the
property. If he decides to buy, he shall then pay to B the price
of P200,000; if he decides otherwise, no contract of sale will ever
be perfected.
(2) In accepting the option, B does not pay any option
money to A. In such case, there is no perfected preparatory
offer to sell, acceptance or which will be suffcient to generate a
perfected contract of sale. But suppose that meanwhile, A has
changed his mind? The lot is no longer for sale. B, on the other

hand, has decided to buy the property. What will now happen?
Under this situation, the one who is fi rst to notify the other of
his decision emerges the victor. If A is the fi rst to notify B
of his change of mind, no contract of sale will ever be perfected;
if B is the fi rst to notify A of his acceptance of the offer, a
contract of sale has already been perfected.)
Problem Q, the owner of a house and lot in Quezon
City, gave an option to R to purchase said property for
P100,000.00 within ninety days from May 1, 1979. R gave Q
one (P1.00) peso as option money. Before the expiration of the
ninety-day period, R went to Q to exercise his option to pay
the purchase price but Q refused because somebody wanted
to buy his property for P150,000.00 and because there was no
suffi cient consideration for the option. R sued Q to compel
him to accept payment and execute a deed of sale in his favor.
Decide the case. (1980 Bar Problem)
Answer Q should be compelled to accept the purchase
price of P100,000.00 and to execute a deed of sale of the subject
property in favor of R. The reason is that there is already a
perfected contract of sale.
Undoubtedly, in the instant case, there is a unilateral
offer of Q to sell the subject property to R. For that purpose,
the latter is given an option of ninety days from May 1, 1979
within which to exercise the option. The consideration for the
option is P1.00. According to the Civil Code, since there is a
consideration for the option, Q is now bound by his promise
to sell the property to R so long as the latter will exercise the
option within the agreed period of ninety days. R exercised his
option. Therefore, there is already a perfected contract of sale.
True, Q will suffer some sort of lesion or prejudice
if what he says about another desiring to buy the property
for P150,000.00 is established. True also, the consideration
of P1.00 for the option is grossly inadequate. The Civil Code,
however, declares that except in cases specifi ed by law, lesion
or inadequacy of cause shall not invalidate a contract, unless
there has been fraud, mistake or undue infl uence. Here, there is
no fraud, mistake or undue infl uence which would be a possible
basis for invalidating either the preparatory contract of option
or the principal contract of sale.
As a matter of fact, even assuming that there is no
consideration for the option, the end result would still be the
same. Since R accepted the offer before it could be withdrawn
or revoked by Q, there is already a perfected contract of sale.
(Note: The second paragraph of the above answer, which
gives the raison detre for what is stated in the fi rst paragraph,
is based on Arts. 1324 and 1479, par. 2, of the Civil Code. The
third paragraph, which disposes of the contentions or defenses
of the defendant, is based on Art. 1355 of the Civil Code. The
fourth paragraph, which is a sort of obiter, is based on Sanchez
vs. Rigos, 45 SCRA 368.)
Problem K and Co. published in the newspaper an

Invitation to Bid inviting proposals to supply labor and

materials for a construction project described in the invitation.
L, M and N submitted bids. When the bids were opened,
it appeared that L submitted the lowest bid. However, K
and Co. awarded the contract to N, the highest bidder, on
the ground that he was the most experienced and responsible
bidder. L brought an action against K and Co. to compel the
award of the contract to him and to recover damages.
Is Ls position meritorious? (1980 Bar Problem)
Answer Ls position is not meritorious.
According to the Civil Code, advertisements for bidders
are simply invitations to make proposals, and the advertiser
is not bound to accept the highest or lowest bidder unless the
contrary appears. It is clear that the general rule applies in the
instant case. In its advertisement, K and Co. did not state that
it will award the contract to the lowest bidder. Therefore, in
awarding the contract to N, the defendant company acted in
accordance with its rights.
Be that as it may, it is now well settled that misrepresentation
by unemancipated minors with regard to their age when entering
into a contract shall bind them in the sense that they are estopped
subsequently from impugning the validity of the contract on the
ground of minority. It is, however, necessary that the misrepresentation
must be active, not merely constructive.54
Braganza vs. Villa Abrille
105 Phil. 456
On Oct. 20, 1944, Rosario de Braganza and her two minor
sons, Rodolfo and Guillermo, who were then 18 and 16 years old
respectively, borrowed from Villa Abrille P70,000 in Japanese
military notes, promising to pay the latter solidarily P10,000 in
legal currency of the Philippines, two years after the cessation of
present hostilities or as soon as International Exchange has been
established in the Philippines, plus 2% interest per annum.
For failure to pay, Villa Abrille sued them in March, 1949.
Defendants, however, have interposed the minority of Rodolfo
and Guillermo de Braganza at the time when they signed the
note as a defense. Consequently, the principal questions to be
decided are: fi rst, whether or not the minority of her co-signers
has any effect upon the liability of Mrs. Braganza; and second,
whether or not such co-signers can be held liable. The Supreme
Court held:
Mrs. Braganza is liable because the minority of her cosigners
does not release her from liability, since it is a personal
defense of the minors. However, she can avail herself of the
defense but such defense will benefi t her only as regards that
part of the debt for which the minors are responsible. (Art.
1148, now Art. 1222, Civil Code.) Therefore, she shall pay 1/3 of
P10,000 or P3,333.33, plus 2% interest from October, 1944.
On the other hand, the Court of Appeals found the minors
liable because they did not state in the promissory note that
they are not yet of legal age and when minors pretended to be

of legal age, when in fact they were not, they will not later on
be permitted to excuse themselves from the fulfi llment of the
obligation contracted by them, or to have it annulled. (Mercado,
et al. vs. Espiritu, 37 Phil. 15.) However, the Mercado case is different
because the document signed therein by the minors specifi
cally stated that they were of age, here, the promissory note
contained no such statement. In other words, in the Mercado
case, the minors were guilty of active misrepresentation; whereas
in this case, the minors are guilty of passive or constructive
misrepresentation. From the minors failure to disclose their minority,
it does not follow, as a legal proposition, that they will
not be permitted there after to assert it. According to Corpus
Juris Secundum (43, p. 206), mere silence when making a contract
as to his age does not constitute a fraud which can be made
the basis of an action for deceit. In order to hold the infant liable,
the fraud must be actual and not constructive. Therefore,
the minors in the case at bar cannot be legally bound by their
signatures in the promissory note.
They cannot, however, be absolved entirely from monetary
responsibility. Under the Civil Code, even if their written
contract is voidable because of non-age, they shall make restitution
to the extent that they may have profi ted by the money
they received. (Art. 1304, now Art. 1399, Civil Code.) There is
testimony that the funds were used for their support during the
Japanese occupation. Such being the case, it is but fair to hold
that they had profi ted to the extent of the value of such money,
which value has been established in the Ballantyne Schedule. In
October, 1944, P40 Japanese military notes were equivalent to
P1.00 of current Philippine money. Hence, they shall pay jointly
P1,666.67, plus 6% interest beginning March 7, 1949, when the
complaint was fi led.
Consequently, mental incapacity to enter into a contract is
a question of fact which must be decided by the courts. There is,
however, a presumption that every person of legal age possesses the
necessary capacity to execute a contract,58 but the presumption is
prima facie and may be rebutted by proper evidence. Thus, in the
case of Carillo vs. Jaoco,59 where it was established that the vendor
of several parcels of land was declared insane by a competent court
nine days after the execution of the contract of sale, the Supreme
Court still ruled:
The fact that nine days after the execution of the contract,
Adriana Carillo was declared mentally incapacitated by the
trial court does not prove that she was so when she executed the
contract. After all this can perfectly be explained by saying that
her disease became aggravated subsequently.
Our conclusion is that prior to the execution of the document
in question the usual state of Adriana Carillo was that of
being mentally capable, and consequently, the burden of proof
that she was mentally incapacitated at a specifi ed time is upon
her who affi rms said incapacity. If no suffi cient proof to this effect
is presented, her capacity must be presumed.

Problem Is a person of advanced years or age or by

reason of physical infi rmities incapacitated to enter into a
contract?
Answer A person is not incapacitated to enter into a
contract merely because of advanced years or by reason of
physical infi rmities, unless such age and infi rmities impair
his mental faculties to the extent that he is unable to properly,
intelligently and fairly understand the provisions of said
contract (Dr. Jose and Aida Yason and Faustino Arciaga, et. al.,
G.R. No. 145017, Jan. 28, 2005).
Asiain vs. Jalandoni
45 Phil. 296
The records show that the plaintiff offered to sell to
the defendant a certain hacienda for P55,000. During the
negotiation, he told the defendant that it contained between 25
and 30 hectares and that the cane then planted would produce
2,000 piculs of sugar. Although doubtful of the extent of the
land, the defendant fi nally accepted the offer, paid P30,000 of
the purchase price and took possession of the land. While thus
in possession, he discovered that the land was only about 18
hectares and the cane only about 800 piculs of sugar. Because
of this discovery, he refused to pay the balance of the purchase
price. As a consequence, plaintiff commenced this action to
recover the said balance. To the complaint, defendant fi led an
answer and a counter complaint, asking that the contract be
annulled.
Held: Coordinating more closely the law and the facts in
the instant case, we reach the following conclusions: This was
not a contract of hazard. It was a sale in gross in which there
was a mutual mistake as to the quantity of land sold and as to
the amount of the standing crop. The mistake of fact as disclosed
not alone by the terms of the contract but by the attendant
circumstances, which it is proper to consider in order to throw
light upon the intention of the parties, is, as it is sometimes
expressed, the effi cient cause of the concoction. The mistake
with reference to the subject matter of the contract is such
that, at the option of the purchaser, the contract is rescissible
(voidable). Without such mistake the agreement would not have
made and since this is true, the agreement is inoperative. It
is not deception but is more nearly akin to bilateral mistake
for which relief should be granted. Specifi c performance of the
contract can therefore not be allowed at the instance of the
vendor.
The ultimate result is to put the parties back in exactly
their respective positions before they became involved in the
negotiation and before accomplishment of the agreement. This
was the decision of the trial judge and we think that decision
conforms to the facts and the principles of equity.
Martinez vs. Hongkong and Shanghai Bank
15 Phil. 252
This is an action to annul a contract on the ground that

plaintiffs consent thereto was obtained under duress. Under

this contract, she agreed to a conveyance of several properties to
Aldecoa & Co. and the Hongkong and Shanghai Bank as settlement
of their claims against her and against her husband, who
in order to escape criminal charges, had escaped to Macao, a
territory not covered by any extradition treaty. It was established
at the trial that during the period of negotiation, representations
were made to her by the defendants and concurred
in by her lawyers, that if she assented to the requirements of
the defendants, the civil suit against herself and her husband
would be dismissed and the criminal charges against the latter
withdrawn, but if she refused, her husband must either spend
the rest of his life in Macao or be criminally prosecuted. The
question now is whether or not there was duress which would
invalidate the contract.
Held: In order that this contract can be annulled it
must be shown that the plaintiff never gave her consent to
the execution thereof. It is, however, necessary to distinguish
between real duress and the motive which is present when one
gives his consent reluctantly. A contract is valid even though
one of the parties entered into it against his wishes and desires
or even against his better judgment. Contracts are also valid
even though they are entered into by one of the parties without
hope of advantage or profi t. A contract whereby reparation is
made by one party for injuries which he has wilfully infl icted
upon another is one which from its inherent nature is entered
into reluctantly by the party making the reparation. He is
confronted with a situation in which he fi nds the necessity
of making reparation or of taking the consequences, civil
or criminal, of his unlawful acts. He makes the contract of
reparation with extreme reluctance and only by the compelling
force of the punishment threatened. Nevertheless, such contract
is binding and enforceable.
It is undisputed that the attorneys for the plaintiff in this
case advised her that, from the facts which they had before them,
facts of which she was fully informed, her husband had been
guilty of embezzlement and misappropriation in the management
of the business of Aldecoa & Co. and that, in their judgment,
if prosecuted therefor, he would be convicted. In other words,
under the advice of her counsel, the situation was so presented
to her that it was evident that in signing the agreement, she
had all to gain and nothing to lose, whereas, in refusing to sign
said agreement, she had all to lose and nothing to gain. In the
one case, she would lose her property and save her husband.
In the other, she would lose her property and her husband too.
The argument thus presented to her by her attorneys addressed
itself to judgment and not to fear. It appealed to reason and
not to passion. It asked her to be moved by common sense and
not by love of family. It spoke to her own interests as much as
to those of her husband. The argument went to her fi nancial
interests as well as to those of the defendants. It spoke to her

business judgment as well as to her wifely affections. From the

opinions of her attorneys as they were presented to her upon
facts assumed by all to be true, we do not well see how she could
reasonably have reached a conclusion other than that which
she did reach. It is of no consequence here whether or not her
lawyers advised her wrongly. It is of no importance whether, as
a matter of law, she would have been deprived of her alleged
interests in the properties mentioned in the manner described
and advised by her attorneys. The important thing is that she
believed and accepted their judgment and acted upon it. The
question is not did she make a mistake, but did she consent; not
was she wrongly advised, but was she coerced; not was she wise,
but was she duressed.
From the whole case we are of the opinion that the fi nding
of the court below that the plaintiff executed the contract in
suit of her own free will and choice and not from duress is fully
sustained by the evidence.
Eguaras vs. Great Eastern Life Assurance Co.
33 Phil. 263
This is an action for the collection of the value of an
insurance policy. The records show that Dominador Albay fi led
an application for an insurance on his life with the defendant
company; that since Albay was in poor health, the person who
presented himself for medical examination to the company
physician was not the applicant, but Castor Garcia, who posed
as Dominador Albay; that as a result of the favorable report of
the physician, the defendant company executed the contract
of insurance; that a short time thereafter the insured died. In
this action the company contends that the contract should be
annulled on the ground of fraud.
Held: The fraud which gave rise to the mistaken consent
given by the defendant company to the application for insurance
made by Albay and to the execution of the contract through
deceit, is plain and unquestionable. The fraud consisted in the
substitution at the examination of Castor Garcia in place of the
insured Dominador Albay, and as the deceit practiced in the
said contract is of a serious nature, the same is also ipso facto
void and ineffective (voidable), in accordance with the provision
of Article 1270 (now Art. 1344) of the Civil Code.121
Songco vs. Sellner
37 Phil. 254
The principal defense in this action for specifi c performance
relates to the false representation which, it is claimed,
was made by the plaintiff Songco with respect to the quantity
of uncut cane standing in the fi elds at the time the defendant
Sellner became the purchaser thereof. It is proved that Songco
estimated that the crop would yield 3,000 piculs of sugar. As
the crop turned out, it produced only 2,017 piculs of sugar. The
question now is whether such representation of the plaintiffvendor
is fraudulent, which, under Art. 1338, would invalidate
the contract. Holding that such representation can only be considered

as a mere expression of an opinion, the Supreme Court

ruled:
It is of course elementary that a misrepresentation upon
a mere matter of opinion is not an actionable deceit, nor is it a
suffi cient ground for avoiding a contract as fraudulent. We are
aware that statements may be found in the books to the effect
that there is a difference between giving an honest opinion and
making a false representation as to what ones real opinion is.
We do not think, however, that this is a case where any such
distinction should be drawn.
The law allows considerable latitude to sellers statement,
or dealers talk, and experience teaches that it is exceedingly
risky to accept it at its face value. The refusal of the seller to
warrant his estimate should have admonished the purchaser
that such estimate was put forth as a mere opinion; and we will
not now hold the seller to a liability equal to that which would
have been created by a warranty, if one had been given.
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 for omitting to make inquiries. A man who relies upon
such an affi rmation 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.
Problem C, an old and ignorant woman, was helped by
V in obtaining a loan of P3,000.00 from X Rural Bank secured
by a mortgage on her house and lot. On the day she signed the
promissory note and the mortgage covering the loan, she also
signed several documents. One of these documents signed by
her was promissory note of V for a loan of P3,000.00 also secured
by a mortgage on her house and lot. Several years later, she
received advice from the sheriff that her property shall be sold
at public auction to satisfy the two obligations. Immediately she
fi led suit for annulment of her participation as co-maker in the
obligation contracted by V as well as of the mortgage in relation
to said obligation of V on the ground of fraud and mistake. Upon
fi ling of the complaint, she deposited P3,383.00 in court as
payment of her personal obligation including interests.
(a) Can be held liable for the obligation of V? Why?
(b) Was there a valid and effective consignation considering
that there was no previous tender of payment made by C
to the Bank? Why?
Answer (a) C cannot be held liable for the obligation
of V. It is crystal clear that Cs participation in Vs obligation
both as co-maker and as mortgagor is voidable not on the
ground of fraud because the Bank was not a participant in the
fraud committed by V, but on the ground of mistake. There was
substantial mistake on the part of both C and the Bank mutually
committed by them as a consequence of the fraud employed by

V. (See Rural Bank of Caloocan City vs. CA, 104 SCRA 151.)
(b) Despite the fact that there was no previous tender
of payment made directly to the Bank, nevertheless, the
consignation was valid and effective. The deposit was attached
to the record of the case and the Bank had not made any claim
thereto. Therefore, C was right in thinking that it was useless
and futile for her to make a previous offer and tender of payment
directly to the Bank. Under the foregoing circumstances, the
consignation was valid, if not under the strict provisions of the
law, under the more liberal consideration of equity.
Woodhouse vs. Halili
49 Off. Gaz. 3374
Plaintiff and defendant entered into a contract whereby
it was agreed that they shall organize a partnership for the
bottling and distribution of Mission soft drinks, plaintiff to act
as industrial partner and manager, and defendant as capitalist
partner; that plaintiff was to secure the Mission soft drinks
franchise for and in behalf of the partnership; and that he
was to receive 30% of the net profi ts of the business. Because
of the alleged failure of defendant to comply with this contract
after the bottling plant was already in operation, plaintiff
brought this action against him praying for the execution of
the agreed contract of partnership, an accounting of the profi ts
of the business, as well as damages amounting to P200,000.
Defendant, in his answer, alleged that his consent to the
contract was secured through plaintiffs false representation
that he had the exclusive bottling franchise of the Mission Dry
Corporation in the Philippines and that, although such franchise
was later on obtained from the Mission Dry Corporation, it
was he, the defendant, and not the plaintiff, who obtained it.
He also presented a counterclaim for P200,000 as damages.
Consequently, the principal questions which will have to be
decided in this case are: fi rst, whether or not the plaintiff had
falsely represented that he had the exclusive franchise to bottle
Mission beverages in the Philippines; and second, whether this
false representation, if it existed, annuls the agreement to form
a partnership. Holding that there was breach of contract on the
part of the defendant as well as misrepresentation on the part
of the plaintiff, the Supreme Court, speaking through Justice
Labrador, ruled:
We now come to the legal aspect of the false representation.
Does it amount to a fraud that would vitiate the contract?
It must be noted that fraud is manifested in illimitable number
of degrees or gradations, from the innocent praises of a salesman
about the excellence of his wares to those malicious machinations
and representations that the law punishes as a crime. In
consequence, Article 1270 (now Art. 1344) of the Civil Code distinguishes
two kinds of (civil) fraud or dolo the causal fraud
which may be a ground for the annulment of a contract, and the
incidental deceit, which only renders the party who employs it
liable for damages. This Court has held that in order that fraud

may vitiate consent, it must be the causal (dolo causante), not

merely the incidental (dolo incidente), inducement to the making
of the contract. The record abounds with circumstances in
dicative of the fact that the defendant was led to the belief that
plaintiff had the exclusive franchise, but that the same was to
be secured for or transferred to the partnership. The plaintiff
no longer had the exclusive franchise, or the option thereto, at
the time the contract was perfected. But while he had already
lost his option thereto (when the contract was entered into), the
principal obligation that he assumed or undertook was to secure
said franchise for the partnership, as the bottler and distributor
for the Mission Dry Corporation. We declare, therefore, that if
he was guilty of a false representation, this was not the causal
consideration, or the principal inducement, that led defendant
to enter into the partnership agreement. But, on the other hand,
this supposed ownership of an exclusive franchise was actually
the consideration or price plaintiff gave in exchange for the
share of 30% granted him in the net profi ts of the partnership
business. Defendant agreed to give plaintiff 30% share in the
net profi ts because he was transferring his exclusive franchise
to the partnership.
We conclude from the above that while the representation
that plaintiff had the exclusive franchise did not vitiate
defendants consent to the contract, it was used by plaintiff to
get from defendant a share of 30% of the net profi ts; in other
words, by pretending that he had the exclusive franchise and
promising to transfer it to defendant, he obtained the consent
of the latter to give him (plaintiff) a big slice in the net profi ts.
This is the dolo incidente defi ned in Article 1270 (now Art. 1344)
of the Civil Code, because it was used to get the other partys
consent to a big share in the profi ts, an incidental matter in the
agreement.
The last question for us to decide is that of damages, damages
that plaintiff is entitled to receive because of defendants
refusal to form the partnership, and damages that defendant is
also entitled to collect because of the falsity of plaintiffs representation.
Under Article 1106 (now Art. 2200) of the Civil Code,
the measure of damages is the actual loss suffered and the profits
reasonably expected to be received embraced in the terms
dao emergente and lucro cesante. Plaintiff is entitled under the
terms of the agreement to 30% of the net profi ts of the business.
Against this amount of damages, we must set off the damage
defendant suffered by plaintiffs misrepresentation that he had
the exclusive franchise, by which misrepresentation he obtained
a very high percentage of share in the profi ts.
Blas vs. Santos
1 SCRA 899
Simeon Blas married Marta Cruz in 1898. Out of this
marriage there were three children. The following year after
Martas death, Simeon contracted a second marriage with
Maxima Santos. There were no children out of this marriage. At

the time of the second marriage, no liquidation of the properties

of the fi rst marriage was made. On Dec. 26, 1936, only over a
week before his death on Jan. 9, 1937, Simeon executed a will
declaring all of his properties as conjugal and giving one-half
thereof to Maxima as her share. On the same date, Maxima
signed a notarized document, stating that she had read the will
of her husband and that she promises to convey by will onehalf
of the share given to her to the children of her husband
by his previous marriage. As a result, the children of Simeon
by his fi rst marriage brought this action against the estate of
Maxima asking for the enforcement of the promise contained
in the document. It is now contended that the promise is not
enforceable because it lacks a suffi cient cause or consideration
and that, being a contract with respect to future inheritance, it
falls within the purview of the prohibition enunciated in Art.
1271 (now Art. 1347) of the Civil Code.
Held: Considering that the properties of the fi rst marriage
had not been liquidated, and the further fact that such properties
were actually included as conjugal properties of the second
marriage, it is clear that the document signed by Maxima is the
compromise defi ned in Art. 1809 ( now Art. 2128) of the Civil
Code. Its execution was ordered by the testator evidently to
prevent his heirs by his fi rst marriage from contesting his will
and demanding liquidation of the conjugal properties acquired
during his fi rst marriage. It is, therefore, a contract with a
suffi cient cause or consideration. Neither does the prohibition
enunciated in Art. 1271 (now Art. 1347) of the Civil Code
apply. What is prohibited under this article is a contract which
deals with 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. Here, the subject matters
of the contract signed by Maxima are well-defi ned properties,
existing at the time of the agreement.
In the case of Aurora Fe B. Camacho vs. CA et al., G.R.
No.127520, Feb. 9, 2007, the SC held that Arts. 1349 and 1460 of
the New Civil Code provide the guidelines in determining whether
or not the object of the contract is certain. In this case, the object of
the contract is a 5,000 sq.m.portion of Lot 261, Balanga Cadastre.
The failure of the parties to state the exact location in the contract is
of no moment. This is a mere error occasioned by the parties fsilure
to describe with particularity the subject property, which does not
indicate the absence of the principal object as to render the contract
void. Since in this case, Camacho bound herself to deliver a potion
of Lot 261 to Atty. Banzon, the description of the property subject of
the contract is suffi cient to validate the same.
Liguez vs. Court of Appeals
102 Phil. 577
This is an action commenced by Conchita Liguez against
the widow and heirs of Salvador Lopez to recover a parcel of
land in their possession. The records show that Salvador Lopez,
a married man of mature years, donated the land to Conchita,

who was then a minor of 16, subject to the condition that she will
cohabit with him as his mistress. The donation was accepted
and Conchita became the donors mistress until his death.
Because defendants have advanced the defense of the nullity
of the contract by virtue of the illegality of the cause is of pure
benefi cence, the cause is actually the liberality of the donor;
hence, what is illicit or illegal is the motive of such donor and
not the cause of the contract, since liberality per se can never be
illegal. The Supreme Court, however, speaking through Justice
J.B.L. Reyes, held:
The fl aw in this argument lies in ignoring the fact that
the liberality of the donor is deemed causa only in contracts of
pure benefi cence; that is to say, contracts in which the idea of
self-interest is totally absent on the part of the transferor. Here
the facts demonstrate that in making the donation, the donor
was not moved exclusively by the desire to benefi t Conchita
Liguez, but also gratify his sexual impulse. Actually, therefore,
the donation was but one part of an onerous transaction that
must be viewed in its totality. Thus considered, the conveyance
was clearly predicated upon an illicit causa.
With respect to appellants contention regarding the
distinction between causa and motive, it is well to note that
Manresa himself (Vol. 8, pp. 641-642), while maintaining the
distinction, expressly excepts from the rule those contracts that
are conditioned upon the attainment of the motives of either
party. The same view is held by the Supreme Court of Spain in
its decisions of February 4, 1941, and December 4, 1946, holding
that the motive may be regarded as causa when it predetermines
the purpose of the contract. In the present case, it is scarcely
disputable that Lopez would not have conveyed the property in
question had he known that appellant would refuse to cohabit
with him; so that the cohabitation was an implied condition
to the donation and being unlawful, necessarily tainted the
donation itself.
However, since 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 fi nds them, has been interpreted as barring the party
from pleading the illegality of the bargain as a cause of action or
as a defense, appellant is, therefore, entitled to so much of the
donated property as may be found upon proper liquidation not
to prejudice the share of the widow or the legitimes of the forced
heirs.
Fisher vs. Robb
69 Phil. 101
The defendant was one of the organizers of a certain enterprise
known as the Philippine Greyhound Club, Inc. which
was formed for the purpose of introducing dog racing in the
Philippines, while the plaintiff was one of those who had invested
a certain sum of money in the venture. It appears that
this venture did not succeed, and, as a result, the defendant
wrote a letter to the plaintiff explaining the critical condition of

the company, and, at the same time, stating that he felt a moral
responsibility for those who had sent in the second payment of
their subscription and that he will see to it that stockholders
who had made such payment shall be reimbursed such amount
as soon as possible out of his own personal funds. This action
now is brought to enforce the obligation. The principal question
to be decided, among others, is whether there is a suffi cient
cause or consideration to justify the promise made by the defendant
in his letter. Answering this question in the negative, the
Supreme Court, speaking through Justice Villareal, held:
The contract sought to be judicially enforced by the
plaintiff appellee against the defendant is onerous in character,
because it supposes the deprivation of the latter of an amount
of money which impairs his property, which is a burden, and
for it to be legally valid it is necessary that it should have a
consideration consisting in the lending or promise of a thing or
service by such party. The defendant-appellant is required to
give a thing, namely the payment of the sum of P2,000, but the
plaintiff-appellee has not given or promised anything or service
to the former which may compel him to make such payment.
The promise which said defendant-appellant has made to the
plaintiff-appellee to return to him P2,000 which he had paid to
the Philippine Greyhound Club, Inc. as a second installment
of the amount of the shares for which he had subscribed, was
prompted by a feeling of pity which said defendant-appellant
had for the plaintiff-appellee as a result of the loss which the
latter had suffered because of the failure of the enterprise. The
obligation which the said defendant-appellant had contracted
with the plaintiff-appellee is, therefore, purely moral, and, as
such, is not demandable in law, but only in conscience, over
which human judges have no jurisdiction.
Villaroel vs. Estrada
71 Phil. 140
This was originally an action commenced by the plaintiff
(respondent) against the defendant (petitioner) for the purpose
of enforcing a contract entered into on August 9, 1930, by virtue
of which the defendant undertook to pay to the plaintiff a certain
debt which his deceased mother had incurred from the deceased
parents of the said plaintiff more than eighteen years ago. It is
submitted that this debt had already prescribed. The question
now is whether this action will prosper, considering that the
debt incurred by the defendants mother had already prescribed.
The Supreme Court, speaking through Justice Avancea, ruled:
The present action is not founded on the original obligation
contracted by the mother of the defendant, which had already
prescribed, but on that contracted by the defendant on August 9,
1930, in assuming the obligation which had already prescribed.
The defendant being the only heir of the original debtor with the
right to succeed in her inheritance, that debt lawfully contracted
by his mother, although it lost its effi cacy by prescription, is
nevertheless now a moral obligation as far as he is concerned,

a moral obligation which is a suffi cient consideration to create

and make effective and demandable the obligation which he had
voluntarily contracted on August 9, 1930.
The
contract may be voidable because of the inadequacy of the cause
or consideration, but certainly, it is not void or inexistent. Thus,
in Carantes vs. Court of Appeals,200 speaking through Chief Justice
Fred Ruiz Castro, the Supreme Court declared:
We do not agree with the respondent courts 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 contracts 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 fi ctitious 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.
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 defi nitely constitutes valuable consideration for the
contract.
The facts of this case are as follows: C, wife of A and daughter of B,
while employed in a pawnshop owned by X, embezzled the amount
of more than P2,000. In order to prevent her criminal prosecution, A
and B signed a document obligating themselves jointly and severally
to pay to X the amount embezzled including interest. Because of
their failure to comply with their promise, the latter fi led this action
against them. The Supreme Court, however, ruled:
We are of the opinion that the trial court was correct in
the conclusion that an action cannot be maintained upon this
contract. In our opinion, the consideration for this agreement is
clearly illicit, which fact is apparent on the face of the contract,
and the case is accordingly governed by Art. 1275 (now Art.
1352) of the Civil Code.
There has been no period since contract law reached
the state of consciousness, when the maxim ex turpi causa
non oritur actio was not recognized. A contract based upon

an unlawful object is and always has been void ab initio by

the common law, by the civil law, moral law, and all laws
whatsoever. It is immaterial whether the illegal character of
the contract is revealed in the matter of the consideration, in
the promise as expressed in the agreement or in the purpose
which the agreement, though legal in expression, is intended
to accomplish. If the illegality lurks in any element, or even
subsists exclusively in the purpose of the parties, it is fatal to
the validity of the contract.
By the universal consensus of judicial opinion in all ages
it has been considered contrary to public policy to allow parties
to make agreements designed to prevent or stifl e prosecutions
for crime. It is self-evident that the law cannot sanction
an engagement which is subversive of human society. The
machinery for the administration of justice cannot be used to
promote an unlawful purpose.
Mactal vs. Melegrito
111 Phil. 363
Plaintiff gave to defendant P1,770 to be used in the
purchase of palay, with the obligation to return said amount
within 10 days, if not spent for said purpose. The latter never
bought palay nor returned said amount. As a result, the former
accused him of estafa. When the case was about to be heard, a
common friend, acting upon defendants request, prevailed upon
plaintiff to move for the dismissal of the case and be contented
with a promissory note to be executed by the defendant. The note
was executed and, accordingly, the criminal case was dismissed.
Defendant, however, was unable to comply with his promise
despite repeated demands. Subsequently, plaintiff brought this
action against him for the recovery of the P1,770. Defendant
now contends that the promissory note is void because the
consideration thereof is the dismissal of the estafa case which is
certainly contrary to public policy.
Held: This contention is untenable. It is admitted that
defendant had received the P1,770 from plaintiff to be used for
the purchase of palay. The cause or consideration, therefore,
for the promise was the pre-existing debt of said defendant, not
the dismissal of the estafa case, which merely furnished the
occasion for the execution of the promissory note.
The project seeks to combine the spiritual system of the
Spanish Code and the principles of Anglo-American law as
manifested in the Statute of Frauds.
Examples when form is essential to validity are donations
of an immovable (Art. 749) and of a movable worth more than
P5,000 (Art. 748). Instances when a contract is unenforceable,
unless it be in a certain form, are those embodied in the Statute
of Frauds as formulated in Article 1403 of the project.
These exceptions are calculated to avoid litigation.
Oral contracts frequently lead to fraud in the fulfi llment of
obligations, or to false testimony. So long as the possibility of
dishonesty exists in contractual relations, the spiritual system

cannot be adopted in an unqualifi ed manner.

Dauden-Hernaez vs. De los Angeles
27 SCRA 1276
Marlene Dauden, a movie actress, fi led a complaint against
the Hollywood Far East Productions, Inc. and its President
and General Manager, Ramon Valenzuela, to recover P14,700
representing the balance of her compensation as leading actress
in two motion pictures produced by the defendant company.
Upon motion of defendants, the lower court dismissed the
complaint because the claim of plaintiff was not evidenced by
any written document, either public or private in violation of
Art. 1358 of the New Civil Code. As a last recourse, plaintiff
appealed to the Supreme Court on the ground that the court
below had abused its discretion.
Held: We hold that there was abuse, since the ruling herein
contested betrays a basic and lamentable misunderstanding
of the role of the written form in contracts, as ordained in the
present Civil Code.
In the matter of formalities, the contractual system of our
Civil Code still follows that of the Spanish Civil Code of 1889
and of the Ordenamiento de Alcala of upholding the spirit
and intent of the parties over formalities; hence, in general,
contracts are valid and binding from their perfection regardless
of form, whether they be oral or written. This is plain from
Articles 1315 and 1356 of the present Civil Code. To this general
rule, the Code admits two exceptions, to wit: (1) Contracts for
which the law itself requires that they be in some particular
form in order to make them valid and enforceable (the so called
solemn contracts). Examples of these are the contracts or
agreements contemplated in Arts. 748, 749, 1744, 1773, 1874,
1956, and 2134 of the present Civil Code. (2) Contracts that the
law requires to be proved by some writing (memorandum) of its
terms, as in those covered by the Statute of Frauds, now Art.
1403(2) of the Civil Code. Their existence not being probable 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 does not come
under either exception. It is true that it appears included in the
last clause of Art. 1358, but it nowhere provides that the absence
of written form in this case will make the agreement invalid or
unenforceable. On the contrary, Art. 1357 clearly indicates that
contracts covered by Art. 1358 are binding and enforceable by
action despite the absence of writing.
Wherefore, the order dismissing the complaint is set aside,
and the case is ordered remanded to the court of origin for further
proceedings not at variance with this decision.
Problem Spouses Robert and Yollie wanted to sell their
house. They found a prospective buyer, Nina. Yollie negotiated
with Nina for the sale of the property. They agreed on a fair price
of P2 Million. Nina sent Yollie a letter confi rming her intention

to buy the property. Later, another couple, Marius and Ellen ,

offered a similar house at a lower price of P1.5 Million. But Nina
insisted on buying the house of Robert and Yollie for sentimental
reasons. Nina prepared a deed of sale to be signed by the couple
and a managers check for P2 Million. After receiving the P2
Million, Robert signed the deed of sale. However, Yollie was not
able to sign it because she was saying she changed her mind.
Yollie fi led suit for nullifi cation of the deed of sale and for moral
and exemplary damages against Nina. Does Nina have any
cause of action against Robert and Yollie? (2006 Bar Problem)
Answer Considering that the contract has already been
perfected and taken out of the operation of the statute of frauds,
Nina can compel Robert and Yollie to observe the form required
by law in order for the property to be registered in the name of
Nina which can be fi led together with the action for the recovery
of house.(Art. 1357, NCC). In the alternative, she can recover
the amount of P2 Million that she paid. Otherwise, it would
result in solution indebiti or unjust enrichment.
Contracts of Adhesion. A contract of adhesion is defi ned
as one in which one of the parties imposes a ready made form of
contract, which the other party may accept or reject, but which the
latter cannot modify. (PCIB vs. CA, 255 SCRA 299.)
The Supreme Court ruled in the case of Ayala Corporation vs.
Ray Burton Development Corp., August 7, 1998, 294 SCRA 48, that
a contract of adhesion in itself is not an invalid agreement. This
type of contract is as binding as a mutually executed transaction.
The Supreme Court has emphatically ruled in the case of Ong Yiu
vs. Court of Appeals, et al., that contracts of adhesion wherein one
party imposes a ready-made form of contract on the other x x x
are contracts not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres he gives
his consent. This ruling was reiterated in Philippine American
General Insurance Co., Inc. vs. Sweet Lines, Inc., et al., wherein the
Supreme Court further declared through Justice Florenz Regalado
that not even an allegation of ignorance of a party excuses
noncompliance
with the contractual stipulations since the responsibility
for ensuring full comprehension of the provisions of a contract of
carriage (a contract of adhesion) devolves not on the carrier but on
the owner, shipper, or consignee as the case may be.
The Supreme Court continued to state in the above-cited case
that contracts of adhesion, however, stand out from other contracts
(which are bilaterally drafted by the parties) in that the former is
accorded inordinate vigilance and scrutiny by the courts in order to
shield the unwary from deceptive schemes contained in ready-made
covenants. As stated by the Court, speaking through Justice J.B.L.
Reyes, in Qua Chee Gan vs. Law Union and Rock Insurance Co.,
Ltd.: The courts cannot ignore that nowadays, monopolies, cartels
and concentration of capital, endowed with overwhelming economic
power, manage to impose upon parties dealing with them cunningly
prepared agreements that the weaker party may not change one with,

his participation in the agreement being reduced to the alternative

to take it or leave it labeled since Raymond Saleilles contracts
by adherence (contracts d adhesion) in contrast to those entered
into by parties bargaining on an equal footing. Such contracts (of
which policies of insurance and international bill of lading are prime
examples) obviously call for greater strictness and vigilance on the
part of the courts of justice with a view to protecting the weaker
party from abuses and imposition, and prevent their becoming traps
for the unwary.
The stringent treatment towards contracts of adhesion which
the courts are enjoined to observe is in pursuance of the mandate in
Article 24 of the New Civil Code that (i)n all contractual, property
or other relations, when one of the parties is at a disadvantage
on account of his moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, courts must be vigilant for
his protection. (Ayala Corporation vs. Ray Burton Development
Corp., 294 SCRA 48.)
The Supreme Court further ruled in the case of Ayala Corporation
vs. Ray Burton Development Corp. (RBDC), that the validity
and/or enforceability of a contract of adhesion will have to be detersituation of the parties concerned. In the instant case, the stipulations
in the Deed Restrictions and Special Conditions are plain
and unambiguous which leave no room for interpretation. Moreover,
there was even no attempt on the part of RBDC to prove that, in the
execution of the Deed of Sale on the subject lot, it was a weaker or a
disadvantaged party on account of its moral dependence, ignorance,
mental weakness or other handicap. On the contrary, as testifi ed to
by Edwin Ngo, President of RBDC, the latter is a realty fi rm and
has been engaged in realty business, and that he, a businessman for
30 years, represented RBDC in the negotiations and in the eventual
purchase of the subject lot from PALMCREST. Edwin Ngos testimony
proves that RBDC was not an unwary party in the subject
transaction. Instead, Edwin Ngo has portrayed RBDC as a knowledgeable
realty fi rm experienced in real estate business.
Problem (a) What is a contract of adhesion?
(b) Are contracts of adhesion void or prohibited?
Answer In the case of Development Bank of the
Philippines vs. Perez, G.R. No. 14854, Nov. 11, 2004, the Court
held that:
(a) A contract of adhesion is so-called because its terms
are prepared by only one party while the other party merely
affi xes his signature signifying his adhesion thereto.
(b) A contract of adhesion is just as binding as ordinary
contracts. It is true that we have, on occasion, struck down such
contracts as void when the weaker party is imposed upon in
dealing with the dominant bargaining party and is reduced to
the. Nevertheless, contracts of adhesion are not invalid per se;
they are not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres, he
gives his consent.
In the case of Sps. Francisco and Ruby Reyes vs. BPI

Family Savings Bank, Inc., et al., G. R. Nos. 149840-41, March

31,2006, where the petitioner spouses undertook to secure
the P15M loan of Transbuilders Resources & Development
Corporation to BPI-FSB and other credit accomodations of
whatever nature obtained by the Borrower/Mortgagor under
the Real Estate Mortgage they executed in favor of BPI-FSB,
the Supreme Court held that while the stipulation proved to be
onerous to the petitioners, neither the law nor the courts will
extricate a party from an unwise or undesirable contract entered
into with all the required formalities and with full awareness
of its consequences. Petitioners voluntarily executed the REM
on their property infavor of BPI-FSB to secure the loan. They
cannot now be allowed to repudiate their obligation to the bank
after Transbuilders default. While petitioners liability was
written in fi ne print and in a contract written by BPI-FSB, it
has been the consistent holding of the Court that contracts of
adhesion footing are not invalid per se. On numerous occasions,
the Supreme Court has upheld the binding effects of such
contracts.
Contracts of Credit Cards. In the case of Spouses
Ermitano vs. Court of Appeals, April 21, 1999, G.R. No. 127246, the
Supreme Court ruled that the contract between the parties is indeed
a contract of adhesion, so-called because its terms are prepared by
only one party while the other party merely affi xes his signature
signifying his adhesion thereto. Such contracts are not void in
themselves. They are as binding as ordinary contracts. Parties who
enter into such contracts are free to reject the stipulations entirely.
This Court will not hesitate to rule out blind adherence to such
contracts if they prove to be too one-sided under the attendant facts
and circumstances. Because of the peculiar nature of contracts of
adhesion, the validity thereof must be determined in the light of
the circumstances under which the stipulation is intended to apply.
For the cardholder to be absolved from liability for unauthorized
purchases made through his lost or stolen card, two steps must be
followed: (1) the cardholder must give written notice to the credit
card company, and (2) the credit card company must notify its
member establishments of such loss or theft, which, naturally, it
may only do upon receipt of a notice from the cardholder. Both the
cardholder and the credit card company, then, have a responsibility
to perform, in order to free the cardholder from any liability arising
from the use of a lost or stolen card. In this case, the cardholder
has complied with what was required of her under the contract
with credit card company. Having thus performed her part of the
notifi cation procedure, it was reasonable for the cardholder to
expect that the credit card company would perform its part of the
procedure, which is to forthwith notify its member-establishments.
Prompt notice by the cardholder to the credit card company of the
loss or theft of her card should be enough to relieve the former of
card. The questioned stipulation in this case, which still requires
the cardholder to wait until the credit card company has notifi ed all
its member-establishments, puts the cardholder at the mercy of the

credit card company which may delay indefi nitely the notifi cation
of its members to minimize if not to eliminate the possibility of
incurring any loss from unauthorized purchases. Or, as in this
case, the credit card company may for some reason fail to promptly
notify its members through absolutely no fault of the cardholder.
To require the cardholder to still pay for unauthorized purchases
after he has given prompt notice of the loss or theft of her card to the
credit card company would simply be unfair and unjust. The Court
cannot give its assent to such a stipulation that could clearly run
against public policy.
In the case of Emmanuel Aznar vs. Citibank, N.A. (Philippines),
G. R. No.164273, March 28, 2007, the Supreme Court held that the
terms and conditions of Citibanks Mastercard constitute a contract
of adhesion. It is settled that the contracts between cardholders
and the credit card companies are contracts of adhesion, so-called,
because their terms are prepared by only one party while the other
merely affi xes his signature signifying his adhesion thereto. In this
case, paragraph 7 of the terms and conditions states that Citibank is
not responsible if the card is not honoured by any merchant affi liate
for any reason. While it is true that Citibank may have no control
of all the actions of its merchant affi liates, and should not be held
liable therefor, it is incorrect, however, to give it blanket freedom
from liability if its card is dishonoured by any merchant affi liate
for any reason. Such phrase renders the statement vague and as
the said terms and conditions constitute a contract of adhesion, any
ambiguity in its provisions must be construed against the party who
prepared the contract, in this case Citibank.
Citibank also invokes paragraph 15 of its terms and conditions
which limits its liability to P1,000.00 or the actual damage proven,
whichever is lesser. Again, such stipulation cannot be considered as
valid for being unconscionable as it precludes payment of a larger
amount even though damage may be clearly proven. The Supreme
Court is not precluded from ruling out blind adherence to the terms
of a contract if the attendant facts and circumstances show that they
should be ignored for being obviously too one-sided.
These principles were reiterated by the SC in the case of
Manila Banking Corp. vs. Teodoro, Jr. (169 SCRA 95), where it
was held: The character of the transactions between the parties is
not, however, determined by the language used in the document
but by their intention. Thus, the Court, quoting from the American
Jurisprudence (68 2d, Secured Transaction, Section 50) said: The
character of the transaction between the parties is to be determined
by their intention, regardless of what language was used or what the
form of the transfer was. If it was intended to secure the payment
of money, it must be construed as a pledge. However, even though
a transfer, if regarded by itself, appears to have been absolute, its
object and character might still be qualifi ed and explained by a
contemporaneous writing declaring it to have been a deposit of the
property as collateral security. It has been said that a transfer of
property by the debtor to a creditor, even if suffi cient on its face to
make an absolute conveyance, should be treated as a pledge if the

debt continues in existence and is not discharged by the transfer,

and that accordingly, the use of the terms ordinarily importing
conveyance, of absolute ownership will not be given that effect in
such a transaction if they are also commonly used in pledges and
mortgages and therefore do not unqualifi edly indicate a transfer of
absolute ownership, in the absence of clear and ambiguous language
or other circumstances excluding an intent to pledge. (Lopez vs.
Court of Appeals, 114 SCRA 671 [1982].)
Further, in the case of Philippine National Construction Corporation
vs. The Hon. CA, et al., G.R. No. 159417, Jan.25,2007, the
Court held that the contract between parties is the formal expression
of the parties rights, duties and obligations. It is the best evidence
of the intention of the parties. Thus, when the terms of an
agreement have been reduced to writing, it is considered as containing
all the terms agreed upon and there can be , between the
parties and their successors in interest, no evidence of such terms
other than the contents of the written agreement. Furthermore, it
is a rule that if the terms of a contract are clear and leave no doubt
as to the intention of the contracting parties, the literal meaning
of its stipulation shall control. The contract is the law between the
parties and when the words of the contract are clear and can easily
be understood, there is no room for contruction (Olivares and Robles
vs. Sarmiento, G.R. 158384, June 12, 2008).
Problem What is the cardinal rule applicable in a case
where the terms of a contract are clear and leave no doubt upon
the intention of the contracting parties?
Answer It is a cardinal rule that if the terms of a
contract are clear and leave no doubt as to the intention of
the contracting parties, the literal meaning of its stipulation
shall control. In the case of Philippine National Construction
Corporation vs. The Hon. CA, et al., G.R. No. 159417, Jan.25,
2007, the Court held that the contract between parties is the
formal expression of the parties rights, duties and obligations.
It is the best evidence of the intention of the parties. Thus, when
considered as containing all the terms agreed upon and there
can be, between the parties and their successors in interest, no
evidence of such terms other than the contents of the written
agreement.
It is further required that the various stipulations of a
contract shall be interpreted together, attributing to the doubtful
ones that which may result from all of them taken jointly (Bobie
Rose V. Frias vs. Flora San Diego-Sison, G.R. No.155223, April
3, 2007)
Aquino vs. Taedo
31 Phil. 517
The records show that plaintiff purchased some lands
from the defendant and, as a consequence, took possession of the
same and collected their products. Subsequently, they dissolved
the contract of sale, and, as a result thereof, plaintiff returned
the lands, while defendant bound himself to return the part of
the purchase price which plaintiff has paid. The question now is

whether or not the plaintiff is obliged to return to the defendant

the products of the lands which he had collected during his
possession. The defendant contends that he is obliged, invoking
the provisions of Art. 1295 (now Art. 1385) of the Civil Code. The
Supreme Court, however, ruled:
The rescission mentioned in the contract is not the
rescission referred to in Article 1295 (now Art. 1385). Although
the plaintiff and the defendant employed the word rescind,
it has not, in the contract executed by them, either the scope
or the meaning of the word rescission to which Article 1295
(now Art. 1385) refers and which takes place only in the cases
mentioned in the preceding Articles, 1291 and 1292 (now Arts.
1381 and 1382). Rescission, in the light of these provisions, is
a relief which the law grants, on the premise that the contract
is valid, for the protection of one of the contracting parties and
third persons from all injury and damage that the contract may
cause, or to protect some incompatible and preferential right
created by the contract. Article 1295 (now Art. 1385) refers to
contracts that are rescissible in accordance with law in the cases
expressly fi xed thereby, but it does not refer to contracts that
are rescinded by mutual consent and for the mutual convenience
of the contracting parties. The rescission in question was not
originated by any of the causes specifi ed in Articles 1291 and
1292 (now Arts. 1381 and 1382), nor is it any relief for the
purposes sought by these articles. It is simply another contract
for the dissolution of a previous one, and its effects, in relation
to the contract so dissolved, should be determined by the
agreement made by the parties, or by the application of other
legal provisions, but not by Article 1295 (now Art. 1385), which
is not applicable.
Contracts in Behalf of Ward. The fi rst of the rescissible
contracts are those which are entered into by guardians whenever
the wards whom they represent suffer lesion or damage by more
than one-fourth of the value of the things which are the object
thereof.9 This is, however, without prejudice to the provision of Art.
1386 which states that rescission shall not take place with respect
to contracts approved by the courts.
It must be noted that under the Rules of Court, a judicial
guardian entering into a contract with respect to the property of
his ward must ordinarily secure the approval of a competent court.10
This is also true in the case of a father or mother considered as a
natural guardian of the property of a child under parental authority
where such property is worth more than two thousand pesos.11 As
a matter of fact, if the contract involves the sale or encumbrance of
real property, judicial approval is indispensable.12 Consequently, if
a guardian sells, mortgages or otherwise encumbers real property
belonging to his ward without judicial approval, the contract is
unenforceable,13 and not rescissible even if the latter suffers lesion
or damage of more than one-fourth of the value of the property.
However, if he enters into a contract falling within the scope of
his powers as guardian of the person and property, or only of the

property, of his ward, such as when the contract involves acts of

administration, express judicial approval is not necessary,14 in
which case the contract is rescissible if the latter suffers the lesion
or damage mentioned in No. 1 of Art. 1381 of the Code.
If the object of the contract is legally in the possession of a
third person who did not act in bad faith, the remedy available to
the creditor is to proceed against the person causing the loss for
damages.28
Accion pauliana 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; (2)
the debtor has made a subsequent contract conveying a patrimonial
benefi t to a third person; (3) the creditor has no other legal remedy
to satisfy his claim; (4) the act being impugned is fraudulent; (5) the
title, has been an accomplice in the fraud. 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. 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 retraoctive effect to the
date when the credit was constituted. (Citations omitted.) (Chief
Justice Davide, Jr., First Division, Siguan vs. Lim, G.R. No. 134685,
November 19, 1999.)
An interesting question arises with respect to the payment of
an obligation which is subject to a suspensive period. Let us assume
that A is indebted to B for P10,000 and to C for P5,000. Let us say
that the obligation in favor of C is subject to a suspensive period.
While in a state of insolvency, A pays his obligation to C before the
expiration of the term or period. Can B rescind the payment? Under
Art. 1382, there is no question that the payment is rescissible, but
then this conclusion would be in direct confl ict with the provision of
No. 1 of Art 1198 of the Code under which A can be compelled by C to
pay the obligation even before the expiration of the stipulated term
or period since by his insolvency he has already lost his right to the
benefi t of such term or period. According to Manresa, however, the
confl ict can easily be resolved by considering the priority of dates
between the two debts. If the obligation with a period became due
before the obligation to the creditor seeking the rescission became
due, then the latter cannot rescind the payment even if such payment
was effected before the expiration of the period; but if the obligation
with a period became due after the obligation to the creditor seeking
the rescission became due, then the latter can rescind the payment.34
Sikatuna vs. Guevara
45 Phil. 371

The records show that a contract of a lease of certain lot

situated in Manila was entered into between the partnership
Jacinto, Palma y Hnos, as lessor, and Potenciana Guevara, as
lessee. This contract contained an option by which the lessor
is given the right to purchase within a period of one year from
the time of the execution thereof a house which the lessee had
constructed on the lot, but in case of failure to exercise such
right, the lessee is given the right to purchase the lot. The period
for the option having expired without the lessor exercising its
right, Guevara offered to purchase the lot, but the said lessor
refused. In view of such refusal, Guevara brought an action to
compel the lessor to sell the lot to her. There was, however, no
notice of the commencement of such action fi led with the offi ce
of the Register of Deeds. During the pendency of such case, the
aforesaid lessor sold the lot under litigation to the Sikatuna
Corporation. This sale was recorded in the Registry in accordance
with Act No. 496, otherwise known as the Land Registration
Act. Subsequently, judgment was rendered in the civil case in
favor of Guevara, but it was not executed because the lot had
already been sold to the Sikatuna Corporation. Later, the new
owner ordered Guevara to vacate the premises. Having declined
to do so, the corporation commenced these proceedings against
her for unlawful detainer. In her answer, she contended that
since the contract involves the sale of property under litigation
without the approval of the litigants or of competent judicial
authority, it should be rescinded. This contention was upheld by
the lower court. The Supreme Court, speaking through Justice
Romualdez, however, ruled:
As the appellant rightfully contends the rescission
of the sale does not lie in the present case because the
property is now in the legal possession of a third person
who has not acted in bad faith. There is no doubt but that
in this case the plaintiff corporation has the character of a
third person, and it has not been shown that it had acted
in bad faith.
This case has a special circumstance in that it deals
with property registered under the Land Registration Act
No. 496, Section 78, which provides that acts concerning
properties registered under the law shall affect only the
parties litigant, unless a notice of the commencement of
the action is recorded, which does not appear to have been
done in the case before us. There was, therefore, no legal
obstacle to the transfer of the title of the said property,
and for this special reason the said transfer cannot be
rescinded
Cabaliw vs. Sadorra
64 SCRA 310
Isidora Cabaliw was the wife of Benigno Sadorra by his
second marriage solemnized on May 5, 1915, before the Justice
of the Peace of Bayambang, Pangasinan. This couple had a
daughter named Soledad Sadorra. During their marriage, the

spouses acquired two (2) parcels of land situated in Iniangan,

Dupax, Nueva Vizcaya. One parcel with an area of 14.4847
hectares was acquired by a Sales Patent and covered by Original
Certifi cate of Title No. 1 of the Land Records of Nueva Vizcaya
issued in the name of Benigno Sadorra. The other piece of land
about 1-1/2 hectares and covered by Tax Declaration Nos. 6209
and 6642 was secured through purchase.
Having been abandoned by her husband, Isidora Cabaliw
instituted an action for support with the Court of First Instance
of Manila, entitled Isidora Cabaliw de Orden versus Benigno
Sadorra docketed therein as Civil Case No. 43193. On January
30, 1933, judgment was rendered requiring Benigno Sadorra to
pay his wife, Isidora Cabaliw, the amount of P75.00 a month in
terms of support as of January 1, 1933, and P150.00 in concept
of attorneys fees and the costs.
Unknown to Isidora Cabaliw, on August 19, 1933, Benigno
Sadorra executed two (2) deeds of sale over the two parcels of
land above described in favor of his son-in-law, Sotero Sadorra,
the latter being married to Encarnacion Sadorra, a daughter of
Benigno Sadorra by his fi rst marriage. These deeds were duly
registered and Original Certifi cate of Title No. 1 was cancelled
and replaced with T.C.T. No. 522 of the Register of Deeds of
Nueva Vizcaya.
Because of the failure of her husband to comply with
the judgment of support, Isidora Cabaliw fi led in Civil Case
43192 a motion to cite Benigno Sadorra for contempt and the
Court of First Instance of Manila in its Order of May 12, 1937,
authorized Isidora to take possession of the conjugal property,
to administer the same, and to avail herself of the fruits thereof
in payment of the monthly support in arrears. With this order of
the Court, Isidora proceeded to Nueva Vizcaya to take possession
of the aforementioned parcels of land, and it was then that she
discovered that her husband had sold them to his son-in-law
Sotero.
On February 1, 1940, Isidora fi led with the Court of First
Instance of Nueva Vizcaya Civil Case No. 449 against her
husband and Sotero Sadorra for the recovery of the lands in
question on the ground that the sale was fi ctitious; at the same
time a notice of lis pendens was fi led with the Register of Deeds
of Nueva Vizcaya.
In May of 1940, Benigno Sadorra died.
On June 7, 1948, the above-mentioned notice of lis pendens
was cancelled by the Register of Deeds of Nueva Viscaya upon
the fi ling of an affi davit by Sotero Sadorra to the effect that Civil
Case No. 449 had been decided in his favor and that he was
adjudged the owner of the land covered by T.C.T. No. 522, but
that his copy of the decision was lost during the war.
On October 1, 1954, Isidora and her daughter Soledad
fi led with the Court of First Instance of Nueva Vizcaya Civil
Case 634 to recover from the spouses Sotero and Encarnacion
Sadorra the aforementioned two parcels of land; they also

caused the annotation of a cautionary notice and notice of lis

pendens over T.C.T. 522.
On November 22, 1955, the complaint was amended
and named additional party-defendants were the children of
Benigno Sadorra by his fi rst marriage. The amended complaint
prayed among others: (1) that the deeds of sale executed by
Benigno Sadorra be declared null and void; (2) that defendantspouses
Sotero and Encarnacion Sadorra be directed to yield
the possession of the lands in question; and (3) that said lands
be ordered partitioned among plantiffs and defendants who
are children by the fi rst marriage of Benigno Sadorra in the
proportions provided by law.
During the pendency of Civil Case 634 certain parties
intervened claiming that they had purchased parts of the land
covered by T.C.T. 522.
After trial, the lower court rendered judgment and among
other things: (1) declared the deed of sale executed by Benigno
Sadorra to be simulated and fi ctitious; (2) recognized and upheld
the rights of the intervenor-purchasers who acquired their
portions prior to the registration of the notice of lis pendens on
October 1, 1954, but dismissed the claims of the intervenors who
allegedly bought parts of the land subsequent thereto; and (3)
ordered the partition of the remaining unsold lands between
Isidora Cabaliw, Sotero Sadorra, on one hand and the children
by the fi rst marriage of Benigno Sadorra on the other.
From the foregoing decision of the lower court in Civil
Case 634 spouses Sotero and Encarnacion Sadorra appealed to
the Court of Appeals and so did the intervenors whose claims
were dismissed. (CA-G.R. No. 26956-R.) On November 29, 1965,
the appellate court by a vote of 3 to 2 reversed the decision of
the trial court, and dismissed the amended complaint of Isidora
Cabaliw.
Hence, this petition fi led by Isidora Cabaliw and her
daughter, Soledad Sadorra, for the Court to review the adverse
judgment of the Court of Appeals
The Supreme Court, speaking through Justice Muoz
Palma, held:
The Court of Appeals sustained the validity and
effi cacy of the deeds of sale executed by Benigno Sadorra
in favor of his son-in-law (Exhibits I and I-1) on the
ground that these are public documents and as such are
presumed by law to have been fair and legal; that the
vendee Sotero Sadorra is presumed to have acted in good
faith, citing Art. 44, Spanish Civil Code, Art. 627, New
Civil Code; that fraud is never presumed, and it is settled
in this jurisdiction that strong and convincing evidence is
necessary to overthrow the validity of an existing public
instrument. The appellate court continued that inasmuch
as under the old Civil Code in force at the time of the sale,
the husband was empowered to dispose of the conjugal
property without the consent of the wife, the sales made by

Benigno Sadorra were valid, and the wife Isidora cannot

now recover the property from the vendee.
The judgment of the Court of Appeals cannot be sustained.
The facts narrated in the fi rst portion of this Decision
which are not disputed, convincingly show or prove that the
conveyances made by Benigno Sadorra in favor of his son-in-law
were fraudulent. For the heart of the matter is that about seven
months after a judgment was rendered against him in Civil Case
No. 43192 of the Court of First Instance of Manila and without
paying any part of that judgment, Benigno Sadorra sold the only
two parcels of land belonging to the conjugal partnership to his
son-in-law. Such a sale even if made for a valuable consideration
is presumed to be in fraud of the judgment creditor who in this
case happens to be the offended wife.
Article 1297 of the old Civil Code (now Art. 1387 of the
New Civil Code) which was the law in force at the time of the
transaction provides:
Contracts by virtue of which the debtor alienates
property by gratuitous title are presumed to be made in
fraud of creditors.
Alienations by onerous title are also presumed
fraudulent when made by persons against whom some
judgment has been rendered in any instance or some writ
of attachment has been issued. The decision or attachment
need not refer to the property alienated and need not have
been obtained by the party seeking rescission. (Emphasis
supplied.)
The above-quoted legal provision was totally disregarded
by the appellate court, and there lies its basic error.
We agree with petitioners that the parties here do not stand
in equipoise, for the petitioners have in their favor, by a specifi c
provision of law, the presumption of fraudulent transaction
which is not overcome by the mere fact that the deeds of sale
in question were in the nature of public instruments. As well
said in the dissenting opinion of Justice Magno Gatmaitan, the
principle invoked by the majority opinion that to destroy the
validity of an existing public document strong and convincing
evidence is necessary operates where the action was brought
by one party against the other to impugn the contract . . . but
that rule can not operate and does not, where the case is one
wherein in the suit is not between the parties inter se but is
one instituted by a third person, not a party to the contract but
precisely the victim of it because executed to his prejudice and
behind his back; neither law, nor justice, nor reason, nor logic,
should so permit, otherwise, in such case, the courts would be
furnishing a most effective shield of defense to the aggressor.
(pp. 30-31, CA Decision)
Furthermore, the presumption of fraud established by the
law in favor of petitioners is bolstered by other indicia of bad
faith on the part of the vendor and vendee. Thus (1) the vendee
is the son-in-law of the vendor. In the early case of Regalado

vs. Luchsinger & Co., 5 Phil. 625, this Court held that the close
relationship between the vendor and the vendee is one of the
known badges of fraud. (2) At the time of the conveyance, the
vendee, Sotero, was living with his father-in-law, the vendor,
and he knew that there was a judgment directing the latter to
give a monthly support to his wife Isidora and that his fatherinlaw was avoiding payment and execution of the judgment.
(3) It was known to the vendee that his father-in-law had no
properties other than those two parcels of land which were
being sold to him. The fact that a vendor transfers all of his
property to a third person when there is a judgment against him
is a strong indication of a scheme to defraud one who may have
a valid interest over his properties.
Added to the above circumstances is the undisputed fact
that the vendee Sotero Sadorra secured the cancellation of the
lis pendens on No. O.C.T. 1, which was annotated in 1940 at
the instance of Isidora Cabaliw, and the issuance of a transfer
certifi cate of title in his favor, by executing an affi davit (Exhibit
H) on June 7, 1948, wherein he referred to Isidora as the late
Isidora Cabaliw when he knew for a fact that she was alive,
and alleged that Civil Case 449 of the Court of First Instance
of Nueva Vizcaya was decided in his favor where in truth there
was no such decision because the proceedings in said case
were interrupted by the last world war. Such conduct of Sotero
Sadorra reveals, as stated by the lower court, an utter lack of
sincerity and truthfulness and belies his pretensions of good
faith.
On the part of the transferee, he did not present satisfactory
and convincing evidence suffi cient to overthrow the
presumption and evidence of a fraudulent transaction. His is
the burden of rebutting the presumption of fraud established
by law, and having failed to do so, the fraudulent nature of the
conveyance in question prevails.
The decision of the Court of Appeals makes mention of Art.
1413 of the old Civil Code (now Art. 166 of the New Civil Code)
which authorizes the husband as administrator to alienate and
bind by onerous title the property of the conjugal partnership
without the consent of the wife, and by reason thereof concludes
that petitioner Isidora Cabaliw can not now seek annulment
of the sale made by her husband. On this point, counsel for
petitioners rightly claims that the lack of consent of the wife
to the conveyances made by her husband was never invoked
nor placed in issue before the trial court. What was claimed all
along by plaintiff, Isidora Cabaliw now petitioner, was that the
conveyances or deeds of sale were executed by her husband to
avoid payment of the monthly support adjudged in her favor and
to deprive her of the means to execute said judgment. In other
words, petitioner seeks relief not so much as an aggrieved wife
but more as a judgment creditor of Benigno Sadorra. Art. 1413
therefore is inapplicable; but even if it were, the result would
be the same because the very article reserves to the wife the

right to seek redress in court for alienations which prejudice her

or her heirs. The undisputed facts before Us clearly show that
the sales made by the husband were merely a scheme to place
beyond the reach of the wife the only properties belonging to the
conjugal partnership and deprive her of what rightly belongs to
her and her only daughter Soledad.
Honrado vs. Marcayda, et al.
49 Off. Gaz. 1492, C.A.
This is an action commenced by plaintiff against the
defendants for the rescission of a contract of sale on the ground
that such contract was entered into in fraud of creditors. The
records show that Felipe Lotivio purchased a parcel of land from
Luisa Marcayda for P1,000, although at the time the contract
was executed there was already a judgment in favor of the
plaintiff against the latter with regard to the property and a writ
of attachment had already been issued. The plaintiff contends
that the sale is fraudulent in accordance with the rule stated in
the second paragraph of Art. 1297 (now Art. 1387) of the Civil
Code; the defendant Felipe Lotivio, on the other hand, contends
that he is a purchaser in good faith and for value. Consequently,
the questions upon which this case hinges are (1) whether or not
Felipe Lotivio was a purchaser in good faith and for value, and
(2) if he is, whether or not the contract of sale executed could be
rescinded.
Held: The sale was consummated on January 6, 1936, in
consideration of P1,000. Original certifi cate of title No. 14567
showed that the land was free from any lien or encumbrance.
Felipe Lotivio was not, under the law, supposed to go farther to
fi nd out whether the land has any other lien not appearing on
the face of the title as held in the cases of Reynes vs. Barrera, 68
Phil. 656; Hernandez vs. Vda. de Salas, 69 Phil. 744; Visayan
Surety and Insurance Corp. vs. Verzosa, 72 Phil. 362. It is well
settled that when the property sold on execution is registered
under the Torrens system, registration is the operative act
that gives validity to the transfer or creates a lien on the land
and a purchaser on execution is not required to go behind the
registry to determine the condition of the property, and he is
only charged with notice of the burdens of the certifi cate of title.
To require him to do more is to defeat one of the primary objects
of the Torrens system.
In the present case, the writ of attachment issued by the
justice of the peace court of Daraga, Albay was not annotated
on the back of the original certifi cate of title. True enough that
it was fi led with the offi ce of the Register of Deeds of Albay,
but such fact is not a notice to the whole world. Consequently,
such unregistered order of attachment does not create any lien
or burden upon the land in question.
The valuable consideration of P1,000 paid to Luisa
Marcayda by Felipe Lotivio, who does not appear to be her
relative is, in our opinion, not small for the property since its
improvements are assessed at no less than P800. It is fi tting to

apply in this case the principle of innocent purchaser for value

as declared and applied in the case of Bailon vs. Cacias, et al.,
40 Off. Gaz., p. 1896, August, 1941.
According to our Supreme Court in the case of Cui, et
al. vs. Henson, 51 Phil. 600: A purchaser in good faith is one
who buys property of another without notice that some other
person has a right to, or an interest in, such property and pays a
full and fair price for the same, at the time of such purchase, or
before he has notice of the claim or interest of some other person
in the property. Good faith consists in an honest intention to
abstain from taking any unconscientious advantage of another.
Good faith is the opposite of fraud and of bad faith and its
nonexistence must be established by competent proofs.
Tested by these doctrines, we hold and declare that
defendant Felipe Lotivio was, under the foregoing circumstances,
a purchaser in good faith and for value; and for this reason, we
also hold that the presumption of fraud as contemplated in
Article 1297 of the old Civil Code (now Art. 1387 of the new
Civil Code) can be considered overcome and overthrown as held
in the cases of Pea vs. Mitchell, 9 Phil. 587; Guash vs. Espiritu,
11 Phil. 184; Kuenkle vs. Watson & Co., 13 Phil. 26; Golinko vs.
Monjardin, 31 Phil. 643; Asia Banking Corp. vs. Corcuera, 51
Phil. 781.
Therefore, the contract of sale, for the reasons above
stated, is not rescissible
Thus, where it is proved that a certain corporation, which is
heavily indebted to a certain bank, sold a large tract of land worth
P400,000 to the vendee for only P36,000 in spite of the fact that at
the time of such sale it did not have any liquidated assets and that
all of its other assets were pledged or mortgaged, some of which were
for far more than their actual value, such circumstances would be
suffi cient to establish the fraudulent character of the conveyance.71
Consequently, the sale can be set aside by means of an action for
rescission at the instance of the creditor. But where the sale is
founded on a fi ctitious cause or consideration it would be futile for
such creditor to invoke its rescission since such action presupposes
the existence of a valid, not inexistent, contract.72 The remedy of the
creditor in such case would be to ask for a declaration of nullity of
the conveyance.
Similarly, where it is proved that the person to whom the
property conveyed is a son of the transferor or a mother-in-law or a
near relative, coupled with the fact that at the time of the transfer
or conveyance the said transferor was fi nancially embarrassed
or had no other means with which he could settle his personal
obligations, the weight of evidence would be suffi cient to justify a
decree of rescission on the ground of fraud.73 The evidence becomes
more conclusive if the fact of relationship between the vendor
and the vendee is aggravated by the fact that the conveyance was
made in secrecy and for an inadequate consideration at a time
when the vendor had no other means with which he could settle
his obligations.74 It must be noted, however, that the mere fact of

relationship between vendor and vendee, as when the vendor is the

vendees mother, is not in itself an element of fraud, if the sale was
made for a valuable consideration and said vendor was not at the
time of the conveyance insolvent.75
Rivera vs. Li Tam & Co.
4 SCRA 1072
Rafael Li Tam died intestate, survived by his wife, Marcosa
Rivera, and several children by a Chinese wife. Marcosa fi led
a claim for P252,658.33 against the intestate which the court
approved on the strength of a deed wherein the decedent
acknowledged said indebtedness to his wife. Thereafter,
Arminio Rivera, administrator of the estate, proceeded against
the defendant company for an accounting of the income derived
from the shares of stock owned by the decedent in said company.
In answer, defendant company alleged that the decedent was
no longer a stockholder in said company, having transferred
his shares to his children by his Chinese wife. Hence, Rivera
brought this action asking for the rescission of the transfer on
the ground that it was made in fraud of creditors.
Held: The fraudulent character of the transfer is clearly
inferable from the facts that the transferees are the decedents
own children, that no consideration was given for the transfer,
that the corporation was the business of the decedent, and
that he has an outstanding obligation of more than P250,000
with his wife which he had invested in the corporation. And to
complete the fraudulent scheme, the defendants dissolved the
old corporation and formed a new one for no apparent reason. In
view of such fraud, the transfer is, therefore, of no effect.
Felipe vs. Heirs of Aldon
120 SCRA 628
Maximo Aldon married Gimena Almosara in 1936. The
spouses bought several pieces of land sometime between 1948
and 1950. In 1960-62, the lands were divided into three lots,
1370, 1371 and 1415 of the San Jacinto Public Land Subdivision,
San Jacinto, Masbate.
In 1951, Gimena Almosara sold the lots to the spouses
Eduardo Felipe and Hermogena V. Felipe. The sale was made
without the consent of her husband, Maximo.
On April 26, 1976, the heirs of Maximo Aldon, namely his
widow Gimena and their children Sofi a and Salvador Aldon,
fi led a complaint in the Court of First Instance of Masbate
against the Felipes. The complaint which was docketed as Civil
Case No. 2372 alleged that the plaintiffs were the owners of Lots
1370, 1371 and 1415; that they had orally mortgaged the same
to the defendants; and an offer to redeem the mortgage had been
refused so they fi led the complaint in order to recover the three
parcels of land.
The defendants asserted that they had acquired the lots
from the plaintiffs by purchase and subsequent delivery to
them. The trial court sustained the claim of the defendants and
rendered the following judgment:

a. declaring the defendants to be the lawful owners of

the property subject of the present litigation;
b. declaring the complaint in the present action to be
without merit and is therefore hereby ordered dismissed;
c. ordering the plaintiffs to pay to the defendants the
amount of P2,000.00 as reasonable attorneys fees and to pay
the costs of the suit.
The ratio of the judgment is stated in the following
paragraphs of the decision penned by Justice Edgardo L. Paras
with the concurrence of Justices Venicio Escolin and Mariano A.
Zosa:
One of the principal issues in the case involves the
nature of the aforementioned conveyance or transaction,
with appellants claiming the same to be an oral contract of
mortgage or antichresis, the redemption of which could be
done anytime upon repayment of the P1,800.00 involved
(incidentally the only thing written about the transaction
is the aforementioned receipt re the P1,800). Upon the
other hand, appellees claim that the transaction was one of
sale, accordingly, redemption was improper. The appellees
claim that plaintiffs never conveyed the property because
of a loan or mortgage or antichresis and that what really
transpired was the execution of a contract of sale through
a private document designated as a Deed of Purchase
and Sale (Exhibit 1), the execution having been made
by Gimena Almosara in favor of appellee Hermogena V.
Felipe.
After a study of this case, we have come to the
conclusion that the appellants are entitled to recover the
ownership of the lots in question. We so hold because
although Exh. 1 concerning the sale made in 1951 of the
disputed lots is, in Our opinion, not a forgery the fact is
that the sale made by Gimena Almosara is invalid, having
been executed without the needed consent of her husband,
the lots being conjugal. Appellees argument that this
was an issue not raised in the pleadings is baseless,
considering the fact that the complaint alleges that the
parcels were purchased by plaintiff Gimena Almosara and
her late husband Maximo Aldon (the lots having been
purchased during the existence of the marriage, the same
are presumed conjugal) and inferentially, by force of law,
could not be disposed of by a wife without her husbands
consent.
The defendants are now the appellants in this petition
for review. They invoke several grounds in seeking the reversal
of the decision of the Court of Appeals. One of the grounds is
factual in nature; petitioners claim that respondent Court of
Appeals has found as a fact that the Deed of Purchase and Sale
therefore its authenticity and due execution is already beyond
question. We cannot consider this ground because as a rule
only questions of law are reviewed in proceedings under Rule

45 of the Rules of Court subject to well-defi ned exceptions not

present in the instant case.
The legal ground which deserves attention is the legal
effect of a sale of lands belonging to the conjugal partnership
made by the wife without the consent of the husband.
It is useful at this point to re-state some elementary rules:
The husband is the administrator of the conjugal partnership.
(Art. 165, Civil Code) Subject to certain exceptions, the husband
cannot alienate or encumber any real property of the conjugal
partnership without the wifes consent. (Art. 166, Idem.) And
the wife cannot bind the conjugal partnership without the
husbands consent, except in cases provided by law. (Art. 172,
Idem.)
In the instant case, Gimena, the wife, sold lands belonging
to the conjugal partnership without the consent of the husband
and the sale is not covered by the phrase except in cases
provided by law. The Court of Appeals described the sale as
invalid a term which is imprecise when used in relation
to contracts because the Civil Code uses specifi c names in
designating defective contracts, namely rescissible (Arts. 1380,
et seq.), voidable (Arts. 1390, et seq.), unenforceable (Arts. 1403,
et seq.), and void or inexistent (Arts. 1409, et seq.)
The sale made by Gimena is certainly a defective contract
but of what category? The answer: it is a voidable contract.
According to Art. 1390 of the Civil Code, among the voidable
contracts are Those where one of the parties is incapable of
giving consent to the contract. (Par. 1.) In the instant case
Gimena had no capacity to give consent to the contract of sale.
The capacity to give consent belonged not even to the husband
alone but to both spouses.
The view that the contract made by Gimena is a voidable
contract is supported by the legal provision that contracts
entered by the husband without the consent of the wife when
such consent is required, are annullable at her instance
during the marriage and within ten years from the transaction
questioned. (Art. 173, Civil Code.)
Gimenas contract is not rescissible for in such contract all
the essential elements are untainted but Gimenas consent was
because it does not fi t any of those described in Art. 1403 of the
Civil Code. And fi nally, the contract cannot be void or inexistent
because it is not one of those mentioned in Art. 1409 of the Civil
Code. By process of elimination, it must perforce be a voidable
contract.
The voidable contract of Gimena was subject to annulment
by her husband only during the marriage because he was the
victim who had an interest in the contract. Gimena, who was the
party responsible for the defect, could not ask for its annulment.
Their children could not likewise seek the annulment of the
contract while the marriage subsisted because they merely had
an inchoate right to the lands sold.
The termination of the marriage and the dissolution of

the conjugal partnership by the death of Maximo Aldon did not

improve the situation of Gimena. What she could not do during
the marriage, she could not do thereafter.
The case of Sofi a and Salvador Aldon is different. After
the death of Maximo they acquired the right to question the
defective contract insofar as it deprived them of their hereditary
rights in their fathers share in the lands. The fathers share
is one-half (1/2) of the lands and their share is two-thirds (2/3)
thereof, one-third (1/3) pertaining to the widow.
The petitioners have been in possession of the lands since
1951. It was only in 1976 when the respondents fi led action to
recover the lands. In the meantime, Maximo Aldon died.
Two questions come to mind, namely: (1) Have the
petitioners acquired the lands by acquisitive prescription? (2)
Is the right of action of Sofi a and Salvador Aldon barred by the
statute of limitations?
We would like to state further that appellees
[petitioners herein] could not have acquired ownership
of the lots by prescription in view of what we regard as
their bad faith. This bad faith is revealed by testimony
to the effect that defendant-appellee Vicente V. Felipe
(son of appellees Eduardo Felipe and Hermogena V.
Felipe) attempted in December in 1970 to have Gimena
Almosara sign a ready-made document purporting to sell
the disputed lots to the appellees. This actuation clearly
indicated that the appellees knew the lots did not still
belong to them, otherwise, why were they interested in a
document of sale in their favor? Again why did Vicente
V. Felipe tell Gimena that the purpose of the document
was to obtain Gimenas consent to the construction of an
irrigation pump on the lots in question? The only possible
reason for purporting to obtain such consent is that the
appellees knew the lots were not theirs. Why was there
an attempted improvement (the irrigation tank) only in
1970? Why was the declaration of property made only in
1974? Why were no attempts made to obtain the husbands
signature, despite the fact that Gimena and Hermogena
were close relatives? All these indicate the bad faith of the
appellees. Now then, even if we were to consider appellees
possession in bad faith as possession in the concept of
owners, this possession at the earliest started in 1951,
hence the period for extraordinary prescription (30 years)
had not yet lapsed when the present action was instituted
on April 26, 1976.
As to the second question, the childrens cause of action
accrued from the death of their father in 1959 and they had
thirty (30) years to institute it (Art. 1141, Civil Code). They fi led
action in 1976 which is well within the period.
In the case of Guiang vs. Court of Appeals (June 26, 1998,
291 SCRA 372), the Supreme Court clearly stated that Article
1390, par. 2, refers to contracts visited by vices of consent,

i.e., contracts which were entered into by a person whose

consent was obtained and vitiated through mistake, violence,
intimidation, undue infl uence or fraud. In the said case, private
respondents consent to the contract of sale of their conjugal
property was totally inexistent or absent. x x x This being the
case, said contract properly falls within the ambit of Article
124 of the Family Code, which was correctly applied by the two
lower courts. x x x In the event that one spouse is incapacitated
or otherwise unable to participate in the administration of the
conjugal properties, the other spouse may assume sole powers
of administration. These powers do not include the powers of
disposition or encumbrance which must have the authority of the
court or the written consent of the other spouse. In the absence
of such authority or consent, the disposition or encumbrance
shall be void. However, the transaction shall be construed as
a continuing offer on the part of the consenting spouse and the
third person, and may be perfected as a binding contract upon
the acceptance by the other spouse or authorization by the court
before the offer is withdrawn by either or both offerors. (165a)
Problem No. 1 X, of age, entered into a contract with Y,
a minor. X knew and the contract specifi cally stated the age of Y.
May X successfully demand annulment of the contract? Reason.
(1971 Bar Problem)
Answer X cannot successfully demand annulment of
the contract. True, said contract is voidable because of the fact
that at the time of the celebration of the contract, Y, the other
contracting party, was a minor, and such minority was known to
X (Arts. 1327, No. 1, 1390 CC). However, the law is categorical
with regard to who may institute the action for annulment of the
contract. In addition to the requirement that the action may be
instituted only by the party who has an interest in the contract
in the sense that he is obliged thereby either principally or
subsidiarily, Art. 1397 of the Civil Code further requires that in
case of contracts voidable by reason of incapacity of one of the
contracting parties, the party who has capacity cannot allege the
incapacity of the party with whom he contracted. Because of this
additional requisite, it is clear that Y and not X can institute the
action for annulment.
Problem No. 2. Pedro sold a piece of land to his nephew
Quintin, a minor. One month later, Pedro died. Pedros heirs
then brought an action to annul the sale on the ground that
Quintin was a minor and therefore without legal capacity to
contract. If you are the judge, would you annul the sale? (1974
Bar Problem)
Answer If I am the judge, I will not annul the sale.
The Civil Code in Art. 1397 is explicit. Persons who are capable
cannot allege the incapacity of those with whom they contracted.
True, Pedro who sold the land to the minor Quintin is already
dead, and it is his heirs who are now assailing the validity of
the sale. However, under the principle of relativity of contracts
recognized in Art. 1311 of the Civil Code, the contract takes

effect not only between the contracting parties, but also between
their assigns and heirs.
(Note: Another way of answering the above problem would
be to state the two requisites which must concur in order that
a voidable contract may be annulled. These requisites are: (a)
that the plaintiff must have an interest in the contract; and (b)
that the victim or the incapacitated party must be the person
who must assert the same. The second requisite is lacking in the
instant case.)
Thus, in the case of Syquia vs. CA (151 SCRA 507), the
Supreme Court ruled that an alleged oral assurance or promise of the
representatives of the lessor that the lessee should be given priority
or a renewal of the lease cannot be enforceable. This is because
under Article 1403, No. 2(e), of the New Civil Code, an agreement
for the leasing for a longer period than one year is 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. In the
subsequent case of Zaide vs. CA (163 SCRA 705), the SC reiterated
the principle enunciated in Syquia case and further ruled that the
writing be in the form of a public document, thus it held: If the
agreement concerns the sale of land or of an interest therein, the
law requires not only that the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, in order
that it may be enforceable by action (Article 1403 [2]), but also that
the writing be in the form of a public document (Article 1358). The
law fi nally provides that, if the law requires a document or other
special form, as in the acts and contracts enumerated in Article
1358, the contracting parties may compel each other to observe that
form, once the contract has been perfected and such right may be
exercised simultaneously with the action upon the contract (Article
1357).
Western Mindanao Co. vs. Medalle
79 SCRA 703
Appeal from the order of the Court of First Instance of
Zamboanga City dismissing the complaint upon the ground
that the claim on which it is founded is unenforceable under the
Statute of Frauds and special law.
The complaint, fi led on December 16, 1960, alleges that:
2. The Plaintiff is engaged in logging operations
in Curuan, Zamboanga City and in connection with the
said logging operation it obtained on September 8, 1955
a right-of-way through the said Lot 2136 of the Cadastral
Survey of Zamboanga from Mr. Luciano Hernandez,
then the registered owner, a copy of the agreement being
enclosed as Annex A;
3. The former owners of the logging concession
operated by the Plaintiff constructed and maintained the
said road through Lot 2136, but the Plaintiff improved
the said road, paying to the registered owner for all the
improvements damaged by the improvement of the road;
4. Long before the execution of the right-of-way

agreement on September 8, 1955, since then and up to

the present time the said road has been maintained and
used not only by the predecessor of the Plaintiff and the
Plaintiff, but also by the public;
5. The said Lot 2136 was purchased by the
defendants in 1958 and the said road then existed and
was in public use and the defendants did not oppose but
instead allowed the continued use and maintenance of the
road by the Plaintiff and the public;
6. The said road is indispensable to the business
operations of the Plaintiff, because it is the only access
from their concession to the highway;
7. That defendants have now sent to the
Plaintiff a notice (Annex B) of their intention to close the
road; and
8. The Plaintiff has the right to the continued
use of said road, the closing of which will cause injustice
and irreparable damages to the Plaintiff and the Plaintiff
is willing to post a bond for the issuance of a writ of
preliminary injunction to stop the defendants from closing
the road.
Wherefore, the plaintiff prayed that a writ of preliminary
injunction be issued restraining the defendants from closing the
said road, and after hearing, make the injunction permanent.
It also prayed that the defendants be directed to recognize and
respect the said road right-of-way agreement. Copies of the
road right-of-way agreement and the letter of the defendants
advising the plaintiff of the closure of the road were attached
thereto. Upon the fi ling of a bond in the amount of P1,000.00,
a writ of preliminary injunction was issued, restraining the
defendants from closing the road.
Instead of a responsive pleading, the defendant fi led a
motion to dismiss the complaint on January 4, 1961, upon the
ground that the claim on which the action or suit is founded
is unenforceable under the provisions of the Statute of Frauds
and special law, in that the fi rst page of the said road rightofway agreement was not signed by both parties and their
instrumental witnesses; page two thereof is not dated, and the
signature of the plaintiffs corporate agent does not appear;
and that said agreement is not acknowledged before a person
authorized to administer oaths.
The plaintiff opposed the motion, stating that the agreement
between plaintiff and Luciano Hernandez is not one of
those agreements specifi ed in the Statute of Frauds. Nevertheless,
the trial court granted the motion to dismiss on January
17, 1961 and dismissed the cases.
The plaintiff fi led a motion for reconsideration of the
said order, insisting that the road right-of-way agreement is
not covered by the Statute of Frauds. Then, on March 4, 1961,
the plaintiff fi led an Amended Complaint, accompanied by a
motion for its admission. The plaintiff therein prayed, among

others, that the Defendants be ordered to keep the road open

and to respect the right-of-way agreement and should it be
ascertained that under the law the plaintiff is bound to pay
compensation for the right-of-way to the defendants, it is prayed
that the reasonable amount of such compensation be fi xed.
After hearing the parties, the trial court issued an order
on September 6, 1961, denying the motion for reconsideration.
Whereupon, the plaintiff perfected an appeal to the Court
of Appeals. The appellate court, fi nding that only questions of
law are raised, elevated the appeal to this Court.
The Supreme Court, speaking through Justice H. Concepcion,
held:
The appeal is meritorious. The Statute of Frauds
refers to specifi c kinds of transactions and cannot apply
to any that is not enumerated therein. The transactions or
agreements covered by said statute are the following:
(a) An agreement that by its terms is not to be
performed within a year from the making thereof;
(b) A special promise to answer for the debt,
default, or miscarriage of another;
(c) An agreement made in consideration of marriage,
other than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or
things in action, at a price not less than fi ve hundred pesos
unless the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them, of such things
in action, or pay at the time some part of the purchase
money; but when a sale is made by auction and entry is
made by the auctioneer in his sales book at the time of
the sale, of the amount and kind of property sold, terms
of sale, price, names of purchasers and person on whose
account the sale is made, it is suffi cient memorandum;
(e) An agreement for the leasing for a longer
period than one year, for the sale of real property or of an
interest therein;
(f) A representation as to the credit of a third
person.
Obviously, an agreement creating an easement of right-ofway
is not one of those contracts covered by the statute of frauds
since it is not a sale of real property or of an interest therein.
The trial court, therefore erred in dismissing the case upon
the defendants claim that the road right-of-way agreement in
question is unenforceable under the Statute of Frauds. Besides,
the complaint, as amended, may be viewed not only as a claim for
the recognition of the existence of an easement of right-of-way on
defendants estate, but also a demand for the establishment of
an easement of right-of-way, if none exists, pursuant to Art. 649
of the Civil Code, in view of the plaintiffs offer to pay reasonable
compensation for the use of the land.
(6) A representation as to the credit of a third person.
Problem A and B entered into a verbal contract

whereby A agreed to sell to B his only parcel of land for

P20,000.00 and B agreed to buy at the aforementioned price.
B went to the bank, withdrew the necessary amount, and returned
to A for the consummation of the contract. A, however,
had changed his mind and refused to go through with the
sale. Is the agreement valid? Will an action by B against A
for specifi c performance prosper? Reason. (1982 Bar problem)
Answer It must be observed that there are two questions
which are asked. They are:
(1) Is the agreement valid? The answer is yes. It is a
time honored rule that even a verbal agreement to sell land is
valid so long as there is already an agreement with respect to
the object and the purchase price.
(2) Will an action by B against A for specifi c performance
prosper? The answer is no, unless it is ratifi ed. The
reason is obvious. The agreement, being an agreement of sale
of real property, is covered by the Statute of Frauds. It cannot,
therefore, be enforced by a court action because it is not
evidenced by any note or memorandum or writing properly subscribed
by the party charged.
(Note: The above answer is based on No. 2 of Art. 1403 of
the Civil Code and on decided cases.)
Carbonnel vs. Poncio, et al.
103 Phil. 655
The records show that plaintiff purchased from defendant
Poncio a parcel of land; that she paid part of the agreed price
with the understanding that she will pay the balance upon the
execution of the deed of conveyance; that defendant refused
to execute the deed in spite of repeated demands; and that
defendant sold the land to his co-defendants who knew of the
fi rst sale. Defendants, however, contend that plaintiffs claim is
unenforceable under the Statute of Frauds.
Held: It is well settled in this jurisdiction that the Statute
of Frauds is applicable only to executory contracts (Facturan
vs. Sabanal, 81 Phil. 512), not to contracts that are totally or
partially performed. (Almirol, et al. vs. Monserrat, 48 Phil.
67, 70; Robles vs. Lizarraga Hermanos, 50 Phil. 387; Diana
vs. Macalibo, 74 Phil. 70) The reason is simple. In executory
contracts there is a wide fi eld for fraud because unless they be
in writing there is no palpable evidence of the intention of the
contracting parties. The statute has precisely been enacted to
prevent fraud. (Moran, Comments on the Rules of Court, Vol.
III, 1957 ed., p. 178) However, if a contract has been totally
or partially performed, the exclusion of parol evidence would
promote fraud or bad faith, for it would enable the defendant to
keep the benefi ts already derived by him from the transaction
in litigation, and, at the same time, evade the obligations,
responsibilities or liabilities assumed or contracted by him
thereby. So that when the party concerned has pleaded partial
performance, such party is entitled to a reasonable chance to
establish by parol evidence the truth of his allegation, as well as

the contract itself.

Idem; Ratifi cation. Contracts infringing the Statute of
Frauds are susceptible of ratifi cation. According to Art. 1405 of the
Civil Code, such contracts may be ratifi ed either (1) by the failure to
object to the presentation of oral evidence to prove the same, or (2)
by the acceptance of benefi ts under them.
Problem Can an oral sale of land be judicially enforced
as between the contracting parties, if the land has not been
delivered but the buyer has paid ten percent (10%) of the
purchase price? (1974 Bar problem)
Answer Yes, an oral sale of land where the land has not
been delivered but the buyer has paid ten percent (10%) of the
purchase price may be judicially enforced. Well-settled is the
rule that the Statute of Frauds by virtue of which oral contracts
are unenforceable by court action is applicable only to those
contracts which are executory and not to those which have been
consummated either totally or partially. The reason is obvious.
In effect, there is already a ratifi cation of the contract because
of acceptance of benefi ts. As a matter of fact, this reason is now
embodied in the New Civil Code. According to Art. 1405 of said
Code, contracts infringing the Statute of Frauds are ratifi ed by
the failure to object to the presentation of oral evidence to prove
the same, or by the acceptance of benefi ts under them.
Problem O verbally leased his house and lot to L for
two years at a monthly rental of P250.00 a month. After the fi rst
year, O demanded a rental of P500.00 claiming that due to the
energy crisis, with the sudden increase in the price of oil, which
no one expected, there was also a general increase in prices. O
proved an infl ation rate of 100%. When L refused to vacate the
house, O brought an action for ejectment. O denied that they
had agreed to a lease for two years.
Question No. 1 Can the lessee testify on a verbal
contract of lease? Reason. (1981 Bar problem)
Answer Yes, the lessee L may testify on the verbal
contract of lease. Well-settled is the rule that the Statute of
Frauds by virtue of which oral contracts (such as the contract in
the instant case) are unenforceable by court action is applicable
only to those contracts which have not been consummated, either
totally or partially. The reason for this is obvious. In effect, there
is already a ratifi cation of the contract by acceptance of benefi ts.
Here L has been paying to O a monthly rental of P250.00 for
one year. The case is, therefore, withdrawn from the coverage of
the Statute of Frauds.
(Note: The above answer is based on Arts. 1403, No. 2 and
1405 of the Civil Code, and on decided cases.)
Question No. 2 Assuming that O admits the two-year
contract, is he justifi ed in increasing the rental? Why? (1981 Bar
problem)
Answer Yes, O is justifi ed in increasing the monthly
rental. Since it is admitted that the contract of lease is for a
defi nite term or period of two years, it is crystal clear that the

case is withdrawn from the coverage of the new rental law. Now
during the hearing of the case, O was able to prove an infl ation
rate of 100%. Therefore, an increase is justifi ed.
Problem (a) Cite an example of a contract which is
contrary to morals.
(b) Can the nullity of the stipulation on the usurious
interest affect
(i) the lenders rights to recover the principal loan;
(ii) the terms of the real estate mortgage?
Answer (a) Stipulations authorizing iniquitous or
unconscionable interests are contrary to morals, if not against
the law. Under Art. 1409 of the New Civil Code, these contracts
are inexistent and void from the very beginning. They cannot
be ratifi ed nor the right to set up their illegality as a defense be
waived.
(b) The nullity of the stipulation on the usurious interest
does not, however, affect the lenders right to recover the
principal loan. Nor would it affect the terms of the real estate
mortgage (REM). The right to foreclose the mortgage remains
with the creditors and said right can be exercised upon the failure
of the debtors to pay the debt due. The debt due is to be considered
without the stipulation of the excessive interest. A legal
interest of 12% per annum will be added in place of the excessive
interest formerly imposed.
But in a situation where the total amount of indebtedness
during the foreclosure proceedings is pegged in an amount
which included interest which is excessive, iniquitous and
exorbitant, the foreclosure proceedings cannot be given effect
and will be considered invalid.. If the foreclosure proceedings
were considered valid, this would result in an inequitable
situation wherein the borrowers will have their land foreclosed
for failure to pay an over-infl ated loan only a small part of
which they were obligated to pay. (Heirs of Zoilo Espiritu and
Primitiva Espiritu vs. Sps. Maximo Landrito and Paz Landrito,
etc., G.R.No. 169617, April 3, 2007).
Since the contract is void by reason of the illegality of the
cause, the provisions of Art. 1412 of the Civil Code are, therefore,
applicable. It must be noted, however, that the principle of in pari
delicto is not applicable here. Plaintiff was only a minor of 16 at
the time of the donation, while the donor was a married man of
mature years and experience. It is well known that minors occupy
a privileged position under our law. As a matter of fact, the laws
tender care for them is now emphasized in Art. 1415 of the Civil
Code. Consequently, the two parties are not in pari delicto. At any
rate, even if they were in pari delicto the same rules would still apply.
Under Arts. 1411 and 1412 of the Code, nullity of contracts due to
illegal cause or object, when executed (and not merely executory)
will produce the effect of barring any action by a guilty party to
recover what he has already given under the contract. These articles
make it plain that, as far as the guilty party is concerned, his act of
conveying property pursuant to an illicit contract operates to divest

him of the ownership of the property, and to bar him from recovering
it from his transferee, just as if the transfer were through a bargain
legal from its inception. Although repugnant, the law deems it
more repugnant that a party should invoke his own guilt as a reason
for relief from a situation which he has deliberately entered. This
serves to explain why the tainted conveyance to the extent that
it has been carried out becomes conclusive as between the guilty
parties, even if without effect against strangers without notice; and
why a guilty party may not ask the courts for a restoration to the
status quo ante. The same reasons can also be applied to the case
of the successors or heirs of the guilty party. They cannot attack the
validity of the donation in their quality as successors or heirs of the
donor, since it is undeniable that they cannot be placed in a better
position than their predecessor.
It must be observed, however, that the property donated is
conjugal. Does that mean that the donation made by Lopez to the
plaintiff shall not be given any effect with respect to the share of
the widow? The answer is simple. Since the donation was made
under the old law, the Civil Code of 1889 shall apply. The second
paragraph of Art. 1419 of the old Code considers the donation as
merely fraudulent, subject to collation upon liquidation of the
conjugal partnership and deduction of its value from the donors
share in the conjugal profi ts.31
Therefore, the plaintiff is entitled to so much of the donated
property as may be found upon proper liquidation not to prejudice
the share of the widow or the legitimes of the compulsory heirs.
But suppose that the above donation had been made after the
effectivity of the New Civil Code, would the same rules stated in the
decision still apply?
It is submitted that as far as the donor is concerned, the
same rules with respect to the illegality of the donation and its
consequences would still apply. The contract would still be void
because of the illegality of the causa or consideration for the reasons
stated in Liguez. It would also be void under Art. 174 of the New
Civil Code (a provision not found in the Spanish Civil Code) which
declares that with the exception of moderate donations for charity,
neither husband nor wife can donate any property of the conjugal
partnership without the consent of the other. Consequently, as
far as the donor is concerned, Art. 1412 of the Civil Code would be
applicable.
However, as far as the wife of the donor is concerned the
applicable rules would be different. Art. 173 of the New Civil Code
states: The wife may, during the marriage and within ten years
from the transaction questioned, ask the courts for the annulment
of any contract of the husband entered into without her consent,
when such consent is required, or any act or contract of the husband
which tends to defraud her or impair her interest in the conjugal
partnership property. Should the wife fail to exercise this right,
she or her heirs, after the dissolution of the marriage, may demand
the value of the property fraudulently alienated by the husband.
Does this provision, which was not found in the Spanish Civil Code,

spell the remedy of the wife in Liguez? I do not think so; it only
indicates it. It must be observed that the article presupposes either
a voidable (or unenforceable) contract executed by the husband, and
not a void contract. Therefore, the remedy of the wife is to bring
an action for the declaration of absolute nullity of the contract of
donation, a remedy which will have all of the effects of an action for
reconveyance. The action would be imprescriptible because it would
be based on a void contract. If she dies without bringing the action,
her heirs in their capacity as heirs, would be able to institute the
action. The principle of pari delicto in such a case cannot be applied
because the wife or her heirs were not parties to the illegal contract.
The case of Francisco J. Chavez vs. PCGG (May 19, 1999,
307 SCRA 394) states, among others that where the Agreements
undeniably contain terms and conditions that are clearly contrary
to the Constitution and the laws and are not subject to compromise,
such terms and conditions cannot be granted by the PCGG to
anyone. Being so, no argument of the contractors will make such
illegal and unconstitutional stipulations pass the test of validity.
The void agreement will not be rendered operative by the parties
alleged performance (partial or full) of their respective prestations.
A contract that violates the Constitution and the law is null and void
ab initio and vests no rights and creates no obligations. It produces
no legal effect at all.
A void contract cannot be ratifi ed. In the case of
Guiang vs. Court of Appeals (June 26, 1998, 291 SCRA 372), the
Supreme Court ruled that the trial court correctly held: By the
specifi c provision of the law (Art. 1390, Civil Code) therefore, the
Deed of Transfer of Rights cannot be ratifi ed, even by an amicable
settlement. The participation by some barangay authorities in
the amicable settlement cannot otherwise validate an invalid act.
Moreover, it cannot be denied that the amicable settlement entered
into by plaintiff Gilda Corpuz and defendant spouses Guiang is a
contract. It is a direct offshoot of the Deed of Transfer of Rights. By
express provision of law, such a contract is also void. Thus, the legal
provision, to wit: Art. 1422. A contract which is the direct result
of a previous illegal contract, is also void and inexistent. (Civil
Code of the Philippines.) In summation therefore, both the Deed of
Transfer of Rights and the amicable settlement are null and void.
Doctrinally and clearly, a void contract cannot be ratifi ed. In the
same case, the Supreme Court also ruled that the sale of a conjugal
property requires the consent of both the husband and the wife. The
absence of the consent of one renders the sale null and void, while
the vitiation thereof makes it merely voidable. Only in the latter
case can ratifi cation cure the defect.
Rodriguez vs. Rodriguez
20 SCRA 908
This is an appeal by Concepcion Felix Vda. de Rodriguez
from the decision of the Court of First Instance of Bulacan in
Civil Case No. 2565, which she commenced on May 28, 1962,
to secure declaration of nullity of two contracts executed on
January 24, 1934 and for the recovery of certain properties.

The facts of this case may be briefl y stated as follows:

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, a widower with
four children by a previous marriage, named Geronimo,
Esmeragdo, Jose and Mauricio, all surnamed Rodriguez.
There was no issue in this second marriage.
Prior to her marriage to Rodriguez, Concepcion
Felix was the registered owner of 2 fi shponds located in
the barrio of Babagad, municipality of Bulacan, Bulacan
province, Nos. 605 and 807. Under the date of January 24,
1934, Concepcion Felix appeared to have executed a deed of
sale conveying ownership of the aforesaid properties of 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 by Notary
Public Jose D. Mendoza, were registered in the offi ce of
the Register of Deeds of Bulacan on January 29, 1934, as
a consequence of which, the original titles were cancelled
and TCT Nos. 13815 and 13816 were issued in the names
of the spouses Domingo Rodriguez and Concepcion Felix.
On March 6, 1953, Domingo Rodriguez died intestate,
survived by the widow, Concepcion Felix, his children Geronimo,
Esmeragdo, and Mauricio and grandchildren Oscar, Juan and
Ana, surnamed Rodriguez, children of a son, Jose, who had
predeceased him.
On March 16, 1953, the above-named widow, children
and grandchildren of the deceased entered into an extrajudicial
settlement of his (Domingos) estate, consisting of one-half of
the properties allegedly belonging to the conjugal partnership.
Among the properties listed as conjugal were two parcels of
land in Bulacan, Bulacan, which, together with another piece of
property, were divided among the heirs in this manner:
WHEREAS, the parties have furthermore agreed
that the fi shpond covered by TCT Nos. 13815, 13816, and
24109 of the Offi ce of the Register of Deeds of Bulacan,
containing an area of 557,971 sq.m., which is likewise
the conjugal property of the deceased and his surviving
spouse; 1/2 of the same or 278,985.50 sq.m. belongs to
said Concepcion Felix Vda. de Rodriguez, as her share
in the conjugal property; and 3/4 of the remaining half
Geronimo Rodriguez. Esmeragdo Rodriguez and Mauricio
Rodriguez, share and share alike, while the other 1/4 or
69,746.375 sq.m. of the said remaining half goes in equal
shares to Oscar Rodriguez, Juan Rodriguez and Ana
Rodriguez.
As a result of this partition, TCT Nos. 13815 and 13816
were cancelled and TCT Nos. T-11431 and T-14432 were issued
in the names of the said heirs of the deceased.

On March 23, 1953, in a power of attorney executed by the

children and grandchildren of Domingo Rodriguez, Concepcion
Felix Vda. de Rodriguez was named their attorney-in-fact,
authorized to manage their shares in the fi shponds (Exh. 4).
On July 2, 1954, the heirs ended their co-ownership by
executing a deed of partition, dividing and segregating their
respective shares in the properties, pursuant to a consolidation
and subdivision plan (PCS-3702), in accordance with which,
Concepcion Felix Vda. de Rodriguez obtained TCT No. T-12910,
for the portion pertaining to her (Exh. L), while TCT No. T-12911
was issued to the other heirs, for their shares. This latter title
was subsequently replaced by TCT No. 16660 (Exh. M).
On October 12, 1954, the Rodriguez children executed
another document granting unto the widow lifetime usufruct
over one-third of the fi shpond which they received as hereditary
share in the estate of Domingo Rodriguez, which grant was
accepted by Concepcion Felix Vda. de Rodriguez.
Then, in a contract dated December 15, 1961, the widow
appeared to have leased from the Rodriguez children and
grandchildren the fi shpond (covered by TCT No. 16660) for a
period of 5 years commencing August 16, 1962, for an annual
rental of P7,161.37 (Exh. 5).
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 fi shponds, in the amount of P3,000.00, her stepchildren
endorsed the matter of their lawyer who, on May 16, 1962, sent
a letter of demand to the widow for payment thereof. On May
28, 1962, Concepcion Felix Vda. de Rodriguez fi led the present
action in the Court of First Instance of Manila naming as
defendants, Geronimo Rodriguez, Esmeragdo Rodriguez, Oscar
Rodriguez, Concepcion Bautista Vda. de Rodriguez, as guardian
of the minors Juan and Ana Rodriguez, and Antonio Diaz de
Rivera and Renato Diaz de Rivera, as guardians of the minors
Maria Ana, Mercedes, Margarita, Mauricio, Jr. and Domingo
(children of Mauricio Rodriguez who had also died).
The action to declare null and void the deeds of transfer
of plaintiffs properties to the conjugal partnership was based
on the 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; that plaintiff participated in the
extrajudicial settlement of estate (of the deceased Domingo
Rodriguez) and in other subsequent deeds or instruments
involving the properties in dispute, on the false assumption
that the said properties had become conjugal by reason of the
execution of the deeds of transfer in 1934, then laboring under
the same false assumption, plaintiff delivered to defendants, as
income of the properties from 1953 to 1961, the total amount of
P56,976.58. As alternative cause of action, she contented that
she would claim for her share, as surviving widow, of 1/5 of the

properties in controversy, should such properties be adjudged

as belonging to the conjugal partnership. Thus, plaintiff prayed
that the deeds of transfer mentioned in the complaint be declared
fi ctitious and simulated; that the Extrajudicial Settlement of
Estate be also declared null and void; that TCT No. 16660 of
the Registry of Deeds of Bulacan be cancelled and another one
be issued in the name of plaintiff, Concepcion Felix Vda. de
Rodriguez; that defendants be ordered to pay plaintiff the sum
of P56,976.58, with legal interest thereon from the date of the
fi ling of the complaint, and for appropriate relief in connection
with her alternative cause of action.
In their separate answers, defendants not only denied
the material allegations of the complaint, but also set up
as affi rmative defenses lack of cause of action, prescription,
estoppel and laches. As counterclaim, they asked for payment
by the plaintiff of the unpaid balance of the earnings of the land
up to August 15, 1962 in the sum of P3,000.00, for attorneys
fees and expenses of litigation.
On October 5, 1963, judgment was rendered for the
defendants. In upholding the validity of the contracts, the court
found that although the two documents, Exhibits A and B,
were executed for the purpose of converting plaintiffs 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,
to avoid the transfers; that contracts without consideration are
not inexistent, but are only voidable, following the ruling in
the case of Concepcion vs. Sta. Ana (87 Phil. 787); that there
was ratifi cation or confi rmation by the plaintiff of the transfer
of her property, by her execution (with the other heirs) of the
extrajudicial settlement of estate; that being a voluntary party
to the contracts, Exhibits A and B, plaintiff cannot recover the
properties she gave thereunder. Plaintiffs alternative cause of
action was also rejected on the ground that action for rescission
of the deed of extrajudicial settlement should have been fi led
within 4 years from its execution (on March 16, 1953).
From the decision of the Court of First Instance, plaintiff
duly appealed to this Court, insisting that the conveyances in
issue were obtained through duress, and were inexistent, being
simulated and without consideration.
Speaking through Justice J.B.L. Reyes, the Supreme
Court held:
We agree with the trial Court that the evidence
is not convincing that the contracts of transfer from
Concepcion Felix to her daughter, and from the latter her
mother and stepfather were executed through violence
or intimidation. The charge is predicated solely upon the
improbable and biased testimony of appellants daughter,
Concepcion C. Martelino, whom the trial court refused
to believe, considering that her version of violence and

harassment was contradicted by Bartolome Gualberto,

who had lived with the Rodriguez spouses from 1917 to
1953, and by the improbability of Rodriguez threatening
his stepdaughter in front of the Notary Public who
ratifi ed her signature. Furthermore, as pointed out by the
appealed decision, the charge of duress should be treated
with caution considering that Rodriguez had already died
when the suit was brought for duress, like fraud, is not to
be lightly laid at the door of men already dead. (Cf. Prevost
vs. Gratz, 6 Wheat. [U.S.] 481, 498; Sinco vs. Longa, 51
Phil. 507.)
What is more decisive is that duress being merely a vice
or defect of consent, an action based upon it must be brought
within four years after it has ceased;39 and the present action
was instituted only in 1962, twenty-eight (28) years after the
intimidation is claimed to have occurred, and no less than nine
(9) years after the supposed culprit died (1953). On top of it,
appellant entered into a series of subsequent transactions with
appellees that confi rmed the contracts that she now tries to set
aside. Therefore, this cause of action is clearly barred.
Appellants main stand in attacking the conveyances in
question is that they are simulated or fi ctitious, and inexistent
for lack of consideration. We shall examine each purported
defect separately.
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 any 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 conveyances to be real and effective; for
appellant could not intend to keep the ownership of the fi shponds
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.
Appellant invokes our decision in Vasquez vs. Porta, 98
Phil. 490, but to no purpose. The mortgage and foreclosure sale
involved in that case were typical simulations, merely apparent

but not really intended to produce legal effects, as proved by

the Courts fi nding that the alleged creditor and buyer at the
foreclosure sale Porta himself ostensibly acknowledged by
his inertia in allowing the doctor (alleged mortgagor debtor)
to exercise dominical power thereon without any protest on
his part (cas. cit., p. 495). Not only this, but the mortgagors
wife, when her husband died found among his papers Portas
Arts. 1411-1412
complaint for foreclosure. Plainly, the precedent cited is here
inapplicable.
Were the two conveyances from appellant to her daughter
and from the latter to the spouses Rodriguez void ab initio or
inexistent for lack of consideration? We do not fi nd them to be
so. In the fi rst transaction, the price of P2,500.00 is recited in
the deed itself (Exh. A); in the second (Exh. B), the consideration
set forth is P3,000.00. Now, Article 1274 of the Civil Code of
1889 (in force when the deeds were executed) provided that
In onerous contracts the cause is understood to be
for each contracting party, the prestation or promise of a
thing or service by the other. (Italics supplied.)
Since in each conveyance the buyer became obligated to
pay a defi nite price in money, such undertaking constituted in
themselves actual causa or consideration for the conveyance
of the fi shponds. That the prices were not paid (assuming ad
arguendo that Concepcion Martelinos testimony to this effect
is true) does not make the sales inexistent for want of causa.
As ruled in Enriquez de la Cavada vs. Diaz, 37 Phil. 982, the
consideration (causa) need not pass from one (party) to the other
at the time the contract is entered into. x x x The consideration
need not be paid at the time of the promise. The one promise is
a consideration for the other.
What would invalidate the conveyances now under scrutiny
is the fact that they were resorted to in order to circumvent
the legal prohibition against donations between spouses contained
in Article 1334, paragraph 1, of the Civil Code of 1889,
then prevailing.
Angeles vs. Court of Appeals
102 Phil. 1006
The records show that on March 12, 1935, a homestead
patent was issued to Juan Angeles. On May 28, 1937, Angeles
sold he homestead to defendants, Gregorio Inez and Anastacia
Divino. This is now an action commenced by the heirs of Angeles
to recover the homestead from the defendants on the ground
that the sale is void since it was made within the prohibited
period of fi ve years as enumerated in Sec. 118 of the Public Land
Law. Defendants, however, maintain that under the principle
of pari delicto, there can be no recovery. The Supreme Court,
speaking through Justice Labrado, held:
The principle of in pari delicto is not applicable to a
homestead which has been illegally sold in violation to the
homestead law. The reason for the rule is that the policy of

the law is to give land to a family for home and cultivation;

consequently, the law allows the homesteader to reacquire
the land even if it has been sold; hence, the right may not
be waived. The sale of the homestead in the case at bar is,
therefore, null and void and petitioners have the right to
recover the homestead illegally disposed of. Consequently,
the action to recover the same does not prescribe.
While the rule of in pari delicto should not apply to
the sale of the homestead, because such sale is contrary
to the public policy enunciated in the homestead law, the
loss of the products realized by the defendants and the
value of the necessary improvements made by them on the
land should not be excepted from the application of the
said rule because no cause or reason can be cited to justify
an exception. It has been held that the rule of in pari
delicto is inapplicable only where the same violates a wellestablished
public policy. The heirs of the homesteader
should, therefore, be declared to have lost and forfeited
the value of the products gathered from the land, and
improvements that they have made thereon. With respect
to the price for the land, in view of the rule that no one
should enrich himself at the expense of another, the return
of the price by the plaintiffs should be decreed, before the
plaintiffs may be allowed to recover back the possession of
the homestead.66
Philippine Banking Corp. vs. Lui She
21 SCRA 52
Justina Santos and her sister Lorenza were owners in
common of a valuable piece of land located in Manila. In it are
two residential houses with entrance on Florentino Torres street
which were occupied by Justina and Lorenza and the Hen Wah
Restaurant with entrance on Rizal Avenue which was occupied
and operated by Wong Heng, a long time lessee. When Lorenza
died in 1957, Justina became the absolute owner of the property.
Then already well advanced in years, being 90 years old, blind,
crippled, and an invalid, with no other companions except 8
maids and 17 dogs, her dreary existence was brightened only
now and then by the visits of the four children of her friend,
Wong Heng. Wong, on the other hand, who had always been her
trusted man and friend, became closer to her.
On Nov. 15, 1957, in grateful acknowledgment of the
personal services of the lessee to her, Justina executed a
contract of lease in favor of Wong, covering the portion then
already leased to him and another portion fronting Florentino
Torres street. The lease was for 50 years at a monthly rental of
P3,120.00. Ten days later (Nov. 25), the contract was amended so
as to make it cover the entire property at an additional monthly
rental of P360.00. For his part, Wong undertook to pay out of
the rental due from him an amount not exceeding P1,000.00 a
month for the salaries of the maids and the food of her dogs. On
Dec. 21, 1957, she executed another contract giving Wong the

option to buy the leased premises for P120,000, payable within

ten years at a monthly installment of P1,000.00. The option
imposed on Wong the obligation to spend P1,800.00 a month for
the salaries of her maids and the food of the dogs. In addition,
it also imposed the condition that Wong must become a Filipino
citizen. In order that this condition would be complied with,
Justina fi led a petition to adopt Wong and his children on the
erroneous belief that adoption would confer on them Philippine
citizenship. The error was discovered and the proceedings were
abandoned. On Nov. 18, 1958, she executed to other contracts,
one extending the term of the lease to 99 years and another
fi xing the term of the option at 50 years.
On Aug. 24 and 29, 1959, she executed two wills wherein
she bade her legatees to respect the contracts she had entered
into with Wong, but in a codicil executed on Nov. 4, 1959, she
appears to have undergone a change of heart. Claiming that the
various contracts were made by her because of machinations
and inducements practised by Wong Heng, she now directed her
executor to secure the annulment of the contracts.
On Nov. 18, 1959, the present action was fi led in the Court
of First Instance of Manila. The case was heard after which
the court rendered judgment declaring all the above stated
contracts, with the exception of the lease contract of Nov. 15,
1957, null and void. 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, while Justina Santos was substituted by the Philippine
Banking Corporation.
The only question that has to be resolved now in this
case is whether or not the above stated contracts are valid. The
Supreme Court, speaking through Justice Castro, held:
With respect to the lower courts fi nding that in all
probability Justina Santos could not have intended to part
with her property while she was alive nor even to lease
it in its entirety as her house was built in it, suffi ce it to
quote the testimony of her own witness and lawyer who
prepared the contracts in question, Atty. Alonzo: The
ambition of the old woman, before her death, according to
her revelation to me, was to see to it that these properties
be enjoyed, even to own them, by Wong Heng because
Doa Justina told me that she did not have any relatives
near or far, and she considered Wong Heng as a son and
his children her grandchildren; especially her consolation
in life was when she would hear the children reciting
prayers in Tagalog. She was very emphatic in the care
of the seventeen (17) dogs and of the maids who helped
her much, and she told me to see to it that no one would
disturb Wong Heng from those properties. That is why we
thought of the ninety-nine (99) years lease, we thought of
adoption, believing that thru adoption Wong Heng might
acquire Filipino citizenship; being the adopted child of a

Filipino citizen.
This not to say, however, that the contracts are valid.
For the testimony just quoted, 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 causa67
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 vs. Register of Deeds:68 Aliens 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 an alien is given not only a lease of, but also
an option to buy, a piece of land, by virtue of which the
Filipino owner cannot sell or otherwise dispose of his
property, this to last for 50 years, then it becomes clear
that the arrangement is a virtual transfer of ownership
whereby the owner divests himself in stages, not only of
the right to enjoy the land (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
concept. If this can be done, then the Constitutional ban
against alien landholding in the Philippines, as announced
in Krivenko vs. Register of Deeds, is indeed in grave peril.
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.69 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 qualifi
ed to acquire or hold lands of the public domain in the
Philippines70 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 confl icts with that laid down in Rellosa
vs. Gaw Chee Hun71 and subsequent similar cases, the
latter must be considered as pro tanto qualifi ed.
Accordingly, the contracts in question are annulled
and set aside; the land subject-matter of the contracts is
ordered returned to the estate of Justina Santos as represented
by the Philippine Banking Corporation; Wong
Heng (as substituted by the defendant appellant Lui She)
is ordered to pay the Philippine Banking Corporation the
sum P56,564.35, with legal interest from the date of the
fi ling of the amended complaint; and the amounts consigned
in court by Wong Heng shall be applied to the payment
of rental from November 15, 1959 until the premises
shall have been vacated by his heirs. Costs against the
defendant-appellant.
Problem A partnership borrowed P20,000.00 from A
at clearly usurious interest. Can the creditor recover anything
from the debtor? Explain.
Answer Yes, the creditor can recover from the debtor
the following: the principal, legal interest on the principal from
the date of demand (Art. 2209, CC), legal interest on the legal
interests from the time of judicial demand (Art. 2212, CC), and
attorneys fees, if proper, under Art. 2208 of the Civil Code.
That the creditor can recover the principal from the debtor
is now well settled. (Angel Jose vs. Chelda Enterprises, 23
SCRA 119; Briones vs. Cammayo, 41 SCRA 404.) In a usurious
contract of loan, there are always two stipulations. They are:
fi rst, the principal stipulation whereby the debtor undertakes to
pay the principal; and second, the accessory stipulation whereby
the debtor undertakes to pay a usurious interest. These two
stipulations are divisible. According to Art. 1420 of the Civil
Code, in case of a divisible contract, if the illegal terms can be
separated from the legal ones, the latter may be enforced. It is
clear that what is illegal is the prestation to pay the stipulated
interest. Hence, being separable, the latter only should be
deemed void.
(Note: It must be noted that in Angel Jose vs. Chelda, it

was held that attorneys fees cannot be awarded. The principal

reason is that, at the time when the decision was promulgated,
there was yet no defi nite ruling on the point of law involved.
Now, it is already well-settled that the creditor may recover
the principal. Consequently, plaintiff creditor may recover the
principal plus legal interest under Arts. 2209 and 2212 of the
Civil Code. Hence, attorneys fees may also be awarded.)
Problem A borrowed from B P1,000 which amount B
failed to collect. After the debt has prescribed, A voluntarily
paid B who accepted the payment. After a few months, being
in need of money, A demanded the return of the P1,000 on
the ground that there was a wrong payment, the debt having
already prescribed, B refused to return the amount paid. May
A succeed in collecting if he sues B in court? Reason out your
answer. (1970 Bar problem)
Answer A will not succeed in collecting the P1,000 if he
sues B in court. The case is expressly covered by Art. 1424 of the
Civil Code which declares that when a right to sue upon a civil
obligation has lapsed by extinctive prescription, the obligor who
voluntarily performs the contract cannot recover what he has
delivered or the value of the service he has rendered.
Because of extinction prescriptive, the obligation of A to
pay his debt of P1,000 to B became a natural obligation. While
it is true that a natural obligation cannot be enforced by court
action, nevertheless, after voluntary fulfi llment by the obligor,
under the law, the obligee is authorized to retain what has been
paid by reason thereof. (Art. 1423, Civil Code.)
Heirs of Lacamen vs. Heirs of Laruan
65 SCRA 605
Petition for review by certiorari of a decision of the Honorable
Court of Appeals affi rming the judgment of the Court
of First Instance of Baguio City in Civil Case No. 738 entitled
Heirs of Batiog Lacamen vs. Heirs of Laruan . . . declaring the
contract of sale between Lacamen and Laruan null and void for
[lack of approval of the Director of the Bureau of Non-Christian
Tribes] . . .
Petitioners-appellants are the surviving heirs of Batiog
Lacamen, while respondents-appellants are the heirs of Laruan.
Sometime on January 28, 1928, Laruan executed a Deed of
Sale in favor of Batiog Lacamen conveying for the sum of P300.00
his parcel of land situated in the sitio of La Trinidad, Benguet,
Mountain Province, comprising 86 acres and 16 centares and
covered by Certifi cate of Title No. 420 of the Registry of Benguet.
The deed was acknowledged before Antonio Rimando, a notary
public in the City of Baguio.
Immediately after the sale, Laruan delivered the certifi cate
of title to Lacamen. Thereupon, Lacamen entered in possession
and occupancy of the land without securing the corresponding
transfer certifi cate of title in his name. He introduced various
improvements and paid the proper taxes. His possession was
open, continuous, peaceful, and adverse. After his death in 1942,

his heirs remained in and continued possession and occupancy

of the land. They too paid the taxes.
After the last Global War, Lacamens heirs started fi xing
up the papers of all properties left by him. In or about June,
1957, they discovered that Laruans heirs, respondents-appellants, were able to procure a new owners copy of Certifi cate of
Title No. 420 by a petition fi led in court alleging that their copy
has been lost or destroyed. Through this owners copy, respondentsappellants caused the transfer of the title on the lot in
their names. Transfer Certifi cate of Title No. T-775 was issued
to them by the Registry of Deeds of Benguet.
Refused of their demands for reconveyance of the title,
petitioners-appellants sued respondents-appellants in the Court
of First Instance of Baguio City on December 9, 1957, praying
among other things, that they be declared owners of the subject
property; that respondents-appellants be ordered to convey to
them by proper instruments or documents the land in question;
and that the Register of Deeds of Benguet be ordered to cancel
Transfer Certifi cate of Title No. T-775 and issue in lieu thereof
a new certifi cate of title in their names.
In answer, respondents-appellants traversed the averments
in the complaint and claim absolute ownership over the
land. They asserted that their deceased father, Laruan, never
sold the property and that the Deed of Sale was not thumbmarked
by him.
On 5 April 1962, the Court of First Instance of Baguio
City found for respondents-appellants and against petitionersappellants.
Forthwith, petitioners-appellants appealed to the
Court of Appeals.
On 7 December 1966, the Court of Appeals sustained the
trial court.
I
. . . IN DECLARING THE SALE BETWEEN LACAMEN
AND LARUAN TO BE NULL AND VOID.
II
. . . IN APPLYING STRICTLY THE PROVISIONS
OF SECTIONS 118 AND 122 OF ACT NO. 2874 AND
SECTIONS 145 AND 146 OF THE MINDANAO AND
SULU
. . . IN AFFIRMING THE DECISION OF THE COURT
OF FIRST INSTANCE OF BAGUIO CITY.
which assignments could be whittled down into the pervading
issue of whether the deceased Batiog Lacamen and/or his heirs,
herein petitioners-appellants, have validly acquired ownership
over the disputed parcel of land.
The 1917 Administrative Code of Mindanao and Sulu
declares in its Section 145 that no contract or agreement relating
to real property shall be made by any person with any nonChristian inhabitant of the Department of Mindanao and Sulu,
unless such contract shall bear the approval of the provincial
governor of the province wherein the contract was executed, or

his representative duly authorized for such purpose in writing

endorsed upon it. Any contract or agreement in violation of this
section is null and void under the succeeding Section 146.
On 24 February 1919, Act No. 2798 was approved by
the Philippine Legislature extending to the Mountain Province
and the Province of Nueva Vizcaya the laws and other legal
provisions pertaining to the provinces and minor political
subdivisions of the Department of Mindanao and Sulu, with the
specifi c proviso that the approval of the land transaction shall be
by the Director of the Bureau of Non-Christian Tribes.
Then on 29 November 1919, came Act No. 2874 otherwise
known as The Public Land Act. It provided in Section 118
thereof that Conveyances and encumbrances made by persons
belonging to the so-called non-Christian tribes, when proper
shall not be valid unless duly approved by the Director of the
Bureau of Non-Christian Tribes. Any violation of this injunction
would result in the nullity and avoidance of the transaction
under the following Section 122.
During the regime of the Commonwealth, C.A. 141 otherwise
known as The Public Land Act was passed November
7, 1936 amending Act No. 2874. However, it contained a
similar provision in its Section 120 that Conveyances and encumbrances
made by illiterate non-Christians shall not be valid
unless duly approved by the Commissioner of Mindanao and
Sulu.
The contracting parties, Lacamen and Laruan, are
bound by the foregoing laws, since both of them are illiterate
Igorots, belonging to the non-Christian Tribes of the Mountain
Province and the Controverted land was derived from a Free
Patent or acquired from the public domain.
The trial court did show cordiality to judicial pronouncements
when it avoided the realty sale between Lacamen and
Laruan for want of approval of the Director of the Bureau of
Non-Christian Tribes. For jurisprudence decrees that non-approved
conveyances and encumbrances of realty by illiterate
non-Christians are not valid, i.e., not binding or obligatory.
Nevertheless, the thrust of the facts in the case before
us weakens the gathered strength of the cited rule. The facts
summon the equity of laches.
Laches has been defi ned as such neglect or omission
to assert a right, taken in conjunction with lapse of time and
other circumstances causing prejudice to an adverse party, as
will operate as a bar in equity. It is a delay in the assertion of
a right which works disadvantage to another because of the
inequity founded on some change in the condition or relations
of the property or parties. It is based on public policy which,
for the peace of society, ordains that relief will be denied to
a stale demand which otherwise could be a valid claim. It is
different from and applies independently of prescription.
While prescription is concerned with the fact of delay, laches
is concerned with the effect of delay. Prescription is a matter of

time; laches is principally a question of inequity of permitting

a claim to be enforced. This inequity being founded on some
change in the condition of the property or the relation of the
parties. Prescription is statutory; laches is not. Laches applies
in equity, whereas prescription applies at law. Prescription is
based on a fi xed time, laches is not.
Laruans sale of the subject lot to Lacamen could have
been valid were it not for the sole fact that it lacked the approval
of the Director of the Bureau of Non-Christian Tribes. There
was impressed upon its face full faith and credit after it was
notarized by the notary public. The non-approval was the only
drawback of which the trial court has found the respondentsappellants
to have taken advantage as their lever to deprive
[petitioner-appellants] of this land and that their motive is
out and out greed. As between Laruan and Lacamen, the sale
was regular, not infected with any fl aw. Laruans delivery of
his certifi cate of title to Lacamen just after the sale symbolizes
nothing more than a bared recognition and acceptance on his
part that Lacamen is the new owner of the property. Thus,
not any antagonistic show of ownership was ever exhibited by
Laruan after that sale and until his death in May 1938.
From the transfer of the land on January 28, 1928,
Lacamen possessed and occupied the ceded land in concepto
de dueno until his death in April 1942. Thereafter, his heirs,
petitioners-appellants herein, took over and exercised dominion
over the property, likewise unmolested for nearly 30 years
(1928-1957) until the heirs of Laruan, respondents-appellants,
claimed ownership over the property and secured registration
of the same in their names. At the trial, petitioners-appellants
have been found to have introduced improvements on the land
consisting of houses, barns, greenhouses, walls, roads, etc., and
trees valued at P38,920.00.
At this state, therefore, respondents-appellants claim of
absolute ownership over the land cannot be countenanced. It
has been held that while a person may not acquire title to the
registered property through continuous adverse possession, in
derogation of the title of the original registered owner, the heir
of the latter, however, may lose his right to recover back the
possession of such property and the title thereto, by reason of
laches.17 Much more should it be in the instant case where the
possession of nearly 30 years or almost half a century now is in
pursuance of sale which regrettably did not bear the approval of
the executive authority but which the vendor never questioned
during his lifetime. Laruans laches extends to his heirs, the
respondents-appellants herein, since they stand in privity with
him.
Indeed, in a like case,18 it was ruled that
Courts can not look with favor at parties who, by
their silence, delay and inaction, knowingly induce another
to spend time, effort and expense in cultivating the land,
paying taxes and making improvements thereon for 30

long years, only to spring from ambush and claim title

when the possessors efforts and the rise of land values
offer an opportunity to make easy profi t at his expense.
For notwithstanding the invalidity of the sale, the vendor
Laruan suffered the vendee Lacamen to enter, possess and
occupy the property in concepto de dueno without demurrer and
molestation, from 1928 until the formers death in 1938; and
when respondents-appellants succeeded to the estate of their
own until in 1957 or after almost 30 years they took advantage
of the [non-approval of the sale] as their lever to deprive
[petitioners-appellants] of this land with a motive that was out
and out greed. Even granting, therefore, that no prescription
lies against their fathers recorded title, their quiescence and
inaction for almost 30 years now commands the imposition of
laches against their adverse claim. (Miguel, footnote 27)
It results that as against Laruan and his heirs,
respondents-appellants herein, the late Batiog Lacamen and his
heirs, petitioners-appellants herein, have superior right and,
hence, have validly acquired ownership of the litigated land.
Vigilantibus non dormientibus sequitas subvenit.
IN VIEW OF THE FOREGOING, the judgment of the
Court of Appeals affi rming that of the trial court is hereby
reversed and set aside.
The petitioners-appellants are hereby declared the lawful
owners of the land in question. Accordingly, Transfer Certifi cate
of Title No. T-775 in the name of respondents-appellants is
hereby cancelled and in lieu thereof the Register of Deeds of
Benguet is ordered to issue a new transfer certifi cate of title in
the name of petitioners-appellants.
As a matter of fact, the doctrine has even been applied to
actions for reconveyance of property held in constructive or implied
trust. Thus, where some of the co-heirs were able, through fraud,
to register a large tract of land in their names in 1937, while it is
very true that the principle is that if property is acquired through
fraud, the person obtaining it is considered a trustee of an implied
trust for the benefi t of the person from whom the property comes or
to whom it belongs, nevertheless, since the action by the benefi ciary
for reconveyance of the property was commenced only in 1960, it is
clear that the doctrine of laches is applicable. In other words, the
action is already barred.
In Ramos vs. Ramos (61 SCRA 284), the Supreme Court
adopted the following defi nitions:
Implied trusts are those which, without being expressed,
are deducible from the nature of the transaction as matters
of intent, or which are superinduced on the transaction by
operation of law as matters of equity, independently of the
particular intention of the parties. (89 C.J.S. 724.) They are
ordinarily subdivided into resulting and constructive trusts. (89
C.J.S. 722.)
A resulting trust is broadly defi ned as a trust which is
raised or created by the act or construction of law, but in its

more restricted sense it is a trust raised by implication of law

and presumed always to have been contemplated by the parties,
the intention as to which is to be found in the nature of their
transaction, but not expressed in the deed or instrument of
conveyance. (89 C.J.S. 725.) Examples of resulting trusts are
found in Articles 1448 to 1455 of the Civil Code.
On the other hand, a constructive trust is a trust raised
by construction of law, or arising by operation of law. In a more
restricted sense and as contradistinguished from a resulting
trust, a constructive trust is a trust not created by any words,
either expressly or impliedly evincing a direct intention to create
a trust, but by the construction of equity in order to satisfy the
demands of justice. It does not arise by agreement or intention
but by operation of law. (89 C.J.S. 726-727.) If a person obtains
legal title to property by fraud or concealment, courts of equity
will impress upon the title a so-called constructive trust in favor
of the defrauded party. A constructive trust is not a trust in the
technical sense. (See Art. 1456, Civil Code.)
Problem X being unable to pay the purchase price
of a house and lot for his residence has requested Y, and Y
agreed to lend him the money under one condition, that the
protection and as security of the loan. Later on Y mortgaged
the property to the bank without the knowledge of X. When
the mortgage became due, Y did not redeem the mortgage and
the property was advertised for sale. X retained you as his
lawyer. What advise would you give your client and what legal
ground provided by the Code would you assert to defend his
rights? Give reasons. (1959 Bar Problem)
Answer It is clear that in the instant problem, the
provision of Art. 1450 of the Civil Code is applicable. This article
provides: If the price of the sale of property is loaned or paid
by one person for the benefi t of another and the conveyance
is made to the lender or payor to secure the payment of the
debt, a trust arises by operation of law in favor of the person
to whom the money is loaned or for whom it is paid. The latter
may redeem the property and compel a conveyance thereof to
him. It must be observed, however, that the mortgage of the
property by Y to the bank is perfectly valid inas- much as the
bank was not aware of any fl aw or defect in the title or mode of
acquisition of Y since the right of X has not been annotated
in the Certifi cate of Title; in other words, the bank had acted
in good faith. Consequently, the only way by which I would be
able to help X would be to advice him to redeem the mortgaged
property from the bank. After this is done, X can then institute
an action to compel Y to reconvey the property to him pursuant
to the provision of Art. 1450 of the Civil Code. In this action for
reconveyance, the amount paid by X to the bank in redeeming
the property can then be applied to the payment of his debt to
Y. If there is an excess, he can recover the amount from Y.
The most common application of the above
article would be those cases where after the death of the decedent,

some of the co-heirs will enter into an extrajudicial settlement or

partition of the hereditary estate with preterition of the other coheirs,
and subsequently, will secure original or transfer certifi cates
of title in their names. In such a case, such co-heirs are considered
trustees of an implied or constructive trust for the benefi t of the
other co-heirs who were omitted in the settlement or partition.1
Finally, on May 29, 1964, the Supreme Court in Gerona vs. De
Guzman,3 in an excellently phrased decision penned by then Justice
Concepcion, unequivocally reaffi rmed the rule, overruling previous
decisions, that an action for reconveyance of real property based
upon an implied trust resulting from fraud, may not be barred by the
statute of limitations, and further that the action therefore may be
fi led x x x from the discovery of the fraud, the discovery in that case
being deemed to have taken place when new certifi cates of title were
issued exclusively in the names of the defendants therein. This rule
was subsequently reiterated in a long line of notable decisions.
Idem; id. Period of prescription. What is the period
of prescription for bringing an action for reconveyance based on the
implied or constructive trust which is created in Article 1456 of the
New Civil Code? It depends. Thus
1. If the action for reconveyance involves the annulment
of the voidable contract which became the basis for the fraudulent
registration of the subject property, then the period of prescription
is four years from the discovery of the fraud. This fi nds codal support
in Art. 1391, par. 4, of the Civil Code, which declares that the action
for annulment of contracts which are voidable by reason of mistake
or fraud shall be brought within four years from the time of the
discovery of the mistake or fraud. It also fi nds support in the cases
of Gerona vs. De Guzman (11 SCRA 153), Fabian vs. Fabian (22
SCRA 231), Carantes vs. Court of Appeals (76 SCRA 514), Alarcon
vs. Bidin (120 SCRA 390), and other cases.
2. If the action involves the declaration of the nullity or
inexistence of a void or inexistent contract which became the basis
for the fraudulent registration of the subject property, then the
action is imprescriptible. This fi nds codal support in Art. 1410 of
the Civil Code, which declares that the action or defense for the
declaration of the inexistence of a contract does not prescribe. It also
fi nds support in the case of Tongoy vs. Court of Appeals
3. If the action does not involve the annulment of a contract,
but there was fraud in the registration of the subject property, then
the period of prescription is ten years from the discovery of the fraud.
This fi nds codal support in No. (2) of Art. 1144 of the Civil Code,
which declares that an action based upon an obligation created by
law must be brought within ten years from the time the right of
action accrues. It also fi nds support in the cases of Bueno vs. Reyes
(27 SCRA 1179), Varsity Hills, Inc. vs. Navarro (43 SCRA 503), Escay
vs. Court of Appeals (61 SCRA 369), Jaramil vs. Court of Appeals (78
SCRA 420), Vda. de Nacalaban vs. Court of Appeals (80 SCRA 428),
Duque vs. Domingo (80 SCRA 654), and cases.
4. If the legitimate owner of the subject property which was
fraudulently registered in the name of another had always been in

possession thereof so that, as a consequence, the constructive notice

rule cannot be applied, in reality the action for reconveyance is an
action to quiet title; therefore, the action is imprescriptible. This
fi nds support in the case of Caragay Layno vs. Court of Appeals (133
SCRA 718).
Idem; Laches may bar action. In Fabian vs. Fabian,4 the
Supreme Court reiterated the rule laid down in Diaz vs. Goricho5
that laches may bar an action to enforce a constructive trust. In
the latter case, the Court, speaking through Justice J.B.L. Reyes,
declared:
Article 1456 of the new Civil Code, while not retroactive
in character, merely expresses a rule already recognized by
our courts prior to the Codes promulgation. (see Gayondato
vs. Insular Treasurer, 49 Phil. 244.) Appellants are, however,
in error in believing that like express trust, such constructive
trusts may not be barred by lapse of time. The American law
on trusts has always maintained a distinction between express
trusts created by the intention of the parties, and the implied
or constructive trusts that are exclusively created by law, the
latter not being trusts in their technical sense. (Gayondato vs.
Insular Treasurer, supra.) The express trusts disable the trustee
from acquiring for his own benefi t the property committed to
his management or custody, at least while he does not openly
repudiate the trust, and makes such repudiation known to the
benefi ciary or cestui que trust. For this reason, the old Code of
Civil Procedure (Act 190) declared that the rules on adverse
possession does not apply to continuing and subsisting (i.e.,
unrepudiated) trusts.
But in constructive trusts, x x x the rule is that laches
constitutes a bar to actions to enforce the trust, and repudiation
is not required, unless there is a concealment of the facts giving
rise to the trust (54 Am. Jur., Secs. 580, 581; 65 C.J., Secs. 956,
957; American Law Institute, Restatement of Trusts, Section
219; on Restitution, Section 179; Stianson vs. Stianson, 6 ALR
287; Claridad vs. Beares, 97 Phil. 973.)
Bueno, et al. vs. Reyes, et al.
The lot which is the subject matter of this litigation
originally belonged to Jorge Bueno. When he died, the property
descended by intestate succession to his three children, Brigida,
Eugenia and Rufi no. Subsequently, Brigida and Eugenia died. In
1936, by agreement among the heirs, Francisco Reyes, Eugenias
husband, was entrusted with the job of fi ling the answer in the
cadastral proceedings and in obtaining title to the property for
and in behalf of the heirs of Jorge Bueno. Reyes fi led the answer,
claiming the lot as property belonging to himself and to his two
brothers, Juan and Mateo. Subsequently, the lot was adjudicated
in favor of the claimants, in whose names an original certifi cate
of title was issued in 1939. In 1962, the heirs of Jorge Bueno,
who had always been in possession of the property, discovered
the fraud committed by Francisco Reyes. As a consequence,
they brought this action for reconveyance of the lot to them.

Defendants, however, interposed the defense or prescription of

action which was reiterated in a motion to dismiss. The trial
court a quo held that the action is predicated on the existence
of an implied trust and that such action prescribes in ten years.
Consequently, the case was dismissed. Plaintiffs appealed. The
question now is has the action prescribed?
Held: While there are some decisions which hold that an
action based upon a trust is imprescriptible, with better rule, as
laid down by this Court in other decisions, is that prescription
does supervene where the trust is merely an implied one.
Upon the general proposition that an action for reconveyance
such as the present is subject to prescription in ten years
to the appellees and the court a quo are correct. The question
here, however, is: from what time should the prescriptive period
be counted? It should be remembered that the constructive
trust arose by reason of the bad faith of Francisco Reyes, compounded
by the connivance of his brothers. Consequently, the
cause of action upon such trust must be deemed to have accrued
only upon the discovery of such bad faith, or to put it more specifi
cally, upon the discovery by the appellants that. Francisco
Reyes, in violation of their agreement with him, had obtained
registration of the disputed property in his own name and in the
names of his brothers? It would not do to say that the cadastral
proceeding itself, by virtue of its nature as a proceeding in rem,
was constructive notice to the appellants, for as far as they were
concerned the cadastral answer they had authorized Francisco
Reyes to fi le was not adverse to them; and neither he nor the
appellees may invoke the constructive notice rule on the basis of
their own breach of the authority thus given. On top of all these,
it was the appellants and not the appellees who were in possession
of the property as owners, continuously up to 1962, when
for the fi rst time the latter appeared upon the scene and tried
to get such possession, thereby revealing to them the fact of the
fraudulent registration.
It would be more in keeping with justice, therefore, to
afford the plaintiffs as well as the defendants the opportunity
to lay their respective claims and defenses before the court in a
full-blown litigation. Wherefore, the order appealed from is set
aside and the case is remanded for further proceedings.
De la Cerna, et al. vs. De la Cerna, et al.
72 SCRA 514
This is a direct appeal from an order of the lower court
dismissing the complaint of plaintiffs for partition and
reconveyance of property with damages on the ground that the
action has already prescribed. The factual backdrop of the case
is as follows: Narciso de la Cerna died in 1945. His widow and
their two legitimate children subsequently executed a deed of
extrajudicial partition, which they registered on September 14,
1946 in the Offi ce of the Register of Deeds, wherein they stated
that they are the only owners of the subject property and that
one-half thereof is the share of the widow and the other onehalf

is the share of the children. On the basis of such deed, a

transfer certifi cate of title was issued to them. Twenty years
later, plaintiffs, children of Narciso by a prior marriage, brought
the instant action against defendants. Has their right of action
prescribed?
Held: His Honor committed no error in ruling that the
action has already prescribed. It is idle to bother as to whether
the action here is one founded exclusively on fraud which
prescribed in four years or one based on constructive trust
which is barred after ten years, there being no question that the
appellees secured their title more than twenty years before the
fi ling of the complaint, and it is from the date of the issuance of
such title that the effective assertion of adverse title for purposes
of the statute of limitations is counted. (Gerona vs. De Guzman,
11 SCRA 153.)
Problem X, Y and Z, falsely representing that
they were the only heirs of their deceased father Juan Reyes,
executed an extrajudicial partition of the property of their
deceased parent. The extrajudicial partition was registered
and as a result thereof, the original certifi cate of title of their
deceased parent was cancelled and a transfer certifi cate of title
was issued to them. They subsequently sold 1/2 of the land to
Pedro who registered the deed of conveyance, and secured a
transfer certifi cate of title in his name. Fourteen years later,
A, as a legitimate heir of the deceased Juan Reyes, upon
discovering these acts of his brothers, fi led an action to recover
from X, Y, Z and Pedro his 1/4 pro indiviso share in said
property. Can A recover? Decide with reasons.
Answer A cannot recover. It must be observed that X,
Y and Z are actually trustees of an implied or constructive
trust for the benefi t of their co-heir A who was omitted in the
extrajudicial settlement. This is so, because according to Art.
1456 of the Civil Code, if property is acquired through mistake
or fraud, the person obtaining it is, by force of law, considered
a trustee of an implied trust for the benefi t of the person from
whom the property comes.
In the instant case, A, as a legitimate heir of the
deceased Juan Reyes, had a perfect right to bring an action
against his co-heirs for reconveyance of his 1/4 pro indiviso
share in the property owned in common. It is different in the
case of Pedro. The sale of 1/2 of the land to him by X, Y and
Z is certainly valid because he is a purchaser in good faith
and for value and because co-owners are given the right to sell
their individual shares in the thing owned in common. (Art. 493,
Civil Code.) However, the effect thereof is limited to the portion
which may be alloted to the vendors upon the termination of the
co-ownership. (Art 493, Civil Code.) Hence, such sale shall be
respected.
However, As right of action against X, Y and Z is
now barred:
(1) By extinctive prescription. Well-settled is the

rule in this jurisdiction that an action for reconveyance

of real property based upon a constructive trust resulting
from fraud may be barred by prescription after ten years.
The period is counted from the date the trustee set up
a title adverse to that of the benefi ciary. Normally, this
would take place at the time the deed of extrajudicial
settlement is registered and a new certifi cate of title is
issued in the name of the trustee or trustees. The basis
for this is that such registration constitutes a constructive
notice to the whole world.
(2) By laches, in constructive trusts, the rule is
likewise settled that laches constitutes a bar to enforce
the trust. All of the elements are present. There is conduct
of the defendant giving rise to the situation of which complaint
is made and for which the complaint seeks a remedy;
the plaintiff, with knowledge or notice of such conduct,
slept on his rights; the defendants had no knowledge
or notice that the plaintiff would assert his right against
them; and fi nally, defendants will suffer damage or injury
if the complaint is not barred.
Problem HH, II, JJ inherited from their parents
a large parcel of land. HH and II went abroad to reside in
Canada. In their absence, JJ applied for the registration of
the whole land in his name only. In due time, JJ obtained a
Torrens Title for the land.
When HH and II returned from Canada after seven
years, they found out what JJ did and sued him for their
respective shares. JJ contended that the decree of title can no
longer be reviewed or changed because of the lapse of more than
one year from its issuance.
In whose favor would you decide? (1980 Bar Problem)
Answer My decision will be in favor of HH and II.
In reality, the action commenced by plaintiffs against defendant
is an action for reconveyance of their respective shares in the
subject property based on the constructive trust recognized
through mistake or fraud, the person obtaining it is, by force of
law, considered a trustee of an implied trust for the benefi t of
the person from whom the property comes. Since the obligation
is created by law, the action commenced by the benefi ciaries
against him shall be counted from the time of the discovery of
the fraud. When did the plaintiffs discover the fraud. Under the
constructive notice rule, they are deemed to have discovered the
fraud as of the date the trustee set up in himself a title adverse
to the title of the benefi ciaries. Normally, this would be the date
the trustee (JJ) obtained his Torrens Title. Since the instant
action was commenced seven years after the issuance of said
Title, it is obvious that it was commenced in time.
Problem Explain the following concept of trust de
son tort or otherwise known as constructive trust (2007 Bar
Problem)
Answer A constructive trust is a form of implied trust

created by equity to meet the demands of justice. It arises

contrary to intention against one who, by fraud, duress or
mistake or breach of fi duciary duty or wrongful disposition of
anothers property, obtains or holds the legal right to property
which he is not entitled to under the law. (Huang vs. CA, G.R.

No.108525, Sept. 13,1994). An example of constructive trust

is when a property is acquired through mistake or fraud, the
person obtaining it is by force of law, considered a trustee of
an implied trust for the benefi t of the person from whom the
property comes (Art.1456,NCC).