LEAO VS CA

(369 s 295)
FACTS:
Hermogenes Fernando, as vendor and Carmelita Leao, as vendee executed a contract to sell
involving a piece of land.
In the contract, Leao bond herself to pay Fernando the sum of P107,750 as the total purchase
price.
- P10,775 shall be paid at the signing of the contract;
- P96,975 shall be paid within 10 yrs. at a monthly amortization of P1,747.30 to begin from
Dec. 7, 1985 with interest of 18% per annum;
- 18% per annum shall be charged if the month of grace period expires w/out the
installments;
- should the 90 days elapse from the expiration of the grace period, Respondent was
authorized to declare the contract cancelled & to dispose of the land.
Carmelita Leao made several payments in lump sum. Thereafter she constructed a house
(P800K). Last payment she made was on April 1989.
Which the Trial Court rendered decision in an ejectment case filed by Fernando.
Leao filed with the RTC for specific performance with preliminary injunction and assailing
that for being violative of her right to due process being contrary to R.A 6552 regarding
protection to buyers of lots on installments. According to Trial Court, transaction was an
absolute sale, making Leao the owner upon actual & constructive delivery thereof. Fernando
divested of ownership & cannot recover the same unless rescinded under Art. 1592
ISSUE:
1) WON the transaction was an absolute sale or conditional sale? Conditional Sale
2) WON was there a proper cancellation of the contract to sell? NO
3) WON petitioner was in delay? YES
HELD:
1) It was a conditional sale because the intention of the parties was to reserve the ownership of the
land in the seller until the buyer has paid the total purchase price.
- Consideration: (a) Contract was subject to condition. (b) What was transferred was the
possession & not ownership. (c) It was covered by Torrens title. Act of Registration was the
operative act that could transfer ownership.
2) No proper cancellation as Leao was not given the cash surrender value. She may still reinstate
the contract by updating the account during grace period & before actual cancellation
3) Leao was in delay because under Art. 1169, provides that Reciprocal Obligation; neither party
incurs in delay if the other does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay
by the other begins.
- Fernando performed his part by allowing Leao to continue in possession & use of the
property. Clearly, when Leao did not pay the monthly amortization, she was in delay and
liable for damages.

HEIRS OF LUIS BACUS VS C.A.

(371 s 295)
FACTS:
On June 1, 1984, Bacus leased to PR Duray a parcel of agricultural land.
The lease was for 6 yrs ending May 31, 1990. The contract contained an option to buy clause
which had the exclusive & irrevocable right to buy the property within 5 yrs after the effectivity
of contract.
Close to the expiration, Bacus died. Duray informed the heir of Bacus that they are willing &
ready to purchase the property under option to buy.
However, Petitioner Bacus refuse to sell the property without first receiving the payment of
purchase price before the land would be delivered to Duray which the latter filed a complaint.
ISSUE:
1) WON Duray opted to buy the property covered by lease contract with option to buy, were they
already required to deliver the money or consign it in court before petitioner execute the deed
of transfer? NO
2) WON did Duray incur in delay when they did not deliver the purchase price or consign it in
court on or before the expiration of the contract? NO
HELD:
1) The obligation under option to buy are reciprocal obligation. The performance of one
obligation is conditioned on the simultaneous fulfillment of the other obligation. The payment
of the purchase price by the creditor is contingent upon the execution and delivery of a deed of
sale by the debtor.
- In this case, PR Duray opted to buy the property, their obligation was to advise petitioner of
their decision & readiness to pay the price. They were not obliged to make actual payment.
Only upon execution of deed of sale were they required to pay.
- Consignation is not proper because the debt is not due and owing.
2) Under Art. 1169, provides that reciprocal obligation, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with what is incumbent upon
him. Only from the moment one of the parties fulfills his obligation, does delay by the other
begins.
- In this case, PR already communicated their interest to buy before the contact expires & it was
the Petitioner who refused because they want the money first. Thus, as there was no compliance
yet with what is incumbent upon the petitioner, PR had not incurred delay when the cashiers
check was issued even after the contract expired.
SOLID HOMES INC VS TAN
(465 s 137)
FACTS:
On April 7,1980, Solid Homes sold to spouses Uy a subdivision lot and thereafter spouses Uy
sold the same lot to spouses Tan.
From then on, respondents visited their property a number of times, only to find out the sad state
of development thereat. There was no infrastructure & utility system of water. Worse, squatters
occupy their lot & its surrounding areas.
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 On Dec. 18,1995, respondents demanded on petitioner to provide the needed utility system &
clear the area of squatters by the end of Jan 1996.
Having received no reply from petitioner, Respondent filed with the housing & Land Use
Regulatory Board a complaint for specific performance which rendered judgment in favor of
respondents.
ISSUE:
1) WON Respondents right to bring the instant case against petitioner has already prescribed?
NO
2) WON in the event respondents opt to rescind the contract, should petitioner pay them the price
they paid for the lot plus interest or the current market value thereof? CURRENT MARKET
VALUE.
HELD:
1) Petitioner argued that the 10 yrs prescriptive period should be reckoned from Apr. 7, 1980 when
they sold the lot to spouses Uy or at the latest on Feb. 1985. The SC disagree because it is from
the time an act is performed or an omission incurred which is violative of plaintiffs right, that
signals the accrual of a case of action.
In this case, it was only on Dec. 18, 1995 when respondent made a written demand upon
petitioner to construct which are unquestionably in the nature of an obligation to do.
Under Art. 1169, party who is under obligation to do something incurs delay only from the
time the obligee demands either judicially or extra judicially for the fulfillment of obligation.
In this case, respondent made their written demand upon petitioner to perform what is
incumbent upon it only on Dec.18, 1995, it was only from that date when 10 yrs prescriptive
period commenced to run.
2) Equity and justice dictate that the injured party should be paid the market value, otherwise,
respondent would enrich themselves at the expense of the lot owners when they sell the same
lot at the present market value.
PRUDENTIAL BANK VS CA
(Mar 16, 2000)
FACTS:
PR Valenzuela opened savings and current account with automatic transfer of funds with
Prudential Bank.
On June 1, 1998, she deposited in her savings account with a total deposit of P36,770.41.
She issued a check in the amount of P11,500 post dated on June 20 1988 in favor of Legaspi as
Payment for jewelry she purchased.
Later, Legaspi endorse the check to Philip Lhuillier who in turn deposited the same to his
account but it was dishonored due to luck of funds.
PR Valenzuela upon knowing asked Prudential Bank why her check was dishonored when there
was sufficient fund as reflected in her passbook. However, she was told that no need to review
the passbook because the bank ledger was the best proof that she did not have sufficient funds.
Later, it was found out that the check she deposited in her account was credited in her savings
account only June 24, 1988. Due to humiliation brought by the Banks negligence, Valenzuela
filed a suit for damages.

ISSUE:
- WON PR Valenzuela is entitled to be awarded moral & exemplary damages & attorneys fees?
YES
HELD:
- The bank is under the obligation to treat the accounts of its depositor with meticulous care
whether such account consist only of a few hundred pesos or millions of pesos. Responsibility
arising from negligence in the performance of every kind of obligation is demandable.
- While petitioners negligence in this case may not have been attended with malice and bad
faith, nevertheless, it caused serious anxiety, embarrassment and humiliation. Hence, the
offended party is entitled to recover reasonable moral damages. The court also allows the grant
of exemplary damages by way of example for Public good. The award of attorneys fees is also
proper when exemplary damages are awarded & since she was compelled to engage the
services & incurred expenses to protect her interest.
UNITED AIRLINES VS CA
(357 s 99)
FACTS:
On Mar. 1, 1989, PR Fontanilla purchased tickets from petitioner United Airlines.
The cause of non-boarding of the Fontanillas on United Airlines makes up the bone of
contention of this controversy.
Aniceto Fontanilla & his son claim that upon arrival at Los Angeles Airport they proceeded at
united Airlines counter where they were attended by an employee, Linda; when the flight was
called, they proceeded to the plane but the stewardess did not allow them to board because they
had no assigned seat numbers; they were directed to go back to the check-in-counter, Linda told
them in an arrogant manner, such rude statement was made infront of other people causing the
Fontanillas to suffer shame, humiliation & embarrassment.
However, according to United Airlines, Fontanillas did not initially go to check-in-counter to
get their seat assignment that is why they were not allowed to board. Linda denied the
derogatory & resisted words attributed to her by the Fontanillas.
The incident prompted the Fontanillas to file for damages.
ISSUE:
1) WON there was a breach of contract in bad faith on the part of the petitioner in not allowing the
Fontanillas to board United Airlines? NO
2) WON Fontanilla is entitled to damages? NO
HELD:
1) Fontanillas assertion that they immediately proceeded to the check-in-counter & Linda
punched something is specious & not supported by evidence on record. It was explicitly printed
on the boarding pass the words check-in required. Curiously, the said pass did not indicate any
seat number. Which it is the very reason why they were denied boarding.
- As to the award of moral & exemplary damages, for the plaintiff to be entitled to an award of
damages arising from breach of contract, the carrier must have acted with fraud & bad faith.
2) Existing jurisprudence states that overbooking is amount to bad faith but while there may have
been overbooking in this case, private respondents were not able to prove that the overbooking
exceeded 10%. Hence, PR Fontanillas are not entitled to damages.
4

BPI INVESTMENT CORP VS. D.G. CARREON

( 371 s 58)
FACTS:
BPI Investment was engaged in money market operation wherein D.G. Carreon Comm. Corp
was a client & placed P318,981.59 in money market placement with a maturity term of 32 days
or up to Dec. 17, 1979.
On Dec. 12, 1979, there appeared in BPI ledger due to D.G. Carreon an amount which is exactly
the amount maturity on Dec. 17. However, D.G. Carreon did not make any money placement
but to roll over for another 30 days, a sales order slip & confirmation slip were executed dated
Dec. 12.
On Dec. 17, BPI credited the amount due to respondent via roll over for a term of 120 days
maturity on Apr 15, 1980 & P 23,518.22 was paid out in cash and a sales order slip for straight
sale were executed.
According to petitioner, their bookkeeper made an error in posting 12-17 representing a single
money market placement, the 1st on Dec. 12 & 2nd on Dec. 17.
An Apr. 21, BPI wrote respondent demanding the return of overpayment of P410,937.09 which
spouses Carreon sent a proposed memorandum.
BPI without responding to memorandum, filed a complaint for recovery of sum of money with
preliminary attachment.
Trial Court issued an order for preliminary attachment but later lifted & even denied the motion
of petitioner.
D.G. Carreon filed a complaint for damages which the C.A. rendered a decision in favor of
respondents.
ISSUE:
- WON petitioner committed gross negligence in handling money market placement as to merit
the award of damages? NO
HELD:
- Petitioner is not guilty of gross negligence gross negligence implies want or absence of or
failure to exercise slight care or diligence or the entire absence of care. However, petitioner
may not be guilty of gross negligence, it failed to prove by clear & convincing evidence that
respondents indeed received money in excess of what was due them.
- On the manner of execution of the writ of attachments, BPI did not act in a wanton, fraudulent,
reckless or oppressive manner. It was just exercising a legal option. The sheriff of the issuing
court did the execution & the attachment. Hence, BPI is not to be blamed for the excessive &
wrongful attachment. Hence BPI is not liable for damages.
- However, temperate or moderate damages may be recovered when the court finds that some
pecuniary loss has been inferred but its amount cannot, from the nature of the case, be proved
with certainty. There is no doubt that damages sustained by respondents were due to
petitioners fault or negligence.

RADIOWEALTH FINANCE COMPANY VS DEL ROSARIO

(335 s 288)
FACTS:
Spouses Vicente & Maria Del Rosario jointly & severally executed, signed and delivered in
favor of Radiowealth Finance Company a promissory note for P138,948.
Thereafter, respondents defaulted on the monthly installments. Despite repeated demands, they
failed to pay their obligation.
Petitioner filed a complaint for the collection of sum of money before the RTC.
Trial court dismissed the complaint for the evidence presented were merely hearsay.
CA reversed & remanded the case for further proceedings.
ISSUE:
- WON the installments had already became due and demandable? YES
HELD:
- The act of leaving blank space the due date of the first installment did not necessary mean that
the debtors were allowed to pay as & when they could. If this was the intention of the parties,
they should have so indicated in the promissory note. However, it did not reflect any such
intention.
- While the specific date on which each installment would be due was left blank, the note clearly
provided that each installment should be payable each month. Furthermore, it also provided for
an acceleration clause and a late payment penalty, both of which showed the intention of the
parties that the installment should be paid at a definite date. Had they intended that the debtors
could pay as & when they could, there would have been no need for these 2 clauses.
- The installments had already became due & demandable is bolstered by the fact that
respondents started paying installments on the promissory note. The obligation of the
respondents had matured & they clearly defaulted when their checks bounced. Per the
acceleration clause, the whole debt became due one month after the date of the note because the
check representing their first installment bounced.
INTERNATIONAL CORPORATE BANK VS GUECO
(357 s 516)
FACTS:
Respondent Gueco spouses obtained a loan from petitioner International Corporate Bank ( now
Union Bank of Phils.) to purchase a car-Nissan Sentra 1989 model.
In consideration, spouses executed promissory note which were payable in monthly installment
& chattel mortgage over the car.
The spouses defaulted payment. Dr. Gueco had a meeting & the unpaid installment of P184k
was reduced to P150k. however the car was detained by the bank.
When Dr. Gueco delivered the mangers check of P150k, the car was not released because of his
refusal to sign the Joint Motion to Dismiss.

 The bank insisted that the JMD is a standard operating procedure to effect a compromise & to
preclude future filing of claims or suits for damages.
Gueco spouses filed an action against the bank for fraud, failing to inform them regarding JMD
during the meeting & for not releasing the car if they do not sign the said motion.
ISSUE:
- WON bank is guilty of fraud? NO
HELD:
- Under Art 1170, fraud is the deliberate & intentional evasion of the normal fulfillment of
obligation.
- In this case, the SC fails to see how the act of petitioner bank in requiring the respondent to
sign the JMD could constitute fraud. The JMD was in fact for the benefit of Dr. Gueco so that
the case filed by the bank would be dismissed. The whole point of the parties entering into
compromise agreement was in order that Dr. Gueco would pay his outstanding account, return
the car & drop the case filed against him. The JMD was but a natural consequence of the
compromise agreement & simply stated that Dr. Gueco had fully settled his obligation.
- Moral damages to Gueco spouses cannot be awarded because it can be awarded only when the
breach was attended with fraud or bad faith. The lowering of debt to P150k is indicative of the
banks good faith & sincere desire to settle the case.
PHIL COMSAT VS GLOBE
( 492 s153)
FACTS:
On May 7, 1991 Philcomsat & Globe entered into an agreement whereby Philcomsat obliged
itself to establish, operate & provide an IBS standard B earth station for the exclusive use of US
defense communications Agency (USDCA). The term was for 60 months or 5 yrs In turn, Globe
promised to pay Philcomsat monthly rentals.
At the execution of the agreement, both parties knew that military Bases Agreement was to
expire in 1991. Subsequently, Philcomsat installed the earth station & USDCA made use of the
same.
The senate passed a resolution expressing its decision not to concur in the ratification of the
treaty of friendship. So the RP-US Military bases Agreement terminate it on Dec. 31, 1992.
Globe notified Philcomsat its instruction to discontinue effective Nov. 8, 1992, in view of the
withdrawal of US military personnel. Philcomsat sent a reply to pay the stipulated rentals even
after Globe shall have discontinued the use of earth station after Nov. 8 1992.
After the US military force left subic, Philcomsat sent a letter demanding payment. However,
Globe refused to heed Philcomsat s demand because the termination of the US military bases
agreement constitute force majeure and said event exempted it from paying rentals.
ISSUE:
- WON the termination of the agreement constitute force majeure which would exempt Globe
from paying rentals? YES
HELD:
- In order that Globe may be exempted to pay rentals, the concurrence of the ff elements must be
established:
7

a) The event must be independent of the human will;

b) The occurrence must render it impossible for the debtor to fulfill the obligation in a normal
manner;
c) The obligor must be free of participation in or aggravation of the injury to the creditor.
The requisites are present in this case Philcomsat & Globe had no control over the non- renewal
of the term of the agreement because the prerogative to ratify the treaty extending the life
thereof belonged to the senate.
MONDRAGON LEISURE VS CA
( 460 s 279)

FACTS:
Mondragon entered into a lease agreement with the Clark Devt. Corp. for the development of
MIMOSA leisure estate.
To help finance the project, Mondragon entered an Omnibus loan with respondent banks (Asia,
Fareast & UCPB) to be paid within a 6-yr period from the date of initial advance inclusive of 1
yr & 2 quarters grace period.
Petitioner secure a loan in the amount of P20M and availed the full amount. Petitioner regularly
paid the monthly interest until Oct 1998, thereafter failed to make payments.
Consequently, written notice of default, acceleration of payment & demand letters were sent by
the lenders.
This commenced the filing of litigation against Mondragon.
ISSUE:
1) WON Mondragon is in default? YES
2) WON Asian financial crisis which affects petitioners economic stability is among the
fortuitous events contemplated under Art 1174? NO
HELD:
1) Clearly, petitioner is in default because it failed to pay the unpaid interest. As consequence of
default, the unpaid amount shall earn default interest.
- It is clearly shown also that the demands are made by the lenders to enforce petitioner to pay
the interests and penalty charges thus, the respondent complied with the requirement
concerning notice to the petitioner.
2) The default because of fortuitous event as claimed by petitioner is untenable because the Asian
Financial crisis of 1997 is not among the fortuitous events contemplated under Art 1174.
- The agreement to loan was made on June 30 1997, thus petitioner should have been aware of
the economic stability at that time, yet it still took the risk to expand operations. The closure of
Mimosa Regency Casino was not an unforeseeable or unavoidable event because business
venture involves risk. Risk are not unforeseeable, they are inherent in the business.
HEIRS OF SANDEJAS VS LINA
(351 s 183)
FACTS:
Eliadoro Sandejas was the administrator of the estate of his deceased wife.
On Nov.19, 1981, Manila City Hall was burned along with the records of Sandejas.
8

 Eliodoro filed a motion for reconstitution of records. A motion to intervene was filed by Alex
Lina alleging that Eliodoro bound and obliged himself to sell their entirety the parcel of land.
He informed Lina that that he already filed a motion with the court for authority to sell the
above parcels of land to herein buyer but which has been delayed due to the burning of the
records.
However, upon the death of Eliodoro a new administrator has been appointed in the person of
his son, Sixto.
Now, Lina is claiming the parcels of land and filed a motion to approve the deed of conditional
sale between him & the deceased.
However, the administrator filed a motion for dismissal.
ISSUE:
- WON the heirs are bound to fulfill the obligation to convey the title which was found to be in
the nature of contact to sell where the suspensive condition is the courts approval? NO
HELD:
- Hence, the contract was a conditional sale rather than a contract to sell. When contract is
subject to a suspensive condition, its birth or effectivity can take place only if & when the
condition happens or is fulfilled. Thus, intestate courts grant of the Motion for Approval of the
sale is petitioners obligation to execute the Deed of Sale of the disputed lots. The condition
having been satisfied, the contract was perfected. Hence, the parties were bound to fulfill what
they had expressly agreed upon. But because the petitioners did not consent to the sale of their
ideal shares in the disputed lots, only the share of Eliodoro is subject to sale which was 3/5 of
the entire estate.
CENTRAL PHIL UNIV. VS CA
( 246 s 511)
FACTS:
In 1939, Don Ramon Lopez Sr. executed a deed of donation in favor of CPU together with the
following conditions:
a) The land should be utilized by CPU exclusively for the establishment & use of medical
college;
b) The said college shall not sell transfer or convey to any 3rd party;
c) The said land shall be called Ramon Lopez Campus and any income from that land
shall be put in the fund to be known as Ramon Lopez Campus Fund.
However, on May 31, 1989, PR, who are the heirs of Don Ramon filed an action for annulment
of donation, reconveyance & damages against CPU for not complying with the conditions. The
heirs also argued that CPU had negotiated with the NHA to exchange the donated property with
another land owned by the latter.
Petitioner alleged that the right of private respondents to file the action had prescribed.
ISSUE:
1) WON petitioner failed to comply the resolutely conditions annotated at the back of petitioners
certificate of title without a fixed period when to comply with such conditions? YES
2) WON there is a need to fix the period for compliance of the condition? NO

HELD:
1) Under Art. 1181, on conditional obligations, the acquisition of rights as well the extinguishment
or loss of those already acquired shall depend upon the happening of the event which
constitutes the condition. Thus, when a person donates land to another on the condition that the
latter would build upon the land a school is such a resolutory one. The donation had to be valid
before the fulfillment of the condition. If there was no fulfillment with the condition such as
what obtains in the instant case, the donation may be revoked & all rights which the donee may
have acquired shall be deemed lost & extinguished.
2) Under Art. 1197, when the obligation does not fix a period but from its nature & circumstance
it can be inferred that the period was intended, the court may fix the duration thereof because
the fulfillment of the obligation itself cannot be demanded until after the court has fixed the
period for compliance therewith & such period has arrived. However, this general rule cannot
be applied in this case considering the different set of circumstances existing more than a
reasonable period of 50yrs has already been allowed to petitioner to avail of the opportunity to
comply but unfortunately, it failed to do so. Hence, there is no need to fix a period when such
procedure would be a mere technicality & formality & would serve no purpose than to delay or
load to unnecessary and expensive multiplication of suits.
- Under Art. 1191, when one of the obligors cannot comply with what is incumbent upon him,
the obligee may seek rescission before the court unless there is just cause authorizing the fixing
of a period. In the absence of any just cause for the court to determine the period of compliance
there is no more obstacle for the court to decree recession.
DEVT BANK OF THE PHILS. VS CA
( 262 s 245)
FACTS:
PR Carpio, et al, mortgaged their parcel of land to DBP when PR defaulted on their payments,
DBP foreclosed the mortgage on the land & emerged as sole bidder in the auction sale.
On April 6, 1984, DBP & PR entered into a deed of conditional sale where DBP agreed to
convey the foreclosed property to PR.
On April 6, 1990, upon completing the payment of the full repurchase price DBP, PR demanded
the execution of the deed of conveyance in their favor.
However, DBP denied the execution & delivery because it had become illegally impossible in
view of sec. 6 of RA 6657 (CARL) that upon effectivity of this act, any sale lease, management
contract / transfer of possession of private / lands executed by the original land owner in
violation of this act shall be null & void.
ISSUE:
- WON the execution & delivery of conveyance is illegally impossible? NO
HELD:
- Under Art 1181, in conditional obligations, the acquisition of rights as well as the
extinguishment or loss of those already acquired depend upon the happening of the event which
constitutes the conditions.
- The deed of conditional sale between petitioner & PR was executed on April 6 1984. Since PR
had religiously paid the agreed installment on the property until April 6, 1990, PR is entitled for
the land.
10

The laws RA 6657, was enacted on June 10, 1988 as well as E.O. 407 after the execution of the
deed of conditional sale, thus, these laws cannot have retroactive effect or to the time the
contract had on April 6 1984.
Petitioner cannot invoke the last paragraph of sec.6 to set aside its obligations already existing
prior to its enactment because the original owner in this case is not DBP but PR. DBP only
acquired land through foreclosure proceedings but agreed thereafter to recovery it to private
respondents conditionally.
PADILLA VS PAREDES
( Mar. 17 2000)

FACTS:
Petitioner Padilla & PR Paredes entered into a contract to sell involving a parcel of land. Of the
P312,840.00 purchase price, petitioner was to pay P50k upon signing of the contract & the
balance was to be paid within 10 days from the issuance of a decree of registration for the
property.
Petitioner made several payments even before the court order but still failed to pay the full
purchase price.
PR demanded payment or otherwise the contract shall be rescinded.
Through petitioner paid additional P100k, it was still insufficient shortly, after PR offered to sell
of the property to petitioner for all the payments the latter made instead of rescinding the
contract. If petitioner will not agree, PR would automatically rescind the contract.
Petitioner did not accept the offer. Instead, he offered to pay the balance in full for the entire
property. PR refused the offer. Thus, petitioner instituted an action for specific performance
alleging that he had already substantially complied the contract.
ISSUE:
- WON PR Paredes are entitled to rescission under Art 1191? NO
HELD:
- PR may validity cancel the contract, however, the reason for this is not that PR have the power
to rescind the contract but because their obligation thereunder did not arise.
- Art 1191 or rescission is inapplicable because the article speaks of obligation already existing
which may be rescinded in case one of the obligors fails to comply with what is incumbent
upon him. There can be no rescission of obligation that is non-existent concerning that the
suspensive condition has not yet happened.
- In this case, it is an obligation with suspensive condition. Because of the failure of the
petitioner to pay purchase price, the obligation of PR to convey title to petitioner & receive the
full purchase price. PR is ordered to return to petitioner of the amount received from him on the
principle that no one may unjustly enrich himself at the expense of another.
VELARDE VS CA
( July 11, 2001)
FACTS:
PR David Reymundo is the absolute & registered owner of a parcel of land together with the
house & improvements thereon.
11

 George Reymundo is Davids father who negotiated with petitioner Velarde for the sale of said
property.
A deed of sale with assumption of mortgage was executed by defendant Reymundo as vendor &
plaintiff Velarde. On the same day, they executed an undertaking.
Pending BPIs approval, plaintiff paid BPI the monthly interest for 3 months.
On Dec 15, 1986, plaintiff were advised that the application for assumption of mortgage with
BPI was not approved. This prompted plaintiffs not to make any further payment.
ISSUE:
1) WON there is breach of contract? YES
2) WON Rescission of the contract is valid? YES
3) WON there should be mutual restitution? YES
HELD:
1) Yes, both parties agreed that Velarde should pay the purchase price balance of P1.8 million in
case the request to assume mortgage would be disapproved. Thus, petitioner should have paid
the balance in full. PR had already performed their obligation through the execution of deed of
sale which effectively transferred ownership through constructive delivery. Petitioner, on the
other hand, did not perform their corrective obligation of paying the contract price agreed upon
2) Under Art. 1191, it stated that when the obligor cannot comply with what is incumbent upon it,
the obligee may seek rescission and in the absence of any just cause for the court to determine
the period of compliance the rescission.
- In this case, PR validly exercised their right to rescind the contract because of the failure of
petitioners to comply with their obligation to pay the balance purchase price. It cannot be said
that the breach committed by the petitioners was merely slight or causal as would preclude the
right to rescind due to imposition of the petitioners of new conditions for her to pay the
purchase price.
3) Under Art. 1191, mutual restitution is required to bring back the parties to their original
situation prior to the inception of the contract. The breach committed by petitioners was the
nonperformance of a reciprocal obligation, not a violation of the terms & conditions of the
mortgage contract. Therefore, the automatic rescission & forfeiture of payment clauses
stipulated in the contract does not apply. Thus, the payment of petitioner should be returned to
her, let no one unjust enrich himself at the expense of another.
RIVERA VS DEL ROSARIO
( 419 s 626)
FACTS:
Respondent Fidela del Rosario (deceased) barrowed money from Mariano Rivera in the amount
P250,000. To secure the loan, they agreed to execute a deed of real estate mortgage & the
agreement to sell the land.
Mariano went to his counsel & drafted 3 documents: the Deed of Real Estate Mortgage, a
Kasunduan (agreement to sell) and a Deed of Absolute Sale.
Although Fidela intended to sign only the Kasunduan & the real estate mortgage, she
inadvertently affixed her signature on all 3 documents.
The purchase price was in the amount of P2,141,622.50 and to be paid in 3 installments.
However, Rivera failed to complete the payment in the 2nd installment.
12

 Respondents filed a complaint asking for the rescission of Kasunduan for failure of Riveras to
comply with its conditions. They also sought the annulment of the deed of absolute sale on the
ground of fraud & the reconveyance of the entire property.
ISSUE:
- WON the contract entered into between the parties may be rescinded based on Art 1191? NO
HELD:
- The Kasunduan reveals that it is a contract to sell in which the payment of the purchase price is
a positive suspensive condition. The failure of which is not a breach, causal or serious but a
situation that prevents the obligation of the vendor to convey title from acquiring and
obligatory force.
- It must be stressed that the breach contemplated in Art. 1191, is the obligors failure to comply
with and obligation already existing, not a failure of condition to render binding that obligation.
Hence, the agreement of the parties may be set aside, but not because of breach of contract to
pay completely the 2nd installment rather their failure to do so prevented the obligation of
respondents to convey title from acquiring and obligatory force.
MISTICA VS NAGUIAT
( 418 s 73)
FACTS:
Eulalio Mistica is the owner of a parcel of land in which a portion thereof was leased to
respondent. Mistica entered into a contract to sell with respondent over a portion of lot
containing an area of 200 sq. mtrs.
The agreement was reduced to writing in a document entitled Kasulatan sa Pagbibilihan
- P 20k as the total purchase;
- P 2k upon signing;
- P 18k to be paid within 10yrs;
- In case non payment, vendee shall pay an interest of 12% per annum.
Pursuant to said agreement, respondent gave a downpayment of P2K & made another partial
payment of P1K & thereafter failed to make any payments.
Eulalio Mistica died sometime in Oct. 1986.
Petitioner Vda de Mistica filed a complaint for rescission alleging that the failure and refusal to
pay the balance of the purchase price constitute a violation of the contract.
ISSUE:
1) WON the Kasulatan was a contract to sell? NO
2) WON petitioner is entitled to rescind the contract? NO
HELD:
1) The kasulatan was clearly a contract of sale. A deed of sale is considered absolute in nature
when there is neither a stipulation in the deed that title to the property sold is reserved to the
seller until the full payment of the price, nor a stipulation giving the vendor the right to
unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.
2) In a contract of sale, the remedy of an unpaid seller is either specific performance or rescission.
Under Art. 1191, the right to rescind and obligation is predicated on the violation of the
reciprocity between parties brought about by a breach of faith by one of them. Rescission,
13

however, is allowed only where the breach is substantial & fundamental to the fulfillment of the
obligation.
In this case, the failure of respondents to pay the balance of the purchase price within 10yrs
from the execution of the deed did not amount to a substantial breach. In Kasulatan, it was
stipulated that payment could be made even after 10yrs from the execution of contract provided
that the vendee paid 12% interest. No demand made by Mistica. There was an offer to pay
during the wake.
PRYCE PROP CORP VS PAGCOR
(458 s 164)

FACTS:
Pryce executed a contract of lease with PAGCORs casino operation involving the ballroom of
the hotel for a period of 3 yrs. Starting Dec 1,1992 until Nov 30,1995.
On Nov. 13,1992 executed an addendum to the contract of lease for additional 1,000 sq.m.
On Dec 18,1992, just before the actual opening of casino operation, public rally was staged by
some local officials, residents & religious leader which PAGCOR was constrained to suspend
casino operation.
On July 15 1993, PAGCOR resumed casino operation but were later on indefinitely suspended
due to the demonstrations. Per verbal advice from the office of the President, PAGCOR decided
to stop prior to Sept 1993.
PPC appraised PAGCOR of its outstanding accounts for the quarter Sept. 1, to Nov. 30, 1993.
However PAGCOR sent PPC a letter stating that it was not amenable to the payment of the full
rentals citing as reasons unforeseen legal & other circumstances which presented it from
complying with its obligation.
PAGCOR formally demanded from PPC the payment of its claim for reimbursement on rental
deposits & improvement expenses.
On Nov. 25, 1993, PPC terminated its contract of lease due to PAGCORS continuing breach of
contract.
ISSUE:
- WON Pryce is entitled to future rentals or lease payments for the unexpired period of the
contract? YES
HELD:
- Under Art. 1159, obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. The law allows to enter into
stipulations, terms & conditions for as long as these are not contrary to law, moral, good
customs, public order or public policy.
- Under Art. 20, of the parties contract of lease provides that 1) PPC has the right to terminate &
cancel the contract in the event of a default or breach by the lessee and 2) to make PAGCOR
fully liable for rentals for the remaining term of the lease, despite the exercise of such right to
terminate. Thus, the parties have voluntarily bound themselves to require strict compliance with
the provisions. The court has no alternative but to enforce the contractual stipulations in the
manner they have been agreed upon.
- The court distinguished termination from rescission: Termination - refers to an end in time or
existence. With respect to a lease contract, it means an ending, usually before the end of the
anticipated term of such lease or contract. Parties are not restored to their original situation and
14

only after the contract has been cancelled will they be released from their obligation. Rescission
unmaking of a contract or its undoing from the beginning & not merely its termination.
In this case the actions of petitioner shows that it never intended to rescind the contract from
the beginning because it sought to collect the accrued rentals, as it actually demanded the
enforcement of lease contract prior to termination
CANNU VS GALANG
(459 s 80 )

FACTS:
Respondent spouses Galang agreed to sell their house and lot subject to mortgage with the
(NHMFC) Natl Home Mortgage Finance Corp.
Petitioner Leticia Cannu agreed to buy the property for P120k & to assume the mortgage
obligations with the NHMFC. A deed of sale & assumption of mortgage was executed &
petitioners immediately took possession & occupied the house & lot.
However petitioner failed to pay the P45k remaining balance and stopped complying with the
mortgage obligation.
Despite request of Galang to pay the outstanding balance or in the alternative to vacate the
property in question, petitioner refused to do so.
8 yrs had already elapsed and petitioners have not yet complied with the obligation.
ISSUE:
1) WON the breach of obligation is substantial? YES
2) WON respondent waived their right of rescission? NO
3) WON rescission is subsidiary? NO
HELD:
1) Rescission or more accurately resolution of a party to an obligation under Art. 1191, is
predicated on a breach of faith by the other party that violates the reciprocity between them.
- In this case, the reciprocity between the parties was violated when petitioner failed to fully pay
the balance of P45k to respondent spouses and failure to update their amortizations with the
NHMFC. The remaining balance of P45k is substantial. Their failure to fulfill their obligation
gave respondent Galang the right to rescission.
2) The fact that respondent spouses accepted payments in installment does not constitute waiver
on their part to exercise their right to rescind the deed of sale & assumption of mortgage.
Respondent merely accepted the installment payment as accommodation to petitioners since
they kept on promising to pay. It was only after petitioner stopped paying that respondents
moved to exercise their right to rescission.
3) Art. 1383, is not applicable. The case is not predicated on injury to economic interest but on the
breach of faith by the defendant that violates the reciprocity of the parties which is under Art.
1191. The rescission is not subsidiary but primary because it is not one on the instance
mentioned in Art 1381.
LAPERAL VS SOLID HOMES
( 460 s 375 )
FACTS:
15

Oliverio Laperal, President of Filipinas Golf Sales & Devt Corp. (FGSDC) entered into an
agreement Devt Mgt with the respondent Solid Homes Inc. a registered subd. developer,
involving several parcels of land owned by Laperal & FGSDC.
Solid homes requested Laperal to produce the duplicate titles of the land in order to process the
respondents application with the Human Settlements Regulatory Comm. for a license to sell
subdivision lots as required by PD 957. However, Laperal refused to do so.
The agreement was cancelled by the parties & 2 contracts identically denominated the revised
agreements were entered into by the respondent & petitioner. Unlike the 1 st agreement both the
revised agreement omitted the obligation of Laperal & FGCCI to make available to Solid
Homes the owners duplicate copies of titles covering the parcel of land.
It appears that even as the revised agreement already provided for the non-surrender of the
owners duplicate copies, respondent persisted that it be delivered because they were necessary
but petitioner refused to give them.
Respondent sent a letter explaining that it was unable to meet the deadline for the payment of
P1M because there was delay in the processing of the license to sell due to petitioners refusal.
In the absence of such license it would not be able to comply with the rest of its undertakings
within the allotted periods.
Petitioners sent a letter of rescission of the revised agreement with a demand to vacate subject
properties because of failure to pay P1M to each of them and failure to complete the
development of Phase 1-A & obtain from HSRC license to sell.

ISSUE:
- WON the right to rescind under Art. 1191, carry with it the obligation for restitution? YES
HELD:
- Mutual restitution is required in cases involving rescission under Art.1191, to bring back the
parties to their original situation prior to the inception of the contract. Rescission creates the
obligation to return the object of the contract. It can be carried out only when the one who
demands rescission can return whatever he may be obliged to restore. To rescind is to declare a
contract void at its inception & to put an end to it as though it never was. It is not merely to
parties from further obligations to each other, but to abrogate it from the beginning & restore
the parties to their relative position as if no contract has been made.
FIDELDIA VS SONGCUAN
(465 s 218 )
FACTS:
Spouses Songcuan filed a complaint for specific performance against petitioner Petra.
Spouses sought to compel Petra to execute a deed of absolute sale over the property subject of
the parties conditional contract of sale.
Trial court rendered a decision in favor of the spouses that Petra is ordered to execute the
document and the C.A affirmed its ruling but modified the moral damages & hospital expenses.
Then Petra demanded payment of P350k from the spouses less P44,440 representing the
damages adjudged. And Petra also stated that upon payment of the amount, she would then
execute the deed of absolute sale & deliver the titles to the spouses.

16

Spouses replied & stated that they were ready to pay the balance. However, Petra could not
comply with her obligation because she had already donated the properties to Leticia without
court authority.

ISSUE:
- WON the remedy of rescission is proper? NO
HELD:
- Under Art 1191, the power to rescind obligation is implied in reciprocal ones, in case one of the
obligor should not comply with what is incumbent upon him. The injured party may choose
between the fulfillment & the rescission of the obligation, with the payment of damages in
either case. He may also seek rescission even after he has chosen fulfillment, if the latter should
become impossible.
- In this case, petitioner can choose either specific performance or rescission only if the spouses
refuse to comply with what is incumbent upon them, that is to pay the balance purchase price.
However, since the spouses were never in default, petitioner could not invoke Art. 1191. And
since Petra had transferred ownership of the properties to Leticia through donation. Petra was
the party who could not comply with what was incumbent upon her because after the donation
only Leticia could transfer the properties. Petra was the obligor in default and the spouse the
injured party. Although Petra had already donated the properties, Leticia is bound by the
outcome of the specific performance case by virtue of the notice of lis pendens.
PLATINUM PLANS VS CUCUECO
( 488 s 156 )
FACTS:
Plaintiff Cucueco alleged in his complaint, being lease & present occupant of the condominium
unit verbally offered to buy the same from defendant Platinum Plans, free from any lien or
encumbrances in 2 installments of P2M.
This was made into a formal offer in writing, the salient conditions:
1) Plaintiff will issue a check for P100k as earnest money;
2) Plaintiff will also issue post dated check for P1.9M encashable on Sept 30 1993;
3) That in the case the defendants still had an outstanding loan with the bank of less than
P2M as of Dec.31 1993, plaintiff shall assume the said loan and pay the difference from
the remaining P2M.
Plaintiff claims that the checks he issued were accepted & encashed by defendant. However, he
was surprised to receive a letter from defendant that the due date for the 2 nd installment was
changed to Sept 23,1993.
The refusal of the defendant to return the said initial payment prompted the plaintiff to file a
case for specific performance & damages for the unjust refusal to comply with the obligation
ISSUE:
- WON the parties entered a contract to sell or contract of sale? CONTRACT TO SELL
HELD:
- As distinguished by the SC, a contract to sell may not be considered as a contract of sale
because the first essential element of consent to transfer of ownership is lacking in the former.
Since the prospective seller in a contract to sell reserves the transfer of title to the prospective
17

buyer, the seller does not yet unequivocally agree or consent to a transfer ownership. On the
happening of an event, that is the full payment of the purchase price, the obligation then arises
to execute a contract of sale that alone will transfer such ownership.
In this case, there was no perfected contract as they had not agreed on how and when the
balance was to be paid. The reservation of the title in the name of petitioner indicates the
intention of the parties to enter into contract to sell. Where the seller promises to execute a
deed of absolute sale upon completion of payment of the purchase price by the buyer, the
agreement is a contract to sell. However, the contract to sell would be rendered ineffective &
without force & effect by the non-fulfillment of respondents obligation to pay which is the
suspensive condition to the obligation of petitioner to sell & deliver the title to the property.
The parties stand as if the conditional obligation had never existed. There can be no rescission
of an obligation that is still non-existent, the suspensive condition not having as yet occurred.
INDUSTRIAL MANAGEMENT VS NLRC
( 331 s 640 )

FACTS:
PR Enrique Sulit, et al, filed a complaint against Filipinas Carbon Mining Corp, Gerardo Sicat,
Antonio Gonzales, Chiu Chin Gin, Lo Kuan Chin & petitioner INIMACO for payment of
separation pay and unpaid wages.
The decision was in favor of PRs and a writ of execution was issued but it was returned
unsatisfied.
Labor arbiter issued an Alias writ of execution.
Petitioner filed a motion to quash Alias writ of execution alleging that it altered and changed
the tenor of the decision by changing the liability of therein respondents from joint to solidary,
by the insertion of the words AND/OR between the petitioners.
ISSUE:
- WON petitioners liability is solidary or not? JOINT
HELD:
- Petitioner INIMACOs liability is not solidary but merely joint. Solidary or joint and several
obligation is one in which each debtor is liable for the entire obligation & each creditor is
entitled to demand the whole obligation. Joint obligation, each obligor answers only for a part
of the whole liability and to each obligee belongs only a part of the correlative rights.
- There is a solidary liability only:
1) when the obligation expressly so states;
2) when the law so provides or;
3) when the nature of the obligation so requires.
- In the dispositive portion of the labor Arbiter, the word solidary does not appear. Nor can it
be inferred there from that the liability of the 6 respondents in the case is solidary thus their
liability should merely be joint.
PH CREDIT CORP VS CA
( 370 s 55 )
FACTS:
18

PH credit Corp. filed a case against pacific Lloyd Corp, Carlos Farrales, Thomas Van Sebille &
Federico Lim for a sum of money.
The trial court rendered judgment in favor of petitioner and has become final and executory.
A writ of execution was issued wherein the personal & real properties of defendant Carlos
Farrales were sold at public auction wherein PH credit was the highest bidder.
On July 27,1990, a motion for the issuance of a writ of possession was filed and on Oct. 12,
1990 the same was granted. The writ of execution itself was issued on Oct. 26 1990 Said order
and writ of possession are now the subject of this petition

ISSUE:
- WON the liability of PR Farrales is solidary? NO
HELD:
- Solidary obligatioin is one in which each of the debtors is liable for the entire obligation and
each of the creditors is entitled to demand the satisfaction of the whole obligation from any or
all of the debtors. Joint obligation is one in which each debtors is liable only for a
proportionate part of the debt, and the creditor is entitled to demand only a proportionate part of
the credit from each debtor. The well-settled rule is that solidary obligations cannot be inferred
lightly. They must be positively and clearly expressed. A liability is solidary only when the
obligation expressly so states, when the law so provides or when the nature of the obligation so
requires as explain under Art. 1207.
- In this case, the dispositive portion of the Jan 31, 1984 decision of the trial court, the word
solidary neither appears nor can it be inferred therefrom. The fallo merely stated that the
following respondents were liable which under the circumstances, the liability is joint.
- Under Art. 1208, if from the law, or the nature or the wording of article refers, the contrary does
not appear, the credit and debt shall be presumed to be divided into as many equal share as
there are creditors & debtors.
MARIVELES SHIPYARD CORP VS CA
( 415 s 573 )
FACTS:
Petitioner Mariveles engaged the services of Longest Force to render security services at the
petitioners premises.
However, on Apr. 1995, it terminated its contract with Longest Force because the services were
unsatisfactory & inadequate.
PRs (security guard) filed a case for illegal dismissal against Longest Force and petitioner.
Longest force admitted that it employed PR and admitted its liability as to non-payment of
wage differential but passed on the liability to petitioner alleging that the service fee was way
below PNPSOSIA & PADPAO rate.
Petitioner denied any liability stressing that no ER-EE relationship existed between it & the
security guards. It would be injustice to make it liable for monetary claims which is already
paid.
ISSUE
- WON petitioners liability is joint & several with that of Longest Force? YES

19

HELD:
- Petitioners liability is joint & several with that of Longest Force pursuant to Art. 106,107&109
of the labor code.
- Art 106- in the event that the contractor or subcontractor fails to pay the wages of his
employees, the employer shall be jointly & severally liable with his contractor or
subcontractor.
- Art 107 as indirect employer, it shall apply to any person, partnership, association or
corporation.
- Art 109 solidary liability, every employer shall be held responsible with his contractor or
subcontractor.
- In this case, following Art. 106, when the agency as contractor failed to pay the guards, the
corporation as principal becomes jointly & severally liable for the guards wages. Pursuant to
Art. 107, when petitioner contracted with Longest Force as the agency that hired PR to work as
guard, petitioner became an indirect employer of PR. However, the solidary liability of
petitioner with the Longest Force does not preclude the application of the civil code, the right
of reimbursement from his co-debtors by the one who paid.

PRYCE CORP VS PAGCOR

(458 s 164)
FACTS:
Pryce executed a contract of lease with Pagcor casino operation involving the ballroom of the
hotel for a period of 3yrs starting Dec. 1992 until Nov. 30, 1995.
On Dec. 18, 1992, just hours before the actual opening of Casino operation public rally was
staged by some local officials, residents & religious leaders which Pagcor was constrained to
suspend casino operations.
On July 15, 1993 Pagcor resumed casino operation but were later on indefinitely suspended due
to the demonstrations. And as per verbal advice from the Office of the President, Pagcor
decided to stop its operation prior to Sept. 1993.
Now, Pryce was asking for the payment of the full rentals of the remaining term plus damages
and penalties.
ISSUES:
1) WON the penal clause attached in the obligation substituted the indemnity for damages and the
payment of interest? NO
2) WON can the courts reduce the penal clause? YES
HELD:
1) In obligations with penal clause, the general rule is that the penalty serves as a substitute for the
indemnity for damages and the payment of interest in case of non-compliance; that is, if there is
no stipulation to the contrary, in which case proof of actual damages is not necessary for the
penalty to be demanded. There are exceptions to the rule, as enumerated in par. 1 of Art 1226:
a. when there is stipulation to the contrary;
b. when the obligor issued for refusal to pay the agreed penalty;
c. when the obligor is guilty of fraud.
- In the present case, the 1st exception applies bec. The stipulation provided that aside from the
payment of the rentals, the lessee shall also be liable for any and all damages, actual or
20

consequential, resulting from such default and termination of the contract. Pagcor must be held
bound to its obligation the liability for the future rentals plus damages due to stipulation of
parties in the penal clause.
- Penal clause is an accessory obligation which the parties attach to a principal obligation for
the purpose of insuring the performance thereof by imposing on the debtor a special prestation
in case the obligation is not fulfilled or is irregularly or inadequately fulfilled.
2) The courts can reduce the penalty if such penalty is iniquitous or unconscionable to the sound
discretion of the courts. To be considered in fixing the amount of penalty are factors such as but
not limited to:
a. Type, extent & purpose of the penalty
b. Nature of obligation
c. Mode of breach & its consequences
d. The supervening realities
e. The standing & relationship of the parties
- In this case, Pagcors breach was occasioned by events that although not fortuitous in law were
infact real & pressing. Because of the interruptions and stoppages, Pagcor suffered tremendous
loss of expected revenues, not to mention the fact that it had fully operated under the contract
only for a limited time.
LIGUTAN VS CA
( 376 s 560 )
FACTS:
Petitioners Tolomeo Ligutan & Leonidas Dela llana obtained a loan from Security Bank in the
amount of P120k. petitioners executed a promissory note binding themselves jointly and
severally with an interest of 15.189% per annum and to pay a penalty of 5% every month on
the outstanding principal and interest in case of default.
The obligation matured on Sept.1981, and the bank granted an extension until dec.1981
Despite several demands from the bank, petitioner failed to settle the obligation until the bank
filed a complaint in RTC to recover the due amount.
The C.A modified the decision of the trial court & order the petitioners to pay the sum of
P114,416 with interest rate of 15.189% per annum and 3% per month penalty charge and 10%
of the total amount of indebtedness as attys fees.
Petitioners filed an omnibus MFR & to add with newly discovered evidence alleging that while
the case was pending, petitioner ligutan executed a real estate mortgage in favor of the bank to
secure the indebtedness. Contending that it had the effect of novating the contract.
They also contented that the interest & penalties & attys fees are manifestly exorbitant,
iniquitous & unconscionable.
ISSUES:
1) WON the court can reduce the penal clause, interest & attys fees stipulated by the parties
manifested to be exorbitant, iniquitous & unconscionable? YES
2) WON the interest rate of 15.189% per annum is excessive? NO
3) WON there was novation? NO
HELD:
1) The court can reduce the penal clause. A penal clause is an accessory undertaking to assume
greater liability on the part of an obligor in case of breach of an obligation. It functions to
strengthen the coercive force of the obligation & to provide in effect for what could be the
21

liquidated damages resulting from such breach. Although the court may not be at liberty to
ignore the freedom of the parties to agree on such terms & conditions as they see fit that
contravene neither law, morals, good customs, public order or public policy, a stipulated
penalty may be reduced by the courts if it is iniquitous or unconscionable or if the principal
obligation has been partly or irregularly complied with.
- To determine whether a penalty is reasonable or iniquitous depends on such factors but not
necessarily confined to:
1) the type, extent & purpose of the penalty
2) nature of obligation
3) mode of breach
4) supervening vealities
5) standing & relationship of the parties.
- The C.A. had already reduced the penal clause from 5% to 3% notwithstanding their repeated
acts of breach.
2) The 15.189% interest rate was not excessive. The interest prescribed in the financing
arrangement is a fundamental part of the banking business and the core of a banks existence.
- The 10% attys fees has been agreed to by the parties and intended to answer not only for
litigation expenses but for collection efforts is deemed reasonable.
3) The fact that petitioners executed a real estate mortgage does not imply novation since there
was no incompatibility with the old and new obligation. An obligation to pay a sum of money
is not extensively novated by a new instrument which merely changes the terms of payment or
adding compatible covenants or where the old contract is merely supplemented by a new one.
STRONGHOLD INSURANCE COMPANY VS. REPUBLIC ASAHI GLASS CORP.
( 492 s 179)
FACTS:
Republic Asahi entered into a contract with Jose D. Santos (JDS) for the construction of
roadways & drainage system in Republic Asahis compound where respondent was to pay JDS
P5,300,000 which was supposed to be completed within 240 days.
In order to guarantee the performance of its undertakings, JDS shall post a performance bond of
795,000 which JDS executed jointly & severally with Stronghold. Respondent paid JDS the
amount by way of downpayment.
Because of the slow pace of the construction, respondents engineers called the attention of JDS
but said reminders went unheeded by JDS. Dissatisfied with the progress, respondent
extrajudically rescinded the contract and informing JDS of such rescission.
Respondent alleged that as a result of JDS failure to comply with the contract which resulted in
contracts rescission , it had to hire another contractor to finish the project for which it incurred
additional expense of P3256,874. Respondent sent 2 demand letters to Stronghold filing its
claim under the bond but both letters went unheeded. Respondent then filed a complaint against
JDS & Stronghold. However, JDS died & JDS construction was no longer at its address.
Stronghold filed its answer alleging that respondents money claim against petitioner & JDS
have been extinguished by the death of JDS & petitioner is released from its liability under the
performance bond because there was no liquidation, no ascertainment of corresponding
liabilities. Furthermore, Stronghold was not informed by respondent of the death of Santos and
the unilateral rescission of its contract, thus depriving Stronghold of its right to protect its
interest & finally, respondent deviated from the terms & conditions of the contracts without the
written consent of Stronghold.
22

The lower court dismissed the complaint of respondent but the motion for reconsideration was
given due course against Stronghold.
The C.A ruled that Stronghold obligation under the surety agreement was not extinguished by
the death of JDS which respondent could still go after Stronghold for the bond.

ISSUE:
- WON petitioners liability under the performance bond was automatically extinguished by the
death of Santos, the principal? NO
HELD:
- As a general rule, the death of either the creditor or the debtor does not extinguish the
obligation. Obligations are transmissible to the heirs, except when the transmission is prevented
by the law, stipulations of the parties or the nature of the obligation. Only obligations that are
personal or are identified with the person themselves are extinguished by death.
- In the present case, whatever monetary liabilities or obligations Santos had under his contract
with respondent were not intransmissible by their nature, by stipulation, or by law. Hence, his
death did not result in the extinguishment of those obligations or liabilities, which merely
passed on to his estate. Death is not a defense that he or his estate can set up to wipe out the
obligation under the performance bond. Consequently, Stronghold as surety cannot use Santos
death to escape its monetary obligation. The liability of Stronghold is contractual in nature
because it executed a performance bond.
- The suretys obligation is not an original and direct one for the performance of his own act but
merely accessory or collateral to the obligation contracted by the principal. Nevertheless,
although the contract of a surety is in essence secondary only to a valid principal obligation, his
liability to the creditor or promise of the principal is said to be direct, primary & absolute. In
other words, he is directly & equally bound with the principal.
PALANCA VS. CA
( 238 s 593 )
FACTS:
On Jan 22, 1977, petitioner Palanca, as vendor, and Jose Sanicas, as vendee, entered in a
contract to sell, on installment of a parcel of land. Under the terms of the contract, PR Sanicas
agreed to pay petitioner the amount of P 9,581.00 as down payment & the balance of
P88,659.00 in 120 monthly installments with 14% interest per annum.
PR Sanicas further agreed under paragraph 11, of the contract that in the event of monetary
fluctuation, the unpaid balance account of the herein vendee, shall be increased proportionately
on the basis of the present value of P 6.72 to $ 1.00 US dollar.
Following demands from petitioner for the updating of the account, PR tendered the amount of
P44,955.87 in cash upon petitioner. Petitioner, however, refused to receive the amount tendered
asserting the PR actual liability was P 155,630.00 relying on the escalator clause in paragraph
11 of the contract, prompting PR to make a judicial consignment of the amount P44,955.87.
The trial court ruled that in as much as there was no extraordinary inflation or deflation Par.11
of the contract should not be taken into account.
However, the C.A modified the judgment & ruled that amount payable by PR was P 70,688.17
but concurred that Par.11 cannot come into effect absent an actual extraordinary inflation or
deflation.
23

ISSUE:
- WON petitioner is entitled to a proportionate increase in payment on the balance of the
purchase price for a piece of real property bought on installment? NO
HELD:
- The SC did not grant the petition not on the grounds relied upon by the courts that there should
be an extraordinary inflation before a stipulation for an upward adjustment can be enforced.
While they may contain an escalator clause providing that in the occurrence of certain events,
the contract price shall be increased to a fixed percentage of the base price, still the autonomy
of the parties to provide such escalator clauses may be limited by law.
- The petition should be dismissed on the ground that the stipulation of the parties is violation of
R.A.529 as amended, entitled An Act to Assure Uniform Value to Philippine coin & currency
otherwise known as the Cuenco law. Which the law prohibits 2 things in all domestic
contracts:
1. giving the obligee the right to require payment in a specified currency other than
Phil. currency;
2. giving the obligee the right to require payment in amount of money of the Phils.
measured thereby.
- When the parties stipulated that in the event of monetary fluctuation, the obligee was given the
right to demand payment of the balance of the purchase price in an amount of money of the
Phils. measured by a foreign coin or currency.
- The contract in question is a sale of a parcel of land in the Phils. payable in Phil. pesos. While
the balance of the purchase price is payable in Phil. currency measured by foreign currency, no
foreign currency was directly involved in the transaction. The obligation should therefore be
paid in the same amount of the Phil.currency as stipulated in the contract without any
adjustment based on the prevailing exchange rate of US dollar to the Phil. Peso.
- The transaction does not involve a loan in foreign currency stipulated to be payable in Phil.
currency but measured by a foreign currency, in which case the rate of exchange prevailing at
the stipulated date of payment shall prevail. However, RA.529 was amended by RA 8183
which allows the party to stipulate.
TRANSPACIFIC INDUSTRIAL SUPPLIES INC. VS CA
( 235 s 494 )
FACTS:
Petitioner was granted financial accommodation amounting to P 1.3 M by respondent
Associated Bank. The loans were secured by 4 promissory notes, a real estate mortgage
covering 3 parcels of land & a chattel mortgage over petitioners stock & inventories.
To secure the re-structured loan of P1,213,400.00, 3 new promissory notes were executed by
Trans-pacific. The mortgage parcels of land were substituted by another mortgage covering 2
other parcels of land & chattel mortgage on petitioners stock inventory.
The release parcels of land were then sold & the proceeds were turned over to the bank &
applied to petitioners restructured loan.
Subsequently, respondent bank returned the duplicate original copies of the 3 promissory notes
to trans-pacific with the word Paid stamped thereon. Despite the return of the notes, the bank
demanded from petitioner the accrued interest of one of the promissory notes. According to the
bank the notes were erroneously released.
24

Initially, Trans-pacific expressed the willingness to pay but later it had a change of heart &
initiated an action before the RTC for specific performance & damages.

ISSUE:
- WON respondent has indeed paid in full its obligation to respondent bank? NO
HELD:
- Under Art. 1271, provides that The delivery of a private document evidencing a credit made
voluntarily by the creditor to the debtor implies the renunciation of the action which the former
had against the latter.
- Art. 1271, is not conclusive but merely prima-facie if there be no evidence to the contrary, the
presumption stands. Conversely, the presumption loses its legal efficacy in the face of proof or
evidence to the contrary.
- The SC found sufficient justification to overthrow the presumption of payment generated by the
delivery of the documents evidencing petitioners indebtedness.
- Art. 1271, raises a presumption, not of payment but of the renunciation of the credit, were more
convincing evidence would be required than what normally would be called for to prove
payment. The rationale for allowing the presumption of renunciation in the delivery of a private
instrument is that, unlike that a public instrument, there could be just on copy of the evidence
of credit. Where several originals are made out of a private document, the intendment of the
law would thus be to refer to the delivery only of the original original rather than to the original
duplicate f which the debtor would normally retain a copy it would thus be absurd if Art. 1271,
were to be applied differently.
- Petitioner could have easily adduce the receipts corresponding to the amounts paid inclusive of
the interest to prove that it has fully discharged its obligation but it did not.
- The trial court totally relied on a disputable presumption that the interest has been fully
liquidated by respondents act of delivering the instrument and ignore the testimony of Mr.
Mesina anent the outstanding balance pertaining to interest. Petitioner has not fully liquidated
its financial obligation to the associated bank by its confirmation & self-defeating posture in its
letter addressed to respondent bank.
CULABA VS CA
( 427 s 721 )
FACTS:
The spouses Francisco & Demetra Culaba were owners & proprietors of the Culaba Store &
were engaged in the sale & distribution of SMCs beer products
SMC sold beer products on credit to the Culaba spouses in the amount of P28,650.00.
Thereafter, the Culaba spouses made a partial payment of P3,740.00 leaving an unpaid balance
of P24,910.00.
As they failed to pay despite repeated demands, SMC filed an action for collection before the
RTC.
The spouses denied any liability claiming that they had already paid full on four separate
occasions (evidence of temporary charge sales liquidation receipts).
Francisco testified that he made the foregoing payments to an SMC supervisor who came in an
SMC van. He was then showed of list of customers accountabilities which included his
account. The defendant in good faith, then paid to the said supervisor & he was in turn issued
genuine SMC liquidation receipts (dated Apr 19-30,1983).
25

SMC in its part submitted a publishers affidavit to prove that the entire booklet of receipts was
reported lost & that it caused the publication of notice of loss on July 9, 1983.

ISSUES:
- WON the payment of petitioners obligation was properly made to extinguish the obligation?
NO
HELD:
- No, the court found out that:
a. The receipts given were included in the respondents lost booklet which was duly advertised in
the newspaper.
b. There was something amiss in the way the receipts were issued as one receipt bearing a higher
serial number was issued ahead of another bearing a lower serial number.
c. The supervisors name was invariably left blank in the four receipts & that petitioners cannot
remember the name of the supposed impostor who received the payment.
- Payment is a mode of extinguishing an obligation under Art. 1240, provides that payment shall
be made to the person in whose favor the obligation has been constituted or his successor ininterest or any person authorized to received it.
- In this case, the payments were purportedly made to a supervisor of the private respondent who
was clad in SMC uniform & drove an SMC van. He appeared to be authorized to accept
payments as he showed a list of customers accountability & even issued SMC liquidation
receipts. Unfortunately, Francisco Culaba did not ascertain the identity & authority of said
identification to prove the latter. Petitioner relied solely on the mans representation, thus, the
payments made were not to discharged their obligation to the private respondent.
- The most prudent thing that petitioners should have done was to ascertain the identity &
authority of the person who collected their payments. Failing this, the petitioners cannot claim
that they acted in good faith when they made such payment. Their claim therefore is negated by
their negligence & they are bound by its consequences.
PNB VS CA
( 256 s 44 )
FACTS:
Expropriation proceedings were instituted by the govt against private respondent Loreto Tan
and other property owner. Tan filed motion requesting issuance of an order for the release to
him of the expropriation price of P32,480.00.
Trial court required PNB to release the amount to Tan.
Juan Tagamolila, Asst Branch Mgr, issued managers check & delivered the same to Sonia
Gonzaga without Tans knowledge, consent or authority. Sonia then deposited it in her account
with Far East Bank & later on withdrew it.
Tan subsequently demanded payment but PNB refused on the ground that it already paid &
delivered the amount to Sonia on the strength of a special power of attorney (SPA) allegedly
executed in her favor by Tan.
Tan filed a motion with the court to require PNB to pay the same to him.
The trial court rendered judgment ordering PNB & Tagamolila to pay PR Tan which was also
affirmed by the CA.
ISSUE:
26

WON there was a valid payment? NO

HELD:
- No payment had ever been made to private respondent as the check was delivered to him.
When the court ordered petitioner to pay private respondent, it had the obligation to deliver the
same to him. Under Art. 1233, a debt shall not be understood to have been paid unless the thing
or service in which the obligation consists has been completely delivered or rendered. The
burden of proof of such payments lies with the debtor.
- In the instant case, whether the SPA nor the check issued by petitioner was ever presented in
court. Further, the testimonies of petitioners own witnesses regarding the check were
conflicting. Tagamolila testified that the check was issued to the order of Sonia as atty-in-fact
of Loreto Tan, while Elvira Tibon, asst. cashier stated that the check was issued to the order of
Loreto Tan. Considering that the contents of the SPA are also in issue here, the best evidence
rule applies. Hence, only the original document is the best evidence of the fact as to whether or
not private respondent indeed authorized Sonia Gonzaga to receive the check from petitioner.
In the absence of such payment, petitioners arguments regarding due payment must fail.
PABUGAIS VS SAHIJWANI
( 423 s 596 )
FACTS:
Pursuant to an agreement & undertaking, Teddy Pabugais in consideration of the amount of
P15,487,500 agreed to sell to respondent Sahijwani a parcel of land. Respondent paid petitioner
the amount of P600,000 as reservation fee & the balance shall be paid within 60 days
simultaneous with the delivery of the necessary documents by petitioner.
They further agreed that failure on the part of respondent to pay the balance shall forfeit the
reservation fee and failure of petitioner to deliver the necessary documents obliges him to
return the reservation fee with 18% interest per annum.
Petitioner failed to deliver the necessary documents and in compliance with the agreement, he
returned the P672,000, the 18% is included thru managers check but respondents counsel
refused to accept the same. Petitioner thereby informed respondent that he consigned such
payment in court.
Respondents counsel admitted that his office received petitioners letter but claimed that no
check appended thereto. He averred that there was no valid tender of payment & the
computation of the amount tendered was insufficient.
The trial court rendered a decision declaring the consignation invalid for failure to prove the
petitioner tendered payment & that mangers check was not legal tender.
Petitioner then appealed the decision to the CA and consigned the amount with the trial court as
partial payment for the fee of his new attorney.
Thereafter, petitioner filed a motion to withdraw the amount consigned but the CA denied such
withdrawal because the consignation was declared valid.
ISSUE:
1) WON there was a valid consignation? YES
2) WON the petitioner can withdraw the amount consigned as a matter of right? NO
HELD:
27

1) Consignation is the act of depositing the thing due with the court whenever the creditor cannot
accept or refuse to accept such payment and it generally requires prior tender of payment.
- In order that consignation may be effective, the debtor must show that:
a. There was a debt due;
b. Consignation had been made because the creditor refused to accept the tender of payment;
c. Precious notice of consignation had been given to the person interested;
d. The amount due was placed at the disposal of the court;
e. Subsequent notice of consignation had been made to the person interested failure in any of
these requirements is enough ground to invalidate consignation.
- The important requisites of consignation is the existence of a valid tender of payment.
- In this case, respondents counsel testified that the reasons why his client did not accept it bec.
The check was not attached to the said letter & the amount tendered was insufficient to cover
the obligation. It is obvious that the reason for respondents non-acceptance was the
insufficiency thereof & not because it was in the form of managers check. Managers check is
not legal tender but the tender of payment in the form of managers check is valid if accepted &
no prompt objection is made. As stated in the agreement & undertaking only the P600,000 with
interest at 18% per annum was agreed upon by the parties and which was tendered but refused
by respondent & thereafter consigned with the court, was enough to satisfy the obligation.
2) No, the amount consigned with the trial court can no longer be withdrawn by petitioner bec.
respondents prayer in his answer that the amount consigned be awarded to him is equivalent to
acceptance of the consignation which has the effect of extinguishing petitioners obligation.
Withdrawal of the money consigned would enrich petitioner & unjustly prejudice respondent.
TORCUATOR VS. BERNABE
( 459 s 439 )
FACTS:
The Salvadors owned a parcel of land located at Forbes Makati.
Ayala Corp., the developer had the condition that it cannot resell such lot by buyer unless a
residential has been constructed.
However, Salvador sold such land to the Bernabes and the latter sold again such land to the
petitioner Torcuator.
Confronted by the Ayala Alabang restrictions, the parties terminated the cause of sale between
Salvador & Bernabe, and Salvador executed a deed of sale directed to petitioner and a special
power of attorney in order that the petitioner can build a house on the land.
However, the deed of sale was never consummated nor was payment on the said sale ever
effected.
Subsequently, the Bernabes sold the land to his brother in law, Angeles. The document,
however, was not notarized. As a result, the Torcuators commenced the instant case against
Bernabes and Salvador for specific performance or rescission with damages.
ISSUE
- WON there was a valid tender of payment? NO
HELD:
- The agreement entered into by the parties was a contract to sell. The positive suspensive
conditions were the payment of the purchase price & construction of the house. Upon payment
& construction the ownership shall be delivered in favor of the petitioner. However, there was
28

no any indication that petitioners ever attempted to tender payment or consign the purchase
price as required by law. Petitioner should have consigned the amount due in court instead of
merely sending respondents a letter expressing interest to push thru with the transaction. Mere
sending of a letter lay the vendee expressing the intention to pay without the accompanying
payment is not considered a valid tender of payment. Consignation of the amount due in court
is essential in order to extinguish the obligation and the title be conveyed.
Due to the failure of petitioner to tender payment, respondents are not compelled to deliver the
property and execute the deed of sale.
The agreement between the parties cannot be considered void for being contrary to good
customs & morals. It should be emphasized that the restriction imposed by Ayala Corp was on
the resale of the property without the residential house having constructed. The condition does
not require that the original lot buyer should himself construct the house but only the original
buyer shall not resell the vacant lot. The agreement of the parties was merely a contract to sell.
Thus, no violation of the condition inferred from the transaction as no transfer of ownership
was made. Therefore, petitioners claim that possession of SPA can count as evidence that they
took actual & physical possession of the property can by no means be interpreted as delivery or
conveyance of ownership.
LLOBRERA VS FERNANDEZ
( 488 s 509 )

FACTS:
Josefina Fernandez as one of the registered co-owners of the land, served a written demand
letter upon petitioners Llobrera to vacate the premises within 15 days from notice. However,
petitioner refused to vacate which prompted respondent to file a formal complaint against them
before the barangay captain but it did not reach any settlement.
Respondent then filed a verified complaint for ejectment & damages before the MTCC. By
way of defense, petitioners alleged that they had been occupying the property beginning the
year 1945 onwards with the permission of Gualberto de Venecia , one of the co-owners of said
land, on the condition that they will pay their monthly rental of P 20.00 each.
However, sometime June 1996, the representative of de Venecia refused to accept their rentals,
prompting them to consign it to Banco San Juan which bank deposit they continued to maintain
with their monthly rental payments.
The MTCC, RTC & the CA rendered judgment in favor of the respondent.
ISSUE:
- WON there was a valid consignation? NO
HELD:
- The alleged consignation of the P20 monthly rental to a bank account in respondents name is
not valid simply because of the absence of any contractual basis for their claim to rightful
possession of the subject property. Consignation based on Art 1256, indispensably requires a
creditor-debtor relationship between the parties, in the absence of which the legal effects cannot
be availed of.
- In the present case, the possession of the property by the petitioners being by mere tolerance as
they failed to establish through competent evidence the existence of any contractual relations
between them and the respondent which the latter has no obligation to receive any payment
from them. Since respondent is not a creditor, respondent cannot be compelled to receive such
29

payment even through consignation. The bank deposit intended as consignation has no legal
effect insofar as the respondent is concerned.
BPI ( FORMER FEBTC ) VS CA
( 490 s 168 )
FACTS:
Far East Bank & Trust Company granted 8 loans to Noahs Arc Merchandising owned by Mr
Looyuko, all loans were evidenced by identical promissory notes all signed by Looyuko,
Jimmy T. Go & Wilson Go. Likewise, all loans were secured by a real estate mortgage.
Petitioner claiming that Noahs Arc defaulted its obligation, extrajudicially foreclosed the
mortgage and auction sale was set.
Private respondent filed a complaint for damages with prayer for the issuance of TRO seeking
to enjoin the auction sale. He claimed that demand was not made upon him and only 4 of the
eight promissory notes secured by mortgage had become due. But the reading of the
promissory notes discloses that as a co-signer, private respondent waived demand under the
acceleration clause. He further argued that by withholding the lease payments Far East bank
owed Noahs Arc for the space, Far East bank was applying said amounts to the outstanding
obligation of Noahs Arc, which Far East bank has waived default, novated the contract of loan
and therefore estopped from foreclosing on the mortgage property.
ISSUE:
1) WON the withholding of lease payments & applying them to the outstanding obligation is a
valid legal compensation? YES
2) WON there was novation? NO
HELD:
1) Compensation is a mode of extinguishing to the concurrent amount the obligations of persons
who in their own right & as principals are reciprocally debtors & creditors of each other.
- Under Art. 1278, provides that Compensation shall take place when 2 persons in their own
right, are creditors & debtors of each other. And under Art 1279 provides that in order that
compensation may be proper, it is necessary:
a. That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
b. That both debts consist in the sum of money, or if the things due are consumable, they be
of the same kind and also of the same quality if the latter has been stated;
c. That the 2 debts be due;
d. That they be liquidated & demandable;
e. That over neither of them there be any retention or controversy, commenced by 3rd
persons and communicated in due time to the debtor.
- It is clear that (a) FEBTC & Noahs Ark are both principal debtors & creditors of each other (b)
their debts consist of sum of money (c) the 8 promissory notes are all due and the lease
payments become due each month. (d) Noahs ark debt is liquidated & demandable every
month as they fall due. Lastly, (e) there is no retention or controversy commenced by 3 rd
persons over either of the debts.
2) The court has declared that a contract cannot be novated in the absence of a new contract
executed between the parties. The legal compensation which was acknowledged by Far East
bank cannot be considered a new contract between the parties. Hence, the loan agreement as
30

embodied in the promissory notes and the real estate mortgage, consists. Since the
compensation between the parties occurred by operation of law, Far East bank did not waive
Noahs Arks default. Absence of novation or waiver of default, FEBTC is therefore not
estopped from proceeding with the foreclosure.
BANCO FILIPINO SAVING & MORTGAGE BANK VS DIAZ
( 493 s 248 )
FACTS:
Spouse Diaz secured a loan from petitioner bank in the amount of P400,000 with 16% interest
per annum. The loan was restructured in the amount of P3,163,000 payable within a period of
20 yrs at an interest of 22% per annum. The obligation was to be paid in equal monthly
amortization & secured by a real estate mortgage & additional collateral, the rentals on the
mortgage properties.
Despite repeated demands made on them, the respondents defaulted.
Before petitioner bank could institute the foreclosure proceedings, respondent filed with the
RTC a complaint but it denied such application, which the CA also affirmed said order.
Thereafter, respondent filed another complaint for consignation & declaration of cancellation of
obligation with prayer for issuance of a preliminary injunction & TRO.
Based on the ex-parte evidence, the respondents had a remaining balance of P1,034,600, which
the respondent tendered the amount to petitioner bank. However, petitioner bank refused to
accept it because the amount due is P 10,160,649. The respondent then consign it with the RTC,
a managers check as full payment of their loan obligation.
The RTC ruled that the consignation is valid bec. petitioner bank could not charge any interest
during the time it was closed by the central bank.
The C.A, however, declared that it failed to effect a valid consignation bec. it did not include all
interest due. Its decision because final & executory.
Thereafter, respondent filed a motion to withdraw deposit alleging that their obligation was
settled with the payment of P25 M by Gaisano brothers.
Petitioner bank opposed & asserted that the deposit be released to it as part of the full payment
& maintained that it accepted the said consignation & respondent could no longer withdraw the
said amount.
ISSUE:
- WON respondent Diaz may still withdraw the amount deposited with the RTC? YES
HELD:
- Under Art. 1260, the debtor may withdraw as a matter of right, the thing or amount deposited
on consignation in the following instances:
a) before the creditor has accepted the consignation or
b) before a judicial declaration that the consignation has been properly made.
- In this case, there was no judicial declaration that the consignation had been properly made. On
the contrary, the C.A declared that there was no valid consignation. What remains to be
determined is whether petitioner bank had already accepted the respondent from exercising
their rights to withdraw the same. Petitioner banks allegation has failed to establish by
convincing evidence that it had made such acceptance of the deposit in question prior to the
respondents filing of their motion to withdraw the amount deposited.
31

Before the consignation has been accepted by the creditor or judicially declared as properly
made, the debtor is still the owner of the thing or amount deposited, and therefore, the other
parties liable for the obligation have no right to oppose debtors withdrawal. However, creditor
may prevent the withdrawal by accepting the consignation even with reservation. Thus, when
the amount consigned does not cover the entire obligation, the creditor may accept it, reserving
his right to the balance. But in this case, petitioner bank did not do so.

TRINIDAD VS ACAPULCO
( 493 s 179 )
FACTS:
Respondent Acapulco filed a complaint seeking the nullification of a sale she made in favor of
petitioner Trinidad. She alleged that Caete requested her to sell a Mercedes Benz for P 580k
and if respondent herself will buy the car, Caete was willing to sell it for P500k.
Petitioner barrowed the car from respondent and instead of returning, petitioner told respondent
to buy the car from Caete for P 500k & that petitioner would pay respondent after petitioner
returns from Davao.
Following petitioners instruction, respondent requested Caete to execute a deed of sale for
which respondent issued 3 checks in favor of Caete. Respondent thereafter executed a deed of
sale in favor of petitioner even though petitioner did not pay her any consideration.
When petitioner returned from Davao, he refused to pay respondent, saying that the amount
would just be deducted from respondents obligation. Due to petitioners failure to pay,
respondents check bounced, which Caete filed criminal charges against respondent.
However, petitioner claimed that it is not true that he borrowed the car and that any demand
was made to return it. He also did not give any instruction to respondent because as early as
Sept. 28, 1990, Caete has already sold the car to respondent and the amount of P500k was
fully paid by way of Dation in Payment to partially extinguish respondents obligation with
petitioner and the contract entered into was a true sale of motor vehicle and the mode of
payment was the of Dation in Payment upon at the true of the sale.
The trial court rendered its decision finding that no dacion en pago, as common consent was
not proven.
Petitioner filed a supplemental motion & for the first time raise the issue of legal compensation.
The C.A affirmed the decision of the trial court and finding the issue of legal compensation was
filed too late.
ISSUE:
- WON legal compensation should be appreciated? YES
HELD:
- Under Art. 1290, when all the requisites mentioned in Art. 1279, are present, compensation
takes effect by operation of law, and extinguishes both debts to the concurrent amount, even
though the creditors & debtors are not aware of the compensation.
- In this case, it was proven that (1)petitioner owed respondent the amount of P500k & (2)
respondent owed petitioner P566k; (3) that both debts are due, liquidated & demandable and
that neither of the debts or obligation are subject of a controversy commenced by a third
person.
32

Compensation seeks to avoid as its aim is to prevent unnecessary suits & payments through the
mental extinction of concurring debts by operation of law.
The claim of respondent that there could be no legal compensation in this case as one of the
obligation consist of a car to petitioner on Mar. 4, 1991 for P 500k while she filed her complaint
for nullification of sale only on May 6, 1991.
As legal compensation takes place ipso jure, and retroacts to the date when its requisites are
fulfilled, legal compensation has already taken place at the time of the sale. At such time,
petitioner owed respondent the sum of P500k which is the price of the vehicle.
VILLEGAS VS CA
( Aug. 18, 2006 )

FACTS:
Reyes, et al, were the owners of the property which they inherited from their father.
Villegas & Sanchez, petitioner-lessees were the lessees of the property and owned the building
and improvements thereon.
The administrative committee of the respondent heirs informed petitioner-lessees that the heirs
decided to sell the property.
Petitioner-lessees submitted their bid of P4M but the admin. committee requested to increase
the bid of P5M, which the petitioner accepted the same.
However, some of the co-owners were no longer agreeable to the selling but other co-owners
representing the 75% share were still interested in selling and made an offer to the petitioners.
On Nov. 1988, respondent heirs sold their 75% share to Lita Sy and informed the petitioner of
the sale. On Feb 1989, the other heirs sold the remaining 25% portion to Villegas brothers.
On May 1990, spouses Sy filed a complaint for specific performance against the heirs of
Villegas, which the RTC rendered a decision ordering the heirs of Villegas to accept the
redemption price as to the 25% portion.
ISSUE:
- WON there was a valid offer to redeem the 25% undivided in the property? NO
HELD:
- There was no valid and effective offer to redeem the 25% undivided interest in the property.
Although Lita Sy invoked her right to redeem in an answer filed with the RTC, she failed to
consign in court the redemption price.
- Well settled is the rule that a formal offer to redeem must be accompanied by a valid tender of
the redemption price and that the filing of a judicial action, plus the consignation of the
redemption price within the period of redemption, is equivalent to a formal offer to redeem.
- In this case, Lita Sy failed to consign the redemption price in court and never tendered the
redemption price to the Villegas brothers. It was only a letter reiterating the demand to resell
the 25% interest in the property. Considering that there was no tender of the redemption price,
nor was there consignation of the redemption price, there was no valid exercise of the right of
redemption.
FEBTC VS DIAZ REALTY INC.
( 363 s 659 )
FACTS:
33

Diaz realty got a loan from the former Pacific Banking Corp. in the amount of P720k.
On Jul 1985, the central bank closed the PaBC.
Sometime in Dec. 1986, FEBTC purchased the credit of Diaz in favor of PaBC but it was not
until Mar. 1988, that Diaz was informed about it.
Antonio Diaz was informed that his loan amounted to P1,447,142. He tendered payment to
FEBTC the amount of P 1,450,000 thru an interbank check in order to prevent the imposition of
additional interest, penalties and surcharges on its loan.
FEBTC did not accept it as payment, instead Diaz was asked to deposit the amount.
When there was no news from FEBTC whether or not it would accept his tender of payment, he
filed a case in RTC.
The check given in payment was converted into cash and the money was kept in the possession
of the bank for several months.

ISSUES:
1) WON there was a valid tender of payment using the check as a payment to extinguish
obligation? YES
2) WON there was a need of consignation to extinguish obligation? NO
HELD:
1) Yes, jurisprudence holds that a check does not constitute a legal tender and that the creditor
may validity refuse it. It must be emphasized that this dictum does not prevent the creditor
from accepting a check as payment. Thus, the creditor has the option and discretion of refusing
or accepting it.
- In the present case, petitioner bank did not refuse respondents check. On the contrary it
accepted the check which it insisted as deposit.
- Tender of payment- is the definitive act of offering the creditor what is due him together with
the demand that the creditor accept the same. More important, there must be fusion of intent,
ability and capability to make good such offer, which must be absolute and must cover the
amount.
- When petitioner refused to release the mortgage, respondent instituted a complaint to compel
the bank to acknowledge the tender of payment, accept payment & cancel the mortgage. These
acts demonstrate respondents intent, ability and capability to fully settle and extinguish the
obligation.
2) Petitioner pointed that tender of payment extinguishes obligation only after proper consignation
which respondent did not do. The SC answered that for consignation to be necessary, the
creditor must have refuse without just cause to accept the debtors payment. However, petitioner
accepted such payment. By accepting the tendered check and converting it into money,
petitioner is presented to nave accepted it as payment.

SEGOVIA VS DOMATOL
( 364 s 159 )
FACTS:
Segovia and Dumatol entered into 3 but identical contracts to sell involving 3 condominium
units. Out of the total contract price of P6,050,000.00. Dumatol only paid P4.4M for the 3
units.
34

Since respondent was already in default, Segovia officially notified the cancellation of contract
to sell for unit 904.
However, a meeting was held between the 2 parties whereby it was approved that petitioner
would withdraw the action for rescission subject to the condition that respondent would pay the
total balance of P2.8m & liquidated damages amounting to P700k.
Dumatol disputed the computation and informed that the balance plus interest should only be
P1,977,200.
Since the obligation was not materialized, Segovia gave another notice of cancellation. This
time Dumatol consigned with the HLURB the amount what he believed to be the remaining
balance.

ISSUES:
1) WON there was a valid consignation which justified the suspension of 3% penalty interest
provided under the contract? NO
2) WON the 3% penalty interest is iniquitous & unconscionable? YES
HELD:
1) Consignation to be valid, it must comply with the following requisites:
a. There was a debt due;
b. tender of payment and refusal to accept without reason;
c. precious notice of consignation to the person interested;
d. after the deposit has been made, a subsequent notice of consignation to the person
interested.
- In this case, consignation was made only to forestall an action for rescission which petitioner
might take. Respondent never made any prior tender of payment to petitioner. Thus,
consignation was not proper.
2) The 3% penalty interest is patently iniquities & unconscionable as to warrant the exercise by
this court of its judicial discretion under Art. 1229. 3% penalty interest would translate to a
yearly penalty interest of 36%. The payments respondent made would be virtually wiped out if
the 3% were imposed on the account balance. Dumatol would stand to lose the 3 condominium
units notwithstanding the fact that it has substantially complied with its contractual obligation.
FRANCIA VS IAC
( 162 s 753 )
FACTS:
Egnacio Francia is the registered owner of a residential lot and two storey house. 125 sq.m
portion of Francias property was appropriated by the Rep. of the Phils. for the sum P4,116.00.
Since 1963 to 1977, Francia failed to pay his real taxes. Thus, on Dec. 5. 1977, his property
was sold at public auction by the City Treasurer in order to satisfy the tax delinquency of
P2,400. Ho Fernandez was the highest bidder for the property.
Francia is now seeking for the cancellation of auction sale because his tax delinquency of
P2,400 has been extinguished by legal compensation. He claims that the govt owed him
P4,116.00 when a portion of his land was expropriated. Hence, his tax obligation has been set
off by operation of law.
ISSUE:
- WON there was legal compensation? NO.
35

HELD:
- There is no legal basis for the contention. By legal compensation, obligation of persons, who in
their own right are reciprocally debtors & creditors of each other, are extinguished ( Art. 1278).
- The instances of the case do not satisfy the requirements provided in Art. 1279. It has been
ruled that there can be no offsetting of taxes against the claims that the taxpayer may have
against the govt. A person cannot refuse to pay a tax on the ground that the govt owes him an
amount equal to or greater than the tax collected. The reason on which the general rule is based
is that taxes are not in the nature of contracts between the party but grow out of duty to, and are
the positive acts of the govt to the making and enforcing of which, the personal consent of the
individual is not required. Aside from that, the tax was due to the city office and the
expropriation was effected by the Natl govt.
- Francia knew that the payment of the expropriation has long been deposited to the PNB prior to
the auction sale of his remaining property. He had been informed regarding the auction sale but
he pocketed the notice without reading it.

BPI VS CA
( 255 s 571 )
FACTS:
Edvin Reyes opened a savings account at petitioner Bank of the Phil. Islands. It is a joint
account with his wife and he also opened another with a joint account with his grand mother.
He regularly deposited in this account the US treasury warrants payable to the order of
Fernandez, his grand mother, as her monthly pension.
Emeteria Fernandez died without the knowledge of the US treasury Dept. She was still sent
US treasury warrant which respondent deposited the check
2 months after, respondent closed the savings account of her grandmother and transferred the
funds to the joint account with his wife.
The US treasury warrant was dishonored as it was discovered that Fernandez died 3 days prior
to its issuance. The US Dept. of treasury requested petitioner bank for a refund.
Respondent received a telegram from the bank and when he called up he was informed that the
treasury check was subject for claim. He verbally authorized the bank to debit from his
account the amount stated in the dishonored US treasury warrant.
Surprisingly, respondent demanded restitution of the debited amount. According to him, he did
not authorized the bank to withdraw such amount.
ISSUE:
- WON legal compensation is proper? YES
HELD:
- YES, compensation takes place when two persons in their own right are debtor and creditors of
each other. Art. 1290, provides that when all the requisites of Art. 1279, are present,
compensation takes effect by operation of law and extinguishes both debts even if the parties
interested are not aware of or without their consent.
- Art. 1279, states that in order that compensation may be proper, it is necessary:
36

1) That each debts of obligors be bound principally and that he be at the same time a
principal creditor of the other;
2) that both debts consist in a sum of money, or if the things due are consumable, they be
of the same kind, and also of the same quality if the latter has been stated;
3) that the 2 debts be due;
4) that they be liquidated & demandable;
5) that over neither of them there be any retention or controversy, commenced by 3 rd
person & communicated in due time to the debtor.
The elements of legal compensation are all present in this case:
1) Petitioner bank stands as the debtor of Edvin Reyes, the depositor. At the same time,
bank is the creditor of the respondent with respect to dishonored VS treasury warrant.
2) The debts involved consist of a sum of money.
3) They are due, liquidated & demandable.
4) They are not claimed by a 3rd person.

PNB VS CA
( 259 s 174 )
FACTS:
Petitioner bank appropriated the amounts of $ 2,627.11 and P 34,340.38 from remittances of PR
Ramon Lapez principal abroad.
The 1st remittance was made by the Natl Commercial Bank of Jeddah for Lapez to be credited
to his account at Citibank and the 2 nd from Libya, to be deposited at Lapezs account with
petitioner bank.
Lapez made a written demand upon petitioner bank for the remittances.
There were 2 instances in the past, one in Nov. 1980 & the other in Jan. 1981 when the Lapezs
account was doubly credited which amounted to P87,380.44.
Petitioner bank made a demand for refund of the double credits erroneously made on Lapezs
account and so deduction of P 34,340.38 was made by petitioner bank with the knowledge &
consent of the Lapez. Thus, petitioner set-off against the 2 remittances, the double credits it
erroneously made.
ISSUE:
- WON petitioner bank was legally justified in making the compensation or set-off? NO
HELD:
- The SC affirmed the decision of the RTC. RTC ruled that: in this case, of the $2,627.11,
requisites Nos. 2 to 5 are present. The question however is whether both of the obligors bound
principally and are debtor and creditor of the other at the same time.
a. With respect to the respondents being a depositor of the bank, they are creditor and
debtor respectively.

37

b. As to relationship created by the telexed fund transfer from abroad, contract bet. foreign
bank & local bank, asking the latter to pay to a beneficiary is a stipulation pour autrui ( is
a stipulation is favor of a 3rd person)
- Thus between petitioner bank and respondent, there is created an implied trust (when the
property is conveyed to a person in reliance upon his intention to hold it for the person
whose benefit is contemplated)
c. By principle of solutio indebiti (receive something having no right to demand it, must
return what unduly received) created a relationship of obligor and obligee or of debtor &
creditor under a quasi-contract.
- However, with respect to the $2,627.11 from Jeddah, the parties are not both principally
bound, neither are they at the same time principal creditor of the other.
Therefore, the parties obligations are not subject to compensation under Art. 1279, because they
are trustee-beneficiary as to the fund transfer of $ 2,627.11. The petitioner bank was an implied
trustee, who was obliged to deliver to Citibank the amount for the benefit of the respondent.
With respect to the double payment they are debtor & creditor with each other, the amount of
P34,340 may be the subject of compensation because all the requisites of Art. 1279, are present.

EGV REALTY VS CA
( 310 s 657 )
FACTS:
Petitioner E.G.V. Realty Devt Corp. is the owner developer of a 7 storey condominium
building known as Cristina Condominium. Cristina condominium Corp. holds title to all
common areas & is in charge of managing maintaining & administering the condominium
common areas and providing for the buildings security.
Respondent Unisphere is the owner / occupant of unit 301 of said condominium.
2 robbery incidents happened at respondent Unisphere unit which amounted to the total amount
of P12,295 and it was reported to CCC. Respondent Unisphere demanded compensation and
reimbursement from petitioner CCC for the losses incurred as a result of the robbery. However,
petitioner denied any liability and stating that the goods lost belonged to Amtrade, a 3rd party.
Because of the denial, respondent withheld its monthly dues and later on received a demand
letter of past dues from petitioner CCC.
Petitioner E.G.V executed a Deed of Absolute Sale over unit 301 in favor of the respondent.
Thereafter, Cert. of Title was issued bearing an annotation for the unpaid dues in the amount of
P13,142.67
Petitioner E.G.V & CCC jointly filed a petition for the collection of the unpaid monthly dues.
Respondent answered that it could not be deemed in default because its tardiness to pay was
occasioned by petitioners failure to provide security for the building premises. It asserted that
the total value lost be awarded to it by way of damages.
The C.A reversed the SEC order and decided that the unpaid monthly dues should be offset by
the losses suffered by respondent Unisphere.
ISSUE:
- WON set-off or compensation has taken place in the instant case? NO
38

HELD:
- Under Art. 1278, compensation takes place only when 2 persons or entities in their own right
are creditors & debtors of each other.
- A distinction must be made between a debt and a mere claim. Debt is an amount actually
ascertained. It is a claim which has been passed upon by the courts or quasi judicial bodies to
which it can in law be submitted & has been declared to be debt. Claim is a debt in embryo.
It is mere evidence of a debt & must pass thru the process prescribed by law before it develops
into what is properly called a debt. Absent of any such categorical admission by an obligor or
final adjudication, no compensation or off-set can take place. Unless admitted by a debtor
himself, the conclusion that he is in truth indebted to another cannot be definitely and finally
pronounced, no matter how convinced he may be from the examination of the pertinent records
of the validity of that conclusion the indebtedness must be one that is admitted by the alleged
debtor or pronounced by final judgment of a competent court or in this case by the commission.
- While respondent Unisphere does not deny its liability for the unpaid dues, petitioner do not
admit any responsibility for the loss suffered by the former. At best, that respondent has against
petitioner is just a claim, not a debt. Such being the case, it is not enforceable in court. It is only
the debts that are enforceable in court.
- Respondents claim for its loss has not been passed upon by any legal authority so as to elevate
it to the level of a debt. It has not been sufficiently established that compensation or offset is
proper as there is lack of evidence to show that petitioners & respondent are mutually creditors
and debtors of each other.
METROPOLITAN BANK & TRUST COMPANY VS. TONDA
( 338 s 254 )
FACTS:
Spouses Tondas, applied for and were granted commercial letters of credit by petitioner
Metrobank for a period of 8 months in connection with the importation of raw textile materials
to be used in the manufacturing of garments. The Tondas acting their capacity as officers of
HTAC & in their persons capacities, executed trust receipts to secure the release of the raw
materials to HTAC. The imported fabrics with principal value of P2.8 M were withdrawn by
HTAC under the 11 trust receipts executed.
Due to their failure to settle their obligations under the trust receipts upon maturity, Metrobank
sent letters and making its final demand upon Tondas on or before Aug, 10,1992. Their
obligation amount to P4.8 M & despite repeated demands. Tondas failed to comply their
obligations stated in trust receipts agreement - failure to account the goods / proceeds of the
sale.
Metrobank through counsel filed a complaint for violation of Trust Receipts Law but it was
dismissed because failure of the complainants to establish the essential elements of estafa.
ISSUE:
- WON the subject trust receipts obligation have been extinguished by legal compensation? NO
HELD
- Compensation is not proper when one of the debts consists in civil liability arising from a penal
offense/ the reason for this being that if one of the debts consists in civil liability arising from a
penal offense, compensation would be improper and inadvisable because the satisfaction of
such obligation is imperative. Further, the handwritten note by the Metrobank offer

39

acknowledging receipt of the checks amounting to P 2.8M made no relation to the Tondas trust
receipt obligation.
PNB MADECOR VS UY
(363 s 138 )
FACTS:

Guillermo UY (GU Enterprises) assigned to respondent Gerardo UY his receivables due from
Pantrance North Express Inc (PNEI) amounting to P4,660,558.
Gerardo UY filed with the RTC a collection suit with an application for the issuance of a writ of
preliminary attachment against PNEI.
UY sought to collect from PNEI the amount of P8,397,440. He alleged that PNEI was guilty of
fraud in contracting the obligation sued upon him, hence, his prayer for a writ of preliminary
attachment.
A writ of preliminary attachment was issued commanding the sheriff to attach the properties of
the PNEI, personal or real and/or of any person representing the defendant in such amount as to
cover Geraro Uys demand.
Sheriff issued a notice of garnishment addressed to the Philippine National Bank (PNB)
attaching the properties of PNEI in the possession of the bank. PNB MADECOR was given a
similar notice.
PNB MADECOR claimed that:
a. PNEI has not been paying its rentals from Oct 1990 to Mar 24, 1994 when PNEI
vacated the property. Thus, PNB MADECORs receivables against PNEI amounted to
8,784,227.48 representing accumulated rentals plus interest
b. MADECOR on the other hand has payables to PNEI in the amount of P7,384,000
evidenced by a promissory note
c. Thus, MADECOR is a creditor of PNEI with respect to the P8,784,227 and at the same
time its debtor with respect to the P7,384. MADECOR and PNEI are therefore creditors
and debtors of each other
d. By force of law on compensation, both obligations of MADECOR and PNEI are
already extinguished as to the concurrent amount (P7,384,000) so that PNEI is still
obligated to pay MADECOR the amount of P900,227
UY filed a motion controverting MADECORs claim on compensation. Even if compensation
were possible, PNEI would still have sufficient funds in the hands of MADECOR to fully
satisfy his claim. UY contends that MADECOR has only considered the principal amount and
excluded the 18% per annum interest from the date of the notice of demand, thus the
outstanding balance should be P75.8 M. UY, also prayed for an order directing that levy be
made upon all the goods, credits, deposits and other personal properties of PNEI under the
control of MADECOR to the extent of his demand
RTC rendered judgment against PNEI and issued a writ of execution
CA affirmed the decision of RTC
There could not be any compensation between PNEIs receivables from MADECOR and the
latters obligation to the former because MADECORs supposed debt to PNEI is the subject of
attachment proceedings initiated by UY. This is a controversy that would prevent legal
compensation from taking place as set forth in Art 1279 of the CC. it was not clear whether, at

40

the time compensation was supposed to have taken place, the rentals being claimed by
MADECOR was indeed still unpaid (no evidence except statement of account)
It also questioned MADECORs inaction in claiming the unpaid rentals from PNEI when the
latter started defaulting in its payment as early as 1994, this indicates that the debt was either
already settled or not yet demandable and liquidated

ISSUE:
- WON there was compensation between PNEIs receivables from MADECOR and the latters
obligation to the former? NO
HELD:
- Compensation is a mode of extinguishing to the concurrent amount the obligations of persons
who in their own right and as principals are reciprocally debtors and creditors of each other.
- LEGAL COMPENSATION takes place by operation of law when all the requisites are present
as opposed to CONVENTIONAL COMPENSATION w/c takes place when the parties agree to
compensate their mutual obligations even in the absence of some requisites
LEGAL COMPENSATION requires the concurrence of the ff conditions:
1. that each one of the obligors be bound principally and that he be at the same time a
principal creditor of the other
2. that both debts consist in a sum of money or if the things due are consumable, they be of the
same kind and also of the same quality if the latter has been stated
3. that the 2 debts are due
4. that they be liquidated and demandable
5. that over neither of them there be any retention or controversy, commenced by 3 rd persons
and communicated in due time to the debtor
- MADECOR insists that legal compensation had taken place such that no amount of money
belonging to PNEI remains in its hands, and consequently there is nothing that could be
garnished by respondent. However, LEGAL COMPENSATION could not have occurred
because of the absence of 1 requisite in the case: that both debts must be due and demandable.
MADECORs obligation to PNEI appears to be payable on demand as inferred from the letter
sent PNEI. It merely informed MADECOR of the conveyance of a certain portion of its
obligation to PNEI per a dation en pago arrangement between PNEI and PNB and the unpaid
balance of obligation after deducting the amount conveyed to PNB. Since the MADECORs
obligation to PNEI is payable on demand, and there being no demand made, it follows that the
obligation is not yet due. Therefore this obligation may not be subject to compensation for lack
of requisite under the law. Without compensation having taken place, MADECOR remains
obligated to PNEI to the extent stated in the promissory note. This obligation may undoubtedly
be garnished in favor of UY to satisfy PNEIs judgment debt.
- As to UYs claim that legal compensation could not have taken place due to the existence of a
controversy involving one of the mutual obligations, this is no longer controlling. The said
controversy was not seasonably communicated to MADECOR as required under Art 1279 of
the CC.
- CONTROVERSY, meaning the action instituted by UY against PNEI must have been
communicated to MADECOR in due time or before legal compensation takes place (LC
operates when all the requisites concur) to prevent compensation from taking place. A
controversy that is communicated to the parties (1995) after that time may no longer undo the
compensation that had taken place by force of law (1994).
- As regards UYs averment that there was yet no compensable debt when PNEI sent
MADECOR a demand letter in 1984 since PNEI was not yet indebted to MADECOR at that
41

time. The law does not require that the parties obligations be incurred at the same time. What
the law requires only is that the obligations be due and demandable at the same time.
BAUTISTA VS PILAR DEVT CORP.
( 312 s 611 )
FACTS:
1978 petitioner spouses Bautista purchased a house and lot in Pilar Village. To partially finance
the purchase, they obtained from Apex Mortgage and Loan Corp. in the amount of
P100,180.00. They executed a promissory note obligating themselves jointly & severally to pay
the principal with interest of 12% of the amount due. Also, petitioner authorized Apex to
increase the rate of interest and/or service charge without notice to them in the event that a law
or Central Bank regulation should be enacted increasing the rate and service charge on the loan.
The promissory note was secured by a second mortgage on the house & lot purchased.
Petitioner failed to pay several installments.
On Sept 1982, they executed another promissory note in favor of Apex. The note was in the
amount of P142,326.43 at the increase rate of 21% per annum with no provision for the service
charge but with penalty charge of 1 % for late payment. Petitioner also authorized Apex to
increase or decrease the interest rate same with the 1st promissory note.
Petitioner again failed to pay the installments.
Apex assigned the 2nd promissory note to respondent Pilar Devt Corp. without notice to
petitioners. Respondent Corp. instituted a civil case against petitioner, sought to collect from
petitioner the amount of P140,515.11 representing the unpaid balance including interest rate of
21% & 36% per annum in accordance with CB circular # 905.
Petitioner contented that the 21% and the escalation clauses are null and void in the absence of
a re-escalation clause in the same note.
The trial court rendered judgment ordering petitioner to pay respondent the sum of P140,515.11
with interest rate of 12% per annum plus service charge.
The C.A reversed the trial court by applying the interest rate of 21% per annum & adding attys
fees.
However, upon motion of petitioner, the C.A reduced the principal from P142,326.42 to
P140,515.11
Petitioner claim that the interest rate of 12% per annum should be adjudged in as much as the 2
promissory notes constitutes one transaction. That the 1st note defined the terms and conditions
of the loan while the 2nd note is merely an existence from the former. Hence, the 2 nd note is
governed by the stipulation in the 1st note.
ISSUE:
- WON there was novation? YES
HELD:
- The 2 promissory notes are identically entitled Promissory Note with Authority to Assign
Credit. They also contain the same provision & the same blanks for the amount of the loan.
However, on the upper right portion of the 2nd note appears a typewritten entry that cancels the
1st note. Each page of the 1st note, the word Cancelled is boldly stamped twice with the date
& a signature written in a space inside the letters. The 1 st promissory note was cancelled by the
express terms of the 2nd promissory note. To cancel is to strike out, to revoke, rescind or
42

abandon, to terminate. In fine, the 1st note was revoked & terminated. Simply put, it was
novated.
The extinguishment of an obligation by the substitution or change of the obligation by a
subsequent one which extinguishes or modifies the first is a novation. Novation is made either
by changing the object or principal conditions, referred to as an objective or real novation, or
by substituting the person of the debtor or subrogating a 3 rd person to the rights of the creditor,
which is known as subjective or personal novation. In both objective & subjective novation, a
dual purpose is achieved, an obligation is extinguished & a new one in created in lien thereof.
Novation may either be express, when the new obligation declares in unequivocal terms that
the old obligation is extinguished is on every point incompatible with the old one. Express
novation takes place when the containing parties expressly disclose that their object in making
the new contract remains in force and the new contact is merely added to it and each gives rise
to an obligation still in force.
Novation has 4 essential requisites:
a) The existence of a previous valid obligation;
b) The agreement of all parties to the new contract;
c) The extinguishment of the old contract;
d) The validity of the new one.
In the instant case, all 4 requisites have been complied with. The 1 st note was valid & subsisting
contract when petitioner and Apex executed the 2nd note. The 2nd note absorbed the unpaid
principal & interest of P 142,326.43 in the 1st note which amount the principal debt therein,
payable at a higher interest rate of 21% per annum. Thus, the terms of the 2 nd note provided for
a higher principal, a higher interest rate, and a higher monthly amortization, all to be paid
within a shorter period of 196 months or 16.33 yrs.
ESPINA VS CA/ RENE DIAZ
( 334 s 186 )

FACTS:
Mario Espina is the registered owner of a condominium unit. He sold the condominium unit to
Rene Diaz, the lessee of the unit, in the amount of P 1.5M. P100k to be paid upon execution of
the provisional Deed of Sale and the balance to be paid on installment thru PCI bank postdated
check.
On Jan 22 1992, Diaz informed Espina that his checking account with PCI Bank has been
closed & a new one with same bank was opened for practical purposes. The letter further stated
that the postdated check issued will be replaced with new ones.
On Jan 25,1992, Diaz wife paid Espina P200k, acknowledged by him as partial payment for the
condo unit.
On July 26,1992 Espina sent Diaz a Notice of Cancellation of the Provisional Deed of Sale.
However, despite the notice of cancellation, Espina accepted payment from respondent and
encashed on Oct. 28, 1992 in the amount of P100k.
On Feb 24, 1993, Petitioner filed a complaint for unlawful detainer against petitioner.
ISSUE:
- WON the Provisional Deed of Sale novated the existing lease contract? NO
HELD:
43

Novation must be clearly proved since its existence is not presumed. It must be proven as a fact
either by express stipulation or by implication derived from an irreconcilable incompatibility
between the old and the new obligations.
In this case, after the initial down payment, respondents checks on 6 installments all bounced
& were dishonored for the reason that the bank account was closed. Consequently, petitioner
terminated the provisional Deed of Sale by a notarial notice of cancellation. Nonetheless,
respondent continued to occupy the unit as lessee but failed to pay the rentals due.
Now respondent contends that petitioners subsequent acceptance of such payment effectively
withdraw the cancellation of the provisional sale. The SC did not agree. Unless the application
of payment is expressly indicated, the payment shall be applied to the obligation most onerous
to the debtor.
In this case, the unpaid rentals constituted the more onerous obligation. As the payment did not
fully settle the unpaid rentals, petitioners cause of action for ejectment survives.
IDOLOR VS CA
( 351 s 399 )

FACTS:
March 21, 1994, to secure a loan of P520k, Idolor executed a Deed of Real Estate Mortgage of
a parcel of land in favor of De Guzman with a right of foreclosure upon failure to redeem the
mortgage on Sept. 20 1994.
On Sept. 1996, wife of De Guzman filed a complaint for non-performance which resulted to in
a Kasunduang Pag-aayos. In the agreement, the amount due was P1,233,288.23 inclusive of
interest, payable within 90 days and in case of non-payment in Dec. 21, 1996, petitioner should
execute a deed of sale with right to repurchase within one year without interest.
Petitioner failed to comply with her undertaking resulting into the extrajudicial foreclosure of
the property and it was sold in public auction where the highest bidder was de Guzman.
Petitioner filed a complaint for injunction due to the irregularity and lack of notice in the
foreclosure proceedings. Petitioner also contends that the Kasunduang Pag-aayos novated the
original contract between the parties.
ISSUE:
- WON there was a novation? NO
HELD:
- Novation is the extinguishment of an obligation by the substituting or change of the obligation
by a subsequent one which terminates it, either by changing its objects or principal conditions,
or by substituting a new debtor in the place of the old one, or by subrogating a third person to
the rights of the creditor. Novation is never presumed. The parties to a contract must expressly
agree that they are abrogating their old contract in favor of a new one. Accordingly, it was held
that no novation of a contract had occurred when the new agreement entered into between the
parties was intended to give life to the old one.
- The will to novate did not appear by express agreement of the parties nor the old and the new
contracts were incompatible in all points. In fact, petitioner expressly recognized in the
Kasunduan the existence and the validity of the old obligation where she acknowledged her
long overdue account since Sept.1994. A compromise agreement clarifying the total sum
owned by a buyer with the view that he would find it easier to comply with his obligations
44

under the contract to sell does not novate said Contract to sell. It is not proper to consider an
obligation novated by unimportant modifications which do not alter its essence.
MOLINO VS SECURITY DINERS INTL
(363 s 358 )
FACTS:
Danilo Alto applied for a regular local card with SDIC which entitles the cardholder to
purchase goods and pay services from member establishments in the amount to not exceeding
P10K. he got as his surety his own sister-in-law Jeanette Molino Alto, petitioner.
Petitioner signed the surety undertaking which stated that she binds herself jointly & severally
with Danilo to pay SDIC. And that any change or novation in the agreement or any extension of
time granted by SDIC to pay such obligations, charges and fees, shall not release her from the
surety undertaking.
Danilo upgrated his regular card into the Diamond one which entitles him an unlimited amount.
As a requirement of SDIC, Danilo secured Jeanettes approval.
Danilo had incurred credit in the aggregate amount of P166,408.31 but he defaulted in the
payment of this obligation.
Respondent demanded payment from Danilo and Jeanette but they did not pay which prompted
respondent to file an action to collect said indebtedness.
During the pre-trial conference respondent move to have the complaint against Danilo without
prejudice to a subsequent re-filling. Petitioner was left as the lone defendant, sued in her
capacity as surety of Danilo.
Petitioner posits that she did not expressly give her consent to be bound as surety under the
upgraded card, and further, because the principal debtor, Danilo, was not held liable, having
been dropped as a defendant, she could not be said to have incurred liability as surety.
ISSUE:
- WON there was novation by upgrading the original agreement as to extinguish the surety
undertaking? NO
HELD:
- Novation, as a mode of extinguishing obligations, may be done in two ways: by explicit
declaration, or by material incompatibility.
- There is no doubt that the upgrading was a novation of the original agreement covering the first
credit card issued to Danilo, basically since it was committed with the intent of canceling and
replacing the said card. However, the novation did not serve to release petitioner from her
surety obligations because in the surety undertaking she expressly waived discharge in case of
change or novation in the agreement governing the use of the first credit card.
GARCIA VS LLAMAS
( 417 s 292 )
FACTS:
This case started out as a complaint for sum of money and damages by Llamas against
petitioner Garcia and de Jesus.

45

The complaint alleged that Garcia and de Jesus barrowed a sum of P400K to Llamas and
executed a promissory note wherein they bound themselves jointly and severally to pay the
loan.
The loan had been long overdue and despite repeated demands, petitioner and de Jesus failed
and refused to pay it. As a result respondent filed a complaint.
Petitioner Garcia averred that he assumed no liability arising from the note inasmuch as the
loan had been paid by de Jesus by means of a check and respondents acceptance thereof
novated or superseded the note. And that upon payment by De Jesus, there was a substitution of
debtor.
Respondent asserted that the loan remained unpaid for the reason that the check issued had
bounced.

ISSUES:
1) WON the promissory note was novated upon the issuance and the acceptance of the check? NO
2) WON the obligation was novated by the substitution of debtor? NO
HELD:
1) The check could not have extinguished the obligation, because it bounced upon encashment.
By law, the delivery of a check produces the effect of payment only when it is encashed.
Novation may be express or implied. It is express when the new obligation declares
unequivocal terms that the old obligation is extinguished. It is implied when the new obligation
is incompatible with the old one on every point. The test of incompatibility is whether the two
obligations can stand together, each one with its own independent existence.
- In this case, the parties did not unequivocally declare that the old obligation had been
extinguished by the issuance and the acceptance of the check, or the note. There is no
incompatibility between the promissory note and the check since the check had been issued
precisely to answer for the obligation. The note evidences the loan obligation and the check
answer for it. Verily, the two can stand together. Neither payment of interest constitutes
novation as to change the terms & conditions of the obligation. Such payment was already
provided for in the promissory note and, like the check, was totally in accord with the terms
thereof.
2) In order to change the person of the debtor, the old must be expressly released from the
obligation, and the third person or new debtor must assume the formers place in the relation.
Novation which arises from a purported change in the person of the debtor must be clear and
express.
- In this case, petitioner has not shown that he has expressly released from the obligation, that a
third person was substituted in his place, or that the joint and solidary obligation was cancelled
and substituted by the solidary undertaking of de Jesus. More important, de Jesus was not a
third person to the obligation. From the beginning, he was joint and solidary obligor of the
loan. Thus, he can be released from it only upon its extinguishment. Respondents acceptance
of the check did not change the person of the debtor, because a joint and solidary obligor is
required to pay the entirety of the obligation.
CALIFORNIA VS SIHI
( 418 s 299 )
FACTS:
46

Delta Motors Corp. applied for financial assistance from respondent SIHI, a domestic engaged
in business of quasi banking.
Delta eventually became indebted to SIHI to the amount of P24,010,269.32
Meanwhile, CBLI purchased on installments basis 35 units of buses and 2 units of engines from
Delta. To secure the payment, CBLI and its president, Mr. Llamas, executed 16 promissory
notes in favor of Delta. In addition, chattel mortgages were executed over the 35 buses.
When CBLI defaulted on all payments due it entered into a restructuring agreement with Delta.
It provided for a new schedule of payments, extending the period to pay and stipulating daily
remittances intended of previously agreed monthly remittances. In case of default, Delta would
have authority to take over the management & operations of CBLI.
On Dec. 1981, Delta executed a continuing Deed of Assignment of Receivables in favor of
SIHI as security for the payment of its obligation. In view of Deltas failure to pay, the loan
agreements were restructured under a memorandum of Agreement.
CBLI continued having trouble wresting its obligation to Delta. This prompted Delta to file a
writ of preliminary mandatory injunction to enforce the management takeover clause & a writ
of preliminary attachment over the buses it sold to CBLI. The trial court granted Delta.
Pursuant to the Memorandum of Agreement, Delta executed a Deed of Sale assigning to SIHI 5
of the 16 promissory notes from CBLI. It had a total value of P16,152,819.80.
SIHI subsequently sent a demand letter to CBLI requiring CBLI to remit the payments due on
the 5 promissory notes. CBLI replied that Delta had taken over its management & operations.
Deltas obligation to SIHI was reduced to P20,061,898.97 because Delta offered its available
bus units as payment in kind.
Thereafter, Delta & CBLI entered into a compromise agreement. CBLI agreed that Delta would
exercise its right to extrajudicially foreclose on the chattel mortgages over the 35 bus units.
Following this, CBLI refused to pay SIHI, contending that the compromise agreement was in
full settlement of all its obligation to Delta including the promissory notes.
SIHI filed a complaint to collect payments on 5 promissory notes & a writ of preliminary
attachment against the properties of CBLI.
The trial court granted SIHI and was able to take possession of 32 buses buses belonging to
CBLI. SIHI moved to sell 16 buses of CBLI which had been attached by the sheriff. CBLI
opposed SIHIs motion.
The trial court held that the restructuring agreement between Delta & CBLI novated the 5
promissory notes, and cannot be enforced by SIHI against CBLI.
The C.A. reversed trial courts decision and made CBLI liable for the 5 promissory notes to
SIHI.

ISSUE:
- WON the restructuring agreement between petitioner CBLI & Delta novated the 5 promissory
notes assigned by Delta to respondent SIHI? NO
HELD:
- Novation has been defined as the extinguishment of an obligation by the substitution or change
of the obligation by a subsequent one which terminates the first, either by changing the object
or principal conditions, or by substituting the person of the debt, or subrogating a 3 rd person in
the rights of the creditor. For novation to take place, for essential requisites have to be met,
namely
1) a previous valid obligation;
47

2) an agreement of all parties concerned to a new contract;

3) the extinguishment of the old obligation;
4) the birth of a valid new obligation.
The extinguishment of the old obligation by the new one is necessary element of novation
which may be effected either expressly or impliedly. Express , when novation has been
explicitly stated & declared in unequivocal terms. Implied, when the old & the new obligations
are incompatible on every point.
In this case, the restructuring agreement between Delta & CBLI shows that the parties did not
expressly stipulate that the restructuring agreement novated the promissory notes. Its terms
yields no incompatibility between the agreement & the notes. The restructuring agreement
merely provided for new schedule of payments and additional security giving Delta authority to
take over the management & operation of CBLI in case CBLI fails to pay installments
equivalent to 60 days.
Where parties to the new obligation expressly recognize the continuing existence & validity of
the old one, there can be no novation. An agreement subsequently executed between a seller &
a buyer that provided for a different schedule and manner of payment, to restructure the mode
of payment by the buyer so that it could settle its outstanding obligation in spite of its
delinquency in payment, is not tantamount to novation. In fine the restructuring agreement can
stand together with the promissory notes.

PHIL. SAVINGS BANK VS MAALAC

( 457 s 203 )
FACTS:
Respondent spouses Maalac obtained a P1.3M loan from PSbank covered by promissory note.
As security for the loan, respondent executed a Real Estate Mortgage in favor of the bank over
8 parcels of land.
In view of Maalacs inability to pay, their loan obligation was restructured to P1,550,000
covered with another promissory note and secured by the same 8 real properties.
Respondent and spouses Galicia entered into a Deed of Sale with Assumption of Mortgage,
with the prior consent of PSbank, involving 3 parcels of land of the secured mortgage of
respondent to PSbank. Thereafter, the 3 parcels of land purchased by Galicia together with
another property were in turn mortgaged by them to secure a P2.6M loan which they obtained
from PSbank.
On March 1979, respondent paid PSbank which correspondents to the value of the 3 parcels of
land covered in the name of spouses Galicia. Accordingly, PSbank executed a partial release of
the aforesaid properties.
Spouses Galicia obtained a 2nd loan from PSbank secured by 5 parcels of land including the 3
properties.
Since respondent defaulted again in the payment of their loan, extrajudicial foreclosure was
made by PSbank on their 5 remaining mortgage properties.
48


1)
2)
3)
4)

Maalac gave PSbank a chashiers check of P1.2m for the partial release of the 4 mortgage
properties. 3 of which is in the name of Galicia and to partially secure Maalacs outstanding
loan.
The bank applied the P1M of the P1.2M to the loan of Galicia and the remaining was applied
relative to the account of Maalac
The bank sold 2 foreclosed properties to Villanueva and Jalbuena which prompted respondent
Maalac to institute an action for damages.
The trial court rendered judgment annulling the Certificate of Sale executed by PSbank in favor
of Villanueva and Jalbuena.
The C.A. affirmed the decision with modification that PSbank is directed to indemnify
respondent and contented that there was novation when PSbank applied the P1M to the loan
account of Galicia and the remaining to Maalacs account.

ISSUE:
- WON there was novation so as to release the subject properties? NO
HELD:
- In order for novation to take place, the concurrence of the following requisites is indispensable:
1) There must be a previous valid obligation;
2) There must be an agreement of the parties concerned to a new contract;
3) There must be the extinguishment of the old contract; and
4) There must be a valid new contract.
- In this case, the elements of novation are patently lacking. Manalac tendered a check for P1.2m
to Psbank for the release of 4 parcels of land under the loan account of Galicia and under the
loan account of Maalac. However, while the bank applied the tendered amount to the
accounts, it nevertheless refused to release the subject properties. Instead, it issued a receipt
with a notation that the acceptance of the check is not a commitment on the part of the bank to
release the 4 subject properties.
- From the foregoing, it is obvious that there has no agreement to form a new contract by
novating the mortgage contracts of the Manalacs and the Galicias. In accepting the check, the
bank only acceded to Manalacs instruction on whose loan accounts the proceeds shall be
applied but rejected the other condition on the 4 parcels of land. Clearly, there is no mutual
consent to replace the old mortgage contract with a new obligation. The conflicting intention
and acts of the parties underscore the absence of any express disclosure or circumstances with
which to reduce a clear & unequivocal intent by the parties to novate the old agreement. Thus,
without the consent of PSbank as the mortgage contract between the Galicias and the bank,
cannot demand mush less impose upon the bank the release of the subject properties.
- In order to change the person of the debtor, the old one must be expressly released from the
obligation, and the third person or new debtor must assume the formers place in the relation.
Novation is never presumed. Consequently that which arises from a purported change in the
person of debtor must be clear and express. It is thus incumbent on Maalac to show clearly
and unequivocally that novation has indeed taken place.
- In this case, Maalac has not shown by competent evidence that they were expressly taking the
place of Galicia as debtor, or that the latter were being released from their solidary obligation.
Nor was it shown that the obligation of Galicia was being extinguished and replaced by a new
one.

49

VILLAMARIA VS CA
( 487 s 571 )
FACTS:
Petitioner Villamaria Jr. was the owner of Villamaria motors, engaged in assembling passenger
jeepneys.
Petitioner stopped assembling and retained only 9 jeepneys, 4 of which he operated by
employing drivers on a boundary basis. One of those was respondent Bustamante.
Respondent remitted P450 a day to petitioner as boundary and the excess earnings as
compensation for driving the vehicle.
Petitioner verbally agreed to sell the jeepney to respondent under the Boundary Hulog
scheme, where respondent would remit to petitioner P550 a day for a period of 4 years.
Respondent would then become the owner of the vehicle and continue to drive the same under
petitioners franchise. It was also agreed the respondent would make a downpayment of P10k.
Petitioner executed a contract entitled Kasuduan ng Bilihan ng Sasakyan sa Pamamagitan ng
Boundary Hulog.
The parties agreed that if respondent failed to pay for 3 days, petitioner would hold on to the
vehicle until respondent paid his arrears, including a penalty of P50 a day. In case respondent
failed to remit the daily boundary hulog for a period of 1 week, their kasunduan would cease to
have legal effect and respondent would have to return the vehicle to petitioner.
On 1999, respondent & other drivers who also had the same arrangements with petitioner failed
to pay their respective boundary Hulog. This prompted petitioner to serve a Paalala,
reminding them of the Kasunduan that it would be strictly enforced & urged them to comply
with their obligation to avoid litigation.
On July 2000, petitioner took back the jeepney and barred respondent from driving the vehicle.
Respondent filed a complaint for Illegal Dismissal against petitioner, alleging that he was
employed by petitioner.
Petitioner argued that the Kasunduan executed transformed the employer-employee relationship
into that of vendor-vendee. Hence, there is no legal basis to hold them liable for illegal
dismissal.
ISSUE:
- WON the kasunduan as vendor-vendee novated their employer-employee relationship? NO
HELD:
- Under the kasunduan, respondent was required to remit P550 daily to petitioner, an amount
which represented the boundary of petitioner as well as respondents partial payment of the
purchase price the jeepney. Respondent was entitled to keep the excess of his daily earnings as
his daily wage. Thus, the daily remittances also have a dual purpose: that of petitioners
boundary and respondents partial payment for the vehicle. This dual purpose was expressly
stated in the kasunduan.
- The well settled rule is that an obligation is not novated by an instrument that expressly
recognizes the old one, changes only the terms of payment and adds other obligations not
incompatible with the old provisions or where the new contract merely supplements the
previous one. The 2 obligations of the respondent to remit to petitioner the boundary-hulog and
stand together. The juridical relationship of ER-EE relationship between petitioner &
respondent was not negated by the foregoing stipulation in the kasunduan, considering that
petitioner retained control of respondents conduct as driver of the vehicle.
50

LICAROS VS. GATMAITAN

( Aug. 9, 2001 )
FACTS:
The Anglo-Asean Bank and trust limited is a private bank registered and organized to do
business which consist primarily in receiving fund placements by way of deposit from
institutions and individual investors.
Abelardo Licaros decided to make a fund placement with said bank. As it turned out, it
encountered tremendous and unexplained difficulty in retrieving not only the interests or profits
but even the investment he had put in the bank.
Licaros decided to seek the counsel of Antonio Gatmaitan, a reputable banker and investment
manager. Gatmaitan voluntary offered to assume the payment of Anglo-Aseans indebtedness to
Licaros subject to certain terms and conditions.
Thereafter, Gatmaitan presented to the bank the memorandum of agreement earlier executed by
him and Licaros for the purpose of collecting the money of P550k. However, the bank did not
act on Gatmaitans monetary claims.
Evidently, because of the inability to collect from Anglo-Asean, Gatmaitan did not bother
anymore to make his promise to pay Licaros the amount stated in the promissory note.
Licaros felt that he has the right to collect the basis of the note regardless of the outcome of
Gatmaitans recovery efforts.
He addressed successive demand letters to Gatmaitan demanding payment. However,
Gatmaitan did not cede to these demands. Hence, this petition.
ISSUE:
- WON the memorandum of agreement between petitioner and respondent is one of assignment
of credit or one of conventional subrogation? CONVENTIONAL SUBROGATION
HELD:
- To distinguish assignment of credit from subrogation: Assignment of credit has been defined
as the process of transforming the right of the assignor to the assignee who would then have the
right to proceed against the debtor. The assignment may be done gratuitously or onerously, in
which case, the assignment has an effect similar to that of a sale. Subrogation is that transfer of
all the rights of the creditor to a 3rd person who substitutes him in all his rights. It may either be
legal or conventional. Legal subrogation is that which takes place without agreement but by
operation of law because of certain acts. Conventional subrogation is that which takes place by
agreement of parties.
- The distinction between conventional subrogation and assignment of credit:
1) In the former, the debtors consent is necessary, while in the latter, it is not required.
2) In the former, it extinguishes the obligation and given rise to a new one, while in the
latter, it refers to the same right which passes from one person to another.
3) In the former, it may cure the nullity of an old obligation such as new obligation will be
perfectly valid, while in the latter, the nullity of an obligation is extinguished.
- What the law requires in the assignment of credit is not the consent of the debtor but merely to
notice him as the assignment takes effect only from the time he has knowledge thereof. A
creditor may validity assign his credits without the debtors knowledge. On the other hand,
conventional subrogation requires the agreement among the three parties concerned, the
51

original creditor, debtor and the new creditor. Thus, Art. 1301, explicity state that conventional
subrogation of a third person requires the consent of the original parties and the 3rd person.
In this case, the Memorandum of Agreement was in the nature of conventional subrogation. In
their stipulation, it stated: Whereas, the parties herein have come to an agreement on the
nature, form and extent of their mutual prestations which they now record herein with express
conformity of the 3rd person. The 3rd person is the Anglo-Asean bank. Here it bears stressing
that the subject Memorandum of Agreement expressly required the consent of the bank.
Absence of the approval of the bank prevents the agreement from becoming effective.
Aside from the whereas clause, the SC noted that on the signature page, right under the place
reserved for the signatures of petitioner and respondent, there is typewritten, the words WITH
OUR CONFORME. This provision contemplate the signed conformity of the bank which
leads to conclude that both parties intended that Anglo-Asean Bank should signify its consent.
Absent of consent from the bank did not perfect the contract. Gatmaitan does not have
subsisting commitment with Licaros to pay the promissory note.

ALLIED BANKING CORP. VS C.A

( 284 s 357 )
FACTS:

Spouses Tanqueco owned a 512 sq. m. lot. On June 30 1978, they leased the property to
petitioner Allied for a monthly rental of P1k for the 1st 3 years.
The lease contract specifically states in its Provision no. 1 that the term of this lease shall be
14 years commencing from April 1, 1978 and may be renewed for a like term at the option of
the lessee.
Allied introduced an improvement as branch office. As stipulated, the ownership of the building
would be transferred to the lessor upon the expiration of the original term of the lease.
Sometime in Feb. 1988, spouses Tanqueco executed a deed of donation over the subject
property in favor of their 4 children, who accepted the donation in the same public document.
On Feb. 1991, the Tanquecos notified petitioner that they were no longer interested in renewing
the lease. Allied replied that it was exercising its option to renew their lease under the same
terms with additional proposals.
When the lease contract expired in 1992 private respondent demanded that Allied vacate the
premises but the latter asserted its sole option to renew the lease and enclosed a cashiers check
of P68,400.00 for advance rental payments for 6 months. However, private respondents
returned the check which prompted Allied to consign the amount in court.
An action for ejectment was commenced before the Metropolitan Trial Court and declared that
the lease contract was void for being violative of Art. 1308 of the Civil code.
The RTC & C.A. affirmed the decision.
While the case was pending in the C.A., Allied vacated the leased premises by reason of the
controversy.
Allied insisted that the lease contract was mutually agreed upon hence valid and binding on
both parties and the option to renew the contract was part of their agreement.

52

ISSUE:
- WON a stipulation in a contract of lease to the effect that the contract may be renewed for a
like term at the option of the lessee is void for being potestative or violative of the principle of
mutuality of contracts under Art. 1308? NO
HELD:
- Art 1308 expresses the principle of mutuality of contracts. It provides that the contract must
bind both the contracting parties; its validity or compliance cannot be left to the will of one of
them. This binding effect of a contract on both parties is based on the principle that the
obligations arising from contracts have the force of law between the contracting parties and
there must be mutuality between them based essentially on their equality. The ultimate purpose
is to render void contract containing a condition which makes its fulfillment dependent solely
upon the uncontrolled will of one of the contracting parties.
- In this case, an express agreement which gives the lessee the sole option to renew the lease is
valid & binding on the parties.
- It is purely executory contract and at most confers a right to obtain a renewal if there is
compliance with the condition on which the right is made to depend. The right of renewal
constitutes a part of the lessees interest in the land and forms a substantial and integral part of
the agreement.
- The fact that such option is binding only on the lessor and can be exercised only by the lessee
does not render it void for lack of mutuality. After all, the lessor is free to give or not to give the
option to the lessee. And while the lessee has a right to elect whether to continue with the lease
or not, once he exercises his option to continue and the lessor accepts, both parties are
thereafter bound by the new lease agreement. Their rights and obligations become mutually
fixed, and the lessee is entitled to retain possession of the property for the duration of the new
lease, and the lessor may hold him liable for the rent therefore. The lessee cannot thereafter
escape liability even if he should subsequently decide to abandon the premises.
- Mutuality obtains in such a contract and equality exists between the lessor and the lessee since
they remain with the same faculties in respect to fulfillment.
- The questioned provision states that the lease may be renewed for a like term at the option of
the lessee. The lessor is bound by the option he has conceded to the lessee. The lessee likewise
becomes bound only when he exercises his option and the lessor cannot thereafter be excused
from performing his part of the agreement. The only term on which there has been a clear
agreement is the period of the new contract, 14 years, which is evident from the clause, the
phrase for a like term referring to period. It is silent as to what the specific terms &
conditions of the renewed lease shall be.
- The settled rule is that in case of uncertainty as to the meaning of a provision granting
extension to a contract of lease, the tenant is the one favored and not the landlord.
- Fortunately for respondent lessor, Allied vacated the premises on Feb. 20, 1993 indicating its
abandonment of whatever rights it had under the renewal clause.
INTEGRATED PACKAGING CORP. VS. C.A.
( 333s 171 )
FACTS:

Petitioner and private respondent FIL-ANCHOR PAPER CO. INC. executed on May 5, 1978
an order agreement whereby private respondent bound itself to deliver to petitioner 3,450 reams
53

of printing papers worth P1,040,060.00. In accordance with the standard operating practice of
the parties, the materials were to be paid within a 30 to 90 days from delivery.
On June 7 1978, petitioner entered into a contract with Phil. Appliance Corporation to print 3
volumes of Philacor Cultural Books a total cost of P3M.
On July 30 1979, private respondent had delivered to petitioner 1,097 reams of printing paper
out of the total 3,450 reams stated in the agreement.
From June 1980 and until July 1981, private respondent again delivered printing paper
amounting to P 766, 101.70. However, petitioner encountered difficulties paying, which
prompted private respondent to make partial payments totaling P97,200.00 which was applied
to its back accounts.
Meanwhile, petitioner entered into an additional printing contract with Philacor. Unfortunately,
petitioner failed to fully comply with its contract. Thus, Philacor demanded compensation for
the delay and damage it suffered.
Private respondent filed a collection suit against petitioner for the sum of P766,101.70.
Petitioner denied and alleged that private respondent was able to deliver and alleged that
private respondent was able to deliver only 1,097 reams which was short of 2,875, hence,
petitioner suffered actual damages and failed to realize expected profits.

ISSUE:
- WON private respondent is liable for petitioners breach of contract with Philacor? NO
HELD:
- Private respondent is not a party to said agreements. It is also not a contract pour autrui.
Aforesaid contracts could not affect 3rd persons like private respondent because of the basic
civil law principle of relatively of contracts which provides that contract can only bind the
parties who entered into it and it cannot favor or prejudice a third person, even if he is aware of
such contract and has acted with knowledge thereof.
- The order agreement entered into by petitioner and private respondent has no direct bearing on
the contracts of petitioner with philacor because the paper specified in the order agreement
between petitioner & private respondent are markedly different from the paper involved in the
contracts of petitioner with Philacor.
- Furthermore, the demand made by Philacor upon petitioner for the latter to comply with its
printing contract is dated Feb. 15 1984, which is clearly made long after private respondent had
filed its complaint on Aug. 14 1981. This demand relates to contracts with Philacor dated April
12,1983 & May 13 1983, which were entered into by Petitioner after private respondent filed
the instant case.
- Private respondent cannot be held liable for the breach, it follows that there is no basis for the
damages.
BALUYOT VS C.A
( 311 s 29 )
FACTS:
Petitioner Timoteo Baluyot, et al, are residents of Barangay Cruz-na-ligas and members of
Cruz-na-ligas Homesite Association, Inc. Petitioner filed a complaint for specific performance
and damages against private respondent University of the Phils. and later on amended to
include Quezon City govt as defendant.
54

Petitioner alleged that they and their ascendants possessed the Riceland since time immemorial
which consist of 42 hectares; that the Bureau of Lands issued an Endorsement confirming the
rights of the bonifide residents to the parcel of land. Pursuant to the said Endorsement, the U.P
Board of Regents approved the donation of about 9.2 hectares and after several negotiations it
was increased to 15.8 hectares. However, the execution of the legal instrument to formalize it
failed because of the unreasonable demand of the residents.
That U.P. manifested in writing its consent to the intended donation directly to the plaintiff
Association for the benefit of the residents but however the UP backed-out from the
arrangement to donate and instead negotiate the donation thru the defendant Quezon City govt.
In order to lift the injunction filed by petitioner, defendant UP made an assurance in their
motion for reconsideration that the donation to the defendant Quezon City govt will be for the
benefit of the residents of Cruz-na Ligas. The lifting of the injunction and the dismissal of the
case was granted by the court.
On Aug. 5, 1986, defendant UP executed the Deed of Donation in favor of Quezon City Govt
for the benefit of the qualified residents under the terms and conditions that after the lapse of 3
years the land will be transferred to the qualified residents by way of donation the individual
lots occupied by each of them.
In compliance with the terms and conditions, the Quezon City immediately prepared the
groundworks, however, defendant UP failed to deliver the certificate of title, which the Quezon
City govt was unable to comply with their obligations.
Upon expiration of the period of 18 months, for alleged non-compliance, the U.P president Mr.
Abueva unilaterally, capriciously, whimsically and unlawfully issued an Admin. Order #21
declaring the deed of donation revoked and be reverted to defendant UP.

ISSUE:
- WON petitioners have a cause of action against UP? YES
HELD:
- While petitioners were not parties to the deed of donation, they anchor their right to seek its
enforcement upon their allegation that they are intended beneficiaries of the donation to the
Quezon City Govt.
- Under Art. 1311 provides that If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a favor upon a third person.
- The following requisites must be present in order to have a stipulation pour autrui:
1) There must be a stipulation in favor of a third person;
2) The stipulation must be a part, not the whole of the contract;
3) The contracting parties must have clearly and deliberately conferred a favor upon a third
person, not a mere incidental benefit or interest;
4) The third person must have communicated his acceptance to the obligor before its
revocation;
5) Neither of the contracting parties bears the legal representation or authorization of the third
party.
- The allegations are sufficient to bring petitioners action on stipulation pour autrui:
1) That the deed of donation contains a stipulation that the Quezon City govt as donee, is
required to transfer to qualified residents of Cruz-na-Ligas, by way of donation, the lots
occupied by them.
55

2) That this stipulation is part of conditions and obligations imposed by UP, as donor, upon the
Quezon City govt as donee.
3) That the intent of the parties was to confer a favor upon petitioners by transferring to the
latter the lots occupied by them.
4) That conferences were held between the parties to convince UP to surrender the certificates
of title to the City govt implying that the donation had been accepted by petitioners by
demanding fulfillment thereof and that private respondents were aware of such acceptance
5) That neither of private respondents acted in representation of the other, each of the private
respondents had its own obligations, in view of conferring a favor upon petitioners.
Petitioners have a cause of action against UP.
JOSEFA VS ZHANDONG TRADING CORPORATION
( 417 s 269 )

FACTS:
Zhandong filed a complaint for sum of money against petitioner Vicente Josefa, Antonio Tan
and Evelyn Chua ( Tans mother).
The complaint alleges that Zhandong is engaged in the importation and sale of hard boards/
staple boards and other merchandise. Its president, Eleanor Chy, met Tan, who referred
petitioner Josefa, as a client, to chy.
Respondent sold and delivered to said petitioner a total of 313 crates of boards, valued at
P4,558,100.00 payable within 60 days. However, petitioner, instead of paying respondent,
remitted his payments to Tan. In turn, Tan delivered various checks to respondent, which
accepted them upon Tans declaration that they came from petitioner. A number of checks
bounced. When respondent confronted Tan, the latter issued his own checks and those of his
mother.
Later, without any valid reason, Tan stopped payment by checks, and those issued by his
mother bounced which prompted respondent to send petitioner and Tan a demand letter but they
ignored it. Consequently, respondent filed an instant complaint.
Josefa denied the allegation and averred that he did not directly deal with respondent but with
Tan and paid all his obligations to him. He is not privy to the agreement between Tan and
respondents demand letter because he had paid Tan in full.
The trial court rendered judgment in favor of Zhandong, in holding that petitioner purchased
the hardboards from respondent thru the sales Invoices that clearly indicated that the seller is
Zhandong and the buyer is Josefa.
The C.A. affirmed the courts decision.
ISSUE:
- WON petitioner is privy to the contract of Tan & respondent and be liable for Tans failure to
pay respondent? NO
HELD:
- Evidence presented shows that Tan negotiated the sale of the hardboards with petitioner Josefa.
Eleanor Chy testified that it was Tan who discussed with petitioner the details of the sale, cost
of the hardboards, delivery and terms of payment. She admitted that no direct dealing with
petitioner and that it was Tan who ordered the hardboards from her. It was likewise proved that
petitioner paid Tan for all hardboards delivered to him and admitted such payment as full
satisfaction of petitioners obligation. Petitioner testified that Tan represented himself to be the
56

owner of the merchandise since Tan had been his supplier in the past. Some of the delivery
receipts do not bear the name of respondent because the 51 crates of hardboards bear the name
of E.D. Hizon Customs Brokerage.
Moreover, the delivery receipts do not indicated the price of the hardboards and the terms of
payment. As such, they merely signify that the goods were to be delivered to petitioner. Indeed,
they do not ipso facto prove the existence of a perfected contract of sale between petitioner &
respondent. It does not establish that respondent is the seller of the hardboards purchased by
petitioner. Since petitioner had fully paid Tan for all the hardboards, respondent Zhandong has
no right to demand payment from him. Petitioner cannot be made responsible for Tans failure
to pay respondent.
Contracts take effect only between the parties, their successors in interest, heirs and assigns.
When there is no privity of contract, there is likewise no obligation or liability to speak about
and thus no cause of action arises. Clearly, petitioner, not being privy to the transaction between
respondent & Tan, should not be made to answer for latters default.

JARDINE DAVIES., INC. VS C.A.

( 333 s 648 )
FACTS:
The controversy started in 1992 at the height of the power crisis. To remedy further losses due
to the series of power failures, petitioner Pure Foods Corp. decided to install two 1500kw
generators in its food processing plant in Marikina City.
A bidding for the supply and installation of the generators was held. Out of the 8 prospective
bidders, only 3 bidders, namely, respondent Far East Mills Supply Corp., Monark and Advance
Power submitted bid proposals.
Purefoods confirmed the award of the contract to FEMSCO in a letter dated Dec 12 1992.
Immediately, FEMSCO submitted the required performance bond in the amount of
P1,841,187.90 and contractors all-risk insurance policy in the amount of P6,137,293.00 which
Purefoods acknowledge it.
FEMSCO started the project by purchasing the necessary materials. Purefoods on the other
hand returned FEMSCOs Bidders bond in the amount of P1M as requested.
Later, however, Purefoods Senior Vice Pres. Dimayuga unilaterally cancelled the award as
significant factors were uncovered.
FEMSCO protested and sought a meeting with Purefoods. However, before the matter could be
resolved, Purefoods already awarded the project with Jardine Nell, a division of Jardine Davies,
Inc. which was not one of the bidders.
FEMSCO sued both Purefoods for reneging on its contract, and Jardine for its unwarranted
interference and inducement.
Purefoods contented that the letter to FEMSCO was not an acceptance of the latters bid
proposal and award of the project but more of a qualified acceptance constituting a counteroffer. Since Purefoods never received FEMSCOs conforme, it is within reason to revoke its
qualified acceptance or counter-offer. Hence, no contract was perfected.

57

Jardine asserted that the record are bereft of any showing that it had prior knowledge of the
supposed contract between Purefoods and FEMSCO.

ISSUE:
1) WON there existed a perfected contract between Purefoods and FEMSCO? YES
2) WON Jardine induced or connived with Purefoods to violate the latters contract with
FEMSCO? NO
HELD:
- A contract is defined as a juridical convention manifested in legal form, by virtue of which
one or more persons bind themselves in favor of another or others, or reciprocally, to the
fulfillment of a prestation to give, to do or not to do.
- Under Art. 1318, there can be no contract unless the following requisites concur:
a) Consent of the contracting parties
b) Object certain which is the subject matter of the contract.
c) Cause of the obligation which is established
- Under Art.1315, contracts are perfected by mere consent, upon the acceptance by the offeree of
the offer made by the offeror. From that moment, the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law.
- To produce a contract, the acceptance must not quality the terms of the offer. However, the
acceptance may be express or implied. For a contract to arise, the acceptance must be made
known to the offeror. Accordingly, the acceptance can be withdrawn or revoked before it is
made known to the offeror.
1) Under Art 1326 provides that advertisements for bidders are simply invitation to make
proposals. According, the terms and conditions of the bidding disseminated by petitioner
Purefoods constitutes the advertisement to bid on the project. The bid proposals submitted by
the respondent FEMSCO is the offer, and the reply of petitioner Purefoods, the acceptance or
rejection of the respective offers.
- The Dec 12 1992 letter of Purefoods to FEMSCO constituted acceptance of FEMSCOs offer,
wherein the basic terms & conditions were imposed on the performance of the obligation
rather than on the perfection of the contract. The acknowledgement of Purefoods of FEMSCOs
performance bond and contractors all-risk insurance and its return to FEMSCOs bidders bond
was concrete manifestation of its knowledge that FEMSCO indeed consented to the conditional
counter-offer. The contract is perfected. FEMSCOs conforme would only be a mere
surplusage.
- By the unilateral cancellation of the contract, Purefoods has acted with bad faith and this was
further aggravated by the subsequent inking of a contract between Purefoods & Jardine.
2) There is no showing the petitioner Jardine induced Purefoods. The similarity in design
submitted by Jardine & FEMSCO, and the tender of a lower quotation by petitioner Jardine are
insufficient to show that indeed induced Purefoods to violate its contract with respondent
FEMSCO.
SOLER VS C.A.
( 358 s 557 )
FACTS:

58

Petitioner Jasmin Soler is a fine Arts graduate of UST and a well known licensed professional
interior designer. Her friend Rosario Pardo asked her to talk to Nida Lopez, Combanks
manager, who planned to renovate the branch offices.
During her meeting, Soler was hesitant to accept the job because of her many out of town
commitments and the fact that Lopez was asking the designs be submitted, which was a short
notice.
Lopez insisted and Soler acceded to the request and Lopez assured her she would be
compensated for her services.
Solers professional fee was P10k to which Lopez acceded. Soler hired and paid engineers,
architecs and draftsmen to help her make the blueprint for the intended renovation. She also
contracted for suppliers for the materials that she will be using. The lay-out and the design were
submitted to lopez who told petitioner that she liked the designs. Subsequently, petitioner
repeatedly demanded payment for her services but Lopez just ignored the demands.
When they saw each other at the Cultural center, Lopez said that Soler was not entitled to it
because her designs did not conform to the banks policy of having a standard design, and there
was no agreement between her and the bank.
Petitioner referred the matter to her lawyer and demand again for payment but was ignored.
Another letter was sent demanding the return of the blueprint copies submitted by Soler which
Lopez refused to return. This prompted Soler to file a complaint against Combank and Lopez
for collection of professional fees & damages.
Combank stated that there was no contract between Combank and petitoner and that Lopez
merely invited Soler to participate in a bid for the renovation, and that any proposal was still
subject to the approval of the Combanks head office.
The RTC rendered a decision in favor of Soler while the C.A. reversed the decision and ruled
that there was no contract as the bank never gave its consent.

ISSUE:
1) WON there was a perfected contract between petitoner Soler and respondents Combank and
Nida Lopez? YES
2) WON Nida Lopez had authority to bind the bank in the transaction? YES
HELD:
1) Under Art 1305, a contract is a meeting of the minds between two persons whereby one binds
himself to give something or to render some service.
- Under Art 1318, there is no contract unless the following requisites concur:
1) consent of the contracting parties;
2) object certain which is the subject matter of the contract; and
3) cause of the obligation which is established.
- A contract undergoes 3 stages:
a) Preparation, conception or generation, which is the period of negotiation and
bargaining, ending at the moment of agreement of the parties;
b)Perfection or birth of the contract, which is the moment when the parties come to agree
on the terms of the contract; and
c) Consummation or death, which is the fulfillment or performance of the terms agreed
upon in the contract.
- In this case, there was a perfected oral contract. The first stage, when Lopez and petitioner met
and discussed the details of the work. The second stage, when thay agreed to the payment of the
59

P10k as professional fee of petitioner and that she should give the designs before the board
meeting of the bank. The third stage, when finally petitoner gave the designs to lopez, the
contract was consummated
2) The discussion between Soler and Lopez was to the effect that she had authority to engage the
services of Soler, by giving specifications for the blueprints, Lopez was aware that petitioner
hired the services of people to help her, and Lopez even insisted that the designs be rushed in
time for presentation to the bank.
OUANO VS C.A
( 211 s 740 )
FACTS:
Ouano is the registered owner and operator of MV Don Julian Ouano which vessel was leased
to Rafols under the charter party for P60k a month. It was also agreed that the charter should
operate the vessel for his own benefit and should not sublet or sub-charter it without the
knowledge of the petitioner.
Rafols contracted with MADE manager Chua under a fixture Note to transport 13,000 bags of
cement from Iligan to general Santos City consigned to Supreme Merchant Construction
Supply, Inc. ( SMCSI) for a freightage of P46,150 payable by MADE to rafols upon loading (
P23,075) and upon completion of loading and receipt by the consignee (SMCSI). The fixture
note did not have written consent from Ouano.
Petitioner wrote a letter to MADE requesting or demanding payment, or whatsoever due to Mr.
Rafols be withheld until the latter make good in his commitment to petitioner. However,
MADE paid Rafols for the first installment of freightage. The cargo was delivered to SMCSI
without any attempt on the part of Rafol or Ouano to hold or keep in deposit either the whole or
part of the cargo to answer the freightage, neither there was a demand made for a bond to
secure payment of the unpaid freight.
Petitioner filed a complaint against MADE, SMCSI and Rafols Seeking the payment of the
unpaid freight charges.
The RTC rendered a decision in favor of petitioner & made the 3 parties jointly and severally
liable.
The C.A reversed the decision, relieving MADE and SMCSI from liability but not Rafols.
ISSUE:
1) WON there was subleasing? NO
2) WON MADE and SMCSI shall also be held liable? NO
3) WON MADE is guilty of inducing Rafols to violate the original charter party? NO
HELD:
1) Rafols did not sublease the vessel when he contracted with MADE. The possession, operation
and management of the vessel was not transferred to MADE but remained to Rafols as
charterer. Rafols, as lessee was the one who bound himself to transport, the cargo of cement for
a fixed price.
2) A contract can only bind the parties who had entered into it or their successors who assumed
their personalities or judicial positions, and such contract can neither favor nor prejudice a third
person.
- The charter contract was entered into only by and between petitioner and Rafols, they cannot be
held liable for the alleged violation of Rafols.
60

The obligation of contract is limited to the parties making them, and only those who are parties
to contracts are liable for their breach. Parties to a contract cannot thereby impose any liability
on one who, under its terms, is a stranger to the contract and any event in order to bind a third
person contractually, an expression of assent by such person in necessary.
3) MADE is not guilty of inducing Rafols:
a. there is no evidence that MADE had knowledge of the prohibition imposed to sublease or
sub-charter the vessel;
b. at the time the fixture note was entered into, a written authorization signed by the wife of
petitioner in his behalf, authorizing Rafols to execute contracts, negotiate for cargoes and
receive freight payments;
c. the decision to use the MV Don Julio Ouano in transporting the cargo of MADE was solely
that of Rafols;
d. Petitioner is deemed to have ratified the subcharter contract entered into by MADE and
Rafols when he demanded the payment of the 2 nd freight installment as provided in the
agreement.
SOLIVA VS VILLALBA
( 417 s 277 )
FACTS:
Petitioner Soliva filed a complaint for recovery of ownership, possession and damages against
respondent Valenta Villalba alleging that she is the owner of a parcel of agricultural land in
misamis Oriental.
That on Jan. 14, 1966, the late Capt. Villalba asked Solivas permission to occupy her house,
and promised to buy the house and lot upon receipt of his money from Manila and gave her
P600.00 for the occupation of the house.
That Capt. Villalba died in 1978 without having paid the consideration and that after the death
of Capt. Villalba, his widow, respondent Valenta refused to vacate despite demands, destroyed
the house and built a new one.
The trial court rendered judgment restoring to petitioner her right of ownership and possession
of the property.
Respondent Valenta file a petition for relief judgment alleging that she has a meritorious
defense as her late husband had already paid the amount of P2,250 out of the purchase price of
P3,500 for the house and lot.
The trial court denied the petition, however, the C.A. reversed the decision finding that
Valentas failure was due to excusable negligence and order trial proceedings to continue.
The RTC ruled to recover the subject lot to Respondent Valenta.
The C. A. affirmed the decision and held that laches had already set in, that the complaint was
filed 16 yrs. After the cause of action accrued.
ISSUE:
- WON the oral contract of sale between the parties was invalid because respondent had failed to
pay in full the purchase price? NO
HELD:
- Under Art.1318, there is no contract unless the following requisites concur:
1) consent of the contracting parties;
61

2) object certain which is the subject matter of the contract;

3) cause of the obligation which is established.
With respect to real property, Art.1318 specifically requires that a contract of sale thereof be in
a public document. However, otherwise unenforceable oral contract of sale of realty under
Art.1403 may be ratified by the failure to object to the presentation of oral evidence to prove it
or by the acceptance of benefits granted by it.
All the essential elements of a valid contract are present in this case. While the contract might
have been unenforceable under Art.1403, the admission by petitioner that she had accepted
payments under the oral contract of sale took the case out of the scope of the Statute of Frauds.
The ratification of the contract rendered it valid and enforceable.
The non-payment of the full consideration did not invaldate the contract. Under settled
doctrine, nonpayment is a resolutory condition that extinguishes the transaction existing for a
time and discharges the obligation created. The remedy of the unpaid seller is to sue for
collection or in case of a substantial breach, to rescind the contract.
In this case, petitioner did not exercise her right either to seek specific performance or rescind
the oral contract of sale until May 1982, when she filed her complaint for recovery. Laches had
already set in.

ASUNCION VS CA
( 238 s 602 )
FACTS:
On July 29 1987, a second Amended Complaint for specific performance was file by Ang Yu
Asuncion, et al., against Bobby & Rose Cu Unjieng and Jose Tan alleging that:
- plaintiff are tenants or lessee of residential and commercial spaces owned by defendants; they
occupied since 1935 and religiously paying the rental and complying the lease contract;
defendants informed plaintiffs that they are offering to sell the premises and are going to give
them priority to acquire the same; during the negotiations, Bobby offered a price of P6M while
plaintiffs made a counter offer of P5M; plaintiff asked defendants to put the offer in writing to
which dependant acceded; plaintiff asked defendant to specify the terms and condition of the
of the offer to sell; when plaintiffs did not receive any reply, they sent another letter; since
defendants failed to specify the terms and conditions and because defendants were about to sell
the property, plaintiffs were compelled to file the complaint to compel defendants to sell the
property to them.
The trial court rendered a decision dismissing the complaint because defendants offer to sell
was never accepted by the plaintiffs but subject to condition that if the defendants decide to
offer at P11M or lower, then the plaintiffs has at the option to purchase or of first refusal,
otherwise, defendants need not offer the property if the purchase price is higher that P11M.
The C.A affirmed the decision but with modification that to grant to plaintiff the right of first
refusal in excess of P11 million pesos.
The SC denied the appeal for the insufficiency in form and substance on May 6, 1991.
On Nov. 15, 1990, while the case was pending with the C.A, executed a Deed of Sale
transferring
the
property
in
question
to
Buen
Realty
and
62

Devt Corp. in consideration of the sum of P15M, and in lien thereof, TCT was issued in the
name of Buen Realty.
Buen Realty as the new owner demanded lessees to vacate.
The lessees file a motion for excution the decision as modified by the C.A.
The trial court ordered to execute the Deed of Sale in favor of the lessees Ang Yu Asuncion, et
al.
On appeal, the C.A set aside and declared without force and effect the questioned order.

ISSUE:
- WON Buen Realty and development Corp. can be held bound by the writ of execution by
virtue of the notice of lis pendens, at the time of the latters purchase property from the Cu
Unjiengs, and thereby honor the right of first refusal in favor of Asuncion, et al? NO
HELD:
In the law on sales, the so-called right of first refusal is an innovative juridical relation, but it
cannot be deemed a perfected contract of sale under Article 1458 of the Curl Code. Neither can
the right of first refusal, understood in its normal concept, per se be brought within the purview
of an option under Art.1479 (2), aforequoted, or possibly an offer under Article 1319 of the
same code.
An option or offer would require, among other things, a clear certainty on both the object and
the cause or consideration of the enerisioned contract. In a right of first refusal while the object
might be made determinate, the exercise only on the grantors eventual intention to enter into a
binding juridical relation with another but also on terms, including the price, that obviously are
yet to be later frimed up. Prior thereto, it can at best described as merely belonging to a class of
preparatory juridical relations.
The breach of right of first refusal decreed a final judgment does not entitle the aggrieved party
to a writ of execution of the judgment but to an action for damages. Petitioners are aggrieved
by the failure of private respondents to honor the right of first refusal, so the remedy is an
action for damages, not a writ of execution because there is nothing to execute.
LIMSON VS C.A.
( 357 s 209 )
FACTS:
Petitioner Limson filed a complaint alleging that in July 1978, Spouses de Vera, through their
agent Marcosa Sanchez, offered to sell to petitioner a parcel of land.
Petitioner agreed to buy the property and gave P20k as earnest money. Respondent spouses
signed a receipt and gave petitoner a 10-day option period to purchase the property and
informed them that the property was mortgage to Ramoses, and asked Limson to pay the
balance of the purchase price to enable to settle their obligation with Ramoses.
On Aug. 5, 1978, Petitioner agreed to meet respondent spouses and the Ramoses to
consummate the transaction but due to failure of respondent spouses and the Ramose to appear,
no transaction was formalized.
On Aug. 11,1978, petitioner claimed that she was willing to pay the balance but the transaction
again did not materialized as respondent spouse failed to pay the back taxes. Subsequently,
petitioner gave 3 checks (P36,170.00) for the settlement of the back taxes and for payment of

63

the quitclaims of the 3 tenants. The amount was considered part of the purchase price with a
receipt signed by respondent spouses.
On Sept. 5 1978, petitioner was surprised to learn that the property was the subject of a
negotiation for the sale to Sunvar Realty Devt Corp. represented by Cuenca. As a consequence,
petitoner filed an affidavit of Adverse Claim with the Registry of Deeds and informed Cuenca
of her contract to purchase the property.
On Sept. 15 1978, the Deed of Sale was executed between respondent spouses and Sunvar, and
a TCT was issued in favor of Sunvar with the adverse claim annotated therein.

ISSUE:
- WON there was perfected contract to sell between petitioner and respondent spouses? NO
HELD:
- The agreement between the parties was a contract of option and not a contract to sell.
- An option, is a continuing offer or contract by which the owner stipulates with another that the
latter shall have the right to buy the property at a fixed price within a time certain, or under
certain terms and conditions or which gives to the owner the right to sell or demand a sale. It is
also called an unaccepted offer. It is not itself a purchase, but merely secures the privilege to
buy. It is not a sale of property but a sale of the right to purchase. An option imposes no binding
obligation on the person holding the option, aside from the consideration for the offer.
- On the other hand, a contract, like a contract to sell, involves the meeting of minds between two
persons whereby one binds himself with respect to the other, to give something or to render
some service. Contracts, in general, are reflected by mere consent, which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute.
- In this case, the receipt readily shows that the parties entered into was a contract of option,
which respondent spouses agreed with petitioner the right to buy the formers property at a
fixed price within 10-days, and did not sell their property; they did not also agree to sell it; but
they sold something, and the agreement imposed no binding obligation on petitioner, aside
from the consideration for the offer.
- The consideration of P20k paid by petitioner to respondent spouses was not earnest money but
option money.
- Earnest money and option money are not the same but distinguished thus:
a) Earnest money is part of the purchase price, while option money is the money given as
a distinct consideration for an option contract;
b) Earnest money is given only where there is already a sale, while option money applies
to a sale not yet perfected;
c) When earnest money is given, the buyer is bound to pay the balance, while when the
would be buyer gives option money, he is not required to buy, but may even forfeit it
depending on the terms of the option.
- In this case, there is nothing in the receipt which indicates that the P20k was part of the
purchase price. Moreover, it was not shown that there was a perfected sale between the parties
where earnest money was given. Finally, the receipt did not reveal that petitioner was bound to
pay the balance of the purchase price. In fact, respondent spouses could even forfeit the money
given if the terms of the option were not met. The option period having expired and acceptance
was not made by petitioner, the purchase of subject property by Sunvar was perfectly valid and
entered into in good faith.

64

TAYAG VS LACSON
( 426 s 282 )
FACTS:
The Lacsons were owners of 3 parcels of land in Pampanga.
The properties, which were tenanted agricultural lands, were administered by Renato Espinosa
for the owner.
A group of original farmers individually executed in favor of Tayag separate Deeds of
Assignment in which they assigned their respective rights as tenants in consideration of P50 per
sq.m.
The amount was made payable when the legal impediments to the sale no longer existed.
Petitioner Tayag was also granted the exclusive right to buy the property if and when
respondents and the tenants agreed to sell the property.
Petitioner gave varied sums of money to the tenants as partial payment.
Petitioner called a meeting to work out the terms of their separate agreement but the tenants
gave notice of their collective decision to sell all their rights and interests to Lacson.
Petitioner filed a complaint
ISSUE:
1) WON respondent Lacson can be enjoined from selling or encumbering their property because
of the Deed of Assignment? NO
2) WON the action of petitioner has legal basis? NO
3) WON the deeds of assignment executed by petitioner Tayag and the tenants are perfected
option contracts? NO
4) WON respondent Lacson induced the tenants to breach their contracts with petitioner Tayag?
NO
HELD:
1) Under Art.1306, the respondent may enter into contracts covering their property with another
under the terms and conditions as they may deem beneficial provided that they are not contrary
to law, morals, good conduct, public order or public policy.
- Respondents cannot be enjoined from selling or encumbering their property simply because of
the Deeds of Assignment which granted petitioner the exclusive right to buy the property.
Respondents were not parties to the said deeds and no evidence that they had agreed, expressly
or impliedly, to the said deeds Indeed, they assailed the validity of the deeds as contrary to P.D.
No. 27 and R.A No. 6657. Petitioner even admitted that he did not know any of the
respondents, nor the death of Angelica Vda. De Lacson
2) Under the Deeds of Assignment, the obligation of Petitioner Tayag to pay to each of the Tenants
the balance of the purchase price was conditioned on the occurrence of the following events:
a) respondents agree to sell their property to petitioner;
b) legal impediments to the sale of the landholding to the petitioner no longer existed;
c) petitioner decided to buy the property, but when he testified, petitioner admitted that the
legal impediments referred to in the deeds were:
1)respondents refusal to sell the property
2)the lack of approval of Dept of Agrarian Reform
- In this case, there is no showing that the respondents had agreed to sell their property and that
legal impediments no longer existed. The Deeds of Assignment had yet to submit to DAR, to
act on whether to approve or disapprove the same.
65

3) An option is a contract by which the owner of the property agrees with another person that he
shall have the right to buy his property at a fixed price within a certain time. It imposes no
binding obligation on the person holding the option, aside from the consideration for the offer.
Until accepted, it is not, properly speaking, treated as a contract.
- In this case, the tenants, under the deeds of assignment, granted to the petitioner not only an
option but the exclusive right to buy the landholding. But the grantors were merely the tenants
and not the registered owners of the property. Not being the registered owners, the tenants
could not legally grant to the petitioner the option, much less the exclusive right to buy the
property.
4) Under Art.1314, Any third person who induces another to violate his contract shall be liable for
damages to the other contracting party. For the said law to apply, the pleader is burdened to
prove the following: a) the existence of a valid contract; b) knowledge by the third person of
the existence of the contract; c) interference by the third person in the contractual relation
without legal justification.
- Where there was no malice in the interference of a contract and the impulse behind ones
conduct lies in a proper business interest rather than in wrongful motives, a party cannot be a
malicious interferes. Where the alleged interferer is financially interested and such interest
motivates his conduct, it cannot be said that he is an officious or malicious intermeddler. One
who is not a party to contract and who interferes thereon is not necessarily an officious or
malicious intermeddler.
- In this case, the only evidence adduced by the petitioners the letter from the tenants informing
him that they had decided to sell their rights and interests over the landholding to the
respondents. The tenants did not allege therein that the respondents induced them to breach
their contracts with the petitioner. Petitioner himself admitted the inducement was based merely
on what he heard.
DELA CRUZ VS DELA CRUZ
( 419 s 648 )
FACTS:
Pacencia dela Cruz was the owner of a parcel of Land in Talipapa market and was the one who
collected the daily stall rentals from the vendors. She had six children.
On Sept. 25, 1980, Paciencia allegedly executed a deed of sale in consideration of P21k in
favor of her son, Fortunato, which was later transferred the property in his name.
Fortunate mortgaged the property 3 times to Erlinda de Guzman but unfortunately he was
unable to pay these loans.
On Jan. 11, 1989, Fortunato executed a Kasulatan ng Bilihang Patuluyan in favor of Clark
and Divina Guitierrez, children of Claudio and Adoracion, to whom he earlier offered to sell the
property.
Thereafter, a new certificate of title was issued in the name of Clark and Divina, and took
possession of the property, had it repaired, and collected the rentals.
On Jan. 20, 1989, Paciencia instituted an action for reconvenance of property alleging that the
sale was null and void and fraudulently made as Fortunato had neither right or authority from
her to sell the property, as he only held it in trust for her.
ISSUE:
- WON the deed of Sale as entirely and completely written in English, a language neither known
nor understood by Paciencia must be declared void? NO
66

HELD:
- As a rule, when the terms of contract are clear and unambiguous as to the intention of the
contracting parties, the literal meaning of its stipulation shall control. It is only when the words
appear to contravene the evident intention of the parties that the latter shall prevail over the
former. The real nature of a contract may be determined from the express terms of the
agreement and from the contemporaneous and subsequent acts of the parties thereto.
- Under Art. 1332, to apply, it must first be convincingly established that the illiterate or
disadvantage party could not read or understand the language in which the contract was written
or that the contract was left unexplained to said party.
- In this case, petitioner harp on the fact that the assailed deed was in english and that it was not
explained to Paciencia. Petitioners failed to prove their allegation that Paciencia could not
speak, read, or understand english. Moreover, Paciencias bare testimony on this point is
uncorroborated. Petitioner failed to discharge this burden. The Deed of Sale was duly
acknowledge before the notary public, As a notarized document, it has in favor the presumption
of regulatory and it carries the evidentiary weight conferred upon it without respect to its due
execution. It is admissible in evidence without further proof of its authenticity and is entitled to
full faith and credit upon its face.

MARTINEZ VS C.A
( 358 s 38 )
FACTS:
Private respondent Godofredo dela Paz and his sister Manuela entered into an oral contract with
petitioner Fr. Dante Martinez, for the sale of the lot for the sum of P15k.
When the lot was offered for sale, petitioner dealt with Dela Paz family and assured by them
the lot belonged to Manuela as it was subsequently registered in her name.
It was agreed that the downpayment would be P3k and the balance would be payable on
installment.
After giving P3k, petitioner started the construction of the house with the written consent of the
owner. Petitioner completed the payment as evidenced in two documents executed by
respondent. However, respondent never delivered the Deed of Sale as promised.
Respondent sold 3 lots in a deed of absolute sale with right to repurchase on Oct. 28, 1981 to
spouses Veneracion for the sum of P150k. One of the lots sold was the lot previously sold to the
petitioner.
Veneracion never took actual possession of any of the lots during the period of redemption, but
all titles to the lots were given to him.
Before the expiration of the one year period, Dela Paz informed Veneracion that he was selling
the 3 lots to another person for P200k. but instead, Veneracion offered to purchase the same two
lots from Dela Paz for P180k. the offer included the lot purchased by petitioner.
The offer was accepted by respondent Dela Paz and executed a Deed of Absolute Sale over the
two lots.
Veneracion told respondent De la Paz of the building created by the petitioner and he was
assured by respondent to talk with the petitioner.
67

Based on the assurance, Veneracion registered the lot in dispute.

When petitioner discovered the matter after receiving a letter from Veneracion, he demanded
from respondent the execution of the deed of sale and informed Veneracion that he was the
owner of the property.
The trial court rendered a decision in favor of petitioner Martinez.
The RTC rendered judgment in favor of Veneracion finding him as true owner because of prior
registration in Registry of Deeds.
The C.A. affirmed RTCs decision.

ISSUE:
1) WON Veneracion are buyers in good faith? NO
2) WON the nature of the first contract is contract of sale or equitable mortgage? EQUITABLE
MORTGAGE
3) WON the contract of sale of real property must be executed in a public document? NO
HELD:
1) Veneracion already knew that there was construction being made on the property they
purchased.
2) The first contract of sale between De la Paz and Veneracion shows that it was an equitable
mortgage. The requisites for considering a contract of sale with a right of repurchase as an
equitable mortgage are:
1) that the parties entered into a contract denominated as a contract of sale; and
2) that their intention was to secure an existing debt by way of mortgage.
- The following cases that gives rise to the presumption that a contract of sale with right to
repurchase is an equitable mortgage:
1) When the price of sale with a right to repurchase is unusually inadequate;
2) When the vendor remains in possession of lessee or otherwise;
3) When, upon or after the expiration of the right to repurchase, another instrument
extending the period of redemption or granting a new perion is executed;
4) When the purchaser retains for himself a part of the purchase price;
5) When the vendor binds himself to pay the taxes on the thing sold;
6) The transaction shall secure the payment of a debt or the performance of any other
obligation.
- In this case, respondent De la Paz intended to be an equitable mortgage on the following
circumstances:
1) Veneracion never took actual possession of the 3 lots;
2) De la Paz remained in possession of the Melencio lot where they resided;
3) Veneracion never made any effort to take possession of the properties;
4) When the period of redemption had expired and Veneracion were informed that the lots
were offered to another person, Veneracion never objected, thus offered to purchase the
2 lots.
3) Under Art 1357 & 1358, in relation to Art 1403, requires that the sale of real property must be
in writing for it to be enforceable. In need not be notarized. If the sale has not been put in
writing, either of the contracting parties can compel the other to observe such requirement.
- In this case, this is what petitioner did when he repeated by demanded that a Deed of Absolute
Sale be executed in his favor by private respondent De la Paz. There is nothing in the
provisions which require that a contract of sale of realty must be executed in a public
document.
68

BUENAVENTURA VS C.A
( 416 s 263 )
FACTS:
Plaintiffs consolation, Nora, Emma and Natividad all surnamed Joaquin sought to be declared
null and void ab initio certain deed of sale of real property executed by the defendant parents
Leonardo Joaquin and Feliciana Landrito in favor of their co-defendant children and the
corresponding certificate of title in their names.
Plaintiffs aver: First, there was no actual valid consideration; Second, assuming that there was
consideration in the sum reflected in the questioned deeds, the properties are more than threefold times more valuable than the sums appearing therein; Third, the deed of sale do not reflect
and express the true intention of the parties; Fourth, the sale of the properties in litis was the
result of deliberate conspiracy designed to unjustly deprive the rest of the compulsory heirs of
their legitime.
Defendants, on the other hand aver: First, that plaintiffs do not have a cause of action; Second,
that the sales were with sufficient consideration and made by defendants parents voluntarily, in
good faith, and with full knowledge of the consequences of their deeds of sale; Third, that the
certificates of title were issued with sufficient factual and legal basis.
The trial court ruled in favor of defendants and dismissed the complaint.
The C.A. affirmed the decision of the trial court.
ISSUE:
1) WON the deed of sale are void for lack of consideration? NO
2) WON the deed of sale are void for gross inadequacy of price? NO
HELD:
1) A contract of sale is not a real contract, but a consensual contract. As a consensual contract, a
contract of sale becomes binding and valid contract upon the meeting of the minds as to price.
If there is a meeting of the minds of the parties as to the price, the contract of sale is valid,
despite the manner of payment, or even the breach of the manner of payment. If the real price is
not stated in the contract, then the contract of sale is valid but subject to reformation. If there is
no meeting of the minds of the parties as to the price, because the price stipulated in the
contract is simulated, then the contract is void. Art. 1471 states that if the price in the contract
of sale is simulated, the sale is void.
- It is not the act of payment of the price that determines the validity of a contract of sale.
Payment of price has nothing to do with the perfection of the contract, instead it goes into the
performance of the contract. Failure to pay the consideration is different from lack of
consideration. The former results in a right to demand the fulfillment or cancellation of the
obligation under an existing valid contract while the latter prevent the existence of a valid
contract.
- In this case, petitioners failed to prove the absolute simulation of price as it is magnified by
their lack of knowledge of the respondent siblings financial capacity to buy the questioned lots.
The deed of Sale which petitioner presented as evidence plainly showed the cost of each lot
sold. Not only did respondents minds meet as to purchase price, but the real price was also
stated in the complaint, respondent siblings have also fully paid the price to their respondent
father.
69

2) Under Art. 1355, states that Except in cases specified by law, lesion or inadequacy of price
does not affect a contract of sale except as may indicate a defect in the consent or that the
parties really intended the donation or some other act or contract.
- In this case, petitioner failed to prove any of the instances mentioned in Art.1355 & 1470 which
would invalidate, or even affect, the deeds of Sale. Indeed, there is no requirement that the
price be equal to the exact value of the subject matter of sale. All the respondents believed that
they received the commutative value of what they gave.
PADERES VS C.A.
( 463 s 504 )
FACTS:
On Sept. 14,1982, Manila Intl Construction Corp. (MICC) executed a real estate mortgage
over 21 registered parcels of land including the improvements thereon in favor of Banco
Filipino Savings and Mortgage Bank in order to secure a loan of P 1,885,000.00. the mortgage
was registered with the Registry of Deeds.
On Aug. 1983, MICC sold the lot together with the house to the spouses Paderes and on Jan.
1984, MICC sold the house to the spouses Bergado. Neither sale was registered, however.
On Jan, 1985, MICC failed to settle its obligation which prompted Banco Filipino to file a
petition for the extrajudicial foreclosure of MICCs mortgage, and was declared the highest
bidder.
No redemption of the foreclosed mortgage having been made within the reglementary period.
Carlota Valenzuela, the then liquidator of Banco Filipino filed an exparte petition for the
issuance of a writ of possession of the foreclosed properties, and after the hearing, the petition
was granted.
Instead of vacating, petitioners filed a separate petitions assailing the validity of the writ of
possession.
ISSUE:
1) WON Petitioners right as purchaser in good faith, are superior to that of Banco Filipino? NO
2) WON the agreement between petitioners and the bank had been reached? NO
HELD:
1) Under Art 1312, in contracts creating a real rights, third person who come into possession of
the object of the contract are bound thereby, subject to the provisions of the Mortgage Law and
the Land Registration Laws.
- In this case, the purchases took place after MICCs mortgage to Banco Filipino had been
registered in accordance with Art. 2125 of the Civil Code and the provisions of P.D. 1529. A
real right or lien in favor of Banco Filipino had already been established, subsisting over the
properties until the discharge of the principal obligation, whoever the possessor of the land
might be.
- As transferees of mortgagor MICC, petitioner merely stepped into its shoes and are necessarily
bound to acknowledge and respect the mortgage it had earlier executed in favor of Banco
Filipino.
2)- Under Art 1318, there is no contract unless the following requisites concur:
1) Consent of the contracting parties;
2) object certain which is the subject matter of the contract;
3) Cause of the obligation which is established.
70

Consent is further defined in Art. 1319, consent is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to constitute the contract. The offer must
be certain and the acceptance absolute. A qualified acceptance constitutes a counter offer.
Acceptance made by letter or telegram does not bind the offerer except from the time it came to
his knowledge. The contract, in such a case, is presumed to have been entered into in the place
where the offer was made.
In this case, it reveals the absence of both a definite offer and an absolute acceptance of any
definite offer by any of the parties. The letters signed by petitioners counsel made it clear that
any proposal by the bank would be subject to further action on the part of petitioner. The letter
signed by the Dacasin, Asst. VP of Banco Filipino, merely invited petitioners for further
negotiations and does not contain a recognition of petitioners claimed right of redemption or a
definite offer to sell the properties back to them. It is clear from No. 1 of the same letter, that
petitioner did not accept Banco Filipinos valuation of the properties at P7,500.00 per sq.m and
intended to have the amount renegotiated. Moreover, petitioners letter of Nov. 8, 1996 does
not contain the concurrence of Ms. Dacasin or any authorized agent. Where the alleged contract
document was signed by only one party and the record shows that the other party did not
execute or sign the same, there is no perfected contract.

GOLANGCO VS PHIL COMMERCIAL INTL BANK

( 485 s 293 )
FACTS:
Petitioner William Golangco Construction Corp. (WGCC) and PCIB entered into a contract for
the construction of the extension of PCIB tower II. The project included the application of a
granitite wash-out finish on the exterior walls of the building.
PCIB with its consultant TCGI Engineers accepted the turn over of the completed work by
WGCC. To answer for any defect arising within a period of one year, WGCC submitted a
guarantee bond issued by Malayan Insurance Company.
The controversy arose when portions of the granitite wash-out finish of the exterior of the
building began peeling off and falling from the walls in 1993.
WGCC made minor repairs after PCIB requested it.
In 1994, PCIB entered into another contract with Brains and Brawn Construction and Devt
Corp. to re-do the entire granitite wash-out finish after WGCC manifested that it was not in a
position to do the new finishing work, through it was willing to share part of the cost.
PCIB incurred expenses amounting to P11,665,000 for the repair work.
PCIB filed a request for arbitration with the Construction Industry Arbitration Commission
(CIAC) for the reimbursement of its expenses for the repairs made by another contractor.
The CIAC declared WGCC liable for the construction defects.
WGCC filed a petition for review but the C.A. dismissed it for lack of merit.
ISSUE:
71

WON petitioner WGCC is liable for defects in the granitite wash-out finish that occurred after
the lapse of the one year defects liability period provided in Art.XI of the construction contract?
NO

HELD:
- Under Art.1306, Autonomy of contracts, states that the contracting parties may establish such
stipulation, clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public policy. Obligations arising from
contracts have the force of law between the parties and should be complied with in good faith.
- In this case, the provision in the construction contract providing for a defects liability period
was not shown as contrary to law. The provision limiting liability for defects and fixing
guaranty periods was not only fair and equitable, it was also necessary. Without such limitation,
the contractor would be expected to make a perpetual guarantee on all materials and
workmanship.
- The adoption of a one-year guarantee, as done by WGCC and PCIB , is established usage in the
Phils. for private and govt construction contracts. The contract did not specify different period
for defects in the granitite wash-out finish. Hence, any defect therein should have been brought
to WGCCs attention within the one-year defects liability period in the contract.
- The conclusion that the alleged defects were hidden is untenable because:
a) PCIBs team of experts supervised WGCCs workmanship;
b) WGCC regularly submitted progress report and photographs;
c) PCIB had access to the site and exercised supervision over WGCCs work;
d) PCIB issued punch lists for WGCCs compliance before the issuance of PCIBs final
certificate of acceptance;
e) PCIB supplied the materials for the granitite wash-out finish;
f) Finally, PCIBs team of experts gave their concurrence to the turnover of the project.
- Under the circumstances, there were no hidden defects for which could be held liable. The
contract should not be interpreted to favor the one who caused the confusion, if any. The
contract was prepared by TCGI for PCIB.
QUIROS VS ARJONA
( Mar. 9, 2004 )
FACTS:
Petitioners Proceso Quiros and Leonarda Villegas filed a complaint for recovery of ownership
and possession of a parcel of land located at Labney, Pangasinan.
Petitioner sought to recover from their uncle Marcelo Arjona, their lawful share of the
inheritance from their late grandmother.
An amicable settlement was reached between the parties. By reason thereof, respondent Arjona
executed a document denominated as PAKNAAN wherein Arjona was willing to give 1
hectare to the petitioners. On the same date, another PAKNAAN was executed by Jose
Banda, that he would voluntarily surrender the land he cultivated if ever the petitioners would
get the land.
Petitioners filed a complaint with the Municipal Circuit Trial Court for the issuance of a writ of
execution of the compromise agreement but it was denied because the subject property cannot
be determined with certainty.
ISSUE:
72

WON PAKNAAN is one for mollification because they failed to include a sufficient
description of the property to convey? NO

HELD:
- This error is not one for mollification of the instrument but only for reformation.
- Under Art 1359 provides that, when, there having been a meeting of the minds of the parties to
a contract, their true intention is not expressed in the instrument purporting to embody the
agreement by reason of mistake, fraud, inequitable conduct or accident, one of the parties may
ask for the reformation of the instrument to the end that such true intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the
parties, the proper remedy is not reformation of the instrument but annulment of the contract.
- Reformation is a remedy in equity whereby a written instrument is made or construed so as to
express or conform to the real intention of the parties where some error or mistake has been
committed. In granting reformation, the remedy in equity is not making a new contract for the
parties, but establishing and perpetuating the real contract between the parties which, under the
technical rules of law, could not be enforced but for such reformation.
- In order that an action for reformation may prosper, the following requisites must concur:
a) there must have been a meeting of the minds of the parties to the contract;
b) the instrument does not express the true intention of the parties;
c) the failure of the instrument to express the true intention of the parties is due to mistake,
fraud, inequitable conduct or accident.
- In this case, both parties acknowledge that petitioners are entitled to their inheritance, hence,
the remedy is nullification, which invalidates the PAKNAAN, would prejudice petitioners and
deprive them of their just share of the inheritance. Respondent cannot, as an afterthought, be
allowed to renege on his legal obligation to transfer the property to its rightful heirs. A refusal
to reform the PAKNAAN would have the effect of penalizing one party for negligent conduct,
and at the same time permitting the other party to escape the consequences of his negligence
and profit thereby. No person shall be unjustly enriched at the expense of another.
BENTIR VS LEANDA
( Apr. 12, 2000 )
FACTS:
On May 15 1992, respondent Leyte Gulf Traders Inc., as respondent corporation, filed a
complaint for reformation of instrument, specific performance, annulment of conditional sale
and damages against petitioners Bentir and spouses Pormida.
Respondent corporation alleged that it entered into a contract of lease of a parcel of land with
petitioner Bentir for a period of 20 yrs starting May 5, 1968, and the lease was extended for
another 4 yrs. Or until May 31, 1992.
On May 5, 1989, petitioner Bentir sold the leased premises to spouses Pormida.
Respondent Corporation questioned the sale alleging that it had a right of first refusal. It filed a
civil case seeking the reformation of the expired contract of lease on the ground that its lawyer
inadvertently omitted to incorporate in the contract of lease executed in 1968, the verbal
agreement that in the event petitioner Bentir leases or sell the lot after the expiration,
respondent corporation has the right to equal the highest offer.
Petitioner filed their answer alleging that the inadvertence of the lawyer is not a ground for
reformation within the prescriptive period of 10 years from its execution.
73

ISSUE:
- WON the action for reformation of instrument has prescribed? YES
HELD:
- The remedy of reformation of an instrument is grounded on the principle of equity where, in
order to express the true intention of the parties, an instrument already executed is allowed by
law to be reformed. The remedy, being an extraordinary one, must be subject to limitations,
among which is laches. The prescriptive period for actions based upon a written contract and
for reformation of an instrument is 10 years under Art 1144.
- In this case, respondent corporation had 10 yrs. from 1968, the time when the contract of lease
was executed, to file an action for reformation. Sadly it did so only on May 15, 1992 or 24 yrs
after the cause of action accrued, hence, its cause of action has become stale, hence, timebarred.
- The 10 yrs prescriptive period should not be reckoned from the 4 yr extension of the lease
contract after it expired in 1988 because it was not an implied new lease that the other term of
the original contract were deemed revived in the implied new lease as contemplated under Art
1670.
- Art 1670 would not apply because if the extended period of lease was expressly agreed upon
then the term should be exactly what the parties stipulated, not more, not less. Second, even if
the suppose 4 year extended lease be considered as an implied new lease under Art 1670, the
other terms of the original contract are only those terms which are agreement of the property
leased. The prescriptive period of 10-years provided for in Art.1144 applies by operation of
law, not by the will of the parties
- Assuming that the action is not time-barred, the action will still not proper. An action for
reformation is instituted as a special civil action for declaratory relief to secure an authoritative
statement of the rights an obligation of the parties for their guidance in enforcement thereof and
it may be entertained only before the breach or violation of the law or the contract to which it
refers.
- In this case, respondent corporation brought the present action for reformation after an alleged
breach or violation of the contract was already committed by petitioner Bentir. The remedy of
reformation no longer lies.
AGAS VS SABICO
( 457 s 263 )
FACTS:
Respondent Caridad Sabico and spouses Paulo filed an application to acquire a parcel of land
before the Peoples Homesite and Housing Corp (PHHC).
Respondent Sabico was widowed and worked as a laundry woman of the petitioner spouses
Agas.
Sabico borrowed P141.00 from petitioners Agas on Oct. 1 1963.
The PHHC granted the application and awarded the lot to respondent Sabico and spouses
Paulo. However, they were required to make a downpayment of P420.00 for the lot upon the
execution of a conditional contarct of sell, and the balance thereof payable in installments.
Since respondent Sabico had no means to pay the required downpayment, she went to
petitioner Agas to borrow money.
Petitioner Agas agreed to lend P250.00 to Sabico but required her to sign an unnotarized
Agreement/kasunduan in which she obliged herself to sell to petitioner the undivided one74

half portion of the subject property for P2,500.00. the following principal terms and conditions
in the agreement were:
a) petitioner would remit to respondent the total amount of P250 upon the execution of the
deed;
b) respondent would return the amount she received from petitioner to the PHHC;
c) respondent would continue to reside in the property for a period of 10 years;
d) Respondent would execute an absolute contract of sale in favor of petitioner within the
30 days from the issuance of ownership to respondent.
Respondent had not finished first grade, could write only her name and did not know how to
read nor understand the english language. Nevertheless, she signed the agreement.
On May 14, 1964, the PHHC executed a conditional contract to sell in favor of the respondent
and spouses Paulo with the agreement that not to sell, assign, encumber, mortgage lease or
sublease the property without written consent of the PHHC.
Respondent had a total indebtedness of P5k with petitioner Agas.
In Aug. 1964, a contract was executed by and between the respondent and the petitioners which
was duly notarized.
On Aug. 5, 1975, PHHC executed a Deed of Sale in favor of the respondent & spouses Paulo
after full payment of the purchase price.
On Nov. 14,1975, TCT was issued in their favor and there was an annotation prohibiting them
from selling the property within one year from the issuance of the title.
Almost a month after the issuance of TCT, respondent delivered her owners duplicate copy to
petitioner Agas.
On Oct. 3, 1978, respondent executed an Absolute Deed of Sale in favor of petitioner Agas over
her one-half undivided share for the price of P 20k. the contract was notarized. However, the
deed was not filed with the Office of the Registry of Deeds.
Petitioner Agas notified the respondent of his desire to contract a two-unit apartment and
required respondent to pay a rental of P25.00 to be applied to the payment of realty taxes.
Thereafter, petitioner informed the respondent of the construction with a request to move her
house to the eastern rear portion and to affix her signature on the said letter, but respondent
refused to do so. However, the construction proceeded.
Respondent instituted an action against petitioner for Declaration of Nullity of Deeds and Title
with damages, alleging that petitioner were able to inveigle her into signing several documents
which caused the transfer of ownership in favor of petitioner and that petitioner took advantage
of her credulity and illiteracy and employed under moral pressure and influences her.

ISSUE:
- WON the deed of sale had been fully explained to the respondent? NO
HELD:
- Under Art 1332 which provides that when one of the parties is unable to read, or if the
contract is in a language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained to the former.
- In this case, the nature, consequences and legal effects of the deeds were not explained to the
respondent. As testified to by Notary Public Respicio, she merely asked the respondent if the
latter knew the contents of the deed of absolute sale, and the respondent purportedly replied in
the affirmative. The notary public never even bothered to explain to the respondent the nature
and the rights and obligations of the parties under the deed.
75

Moreover, the deed of absolute sale executed was an equitable mortgage. The following facts
indicated:
1) Respondent was the laundry woman of the petitioners;
2) Respondent was in need of money to pay for the property which she had to borrow
money from petitioners;
3) Respondent remained in possession of the property despite the execution of the said
deeds;
4) Respondent paid the realty taxes and continued to do so even after she had executed a
deed of sale in favor of petitioners;
5) Petitioner did not immediately file the deed of sale with the Office of the Register of
Deeds until after the lapse of 8 years;
6) Respondent filed a complaint against petitioners in the RTC soon after the petitioners
registered the deed of absolute sale.
VALERIO VS REFRESCA
( 485 s 495 )

FACTS:
As early as 1963, spouse Refresca started cultivating the 6.5 hectares land tenants.
In 1968, Narciso Valerio acquired ownership over the land. The tenancy relation between
Valerios and Refrescas were established.
Spouses Valerio entered into a leasehold contract with tenant Refresca to continue tilling the 6.5
hectare land in exchange for fixed rentals.
On Feb 10, 1975, spouses Valerio executed a Deed of Sale whereby he sold his 6.5 hectare
landholding to his heirs and likewise conveyed 511 sq.m in favor of Refresca in recognition of
his long service and cultivation of the subject land.
On Feb 15, 1975, Narciso Valerio died.
On Dec. 1982, the parties to the Deed of Sale, as co-owners, subdivided the 6.5 hectare land
and executed a Deed of Agreement of Subdivision. The same 511 sq.m of land was granted to
Refresca.
Nieves Valerio, widow of Narciso, entered into another leasehold agreement with Refrescas
over the 6.5 hectare land for a period of 1984-1985.
On Mar 4 1987, Nieves Valerio died. After tenant Alejandro Refrescas demise in 1994, his
widow Vicenta Refresca succeeded him by operation of law in tilling the land.
Thereafter, petitioners demanded that the respondents vacate the land. They alleged that the 511
sq.m land was given to the Refrescas on the condition that they will surrender their tenancy
rights but respondent Refresca failed to do so.
In 1995, the DAR issued a resolution recognizing their right of respondent Vicenta Refresca but
despite the ruling, petitioners sent a demand letter to respondents to vacate the land, but
respondents refused
Petitioners filed a complaint for annulment of documents of transfer and title of Alejandro.
The RTC ruled in favor of petitioners
The C.A. reversed the decision and ruled that the Deed of Sale was not absolutely but relatively
simulated.
ISSUE:
1) WON the Deed of Sale was an absolute or relative simulation? RELATIVE SIMULATION
76

2) WON there was cause or consideration? YES

HELD:
1) Under Art 1345 which provides that simulation of a contract may be absolute or relative. The
former takes place when the parties do not intend to be bound at all; the latter, when the parties
conceal their true agreement.
- In absolute simulation, there is a colorable contract but it has no substance as the parties have
no intention to be bound by it. The main characteristic of an absolute simulation is that the
apparent contract is not really desired or intended to produce legal effect or in any way alter the
juridicial situation of the parties. As a result, an absolutely simulated or fictitious contract is
void, and the parties may recover from each other what they may have given under the contract.
However, if the parties state a false cause in the contract to conceal their real agreement, the
contract is relatively simulated and the parties are still bound by their real agreement. Hence,
where the essential requisites of a contract, is present and the simulation refers only to the
content or terms of the contract, the agreement is absolutely binding and enforceable between
the parties & their successors in interest.
- In this case, the records reveal that the clear intent of Narciso Valerio in executing the 1975
Deed of Sale was to transfer ownership of the apportioned areas of his 6.5 hectare land to
petitioners as his heirs and to his tenant Alejandro. Although no monetary consideration was
received by Narciso from any of the vendees, it cannot be said that the contract was not
supported by a cause or consideration or that Narciso never intended to transfer ownership
thereof. Under Art 1370 & 1371, the circumstances reveal that neither spouses Valerio during
their lifetime, exerted effort to evict respondents when the latter failed to surrender their
tenancy rights and that spouse Refrescaa and petitioners possession of land shows that Narciso
divested himself to his title and control over the property.
- The most striking badges of absolute simulation is the complete absence of any attempt on the
part of a vendee to assert his right of dominion over the property. In the case at bar, the
petitioners and respondents were not amiss in claiming their right over their respective lots.
2) The cause of the contract is the generosity of Narciso who intended to divest himself of
ownership over the land No such condition to surrender the tenancy rights as the respondents
were allowed to continue cultivating the entire land. The tenancy right of respondent Vicenta
Refresca was in fact recognized by the DAR. Petitioners themselves admitted that Narciso did
not transfer ownership to them out of the liberality of Narciso as the petitioner nor Alejandro
paid monetary consideration. The true intent of the parties although they tried to conceal it
with the execution of a deed of sale, when the contract is in reality one of donation interiors.

SIGUAN VS LIM
( 318 s 725 )
FACTS:
On Aug. 1990, Lim issued 2 checks to Siguan but it was dishonored for the reason account
closed.
Criminal case was filed by Siguan against Lim for violation of BP 22. The RTC convicted him
on Dec. 1992, but the case was still pending in the Supreme Court for review.
It also appears that Lim was convicted of estafa on July 1990, filed by Victoria Suarez but was
acquitted when she appealed and was only liable for damages.
77

On July 1991, a Deed of donation was registered in favor of Lims children that was executed
on Aug. 1989, and a new TCT were issued.
Siguan filed an accion pauliana against Lim and her children to rescind the Deed of donation
and to declare null and void the new TCT because the transfer was made in bad faith to defraud
creditors and left no sufficient property to pay her obligations.

ISSUE:
- WON the deed of donation was made in fraud of Siguan and therefore, rescissible? NO
HELD:
- Under Art. 1381 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:
a. the plaintiff asking for rescission has a credit prior to the alienation;
b. the debtor has made a subsequent contract conveying a patrimonial benefit to a third
person;
c. the creditor has no other legal remedy to satisfy his claim;
d. the act being impugned is fraudulent;
e. the third person who received the property conveyed, if it is by onerous title, has been an
accomplice in 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.
- In the instant case, the alleged debt of LIM in favor of petitioner was incurred in August 1990,
while the deed of donation was purportedly executed on 10 August 1989.
- The fact that the questioned Deed was registered only on 2 July 1991 is not enough to
overcome the presumption as to the truthfulness of the statement of the date in the questioned
deed, which is 10 August 1989. Petitioner's claim against LIM was constituted only in August
1990, or a year after the questioned alienation. Thus, the first two requisites for the rescission of
contracts are absent.
- Article 1383 of the same Code provides that the action for rescission is but a subsidiary remedy
which cannot be instituted except when the party suffering damage has no other legal means to
obtain reparation for the same. In this case, Petitioner neither alleged nor proved that she did
so. Thus 3rd requisite is absent.
- The 4th requisite for an accion pauliana to prosper is not present either. Article 1387, provides:
"All contracts by virtue of which the debtor alienates property by gratuitous title are presumed
to have been entered into in fraud of creditors when the donor did not reserve sufficient
property to pay all debts contracted before the donation.
- For this presumption of fraud to apply, it must be established that the donor did not leave
adequate properties which creditors might have recourse for the collection of their credits
existing before the execution of the donation.
- In this case, Siguan's alleged credit existed only a year after the deed of donation was executed.
She cannot, therefore, be said to have been prejudiced or defrauded by such alienation. Besides,
the evidence disclose that as of 10 August 1989, when the deed of donation was executed, LIM
had the following properties. It was not, therefore, sufficiently established that the properties
left behind by LIM were not sufficient to cover her debts existing before the donation was
78

made. Siguan failed to discharge the burden of proving any of the badges of fraud. Since the
four requirements for the rescission of a gratuitous contract are not present in this case, Siguan's
action must fail.
Under Article 1384 provides that rescission shall only be to the extent necessary to cover the
damages caused. Under this Article, only the creditor who brought the action for rescission can
benefit from the rescission; those who are strangers to the action cannot benefit from its effects.
Thus, Siguan cannot invoke the credit of Suarez to justify rescission of the subject deed of
donation.
ADORABLE VS C.A.
( 319 s 200 )

FACTS;
On Aug. 29 1985, PR Saturnino Bareng, the owner of 2 parcels of land, and his son Fransisco
obtained a loan from Adorable, the lessee, amounting to P26K, in consideration of which they
promised to transfer the possession and enjoyment of the fruits.
On Aug. 3, 1986, the lot was sold by Saturnino to his son Francisco. In turn, Francisco sold the
3,000 sq.m. lot to Jose Ramos including the portion lot being rented by the Adorables.
However, the deed of sale evidencing the conveyance were not registered in the office of the
Registry of Deeds.
Francisco failed to pay his indebtedness to Adorable.
Adorable upon learning of the sale, filed a complaint for annulment or rescission of the sale on
the ground that the sale was fraudulently prepared and executed.
ISSUES:
1) WON Adorable may rescind the contract of sale? NO
2) WON the sale was undertaken in fraud of creditors when the latter cannot collect the claims
due them? NO
HELD:
1) Adorables right against Francisco Bareng is only personal right to receive payment for the
loan; it is not a real right over the lot subject of deed of sale.
- The following measures must be taken by a creditor before he may bring an action for
rescission of an alleged fraudulent sale are:
a. Exhaust the properties of the debtor through levying by attachment and execution upon all
the property of the debtor, except such as are exempt by law from execution;
b. Exercise all the rights and actions of the debtor, save those personal to him;
c. Seek rescission of the contracts executed by the debtor in fraud of their rights (accion
pauliana).
- In this case, Adorable simply undertook the 3 rd measure without availing of the 1 st and 2nd
remedies, and an action for annulment of the sale. This cannot be done.
2) Under Art. 1381 provides that the following contracts are rescissible, those undertaken in
fraud of creditors when the latter cannot in any other manner collect the claims due them. And
under Art. 1383, the action for rescission is subsidiary; it cannot be instituted except when the
party suffering damage has no other legal means to obtain reparation for the same.
- In this case, the Adirables had not even commenced an action against Bareng for the collection
of the alleged indebtedness nor tried to exhaust the property of Bareng. The Adorables failed to
79

show and prove that Bareng had no other property, either at the time of the sale or at the time
the action was filed, out of which they could have collected.
TANONGON VS SAMSON
(382 s 130 )
FACTS:
Cayco Marine Service is engaged in business of hauling oil. It is owned and operated by
Iluminada Cayco Olizon.
Respondent Samson and other 3 employees filed a complaint against Cayco and Olizon for
illegal dismissal.
The NLRC decided in favor of the respondents and became final and executory on April 29,
1997.
On June 24, 1997, a writ of execution was issued directing the NLRC sheriff to collect from
Cayco Olizon the amount of P 1,192,422.55.
On Aug. 8 1997, after the notice of levy/sale on execution of personal property was issued,
Cayco and Olizons motor tanker was to be sold at public auction on Aug. 19, 1997. However,
on Aug. 15, 1997, Tanongon filed a 3 rd party claim the she acquired the motor tanker from
Olizon n July 29,1997.
The labor arbiter dismissed the 3rd party claim for lack of merit.
The NLRC, however, reversed its decision on the ground that the sheriff cannot execute
judgment because the property was not in Cayco and Olizons name, and that judicial rescission
is required. Thus, NLRC lifted the writ of execution and restrained its sale.
ISSUE:
- WON Tanongon was a buyer in good faith? NO
HELD:
- There is sufficient basis that petitioner was a buyer in bad faith because the sale of the tanker
was made only on July 29, 1997, after the writ of execution was issued by the labor arbiter on
June 24, 1997, and it was bought by Tanongon 10 days before it was levied upon on Aug. 8,
1997.
- Under Art. 1387 provides that alienations by onerous title are presumed to be fraudulent when
done by persons against whom some judgment has been rendered or some writ of attachment
issued in any instance. It is more coincidental that the purchase price for the tanker was
P1,100,00.00, while Olizons judgment debt amounted to P 1,192,422.55.
- Tanongon should have inquired whether Olizon had other unsettled obligations and
encumbrances that could burden the subject property. Any person engaged in business would
be wary of buying from a company that is closing shop, because it may be dissipating its assets
to defraud its creditors.
- On the issue of the tankers ownership, the Maritime Industry Authority Admin stated in its
letter that the registration of the disputed vessel under petitioners name had not been effected,
and that the Cert. of Ownership and Vessel Registry covering the motor tanker had not been
released. The reason was Marinas receipt of the Entry of Judgment issued by the Supreme
court on Aug. 29, 1997, and the notice of levy/sale on Execution of Personal Property covering
the subject vessel. Thus, the ownership remained with Cayco and Olizon, and the NLRC
sheriff could proceed with the levy and the sale on execution.
80

CHINA BANKING CORP. VS C.A.

( 327 s 378 )
FACTS:
Alfonso and his wife Kiang Chua were the owners of a residential land.
On Feb. 2 1984, a notice of levy affecting the property was issued in connection with
Metrobank vs Pacific Multi Commercial Corp. and Alfonso Chua case that was inscribed and
annotated at the back of the TCT.
Subsequently, Kiang Chua filed a complaint questioning the levy as the land thereof was
conjugal property.
So the parties entered into a compromise agreement to the effect the levy was valid only to the
undivided portion of the conjugal share of Alfonso.
On June 19, 1985, China Bank filed an action for collection of sum of money against Pacific
And Alfonso, and the trial court decided in favor of China Bank on Nov. 7, 1985.
On Dec. 1987, a Cert. of Sale was executed covering the undivided portion to Metrobank.
On Nov. 21, 1988, Alfonso executed a public document denominated as Assignment of Rights
to Redeem, of the portion to his son Paulino, which the latter redeemed it on the very same
day and was inscribed on Mar. 14, 1989.
On Feb. 4, 1991, another notice of levy was issued and thereafter a Cert. of Sale was issued in
favor of China Bank against the rights and interests of Alfonso.
This was challenged by Paulino that he has a prior and better right over the title because he
redeemed the property 2 yrs before China Bank acquired its right.
ISSUE:
- WON the right of redemption made by Alfonso in favor of Paulino was done to defraud
creditors and may be rescinded? YES
HELD:
- Under Art. 1381, contracts which are undertaken in fraud of creditors when the latter cannot in
any way collect the claims due them, are rescissible.
- Under Art. 1387, all contracts by virtue of which the debtor alienates property by gratuitous
title are presumed to have been entered into in fraud of creditors, when the donor did not
reserve sufficient property to pay all debts contracted before the donation.
- After Alfonsos conjugal share was foreclosed by Metrobank, the only property that he had was
his right to redeem the same, it forming part of his patrimony. The judgment of the trial court
in favor of China Bank against Alfonso was rendered on 1985, there is a presumption that the
1988 sale, the right of redemption, is fraudulent under Art. 1387. this presumption is
strengthened by the fact that the conveyance has virtually left Alfonsos other creditors with no
other property to attach.
- Under the third paragraph of the same article, the design to defraud creditors may be proved in
any other manner recognized by the law of evidence. The Supreme Court considered the
following instances as badges of fraud:
1) The fact that the consideration of the conveyance is fictitious or is inadequate.
2) A transfer made by a debtor after suit has begun and while it is pending against him.
3) A sale upon credit by an insolvent debtor.
4) Evidence of large indebtedness or complete insolvency.

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5) The transfer of all or nearly all of his property by a debtor, especially when he is
insolvent or greatly embarrassed financially.
6) The fact that the transfer is made between father and son, when there are present other of
the above circumstances
7) The failure of the vendee to take exclusive possession of all the property.
Alfonsos intent to defraud his other creditors, specifically, China Bank, becomes even more
apparent when C.A. dismissed the appeal of Pacific Multi-Agro and Alfonso Roxas Chua, he
assigned his right to redeem of the conjugal property to his son.
The mere fact that the conveyance was founded on valuable consideration does not necessarily
negate the presumption of fraud under Article 1387 of the Civil Code. There has to be a
valuable consideration and the transaction must have been made bona fide.
In the case at bar, the presumption that the conveyance is fraudulent has not been overcome. At
the time a judgment was rendered in favor of China Bank against Alfonso and the corporation,
Paulino was still living with his parents in the subject property. Paulino himself admitted that
he knew his father was heavily indebted and could not afford to pay his debts. The transfer was
undoubtedly made between father and son at a time when the father was insolvent and had no
other property to pay off his creditors. Hence, it is of no consequence whether or not Paulino
had given valuable consideration for the conveyance.
Right of redemption is part of the property under civil law which comprehends every species of
title, inchoate or complete, legal or equitable.
ROSENCOR DEVT CORP. VS INQUING
( 354 s 119 )

FACTS:
Inquing, et al, are the lessees since 1971 of a 2-story residential apartment owned by spouses
Tiangco. The lease was not covered by any contract. The lessees were verbally granted by the
lessors the pre-emptive right to purchase the property if ever they decided to sell the same.
Upon the death of the spouses Tiangco, the management of the property was adjudicated to
their heirs who were represented by Enfrocino de Leon which the latter had knowledge of the
promise of pre-emptive right to purchase.
On June 1990, the lessees received a letter from Atty. Aguila demanding that they vacate the
premises so that demolition could be undertaken but the lessees refused to leave. On that same
month, de Leon refused to accept the lessees rental payment claiming that they run out of
receipts and a new collector has been assigned.
Thereafter, the lessees received a letter from de Leon offering to sell to them the property they
were leasing for P 2M. The lessees offered to buy for the amount of P 1M but no answer was
given by de Leon. However, in Nov. 1990, Rene Joaquin introduced himself as the new owner,
the vice-pres of Rosencor.
On Jan. 1991, the lessees received a letter from de Leon advising them that the property has
already been sold to Rosencor.
The lessees discovered that the sale between de Leon and Rosencor took place in Sept. 4, 1990,
while de Leon made the offer to them only in Oct. 1990, and it was sold for P 726,000.00.
The lessees offered to reimburse de Leon the selling price of P 726,000.00 plus additional P
274,00.00 to complete their P 1M earlier offer. However, their offer was refused which
prompted them to file an action for rescission of the Deed of Sale.
ISSUES:
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1) WON right of first refusal is indeed covered by the provisions on the statute of frauds? NO
2) WON respondent have satisfactorily proven their right of first refusal? YES
3) WON a contract of sale in violation of a third partys right of first refusal may be rescinded in
order that such third party can exercise said right? NO bec. Rosencor is in good faith
HELD:
1) A right of first refusal is not among those listed as unenforceable under the statute of frauds.
The application of Art. 1403 presupposes the existence of a perfected, albeit unwritten, contract
of sale. Right of first refusal is not by means a perfected contract of sale of real property. At
best, it is a contractual grant over the property sought to be sold. It need not be written to be
enforceable and may be proven by oral evidence.
2) The lessees uniformly testified that they were promised of the right of first refusal and de Leons
letter to offer the property for sale to the respondents. Moreover, Rosencor did not present
evidence contradicting the existence of the right of first refusal before the trial court. As such,
there being no evidence to the contrary, the right of first refusal was substantially proven by the
respondents.
3) Under Art. 1381 par (3), a contract validly agreed upon may be rescinded if it is undertaken in
fraud of creditors when the latter cannot in any manner collect the claim due them. And under
Art. 1385, rescission shall not take place when the things which are the object of the contract
are legally in possession of third person who did not act in bad faith.
- In this case, the right of first refusal was an oral one. As such, in order to hold that Rosencor
were in bad faith, there must be clear and convincing proof that Rosencor were made aware of
the said right of first refusal either by the respondents or by the heirs of the spouses Tiangco.
Good faith is always presumed unless contrary evidence is adduced. The rule on constructive
notice would be inapplicable as it is undisputed that the right of first refusal was an oral one and
that the same was never reduced to writing, much less registered with the Registry of Deeds.
Respondents failed to present any evidence that prior to the sale of the property, Rosencor were
aware or had notice of the oral right of first refusal. The letter that was given to the lessees did
not mention of the right of first refusal, nor the name of Rosencor did appear. Moreover the
letter was made a month after the execution of the deed of absolute sale. There is no showing
that petitioners were put on notice of the existence of the right of first refusal. Thus, the C.A.
erred in ordering the rescission of the deed of absolute sale.
- Respondents remedy however is not an action for the rescission but an action for damages
against the heirs of the spouses Tiangco for the unjustified disregard of their right of first
refusal. If Rosencor was in bad faith then it can be rescinded.

CHENG VS C.A.
( 355 s 701 )
FACTS:
Petitioner Khe Hong Cheng is the owner of Butuan Shipping Lines, the vessel M/V Prince Eric.
The Phil. Agri Trading Corp. shipped 3,400 bags of copra at Masbate for delivery to Dipolog.
However, M/V Prince Eric sank between Negros Island and Mindanao. Because of the loss,
American Home Insurance Company as the insurer (respondents Philams assured) paid Phil.
Agri Trading Corp. the amount of P354,000.00 (the value of the copra).

83

American Home instituted a civil case to recover the money paid based on breach of contract of
carriage against Khe Hong Cheng.
On Dec. 20, 1989, while the case was pending, Cheng executed deeds of donations in favor of
his children and a new TCT was issued in their favor.
The trial court rendered judgment against Cheng in civil case on Dec. 29, 1993, four years after
the donation was made. The decision became final and executory and a writ of execution was
issued on Sept. 14, 1995 but it was not served.
On Oct. 1996, an alias writ of execution was granted but when the sheriff, accompanied by
Philam, went to Butuan City they discovered that Cheng no longer had any property.
On Feb. 25, 1997, respondent Philam filed a complaint for the rescission of the donation and
nullification of title. Cheng moved for its dismissal on the ground that the action had already
prescribed because the registration of the deeds of donation on Dec. 27, 1989, constituted
constructive notice and the complaint was filed more than 4 years after said registration.
The trial court held that Philams complaint had not yet prescribed. It began to run only from
Dec. 29, 1993, the date of the decision of the trial court.
The C.A. ruled that the 4 year period began to run only in Jan. 1997, the time when Philam
learned that the judgment cannot be satisfied.

ISSUE:
- WON the 4 year prescriptive period had prescribed? NO
- When will the 4 year prescriptive period commence to run? It is the legal possibility of bringing
the action which determines the starting point for the computation of the prescriptive period for
the action.
HELD:
- Under Art. 1389, the action to claim rescission must be commenced within 4 years. Since the
provision of law is silent as to when the prescriptive period would commence, the general rule is
from the moment the cause of action accrues. The Supreme Court enunciated the principle that
it is the legal possibility of bringing the action which determines the starting point for the
computation of the prescriptive period for the action.
- Under Art. 1383, an action to rescind or an accion pauliana must be of last resort, availed of
only after all the legal remedies have been exhausted and have proven futile. An accion
pauliana accrues only when the creditor discovers that he has no other legal remedy for the
satisfaction of his claim against the debtor. For as long as the creditor still has remedy at law,
the creditor will not have any cause of action for rescission. An accion pauliana thus
presupposes the ff:
1) A judgment;
2) The issuance by the trial court of a writ of execution for the satisfaction of the judgment;
3) The failure of the sheriff to enforce and satisfy the judgment of the court.
- It requires that the creditor has exhausted the property of the debtor. The date of the decision of
the trial court is immaterial. What is important is that the creditor of the plaintiff antedates that
of the fraudulent alienation by the debtor of his property. After all, the decision of the trial court
against the debtor will retroact to the time when the debtor became indebted to the creditor. Had
Philam filed his complaint on Dec. 27, 1989, the date of execution of the deeds of donation,
such complaint would be dismissed for being premature because Philam had not yet exhaust all
the legal remedies and would not have been able to prove that Cheng had no more property to
satisfy the trial courts judgment.
84

- Respondent Philam only learned about the unlawful conveyance made by Cheng in Jan. 1997
and found that Cheng no longer had any properties. It is only then that Philams action for
rescission accrued because then it could be said that Philam had exhausted all legal remedies.
Since Philam filed its complaint for accion pauliana on Feb. 25, 1997, barely a month from its
discovery that Cheng had no other property, its action clearly had not yet prescribed.
EQUATORIAL REALTY DEVELOPMENT VS. MAYFAIR THEATER, INC.
Mother Case (264 s 483)
FACTS:
Carmelo and Bauermann, Inc. (Carmelo) owned a parcel of land with 2-storey buildings
thereon. Carmelo entered into a contract of lease on June 1, 1967 with Mayfair Theater, Inc.
(Mayfair) for a period of 20 years. The lease covered a portion of the second floor used as a
movie house known as Maxim Theater.
Two years later, Mayfair entered into a second contract of lease on March 31, 1969 with
Carmelo, also for a period of 20 years, for the lease of another portion of the latters property to
be used as another movie house known as Miramar Theater.
Both the first and the second contract of lease contained a provision granting Mayfair a right of
first refusal to purchase the subject properties.
However, on July 30, 1978 within the 20-year-lease-term- the subject properties were sold by
Carmelo to Equatorial for P11,300,000 without first being offered to Mayfair.
Mayfair filed a complaint before the RTC for the annulment of the Deed of Sale between
Carmelo and Equatorial.
RTC ruled that the Deed of Absolute Sale is valid, rendered in favor of Carmelo and Equatorial.
CA, however, completely set aside and reversed such decision.
Mayfair filed a petition for review before the SC, to which the SC held that the said Deed of
Absolute Sale is hereby rescinded, ordered Carmelo to return to Equatorial the purchase price
of P11,300,000, directed Equatorial to execute the deeds and documents necessary to return
ownership to Carmelo of the disputed lots, and ordered Carmelo to allow Mayfair to buy the
said lots also for P11,300,000. Such decision became final and executory.
Daughter Case (370 s 56)

Equatorial questioned the legality of the above ruling. CA alleged that Carmelo is obliged to
return the entire purchase price to Equatorial. On the other hand, Mayfair may not deduct from
the purchase price the amount of the withholding tax.
Equatorial filed an action for the collection of sum of money against Mayfair. CA alleged that
the lease contact covering the premises occupied by Maxim Theater expired on May 31, 1987
and the premises occupied by Miramar Theater lapsed on March 31, 1989. Representing itself
as the owner of the subject premises by reason of the contract of sale on July 30, 1978, it
claimed rentals arising from Mayfairs occupation thereof.
RTC dismissed the complaint. The lower court debunked the claim of Equatorial for unpaid
back rentals, holding that the rescission of the Deed of Absolute sale in the mother case did not
confer on Equatorial any vested or residual proprietary rights, even an expectancy. It held that
the critical issue was whether Equatorial was the owner of the subject property and thus enjoy
the fruits or rentals therefrom and declared that the rescinded Deed of Absolute Sale as void at
its inception as though it did not happen.
85

ISSUES:
- WON the rescission of the Deed of Absolute Sale confers Equatorial any vested right nor any
residual proprietary rights even in expectancy? NO
HELD:
- It does not mean that despite the judgment rescinding the sale, the right to the fruits still
belonged to and remained enforceable by Equatorial. ARTICLE 1385 o the Civil Code provides
that rescission creates the obligation to return the things which were the object of the contact,
together with their fruits, and the price with interest,
- The fact that Mayfair paid rentals to Equatorial during the litigation should not be interpreted to
mean either actual deliver or ipso facto recognition of Equatorials title. They were made
merely to avoid imminent eviction. Thus, Equatorial never acquired ownership, not because
the sale was void, as erroneously claimed by the trial court, but because the sale was not
consummated by a legally effective delivery of the property sold.
- There was no valid delivery because it is clear that Equatorial never took actual control and
possession of the property sold. By a contract of sale, one of the contracting parties obligates
himself to transfer ownership of and to deliver a determinate thing and the other to pay therefor
a price certain in money or its equivalent. Ownership of the thing sold is a real right, which the
buyer acquires only upon delivery of the thing to him in any of the ways specified in Articles
1497 to 1501, or in any other manner signifying an agreement that possession is transferred
from the vendor to the vendee. The right is transferred not by contract alone, but by tradition or
delivery.
- The execution of a public instrument gives rise, therefore, only to a prima facie presumption of
delivery. Such presumption is destroyed when the instrument itself expresses or implies that
deliver was not intended, or when by other means it is shown that such delivery was not
effected because a third person was actually in possession of the thing. In the latter case, the
sale cannot be considered consummated.
- FURTHERMORE, assuming for the sake of argument that there was delivery, Equatorial is not
entitled to any benefits from the rescinded Deed of Absolute Sale because of its BAD FAITH.
The contract of sale between Equatorial and Carmelo was characterized by bad faith because it
was entered into in violation of the rights of and to the prejudice of Mayfair. Equatorial
admitted that its lawyers had studied the contact of lease prior to the sale. Equatorials
knowledge of the stipulations therein should have cautioned it to look further into the
agreement to determine if it involved stipulations that would prejudice its own interests. Thus,
Equatorial was and still is entitled solely to the return of the purchase price it paid to Carmelo,
no more, no less. Neither of them is entitled to any consideration of equity, as both took
unconscientious advantage of Mayfair.

REYES VS. LIM

( 408 s 560 )
FACTS:
David Reyes filed a complaint for annulment of contract against Jose Lim, Chuy Cheng Keng,
and Harrison Lumber, Inc. alleging that Reyes as seller and Lim as buyer entered into a
contract to sell over a parcel of land. Said land was occupied by Harrison as a lessee with a
monthly rental of P35,000.

86

They have agreed to the total purchase price which is P28,000,000.00. Such amount is payable
by installment (P10M - downpayment, P18M - balance). The balance is to be paid on March 8,
1995 only upon 2 conditions: a) complete vacation of the tenants or occupants and b) execution
of deed of absolute sale, otherwise, the vendee shall withhold the payment of balance of P18M
and the vendor agrees to pay a 4% penalty per month until the complete vacation of the
premises.
Reyes informed Keng and Harrison Lumber to vacate the property before March 8, 1995 and if
they failed so, he would hold them liable for the penalty of P400,000 a month.
Allegedly, Lim connived with Harrison Lumber not to vacate the property until the P400,000
monthly penalty would have equaled the unpaid purchase price of P18,000,000. Lim, however,
denied.
According to Keng and Harrison, Reyes approved their request to extend the period to vacate to
give them ample time to find a new location for their business.
Lim claimed he was ready and willing to pay the balance of the purchase price on or before
March 8, 1995, and requested a meeting for that matter, but Reyes kept postponing their
meeting.
On March 9, 1995, Reyes offered to return the P10M downpayment because he was having
problems in removing the lessee from the property but Lim rejected.
Lim later on found that Reyes already sold the property to LINE ONE on March 1, 1995 for
P16,782,840.00.
Both Reyes and Lim are now seeking rescission of the Contract to Sell.
RTC: The trial court granted Lims request to order Reyes to deposit P10M downpayment with
the RTC citing Article 1385 of the Civil Code. An action for rescission could prosper only if
the party (Reyes) demanding rescission can return whatever he may be obliged to restore
should the court grant the rescission.
CA: Orders of the RTC for having been issued with grave abuse of discretion.

ISSUE:
- WON Reyes, who asked for rescission of the contract, can validly refuse to deposit the
downpayment of P10M with the RTC? NO
HELD:
- Reyes cannot refuse to deposit the downpayment of P10M with the RTC in order to PREVENT
UNJUST ENRICHMENT and to ENSURE RESTITUTION.
- TO PREVENT UNJUST ENRICHMENT
- The principle of unjust enrichment is embodied in Article 22 of the Civil Code. There is
unjust enrichment when a person unjustly retains a benefit to the loss of another, or when
a person retains money or property of another against the fundamental principles of
justice, equity and good conscience.
- Reyes cannot claim ownership of the P10M downpayment because Reyes had already
sold the property to LINE ONE for which Lim made the downpayment. To subscribe to
his contention that prior to a judgment annulling the contract to sell, he has the right to
use, possess and enjoy the P10M as its owner unless the court orders its preliminary
attachment would unjustly enrich him at the expense of Lim. It is unreasonable and
unjust for Reyes to object to the deposit of P10M downpayment. The application of
equity always involves a balancing of the equities in a particular case, a matter addressed
to the sound discretion of the court. Here, the court finds the equities weigh heavily in
87

favor of Lim, who paid the P10M downpayment in good faith only to discover later that
Reyes had subsequently sold the property to another buyer.
- In this case, it was just, equitable and proper for the trial court to order the deposit of
P10M downpayment to prevent unjust enrichment by Reyes at the expense of Lim.
TO ENSURE RESTITUTION
- The Contract to sell can no longer be enforced because Reyes himself subsequently sold
the property to LINE ONE.
- Under Article 1385 of the Civil Code, rescission creates the obligation to return the things
that are the object of the contract. Rescission is possible only when the person demanding
rescission can return whatever he may be obliged to restore. A court of equity will not
rescind a contract unless there is restitution, that is, the parties are restored to the status
quo ante.
- Thus, since Reyes is demanding to rescind the Contract to Sell, he cannot refuse to
deposit the P10M downpayment in court. Such deposit will ensure restitution of the
P10M to its rightful owner. Lim, on the other hand, has nothing to refund, as he has not
received anything under the Contract to Sell.
UNION BANK VS ONG
( 491 s 581 )

FACTS:
Herein respondents, the spouses Alfredo Ong and Susana Ong, own the majority capital stock
of Baliwag Mahogany Corporation (BMC). On October 10, 1990, the spouses executed a
Continuing Surety Agreement in favor of Union Bank to secure a P40,000,000.00-credit line
facility made available to BMC. The agreement expressly stipulated a solidary liability
undertaking.
On October 22, 1991, or about a year after the execution of the surety agreement, the spouses
Ong, for P12,500,000.00, sold their lot located in Greenhills, Metro Manila, together with the
house and other improvements standing thereon, to their co-respondent, Jackson Lee.
On November 22, 1991, BMC filed a Petition for Rehabilitation and for Declaration of
Suspension of Payments with the Securities and Exchange Commission (SEC). To protect its
interest, Union Bank lost no time in filing an action for rescission of the sale between the
spouses Ong and Jackson Lee for purportedly being in fraud of creditors.
Union Bank assailed the validity of the sale, alleging that the spouses Ong and Lee entered into
the transaction in question for the lone purpose of fraudulently removing the property from the
reach of Union Bank and other creditors. The fraudulent design, according to Union Bank, is
evidenced by the following circumstances: (1) insufficiency of consideration, the purchase
price of P12,500,000.00 being below the fair market value of the subject property at that time;
(2) lack of financial capacity on the part of Lee to buy the property at that time since his gross
income for the year 1990, per the credit investigation conducted by the bank, amounted to only
P346,571.73; and (3) Lee did not assert absolute ownership over the property as he allowed the
spouses Ong to retain possession thereof under a purported Contract of Lease
The trial court rendered judgment in favor of Union Bank. Foremost of the circumstances
adverted to relate to the execution of the sale against the backdrop of the spouses Ong, as
owners of 70% of BMC's stocks, knowing of the companys insolvency. This knowledge was
the reason why, according to the court, the spouses Ong disposed of the subject property
leaving the bank without recourse to recover BMC's indebtedness.
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ISSUE:
- WON the sale was made to defraud Union Bank? NO
HELD:
- Contracts in fraud of creditors are those executed with the intention to prejudice the rights of
creditors. In determining whether or not a certain conveying contract is fraudulent, what comes
to mind first is the question of whether the conveyance was a bona fide transaction or a trick
and contrivance to defeat creditors.
- In the present case, respondent spouses Ong had sufficiently established the validity and
legitimacy of the sale in question. The conveying deed, a duly notarized document, carries with
it the presumption of validity and regularity
- Petitioner raises the issue of inadequate consideration, alleging in this regard that only
P12,500,000.00 was paid for property having, during the period material, a fair market value of
P14,500,000.00. The spouses Ong acquiesced to the price of P12,500,000.00, which may be
lower than the market value of the house and lot at the time of alienation, is certainly not an
unusual business phenomenon. The disparity between the price appearing in the conveying
deed and what the petitioner regarded as the real value of the property is not as gross to support
a conclusion of fraud. What is more, one Oliver Morales, a licensed real estate appraiser and
broker declared that there exists no gross disparity between the market value of the subject
property and the price mentioned in the deed as consideration.
- It is true that respondent spouses, as surety for BMC, bound themselves to answer for the
latters debt. Nonetheless, for purposes of recovering what the eventually insolvent BMC owed
the bank, it behooved the petitioner to show that it had exhausted all the properties of the
spouses Ong. It does not appear in this case that the petitioner sought other properties of the
spouses other than the subject Greenhills property. Absent proof, therefore, that the spouses
Ong had no other property except their Greenhills home, the sale thereof to respondent Lee
cannot be considered as one in fraud of creditors.
- For a contract to be rescinded for being in fraud of creditors, both contracting parties must be
shown to have acted maliciously so as to prejudice the creditors who were prevented from
collecting their claims.
- Petitioner has made much of respondent Lee not taking immediate possession of the property
after the sale, stating that such failure is an indication of his participation in the fraudulent
scheme to prejudice petitioner bank. SC is not persuaded. The spouses' continuous possession
of the property was by virtue of a one-year lease they executed with respondent Lee six days
after the sale. While the failure of the vendee to take exclusive possession of the property is
generally recognized as a badge of fraud, the same cannot be said here in the light of the
existence of what appears to be a genuine lessor-lessee relationship between the spouses Ong
and Lee.
- Petitioners assertion regarding respondent Lees lack of financial capacity to acquire the
property in question since his income in 1990 was only P346,571.73 is clearly untenable.
Assuming for argument that petitioner got its figure right, it is clearly incorrect to measure
ones purchasing capacity with ones income at a given period. But the more important
consideration in this regard is the uncontroverted fact that respondent Lee paid the purchase
price of said property.
REGAL FILMS INC VS. CONCEPCION
( 362 s 504 )
FACTS:
89

In 1991 respondent Gabby Concepcion, through his manager Lolit Solis entered into a contract
with petitioner Regal Films, for services to be rendered by respondent in petitioners motion
pictures. Petitioner undertook to give 2 parcels of land and talent fees it had agreed to pay.
In 1993, the parties renewed the contract incorporating the same undertaking on the part of
Regal to give Gabby 2 parcels of land mentioned in the same agreement. Despite his
appearance in several films produced by Regal, the latter failed to comply w/ its promise to
convey to Gabby 2 aforementioned lots.
May 30, 1994, Gabby and his manager Lolit filed an action for rescission w/ RTC. Respondent
contended that he was entitled to rescind the contract +damages, and to be released from further
commitment to work exclusively for Regal owing to the latters failure to honor the agreement.
Regal moved for complainants dismissal on the alleged ground that the parties had settled their
differences amicably, that both parties had executed an agreement on June 17, 1994 which was
to operate as an addendum to their 1991 and 1993 contracts between them. The agreement was
signed by Gabbys manager Lolit, purportedly acting for and in behalf of Gabby.
Sept. 30, 1994, Solis filed a motion to dismiss the complaint reiterating that she, acting for
herself and Gabby had already settled the case amicably with Regal.
Oct. 17, 1994, Gabby himself opposed the motion to dismiss contending that the addendum
contained provisions grossly disadvantageous to him and that it was executed w/o his consent;
that Lolit had since ceased to become his manager and had no authority to sign the addendum
for him.
June 23, 1995, during the preliminary conference between the parties, Regal intimated to
Gabby and his counsel its willingness to allow Gabby to be released from his 1991 and 1993
contracts w/ Regal rather than to further pursue the addendum w/c Gabby had challenged.
July 3, 1995, Gabby filed a manifestation w/ the trial Court to the effect that he was now
willing to honor the addendum to his previous contracts and to have it considered as a
compromise agreement as to warrant a judgment in accordance therewith- manifestation
elicited a comment from Regal and Lolit to the effect that the relationship between the parties
had by then become strained, following the Manila Filmfest scam, involving the respondent,
but Regal was willing to release from his contract.

ISSUE:
- WON the contract is enforceable? NO
HELD:
- Consent could be given not only by the party himself but by anyone duly authorized and acting
for and in his behalf. But by respondent's own admission, the addendum was entered into
without his knowledge and consent.
- A contract entered into in the name of another by one who ostensibly might have but who, in
reality, had no real authority or legal representation, or who, having such authority, acted
beyond his powers, would be unenforceable. The addendum would never been susceptible of
ratification by the person on whose behalf it was executed.
- Ratification should be made before its revocation by the other contracting party. The adamant
refusal of respondent to accept the terms of the addendum constrained petitioner, during the
preliminary conference held on 23 June 1995, to instead express its willingness to release
respondent from his contracts prayed for in his complaint and to thereby forego the rejected
addendum. Respondent's subsequent attempt to ratify the addendum came much too late for, by
then, the addendum had already been deemed revoked by petitioner.
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LITONJUA VS FERNANDEZ
( 427 s 478 )
FACTS
Petitioners Litonjua though the offer of brokers and respondent agreed that the petitioners
would buy 2 parcels of land and would meet on an agreed date to finalize the sale. However,
only one of the brokers attended the meeting informing the petitioners that respondent
Fernandez was encountering some problems with the tenants and was trying to work out a
settlement with them.
After a few weeks of waiting, the Petitioners wrote Fernandez demanding that their transaction
be finalized. With no response, petitioners sent another letter asking that the Deed of Absolute
Sale covering the property to be executed in accordance with the verbal agreement and
demanded turnover of the properties otherwise would resort to legal means.
Fernandez wrote a letter to petitioners dated January 16, 1996 in response to the first letter:
my cousin and I have thereby changed our mind and that the sale will no longer push
through. I specifically instructed her to inform you through your broker that we will not be
attending the meetingIn view thereof I regret to formally inform you now that we are no
longer selling the property until all problems are fully settled. We have not demanded and
received from you any earnest money hence no obligations exist.
Petitioners filed a complaint for specific performance with damages against Fernandez and the
registered owners of the property.
Petitioners argue that the letter is a sufficient note or memorandum of the perfected contract
thus removing it from the statute of Frauds.
ISSUES:
1) WON there was a perfected contract of sale between the parties? NO
2) WON the contract falls under the coverage of statue of frauds? NO
HELD:
1) The tenor of the letter reveals a consistent denial that there was any such commitment on the
part of the defendant to sell the subject lands to plaintiffs. When the defendant used the words
changed our mind she was clearly referring to the decision to sell the property at all and not
in selling the property to plaintiffs as defendant had not yet made the final decision to sell the
property. This conclusion is buttressed by the statement in the letter, we are no longer selling
the property until all problems are fully settled.
2) Contrary to the petitioners contention, the letter is not a note or memorandum within the
context of Article 1403 (2) because it does not contain the following:
a. all the essential terms and conditions of the sale of the properties;
b. an accurate description of the property subject of the sale;
c. the names of the owners of the properties.
Furthermore, the letter made reference to only one property.
- The term statute of frauds is descriptive of statutes which require certain classes of contracts
to be in writing. The purpose of the statute is to prevent fraud and perjury in the enforcement of
obligations, depending for their existence on the unassisted memory of witnesses by requiring
certain enumerated contracts to be in writing signed by the party to be charged. The statue is
satisfied or as it is often stated, a contract or bargain is taken within the statue by making and
executing a note or memorandum of the contract which is sufficient to state the requirements of
91

the statue. The application of such statute presupposes the existence of a perfected contract.
Such note or memorandum must contain the essential elements of the contract expressed with
certainty that may be ascertained from the note or memorandum itself or some other writing to
which it refers or within which it is connected without resorting to parol evidence. To be
binding on the persons charged, such note or memorandum must be signed by the said party or
by his agent duly authorized in writing. The exchanged of written correspondence between the
parties may constitute sufficient writing to evidence the agreement for purposes of complying
with the statutes of frauds.
AINZA VS PADUA
( 462 s 614 )
FACTS:
In her complain for partition of real property, annulment of titles with damages, Concepcion
Ainza alleged that respondent spouses Eugenia & Antonio Padua owned a 216.4sqm lot with an
unfinished residential house in Quezon City.
Sometime in Apr. 1987 Concepcion Ainza bought of an undivided portion of the property
from her daughter (Eugenia) and the latters husband (Antonio) for P100T
No Deed of Absolute Sale was executed to evidence the transaction, but cash payment was
received by the respondents, and ownership was transferred to Concepcion through physical
delivery to her attorney in fact and daughter Natividad.
Concepcion authorized Natividad and the latters husband Ceferino Tuliao to occupy the
premises and make improvements on the unfinished building.
Thereafter, Concepcion alleged that without her consent, Padua caused the subdivision of the
property into three portions and registered it in their names under TCTs in violation of the
restrictions annotated at the back of the title.
Antonio averred in 1980 that he bought the property and introduced improvements thereon;
Between 1989 and 1990 he and his wife Eugenia allowed Natividad and Ceferino to occupy
the premises temporarily; In 1994 they caused the subdivision of the property and 3 separate
titles were issued; After the subdivision of the property, Antonio requested Natividad to vacate
the premises but the latter refused and claimed that Concepcion owned the property. Antonio
filed an ejectment suit against Natividad.
Concepcion represented by Natividad also filed on May 4, 1999 a civil case for partition of real
property and annulment of titles with damages.
Antonio claimed that his wife Eugenia admitted that Concepcion offered to buy 1/3 of the
property who gave her small amounts over several years which totaled P100T by 1987 and for
which she signed a receipt.
ISSUES:
1) WON there was a perfected contract? YES
2) WON these verbal contract violate the Statue of Fraud? NO
3) WON the absence of Antonios consent the disposition made by Eugenia is voidable? YES
HELD:
1) Contract of sale is perfected by mere consent. Upon meeting of the minds on the offer and the
acceptance thereof based on the subject matter, price and terms of payment.

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Eugenia offered to sell a portion of the property to Concepcion who accepted the offer and
agreed to pay 100,000. The contract of sale was consummated when both parties fully
complied with their respective obligations.
2) The Verbal contract of sale between Eugenia and Concepcion did not violate the provisions of
the Statute of Frauds that a contract for the sale of real property shall be unenforceable unless
the contract or some note or memorandum of the sale in writing and subscribed by the party
charged or his agent. When a verbal agreement has been completed, executed or partially
consummated its enforceability will not be barred by the Statute of Frauds which applies only
to executory agreements. Oral contract of sale between Eugenia & Concepcion was evidenced
by a receipt signed by Eugenia, Antonio also stated that his wife admitted to him that she sold
the property to Concepcion.
3) It is undisputed that the subject property was conjugal and sold by Eugenia in April 1987 or
prior to the effectivity of the Family Code on August 3, 1988. Art 254 of the FC repealed Title
V, Book 1 of the CC provisions on the property relations between Husband and Wife. However,
Art 256 of the FC limited its retroactive effect only to cases where it would not prejudice or
impair vested or acquired rights in accordance with the CC or other laws.
- In the case, vested rights of Concepcion will be impaired or prejudiced by the application of the
FC, hence the provisions of the CC should be applied. The consent of both Eugenia and
Antonio is necessary for the sale of the conjugal property to be valid. Antonios consent cannot
be presumed. In the absence of his consent, the disposition made by Eugenia is voidable. The
contract of sale between Eugenia and Concepcion being an oral contract, the action to annul the
same must be commenced within 6 years from the time the right of action accrued. Eugenia
sold the property in Apr. 1987, hence, Antonio should have asked the courts to annul the sale on
or before Apr. 1993. No action was commenced by Antonio to annul the sale hence his Right to
Seek Annulment has prescribed.
- In summary, the sale of the Conjugal property by Eugenia without the consent of her husband is
voidable. It is binding unless annulled. Antonio failed to exercise his right to ask for the
annulment within the prescribed period hence, he is now barred from questioning the validity
of the sale between his wife and Concepcion.
MODINA VS CA
( 317 s 696 )
FACTS:
The parcels of land in question are those under the name of Ramon Chiang. He theorized that
subject properties were sold to him by his wife, Merlinda as evidence by a Deed of Absolute
Sale and were subsequently sold by Chiang to the petitioner, Modina as shown by the Deeds of
Sale.
Modina brought a complaint against private respondents for recovery pf Possession with
Damages. Upon learning the instition of the said sale, Merlinda presented a complaint seeking
the declaration of nullity of the Deed of Sale between husband and Modina on the ground that
the titles of the parcels of land were never legally transferred to her husband.
Fraudulent acts were employed by him to obtain a Torrens title in his favor. The properties
were the properties of her first husband which she was appointed as administratix.
ISSUES:
1) WON the sale of subject lots should be nullified? YES
2) WON Modina was not a purchaser in good faith? YES

93

HELD:
1) the Deed of Sale between Merlinda and Chiang was a nullity for want of consideration (in pari
delicto can only be applied in cases where the nullity arises from the illegality of the
consideration or purpose of the contract when the parties are equally at fault, the law does not
relieve them; the principle does not apply when it is invoked with respect to inexistent
contracts). Under Art. 1409, a contract without consideration is a void contract, it produces no
effect.
- In this case, Merlinda did not aver the same as a ground to nullify subject Deed of Sale. In fact
she denied the existence of the Deed of Sale in favor of her husband, in other words, no
contract between them. She did not even put up a defense under Art. 1490 to nullify her sale to
her husband Chiang because such defense would be inconsistent with her claim that the same
sale was inexistent.
- Since one of the characteristics of a void contract or inexistent contract is that it does not
produce any effect, Merlinda can recover the property from petitioner.
2) Petitioner cannot claim that he was a purchaser in good faith. There are circumstances which
are indicia of bad faith on his part, to wit: (1) He asked his nephew, Placido Matta, to
investigate the origin of the property and the latter learned that the same formed part of the
properties of MERLINDA's first husband; (2) that the said sale was between the spouses; (3)
that when the property was inspected, MODINA met all the lessees who informed that subject
lands belong to MERLINDA and they had no knowledge that the same lots were sold to the
husband.
VALENCIA VS LOCQUIAO
( 412 s 600 )
FACTS:
In 1944, Locquiao spouses executed a deed of donation propter nuptias which was written
involving a parcel of land in favor of their son, Benito and future wife, Tomasa. The deed of
donation propter nuptias was denominated as Inventario Ti Sagut .
By the terms of the deed, the donees were gifted with 4 parcels of land including the land in
question, male cow and 1/3 portion of the conjugal house of donor spouses. The donees took
their marriage vows on June 1944.
When the spouses died, they left 6 heirs (children). With the permission of respondents Benito
and Tomasa, Romana (Benitos sister) took possession and cultivate the subject land, and
eventually, possession was taken over by Romanas daughter, Constancia.
Benito and Tomasa registered the donation and the original title was cancelled and in lieu
thereof a certificate of title was issued. The heirs executed a Deed of Partition with
Recognition of Rights. Later, disagreements arise among heirs concerning the part of land
surface but it was settled thru a compromise agreement. But Constancia filed an action for
annulment of title against the respondents regarding the donation propter nuptias.
She alleged that the transfer of certificate was fraud and spurious; that the donation did not
observe the form required by law as there was no written acceptance on the document.
ISSUES:
1) WON the donation propter nuptias is effective? YES
2) WON the action is barred by prescription and laches? YES
HELD:
94

1) Under the Old Civil Code, donations propter nuptias must be made in a public instrument in
which the property donated must be specifically described. However, Article 1330 of the
same Code provides that acceptance is not necessary to the validity of such gifts. In other
words, the celebration of the marriage between the beneficiary couple, in tandem with
compliance with the prescribed form, was enough to effectuate the donation propter nuptias
under the Old Civil Code.
- Under the New Civil Code, the rules are different. Article 127 thereof provides that the form of
donations propter nuptias are regulated by the Statute of Frauds. Article 1403, paragraph 2,
which contains the Statute of Frauds requires that the contracts mentioned thereunder need be
in writing only to be enforceable. However, as provided in Article 129, express acceptance is
not necessary for the validity of these donations. Thus, implied acceptance is sufficient.
- It is the Old Civil Code which applies in this case since the donation propter nuptias was
executed in 1944 and the New Civil Code took effect only on August 30, 1950. As a
consequence, applying Article 1330 of the Old Civil Code in the determination of the validity
of the questioned donation, it does not matter whether or not the donees had accepted the
donation. The validity of the donation is unaffected in either case.
2) Petitioners action for reconveyance is definitely barred by prescription. Petitioners right to
file an action for the reconveyance of the land accrued in 1944, when the Inventario Ti Sagut
was executed. It must be remembered that before the effectivity of the New Civil Code in
1950, the Old Code of Civil Procedure (Act No. 190) governed prescription. Under the Old
Code of Civil Procedure, an action for recovery of the title to, or possession of, real property, or
an interest therein, can only be brought within ten years after the cause of such action accrues.
Thus, petitioners action, which was filed on December 23, 1985, or more than forty (40) years
from the execution of the deed of donation on May 22, 1944, was clearly time-barred.
- Even following petitioners theory that the prescriptive period should commence from the time
of discovery of the alleged fraud, the conclusion would still be the same. As early as May 15,
1970, when the deed of donation was registered and the transfer certificate of title was issued,
petitioners were considered to have constructive knowledge of the alleged fraud. As it is now
settled that the prescriptive period for the reconveyance of property allegedly registered
through fraud is ten (10) years, reckoned from the date of the issuance of the certificate of title,
the action filed on December 23, 1985 has clearly prescribed.
- In any event, independent of prescription, petitioners action is dismissible on the ground of
laches. The elements of laches are present in this case, viz:
a) conduct on the part of the defendant, or one under whom he claims, giving rise to the
situation that led to the complaint and for which the complainant seeks a remedy;
b) delay in asserting the complainants rights, having had knowledge or notice of defendants
conduct and having been afforded an opportunity to institute a suit;
c) lack of knowledge or notice on the part of the defendant that the complainant would assert
the right on which he bases his suit, and
d) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the
suit is not held barred.
- Of the facts which support the finding of laches, stress should be made of the following: (a) the
petitioners Romana unquestionably gained actual knowledge of the donation propter nuptias
when the deed of partition was executed in 1973 and the information must have surfaced again
when the compromise agreement was forged in 1976, and; (b) as petitioner Romana was a
party-signatory to the two documents, she definitely had the opportunity to question the
donation propter nuptias on both occasions, and she should have done so if she were of the
mindset, given the fact that she was still in possession of the land in dispute at the time. But she
95

did not make any move. She tarried for eleven (11) more years from the execution of the deed
of partition until she, together with petitioner Constancia, filed the annulment case in 1985.
DOMALAGAN VS BOLIFER
( 33 phil 471 )
FACTS:
On Nov. 1909, Domalagan and Bolifer entered into a contract by virtue of the terms of which
Domalagan was to pay P500 upon the marriage of his son Cipriano with the daughter of the
defendant, Bonifacia Bolifer. Petitioner completed his obligation in the sum of P500 plus P16
as Hansel or Token of future marriage. Notwithstanding the said agreement, Bonifacia was
joined in lawful wedlock to Laureano Sisi. Immediately upon learning of the marriage,
petitioner demanded the defendant to return the sum of P516 together with the interest and
damages. Defendant presented a general denial.
ISSUE:
- WON the verbal contract was valid and effective in regard to the delivery of the money by
reason of a prospective marriage? YES
HELD:
- Under section 335 of the code of procedure, an agreement made upon the consideration of
marriage other than mutual promise to marry shall be unenforceable unless the same, or some
note or memorandum be in writing and subscribe by the party charged, or his agent. However,
it does not declare the contract is invalid. The said section simply provides the method by
which the contract mentioned therein may be proved. If the parties to an action during the trial
of the case make no objection to the admissibility of oral evidence to support contracts like the
one in question and permit the contract to be proved, by evidence other than writing, it will be
just as binding upon the parties as if it had been reduced to writing.
GUAN VS ONG
( 367 s 559 )
FACTS:
Petitioner and respondent are husband and wife. They live together until she and her children
abandoned by petitioner on Aug. 26, 1992. She purchased on Mar. 1968, out of her personal
funds, a parcel of land, referred to as the Rizal property. Before their separation, she reluctantly
agreed to petitioner to exercise a Deed of Sale of the Rizal property in his favor but on the
promise that he would construct a commercial building for the benefit of the children, P200K
was the ostensible valuable consideration which was not materialized.
Because of the sale, a new title was issued in his name, but to insure that he would comply with
his commitment, she did not deliver the owners copy of the title to him.
Petitioner failed to perform his promise and because he insisted on delivering to him the
owners copy of the title, in addition to the threats and physical violence, she decided executing
an Affidavit of Adverse claim.
Petitioner filed a Petition for Replacement of owners duplicate title, attached to it is the
Affidavit of Loss in which he falsely made to appear that the owners copy was lost or
misplaced. It was granted by the court. Respondent immediately executed an adverse claim
and asked the court to declare the sale as null and void.
96

It was on the version of petitioner that he bought the Rizal property in 1968 but bec. he was not
a Filipino citizen at that time, he used Ong as a dummy and agreed to have the sale executed in
the name of Ong although the consideration was his personal fund. When he was neutralized,
a Deed of Sale was then executed under his name in 1972. Believing in good faith that his
owners copy of the title was lost or might be concealed by respondent, he filed in 1993 a
petition for replacement of the owners copy. He alleged that respondent was in pari delicto
being privy to the simulated sale.

ISSUES:
1) WON the contract was a simulated contract, fictitious and inexistent? YES
2) WON respondent is in pari delicto? NO
HELD:
1) There was no valid sale. The Deed of Sale was absolutely simulated and hence, void and
without effect. No portion of the P200K consideration stated in the Deed was ever paid. And
from the facts, it is clear that neither party had any intention whatsoever to pay the amount. A
contract of purchase and sale is null and void and produces no effect whatsoever where the
same is without cause or consideration in that the purchase price which appears thereon as paid
in fact never been paid by the purchaser to vendor. The Deed of Sale was executed merely to
facilitate the transfer of the property to petitioner pursuant to an agreement between the parties
to enable him to construct a commercial building and to sell a certain Juno property to their
children. Being merely a subterfuge cannot be taken as the consideration of the sale.
2) The principle in pari delicto provides that when two parties are equally at fault, the law leaves
them as they are and denies recovery by either one of them. However, this principle does not
apply with respect to inexistent and void contracts.
SAMONTE VS C.A.
( July 12, 2001 )
FACTS;
The parcel of land (Lot No.216) subject of this dispute, issued in the names Apolonia Abao and
her daughter Irenea Tolero. Two cases were separately filed in the RTC, involving the entire lot.
Both cases were filed by the surviving heirs of Apolonia Abao and Irenea Tolero. The present
case stems only from the latter case.
Plaintiffs in their evidence claim ownership over the entire lot, Lot 216, as one-half (1/2) of the
area registered in the name of their mother Irenea Tolero, The other half was registered in the
name of their grandmother, Apolonia Abao. After Apolonia Abao died during the Japanese
occupation and Irenea Tolero died in 1945, they inherited and became owners of Lot 216.
Plaintiffs questioned the series of cancellation of the certificate of title and the Deed of Extrajudicial Settlement and Confirmation of Sale executed by Ignacio Atupan on August 7, 1957
adjudicating one-half (1/2) of the area of Lot 216. Plaintiffs maintain that Ignacio Atupan is not
a son of Apolonia Abao but he only grew up while living with Apolonia Abao. That when Lot
216 was subdivided into two (2) lots, the plaintiffs or their predecessors-in-interest have not
signed any document agreeing as to the manner how Lot 216 was to be divided, nor have they
consented to the partition of the same.
Defendant Samonte in his evidence claim that he bought portions of the Lot 216 in good faith
as he was made to believe that all the papers in possession of his vendors were all in order.
One of the documents presented by him is a Deed of Absolute Sale executed in 1939. He has
97

been in possession of the portions of Lot 216 he bought for more than 20 years and have
declared the land for taxation purposes and have paid the real estate taxes thereon.
Defendant Jadols claim that they became owners of one-half (1/2) portion of Lot 216 by
purchase from Ignacio Atupan and Apolonia Abao on September 15, 1939 as shown by a
document notarized by Jacobo Bello and signed by Irenea Tolero as a witness. They were in
possession since they bought the land.

ISSUES:
1) WON the action for annulment has already prescribed since they sought registration 12 or 18
yrs after Abao died? NO
2) WON petitioner is a buyer in good faith? NO
HELD:
1) It is not disputed that Ignacio Atupan caused the fraudulent cancellation. Atupan's affidavit is
tainted with fraud because he falsely claimed therein that he was the sole heir of Abao when in
fact, he merely lived and grew up with her. Jadol and his wife, Beatriz, knew about this fact.
Despite this knowledge, however, the Jadol spouses still presented the affidavit of Atupan
before the Register of Deeds when they caused the cancellation of TCT in their names covering
that portion owned by Abao.
- Petitioner, as successor-in-interest of the Jadol Spouses, now argues that the respondents' action
for reconveyance, filed only in 1975, had long prescribed considering that the Jadol spouses
caused the registration of a portion of the subject lot in their names way back in August 8,
1957. Petitioner's defense of prescription is untenable. The general rule that the discovery of
fraud is deemed to have taken place upon the registration of real property because it is
considered a constructive notice to all persons" does not apply in this case. Accordingly, we
hold that the right of the private respondents commenced from the time they actually
discovered the petitioner's act of defraudation, which is only during the trial of the Civil case.
- While it may be true that the second portion was purchased by Samonte from Tagorda in whose
name the same was then registered, Samonte was previously charged with the fact that Jadol
lacked the capacity to transmit title over any part of the subject property including that portion
which the latter sold to Tagorda. Thus, Samonte was clearly in bad faith when he sought the
registration of the deed of sale of July 10, 1972 which effected the cancellation of TCT and the
issuance of TCT in his favor.
- Petitioner cannot now claim that he already acquired valid title to the property. The inscription
in the registry, to be effective, must be made in good faith. The defense of indefeasibility of a
Torrens Title does not extend to a transferee who takes the certificate of title with notice of a
flaw. A holder in bad faith of a certificate of title is not entitled to the protection of the law, for
the law cannot be used as a shield for frauds.
DOMINGO VS C.A.
( 367 s 368 )
FACTS:
Paulina Rigonan owned 3 parcels of land, including a house and a warehouse on one parcel of
land, and she allegedly sold them to private respondents spouses Felipe and Concepcion
Rigonan, who claim to be her relatives.

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1966, petitioners Domingo, who claim to be her closest surviving relatives, allegedly took
possession of the properties by means of stealth, force and intimidation and refused to vacate
the same.
Feb 2, 1976, respondent Rigonan filed a complaint for reinvindicaccion against petitioners in
RTC.
July 3, 1977, an amended complaint was filed and included his wife as co-plaintiff. They
alleged that they were co-owners of the 3 parcels of land through a deed of sale executed by
Paulina Rigonan on Jan. 28, 1965, that since then, they had been in continuous possession on
the property and introduced improvements, tat petitioners illegally entered into.
Petitioners alleged that the deed of absolute sale was void for being spurious as well as lacking
consideration, and said that Paulina did not sell her properties to anyone.
They said that they were the nearest surviving kin w/n the fifth degree of consanguinity,
inherited the said property and improvements and had been in the possession for more that 10
years.
Mar. 23, 1994, RTC decided for petitioners they were declare the lawful owners of disputed
properties+ improvements thereon by intestate succession and a Decree of Registration was
issued in their favor. The alleged deed of sale was declared null and void and PRs prayer for a
writ of preliminary injunction was denied. PRs were ordered to pay petitioners; P20,000 and
other damages and expenses.
PRs appealed to CA. CA reversed RTC decision Aug. 29, 1996, and declared PRs the owners of
the properties in dispute, petitioners were ordered to vacate the subject properties and surrender
the possession thereof to PRs and their heirs plus costs. Hence, this petition.

ISSUE:
- WON the alleged sale was null and void? YES
HELD:
- PRs failed to establish the existence and due execution of the deed of sale. The lower court
found that the deed w/c involved a parcel of land inclusive of the 3 parcels in dispute at the
price of P850 purportedly executed by Paulina w/ PRs Jan. 28, 1965 was fake, being a carbon
copy w/o a typewritten original and w/o an affidavit of explanation. It was tainted w/
attractions, filed in blanks defects, tampering and irregularities w/c render it null and void ab
initio, and it was not signed by Paulina only her alleged thumbprint was there irregularities
in the execution and registration of properties.
- The price allegedly paid by PRs for the properties were questionable consideration is the why
of a contract; the essential reason w/c moves the contracting parties to enter into the contract.
On record, there is unrebutted testimony that Paulina as landowner was financially well-off
she loaned money to several people. There is no apparent and compelling reason for her to sell
the subject parcels of land, house and warehouse at a meager price of P850 only.
- At the time of alleged execution of the contract, Paulina was already of advanced age and
senile. She died on octogenarion Mar. 20, 1966, barely over a year when the deed was allegedly
executed Jan. 28, 1965, but before copies of the deed was allegedly executed in the registry
May 16 and June 10, 1966. The general rule is that a person is not incompetent to contract
merely because of advanced years or because of physical infirmities. However, when such age
or infirmities have impaired the mental faculties so as to prevent the person from properly,
intelligently and firmly protect right then she is indeniably incapacitated. The unrebutted
testimony of Zosima Domingo shows that at the time of deeds execution, Paulina was already
incapacitated physically and mentally.
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There is sufficient reason to seriously doubt that Paulina consented to the sale was paid to and
received by her. Thus, SC is in agreement w/ RTCs finding and conclusion on the matter.
MENDEZONA VS OZAMIZ
( 376 s 482 )

FACTS:
A suit for quieting of title was instituted by petitioner spouses Mendezona as initial plaintiffs,
and in the amended complaint , herein co-petitioner spouses Luis and Maricar Mendezona and
Teresita Adad Vda. de Mendezona joined as co-plaintiffs.
In their complaint, the petitioners alleged that they own a parcel of land each in the, Lahug,
Cebu City. The petitioners traced their titles of ownership over their properties from a notarized
Deed of Absolute Sale dated April 28, 1989 executed in their favor by Carmen Ozamiz for and
in consideration of the sum of (P1,040,000.00).
The petitioners initiated the suit to remove a cloud on the titles caused by the inscription
thereon of a notice of lis pendens, which came about as a result of an incident in Special
Proceeding. Special Proceeding No. 1250 is a proceeding for guardianship over the person and
properties of Carmen Ozamiz initiated by the respondents Julio H. Ozamiz, et al.
On January 15, 1991, the respondents instituted the petition for guardianship, alleging therein
that Carmen Ozamiz, then 86 years old, after an illness in July 1987, had become disoriented
and could not recognize most of her friends; that she could no longer take care of herself nor
manage her properties by reason of her failing health, weak mind and absent-mindedness.
Mario Mendezona and Luis Mendezona, herein petitioners who are nephews of Carmen
Ozamiz, and Pilar Mendezona, a sister of Carmen Ozamiz, filed an opposition to the
guardianship petition.
Respondent Paz O. Montalvan was designated as guardian over the person of Carmen Ozamiz
while petitioner Mario J. Mendezona, respondents Roberto J. Montalvan and Julio H. Ozamiz
were designated as joint guardians over the properties of the said ward.
As guardians, respondents R. Montalvan and J. Ozamiz filed on August 6, 1991 with the court
their "Inventories and Accounts", listing therein Carmen Ozamizs properties, cash, shares of
stock, vehicles and fixed assets, including a property known as the Lahug property.
Said property is the same property covered by the Deed of Absolute Sale dated April 28, 1989
executed by Carmen Ozamiz in favor of the petitioners.
Respondents R. Montalvan and J. Ozamiz caused the inscription on the titles of petitioners a
notice of lis pendens, regarding Special Proceeding No. 1250, giving rise to the suit for quieting
of title, filed by petitioners.
Respondents opposed the petitioners claim of ownership of the Lahug property and alleged
that the titles issued in the petitioners names are defective and illegal, and that it was acquired
in bad faith and without value inasmuch as the consideration for the sale is grossly inadequate
and unconscionable.
Respondents further alleged that at the time of the sale on April 28, 1989 Carmen Ozamiz was
already ailing and not in full possession of her mental faculties; and that her properties having
been placed in administration, she was in effect incapacitated to contract with petitioners.
ISSUE:
- WON the contract is simulated and is void? NO

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HELD:
- Simulation is defined as "the declaration of a fictitious will, deliberately made by agreement of
the parties, in order to produce, for the purposes of deception, the appearances of a juridical act
which does not exist or is different from what that which was really executed. The requisites of
simulation are: (a) an outward declaration of will different from the will of the parties; (b) the
false appearance must have been intended by mutual agreement; and (c) the purpose is to
deceive third persons. None of these were clearly shown to exist in the case at bar.
- A simulated contract cannot be inferred from the mere non-production of the checks. It was not
the burden of the petitioners to prove so. It is significant to note that the Deed of Absolute Sale
dated April 28, 1989 is a notarized document duly acknowledged before a notary public. As
such, it has in its favor the presumption of regularity, and it carries the evidentiary weight
conferred upon it with respect to its due execution. It is admissible in evidence without further
proof of its authenticity and is entitled to full faith and credit upon its face. Payment is not
merely presumed from the fact that the notarized Deed of Absolute Sale dated April 28, 1989
has gone through the regular procedure as evidenced by the transfer certificates of title issued
in petitioners names by the Register of Deeds.
- Whoever alleges the fraud or invalidity of a notarized document has the burden of proving the
same by evidence that is clear, convincing, and more than merely preponderant. The notarized
deed shows on its face the consideration of P1,040,00 was acknowledge to received by
Carmen. Respondents witnesses all made sweeping statements failed to show the true state of
mind of Carmen at the time of the execution of the contract.
RAMIREZ VA RAMIREZ
( 485 s 92 )
FACTS;
On Oct. 8, 1996, petitioner Potenciano filed a complaint against respondent Ma. Cecilia
Ramirez (his daughter) for annulment of: 1) a Deed of Donation; 2) Waiver of Possessory
Rights; and 3) Transfer Certificates of Title.
Petitioner claimed that respondent caused the execution of the Deed of Donation and Waiver of
Possessory Rights to acquire ownership over the land and improvements. Using the Deed of
Donation, respondent allegedly succeeded in having TCTs issued in her name.
The Deed of Donation and Waiver of Possessory Rights were allegedly executed by petitioner,
Potenciano and his wife, Dolores Ramirez, on January 29, 1993 and October 24, 1995,
respectively. However, the death certificate presented showed that Dolores died on April 5,
1991 and, consequently, could not have executed the assailed documents. Potenciano
repudiated the other signatures appearing on the two documents that were purportedly his and
insisted that he did not intend to transfer the properties to Cecilia. In her Answer, respondent
alleged it was her fathers idea to cause the preparation of the Deed of Donation and Waiver of
Possessory Rights to save on expenses for publication and inheritance taxes.
After trial, the RTC ruled that the signature of Dolores on the Deed of Donation was a forgery
while her signature on the Waiver of Possessory Rights was genuine. It also found petitioners
signatures on both documents to be genuine. It then held petitioner and respondent in pari
delicto, as participants to the forgery, and ruled that they must bear the consequences of their
acts without cause of action against each other in accordance with Article 1412 of the Civil
Code. The RTC dismissed the complaint.
ISSUE:
101

WON petitioner and respondent are in pari delicto? YES

HELD:
- The Court agrees with the rulings of the CA and the RTC that petitioner and respondent are in
pari delicto. Nevertheless, both courts erred on the applicable law. Article 1412 of the Civil
Code, which they applied, refers to a situation where the cause of the contract is unlawful or
forbidden but does not constitute a violation of the criminal laws. On the other hand, where the
act involved constitutes a criminal offense, the applicable provision is Article 1411.
- Petitioner alleged that the signatures of Dolores on the Deed of Donation and on the Waiver of
Possessory Rights are a forgery. Respondent does not deny this allegation. Forging a persons
signature corresponds to the felony of falsification under the Revised Penal Code. Hence, the
act of forging Doloress signature constitutes a criminal offense under the terms of Article 1411
of the Civil Code. Under this article, it must be shown that the nullity of the contract proceeds
from an illegal cause or object, and the act of executing said contract constitutes a criminal
offense. On the first element, petitioner claims that the object or cause of the Deed of
Donation and of the Waiver of Possessory Rights is the transferred real properties and that there
is nothing illegal about them. He maintains that the illegality instead stems from the act of
forgery which pertains to consent, which is not material to the application of Article 1411. The
argument is untenable. Object and cause are two separate elements of a donation and the
illegality of either element gives rise to the application of the doctrine of pari delicto. Object is
the subject matter of the donation, while cause is the essential reason which moves the parties
to enter into the transaction. Petitioner wrongly asserts that the donated real properties are both
the object and cause of the donation. In fact, the donated properties pertain only to the object.
Therefore, while he is correct in stating that the object of the donation is legal, his argument
misses the point insofar as the cause is concerned. The cause which moved the parties to
execute the Deed of Donation and the Waiver of Possessory Rights, the motive behind the
forgery, is the desire to evade the payment of publication expenses and inheritance taxes, which
became due upon the death of Dolores. Undeniably, the Deed of Donation and the Waiver of
Possessory Rights were executed for an illegal cause, thus completing all the requisites for the
application of Article 1411.
REPUBLIC VS C.A.
( 301 s 366 )
FACTS:
St. Judes Enterprises is the registered owner of a parcel of land. He subdivided said lot number
under subdivision plan sometime in March 1966. As a result, the Register of Deeds cancelled
the TCT and issued several Certificates of Titles all in the name of St. Judes Enterprises.
Lot 865-B-1 was later found to have expanded and enlarged, as confirmed by the Land
Registration Commission, from its original area of 40,523 square meters to 42,044 square
meters (an increase of 1,424 square meters).
Subsequently, St. Judes Enterprises sold lots and issued certificates of title to Spouses Santos,
Spouses Calaguian, Virginia dela Fuente, and Lucy Madaya.
On January 29, 1995, Sol Gen. Estelito Mendoza filed an action seeking for the annulment and
cancellation of said certificates of title on the ground that they were issued on the strength of
null and void subdivision plan which expanded the original area in the name of St. Judes
Enterprises.
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St. Judes argued that since the subdivision plan has already been approved by the Land
Registration Commission, the government is now in estoppel to question the approved
subdivision plan.

ISSUE:
- WON the government is estopped from questioning the approved subdivision plan, which
expanded the areas covered by the transfer certificates of title in question? YES
HELD:
- The general rule is that the State cannot be put in estoppel by the mistakes or errors of its
officials or agents. However, like all general rules, this is also subject to exceptions. Estoppels
against the public are little favored. They should not be invoked except in rate and unusual
circumstances, and may not be invoked where they would operate to defeat the effective
operation of a policy adopted to protect the public. They must be applied with circumspection
and should be applied only in those special cases where the interests of justice clearly require it.
Nevertheless, the government must not be allowed to deal dishonorably or capriciously with its
citizens, and must not play an ignoble part or do a shabby thing, and subject to limitations, the
doctrine of equitable estoppel may be invoked against public authorities as well as against
private individuals.
- In this case, for nearly 20 years (starting from the issuance of St Judes titles in 1966 up to the
filing of the complaint in 1985), the government failed to correct and recover the alleged
increase in the land area of St. Jude. Its prolonged inaction strongly militates against its case, as
it is tantamount to laches, which means the failure or neglect, for an unreasonable and
unexplained length of time, to do that which by exercising due diligence could or should have
been done earlier; it is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has abandoned it or declined
to assert it.
- In the interest of justice and equity, neither may the titleholder be made to bear the unfavorable
effect of the mistake or negligence of the agents of the State, in the absence of proof of his
complicity in a fraud of manifest damage to third persons. Estoppel by laches now bars the
government from questioning St. Judes titles to the subdivision lots.

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