OBLIGATIONS AND CONTRACTS

BY: KRISTINE CONFESOR

RESCISSIBLE CONTRACTS
1.
EQUATORIAL REALTY V. MAYFAIR- contract of sale was not voidable but rescissible.
2.
ROSENCOR V. INQUING- oral right of 1st refusal was violated; rescinded (1383, p. 3; 1385)
3.
KHE HONG CHENG V. CA period of prescription in accion pauliana; (1389; 1150); ESOFA; JIFE
4.
UNION BANK V. ONG- greenhills property; accion pauliana requisites, 3rd lacking
5.
HEIRS OF QUIRONG V. DBP- 1389 v. 1144; 1191 v. 1381
6.
ADA V. BAYLON- rescission is not preconditioned upon judicial determination of ownership of the thing subject to litigation; primordial purpose of
1381, p.4 (to secure the possible effectivity of the impending judgment by the court with respect to the thing subject of litigation regardless of which
among the contending claims therein would be upheld.
VOIDABLE CONTRACTS
1.
SAMONTE V. CA- annulled based on fraud; TCT cannot be used as a shield for frauds; upon discovery
2.
MENDEZOPNA V. OZAMIZ- old age and physical infirmities not sufficient to annul
3.
FAMANILA V. CA- disability is NOT a ground to annul; neither was the consent vitiated
4.
CATALAN V. BASA Schizophrenia waxes and wanes
5.
VILLANUEVA V. CHIONG separation in fact does not dissolve the CPG; alienation w/o consent prior to FC renders the contract VOIDABLE only;
offsetting (1398 obligation to mutually restore
6.
AYSON V. PARAGAS the defect of the consent did not cease until the signing of the affidavit
7.
DESTREZA V. ALAROS- allegation of fraud in a notarized deed of absolute sale is a grave one and must be clearly and convincingly proven
8.
KINGS PROPERTIES V. GALIDO- the sale cannot be annulled on the ground that the DENR only approved the sale after 21 years. The requirement
under PLA is merely directory.
UNENFORCEABLE CONTRACTS
1.
REGAL FILMS V. CONCEPCION- 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.
2.

VALENCIA V. LOCQUIAO- Old civil code requires that donation propter nuptias be in a public instrument specifically describing the property to be
donated for its validity but acceptance is not required; under NCC, it was under Statute of Frauds which merely regulates for enforceability and
express acceptance is also not required for validity. Under the Old code of civil procedure, an action for recovery of title can only be brought w/I 10
years from the legal possibility of bringing the action.

3.

LITOJUA V. FERNANDEZ 1403, p. 2 note or memorandum must have contained the ff: (1) all the essential terms and conditions of the sale of the
properties; (2) the accurate description of the property subject of the sale; (3) name of the owners of the properties. The application of the statute of
frauds presupposes the existence of a perfected contract.

4.

GOZUN V. MERCADO By the contract of agency, a person binds himself to render some service to do something in representation or on behalf of
another, with the consent/authority of the latter. Otherwise, unenforceable unless ratified. SPA refers to the nature of authorization and not to its
form. The requirement is that there must be a clear mandate by the principal in order for the latter to be bound.

5.

CABALES V. CA- A co-owner who redeemed the property in its entirety did not make her the co-owner of all of it. It remained in a condition of coownership as the redemption did not provide for a mode of terminating a co-ownership. But Saturnina here only had the right to be reimbursed by
those other co-owners having their pro-indiviso share of said property redeemed; legal guardians only have a plenary power of administration of the
minors property. It does not include the power to alienate unless there is Judicial authorization.

6.

PENALBER V. RAMOS the express trust agreement not reduced into writing is unenforceable but was ratified when there was a failure to object to
the oral testimony to prove its existence. However admitted, weight of the evidences is still subject to judicial evaluation.

7.

GONZALES V. PEREZ Although conveyance of land is not made in a public document, it does not affect the validity of such conveyance. Art. 1358
does not require the accomplishment of the acts or contracts in a public instrument in order to validate or make it enforceable but it is merely for
convenience.

8.

BUCTON V. RURAL BANK- A mortgage executed by an unauthorized agent who signed in his own name without indicating that he acted for and in
behalf of the principal binds only the agent and not the principal.

VOID CONTRACTS
1.
MODINA V. CA In pari delicto doctrine does not apply to absolutely simulated or fictitious contract for it can only be applied to contracts whose
nullity proceeds from illegality of consideration or purpose and since one of the characteristics of a void contract is that it does not produce any civil
effect, then the property may be recovered. Moreover, petitioner is in good faith.
2.

DOMINGO V. CA- A person is not incompetent to contract merely because of old age or physical infirmities unless both had impaired ones mental
faculties to such extent as to prevent one from properly, intelligently, and fairly protecting ones property rights; in this case, shes playing w/ her
waste. She could not have possibly given consent to such contract.

3.

BAUTISTA V. SILVA- To prove good faith, a buyer of registered and titled land need only show that he relied o the face of the title to the property. He
need not prove that he made further inquiry for he is not obliged to explore beyond the four corners of the title. Such is sufficient only when coupled
w/ the following: (1) seller is the registered owner; (2) seller is in possession; (3) at the time of the sale, buyer was not aware of any claim or interest of
some other person in the property or of any defect in the title or the sellers capacity to convey title to the property.

4.

RAMIREZ V. RAMIREZ- donations inter vivos are additionally governed by the general provisions on obligations and contracts in all that is not
determined by the title governing donations. The rule on pari delicto under general provisions of contracts is applicable. 1411 refers to contracts
having illegal cause or object and the act constitutes a criminal offense. Object and cause are two separate elements to a contract which give rise
to the application of the doctrine of pari delicto.

5.

BAUTISTA V. BAUTISTA invalid extrajudicial partition insofar as it affects the legitimate share pertaining to the defendant-appellee in the property in
question. Since the deed is invalid, it transmitted no rights to Teofilos co-heirs. The subsequent transfers of the property as well is invalid, hence
conferring no rights upon the transferees. no one gives what he doesn't have"

OBLIGATIONS AND CONTRACTS

BY: KRISTINE CONFESOR
6.

HULST V. PR BUILDERS the party repudiating the void contract before the illegal purpose is accomplished or before damage is caused to a third
person and if public interest is subserved by allowing recovery. (Art. 1414); Contract to sell;

7.

QUIMPO V. BELTRAN- a deed of sale, in which the stated consideration has not been, in fact, paid as a false contract; it is VOID AB INITIIO

8.

ALINAS V. ALINAS- Petitioners should reimburse respondent spouses the redemption price paid for lot in the amount of the price paid with legal
interest from the time of the filing the complaint and after the judgment has become final and executor, 12% na from 6% legal interest.

9.

CAMPOS V. PASTRANA 1409 v. 1381; the questioned conveyances were executed by the spouses Campos to evade the enforcement of the writ of
execution in the Possession Case; An action to rescind is founded upon and presupposes the existence of a contract. A contract which is null and
void is no contract at all and hence could not be a subject for rescission.

10.

TECSON V. FAUSTO - Second partition agreement is void for lack of intention to be bound by the parties. The deceit employed by Atty. Tecson goes
to the very nature of the contract and not merely to the object or principal condition. CONSENT IS WANTING

11.

BORROMEO V. MINA PD 27 prohibits the transfer of ownership over tenanted rice and/or corn lands except to actual tenanttillers; petitioner had no
right to file a petition for landholding exemption since the sale of the said property to him by Garcia in 1982 is null and void

12.

GONZALO V. TARNATE- The doctrine of pari delicto is a universal doctrine which holds that no action arises, in equity or at law from an illegal
contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money agreed to
be paid, or damages for its violation; and where the parties are in pari delicto, no affirmative relief can be granted by the court to one as against
the other. However, Art. 22 of the Cicvil code allows full compensation for the expenses paid by Tarnate.

ESTOPPEL
1.
2.
3.
4.
5.
6.
7.
8.

LIM V. QUEENSLAND TOKYO COMMODITIES

REPUBLIC V. CA 301 s 366
HERMOSILLA V. REMOQUILLO
ACCESSORIES SPECIALISTS, INC V. ALABANZA
ASILO, KR. PEOPLE AND SPS BOBASI
PRISMA CONSTRUCTION V. MENHAVEZ
DIZON V. PHIL. VETERANS BANK
HOJAS V. PHILIPPINE AMANAH BANK

OBLIGATIONS AND CONTRACTS

BY: KRISTINE CONFESOR

RESCISSIBLE CONTRACTS
EQUATORIAL REALTY V. MAYFAIR
FACTS: CAmelo used to own a parcel of land w/ a building
constructed thereon and leased it to Mayfair for a period of
20years. The contract of lease contained a provision granting
Mayfair of the right of first refusal to purchase the subject
properties. However, while the lease is still in effect, the subject
properties were sold to Equatorial without first offering to Mayfair,
hence the suit. CA rescinded the sale and allowed Mayfair to
buy.
ISSUE: Is the rescission proper?
Yes, because Equatorial is a buyer in bad faith.
HELD: Equatorial was aware of the lease contracts because its
lawyers had, prior to the sale, studied the said contracts. As such,
Equatorial cannot tenably claim to be a purchaser in good faith,
and, therefore, rescission lies.
****CONTRACT OF SALE WAS NOT VOIDABLE BUT RESCISSIBLE.
Under Article 1380 to 1381(3) of the Civil Code, a contract
otherwise valid may nonetheless be subsequently rescinded
by reason of injury to third persons, like creditors. The status of
creditors could be validly accorded the Bonnevies for they
had substantial interests that were prejudiced by the sale of
the subject property to the petitioner without recognizing
their right of first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by
law to the contracting parties and even to third persons, to
secure reparation for damages caused to them by a
contract, even if this should be valid, by means of the
restoration of things to their condition at the moment prior to
the celebration of said contract. It is a relief allowed for the
protection of one of the contracting parties and even third
persons from all injury and damage the contract may cause,
or to protect some incompatible and preferent right created
by the contract. Rescission implies a contract which, even if
initially valid, produces a lesion or pecuniary damage to
someone that justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property
subject of the contract is an obstacle to the action for its
rescission where it is shown that such third person is in lawful
possession of the subject of the contract and that he did not
act in bad faith. However, this rule is not applicable in the
case before us because the petitioner is not considered a
third party in relation to the Contract of Sale nor may its
possession of the subject property be regarded as acquired
lawfully and in good faith.
A purchaser in good faith and for value is one who buys the
property of another without notice that some other person
has a right to or interest in such property and pays a full and
fair price for the same at the time of such purchase or before
he has notice of the claim or interest of some other person in
the property. Good faith connotes an honest intention to
abstain from taking unconscientious advantage of another.
The facts of the case and considerations of justice and equity
require that we order rescission here and now. Rescission is a
relief allowed for the protection of one of the contracting parties
and even third persons from all injury and damage the contract
may cause or to protect some incompatible and preferred right
by the contract. 26 The sale of the subject real property by
Carmelo to Equatorial should now be rescinded considering that
Mayfair, which had substantial interest over the subject property,
was prejudiced by the sale of the subject property to Equatorial

without Carmelo conferring to Mayfair every opportunity to

negotiate within the 30-day stipulated period. 27

ROSENCOR V. INQUING
FACTS:
Respondents are tenants of a two-storey residential apartment in
Tomas Morato QC. The lease was not covered by any contract.
Lessees were verbally given by the lessors the pre-emptive right
to purchase the property in case of sale.
ISSUE: 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:
The prevailing doctrine, as enunciated in the cited cases, is that
a contract of sale entered into in violation of a right of first refusal
of another person, while valid, is rescissible.
There is, however, a circumstance which prevents the
application of this doctrine in the case at bench. In the cases
cited above, the Court ordered the rescission of sales made in
violation of a right of first refusal precisely because the vendees
therein could not have acted in good faith as they were aware
or should have been aware of the right of first refusal granted to
another person by the vendors therein. The rationale for this is
found in the provisions of the New Civil Code on rescissible
contracts. Under Article 1381 of the New Civil Code, paragraph
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. Moreover, under Article
1385, rescission shall not take place when the things which are
the object of the contract are legally in the possession of third
persons who did not act in bad faith.
Unlike the cases cited above, the right of first refusal involved in
the instant case was an oral one given to respondents by the
deceased spouses Tiangco and subsequently recognized by
their heirs. As such, in order to hold that petitioners were in bad
faith, there must be clear and convincing proof that petitioners
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. A purchaser in good faith is one who buys the
property of another without notice that some other person has a
right or interest in such a property and pays a full and fair price
at the time of the purchase or before he has notice of the claim
or interest of some other person in the property. In this regard,
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. In fact, even the lease contract by which
respondents derive their right to possess the property involved
was an oral one.
Evidence on record fails to show that petitioners acted in bad
faith in entering into the deed of sale over the disputed property
with the heirs of the spouses Tiangco. Respondents failed to
present any evidence that prior to the sale of the property on
September 4, 1990, petitioners were aware or had notice of the
oral right of first refusal.

KHE HONG CHENG V. CA

FACTS: On February 25, 1997, respondent Philam filed a
complaint with the Regional Trial Court of Makati City, Branch
147, for the rescission of the deeds of donation executed by
petitioner Khe Hong Cheng in favor of his children and for the
nullification of their titles. Respondent Philam alleged, inter alia,

OBLIGATIONS AND CONTRACTS

BY: KRISTINE CONFESOR
that petitioner Khe Hong Cheng executed the aforesaid deeds
in fraud of his creditors, including respondent Philam.
CA affirmed the trial court's decision in favor of respondent
Philam. The CA declared that the action to rescind the
donations had not yet prescribed. Citing Articles 1381 and 1383
of the Civil Code, the CA basically ruled that the four year
period to institute the action for rescission began to run only in
January 1997, and not when the decision in the civil case
became final and executory on December 29, 1993. The CA
reckoned the accrual of respondent Philam's cause of action on
January 1997, the time when it first learned that the judgment
award could not be satisfied because the judgment creditor,
petitioner Khe Hong Cheng, had no more properties in his name.
Prior thereto, respondent Philam had not yet exhausted all legal
means for the satisfaction of the decision in its favor, as
prescribed under Article 1383 of the Civil Code.
ISSUE: When did the four (4) year prescriptive period as provided
for in Article 1389 of the Civil Code for respondent Philam to file
its action for rescission of the subject deeds of donation
commence to run?
HELD:
Article 1389 of the Civil Code simply provides that, The action to
claim rescission must be commenced within four years. Since this
provision of law is silent as to when the prescriptive period would
commence, the general rule, i.e, from the moment the cause of
action accrues, therefore, applies.

Art. 1150. The time for prescription for all kinds of

actions, when there is no special provision which
ordains otherwise, shall be counted from the day they
may be brought.
Indeed, this 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.

Art. 1383. An 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.
It is thus apparent that an action to rescind or an accion
pauliana must be of last resort, availed of only after all other
legal remedies have been exhausted and have been proven
futile. Requisites:
1) That the plaintiff asking for rescission has a credit prior
to the alienation, although demandable later
2) That the debtor has made a subsequent contract
conveying a patrimonial benefit to a third person;
3) That the creditor has no other legal remedy to satisfy his
claim, but would benefit by rescission of the
conveyance to the third person;
4) That the act being impugned is fraudulent;
5) That the third person who received the property
conveyed, if by onerous title, has been an accomplice
in the fraud
For as long as the creditor still has a remedy at law for the
enforcement of his claim against the debtor, the creditor will not
have any cause of action against the creditor for rescission of
the contracts entered into by and between the debtor and
another person or persons. Indeed, an accion pauliana
presupposes
a judgment and
the issuance by the trial court of a writ of execution for
the satisfaction of the judgment and
the failure of the Sheriff to enforce and satisfy the
judgment of the court.

It presupposes that the creditor has exhausted the

property of the debtor.
The date of the decision of the trial court against the debtor is
immaterial. What is important is that the credit 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.
Respondent Philam only learned about the unlawful
conveyances made by petitioner Khe Hong Cheng in January
1997 when its counsel accompanied the sheriff to Butuan City to
attach the properties of petitioner Khe Hong Cheng.There they
found that he no longer had any properties in his name. It was
only then that respondent Philam's action for rescission of the
deeds of donation accrued because then it could be said that
respondent Philam had exhausted all legal means to satisfy the
trial court's judgment in its favor. Since respondent Philam filed its
complaint for accion pauliana against petitioners on February
25, 1997, barely a month from its discovery that petitioner Khe
Hong Cheng had no other property to satisfy the judgment
award against him, its action for rescission of the subject deeds
clearly had not yet prescribed.

UNION BANK V. ONG

FACTS: To protect its interest, Union Bank filed an action for
rescission of the sale between the spouses Ong and Jackson Lee
for purportedly being in fraud of creditors. It alleged that the
fraudulent design is evidenced by the following circumstances:
(1) insufficiency of consideration; (2) lack of financial capacity
on the part of Lee to buy the; 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
dated October 29, 1991.
ISSUE: whether or not the Ong-Lee contract of sale partakes of a
conveyance to defraud Union Bank? NO
HELD: Contracts in fraud of creditors are those executed with the
intention to prejudice the rights of creditors. They should not be
confused with those entered into without such mal-intent, even
if, as a direct consequence thereof, the creditor may suffer some
damage. 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. To creditors seeking
contract rescission on the ground of fraudulent conveyance rest
the onus of proving by competent evidence the existence of
such fraudulent intent on the part of the debtor, albeit they may
fall back on the disputable presumptions, if proper, established
under Article 1387 of the Code.
the rescissory action to set aside contracts in fraud of creditors is
accion pauliana, essentially a subsidiary remedy accorded
under Article 1383 of the Civil Code which the party suffering
damage can avail of only when he has no other legal means to
obtain reparation for the same.[14] In net effect, the provision
applies only when the creditor cannot recover in any other
manner what is due him.
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. The CA
categorically said so. Absent proof, therefore, that the spouses
Ong had no other property except their Greenhills home, the

OBLIGATIONS AND CONTRACTS

BY: KRISTINE CONFESOR
sale thereof to respondent Lee cannot simplistically be
considered as one in fraud of creditors.
Neither was evidence adduced to show that the sale in question
peremptorily deprived the petitioner of means to collect its claim
against the Ongs. Where a creditor fails to show that he has no
other legal recourse to obtain satisfaction for his claim, then he is
not entitled to the rescission asked.[15]

HEIRS OF QUIRONG V. DBP

FACTS:
This case is about the prescriptive period of an action for
rescission of a contract of sale where the buyer is evicted from
the thing sold by a subsequent judicial order in favor of a third
party.
On June 10, 1998 the Quirong heirs filed the present action
against the DBP for rescission of the contract of sale between
Sofia Quirong, their predecessor, and the DBP and praying for
the reimbursement of the price of P78,000.00 that she paid the
bank plus damages. The heirs alleged that they were entitled to
the rescission of the sale because the decision in Civil Case D7159 stripped them of nearly the whole of the lot that Sofia
Quirong, their predecessor, bought from the DBP. The DBP filed a
motion to dismiss the action on ground of prescription and res
judicata but the RTC denied their motion. RTC rescinded the sale
between Quirong and DBP and ordered the latter to return to
the heirs the amount Sofia paid to DBP. CA reversed on the
ground of prescription concluding that, reckoned from the
finality of the Dec. 16, 1992 decision in Civil Case D-7159, the
complaint filed on June 10, 1998 was already barred by the 4year prescriptive period under Article 1389 of the Civil Ciode.
ISSUES:
1.
2.

Has the action prescribed? YES

If not, are the heirs entitled to rescission of the DBPs
sale of the subject lot to the late Sofia Quirong as a
consequence of her heirs having been evicted from it.

HELD:
Article 1389 provides that the action to claim rescission must be
commenced within four years. The Quirong heirs, on the other
hand, claim that it should be 10 years as provided under Article
1144 which states that actions upon a written contract must be
brought within 10 years from the date the right of action
accrues. Now, was the action of the Quirong heirs for rescission
or upon a written contract? There is no question that their action
was for rescission, since their complaint in Civil Case CV-9802399-D asked for the rescission of the contract of sale between
Sofia Quirong, their predecessor, and the DBP and the
reimbursement of the price of P78,000.00 that Sofia Quirong paid
the bank plus damages. The prescriptive period for rescission is
four years.
But it is not that simple. The remedy of rescission is not confined
to the rescissible contracts enumerated under Article 1381.[17]
Article 1191 of the Civil Code gives the injured party in reciprocal
obligations, such as what contracts are about, the option to
choose between fulfillment and rescission. Arturo M. Tolentino, a
well-known authority in civil law, is quick to note, however, that
the equivalent of Article 1191 in the old code actually uses the
term resolution rather than the present rescission.[18] The
calibrated meanings of these terms are distinct.
Rescission is a subsidiary action based on injury to the plaintiffs
economic interests as described in Articles 1380 and
1381. Resolution, the action referred to in Article 1191, on the

other hand, is based on the defendants breach of faith, a

violation of the reciprocity between the parties. As an action
based on the binding force of a written contract, therefore,
rescission (resolution) under Article 1191 prescribes in 10
years. Ten years is the period of prescription of actions based on
a written contract under Article 1144.
DISTINCTION. Article 1191 gives the injured party an option to
choose between, first, fulfillment of the contract and, second, its
rescission. An action to enforce a written contract (fulfillment) is
definitely an action upon a written contract, which prescribes in
10 years (Article 1144). It will not be logical to make the remedy
of fulfillment prescribe in 10 years while the alternative remedy of
rescission (or resolution) is made to prescribe after only four years
as provided in Article 1389 when the injury from which the two
kinds of actions derive is the same.
Here, the Quirong heirs alleged in their complaint that they were
entitled to the rescission of the contract of sale of the lot
between the DBP and Sofia Quirong because the decision in
Civil Case D-7159 deprived her heirs of nearly the whole of that
lot. But what was the status of that contract at the time of the
filing of the action for rescission?Apparently, that contract of sale
had already been fully performed when Sofia Quirong paid the
full price for the lot and when, in exchange, the DBP executed
the deed of absolute sale in her favor. There was a turnover of
control of the property from DBP to Sofia Quirong since she
assumed under their contract, the ejectment of squatters and/or
occupants on the lot, at her own expense.
Actually, the cause of action of the Quirong heirs stems from
their having been ousted by final judgment from the ownership
of the lot that the DBP sold to Sofia Quirong, their predecessor, in
violation of the warranty against eviction that comes with every
sale of property or thing. ith the loss of 80% of the subject lot to
the Dalopes by reason of the judgment of the RTC in Civil Case
D-7159, the Quirong heirs had the right to file an action for
rescission against the DBP pursuant to the provision of Article
1556 of the Civil Code which provides:
Article 1556. Should the vendee lose, by reason of the eviction, a
part of the thing sold of such importance, in relation to the
whole, that he would not have bought it without said part, he
may demand the rescission of the contract; but with the
obligation to return the thing without other encumbrances than
those which it had when he acquired it. x x x
And that action for rescission, which is based on a subsequent
economic loss suffered by the buyer, was precisely the action
that the Quirong heirs took against the DBP. Consequently, it
prescribed as Article 1389 provides in four years from the time the
action accrued. Since it accrued on January 28, 1993 when the
decision in Civil Case D-7159 became final and executory and
ousted the heirs from a substantial portion of the lot, the latter
had only until January 28, 1997 within which to file their action for
rescission. Given that they filed their action on June 10, 1998,
they did so beyond the four-year period.

ADA V. BAYLON
FACTS:
Florante asserts that before the petitioners may file an action for
rescission, they must first obtain a favorable judicial ruling that Lot
No. 4709 and half of Lot No. 4706 actually belonged to the
estate of Spouses Baylon. Until then, Florante avers that an
action for rescission would be premature.

ISSUE: whether the donation inter vivos of Lot No. 4709 and half
of Lot No. 4706 in favor of Florante may only be rescinded if there

OBLIGATIONS AND CONTRACTS

BY: KRISTINE CONFESOR
is already a judicial determination that the same actually
belonged to the estate of Spouses Baylon.

HELD:

unmistakably and irrefutably indicative of bad faith. Such acts

undermine the authority of the court to lay down the respective
rights of the parties in a case relative to the thing subject of
litigation and bind them to such determination.

RESCISSION IS A REMEDY TO ADDRESS THE DAMAGE OR INJURY

CAUSED TO THE CONTRACTING PARTIES OR THIRD PERSONS.
Rescission is a remedy granted by law to the contracting parties
and even to third persons, to secure the reparation of damages
caused to them by a contract, even if it should be valid, by
means of the restoration of things to their condition at the
moment prior to the celebration of said contract. It is a remedy
to make ineffective a contract, validly entered into and
therefore obligatory under normal conditions, by reason of
external causes resulting in a pecuniary prejudice to one of the
contracting parties or their creditors.

It should be stressed, though, that the defendant in such a case

is not absolutely proscribed from entering into a contract which
refer to things under litigation. If, for instance, a defendant enters
into a contract which conveys the thing under litigation during
the pendency of the case, the conveyance would be valid,
there being no definite disposition yet coming from the court
with respect to the thing subject of litigation. After all,
notwithstanding that the subject thereof is a thing under
litigation, such conveyance is but merely an exercise of
ownership.

Contracts which are rescissible are valid contracts having all the
essential requisites of a contract, but by reason of injury or
damage caused to either of the parties therein or to third
persons are considered defective and, thus, may be rescinded.
KINDS OF RESCISSIBLE CONTRACTS, according to the reason for
their susceptibility to rescission, are the following:
1. rescissible because of lesion or prejudice;
2.
rescissible on account of fraud or bad faith;
3. by special provisions of law, are susceptible to
rescission.
CONTRACTS WHICH REFER TO THINGS SUBJECT OF LITIGATION IS
RESCISSIBLE PURSUANT TO ARTICLE 1381(4) OF THE CIVIL CODE.
Contracts which are rescissible due to fraud or bad faith include
those which involve things under litigation, if they have been
entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority. Thus,
Article 1381(4) of the Civil Code provides:
Art. 1381. The following contracts are rescissible:
(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority.
The rescission of a contract under Article 1381(4) of the Civil
Code only requires the concurrence of the following:
1. first, the defendant, during the pendency of the case,
enters into a contract which refers to the thing subject
of litigation; and
2. second, the said contract was entered into without the
knowledge and approval of the litigants or of a
competent judicial authority.
As long as the foregoing requisites concur, it becomes the duty
of the court to order the rescission of the said contract. The
reason for this is simple. Article 1381(4) seeks to remedy the
presence of bad faith among the parties to a case and/or any
fraudulent act which they may commit with respect to the thing
subject of litigation.
When a thing is the subject of a judicial controversy, it should
ultimately be bound by whatever disposition the court shall
render. The parties to the case are therefore expected, in
deference to the courts exercise of jurisdiction over the case, to
refrain from doing acts which would dissipate or debase the
thing subject of the litigation or otherwise render the impending
decision therein ineffectual.
There is, then, a restriction on the disposition by the parties of the
thing that is the subject of the litigation. Further, any disposition of
the thing subject of litigation or any act which tends to render
inutile the courts impending disposition in such case, sans the
knowledge and approval of the litigants or of the court, is

This is true even if the defendant effected the conveyance

without the knowledge and approval of the litigants or of a
competent judicial authority. The absence of such knowledge or
approval would not precipitate the invalidity of an otherwise
valid contract. Nevertheless, such contract, though considered
valid, may be rescinded at the instance of the other litigants
pursuant to Article 1381(4) of the Civil Code.
Here, contrary to the CAs disposition, the RTC aptly ordered the
rescission of the donation inter vivos of Lot No. 4709 and half of
Lot No. 4706 in favor of Florante. The petitioners had sufficiently
established the presence of the requisites for the rescission of a
contract pursuant to Article 1381(4) of the Civil Code. It is
undisputed that, at the time they were gratuitously conveyed by
Rita, Lot No. 4709 and half of Lot No. 4706 are among the
properties that were the subject of the partition case then
pending with the RTC. It is also undisputed that Rita, then one of
the defendants in the partition case with the RTC, did not inform
nor sought the approval from the petitioners or of the RTC with
regard to the donation inter vivos of the said parcels of land to
Florante.
Although the gratuitous conveyance of the said parcels of land
in favor of Florante was valid, the donation inter vivos of the
same being merely an exercise of ownership, Ritas failure to
inform and seek the approval of the petitioners or the RTC
regarding the conveyance gave the petitioners the right to have
the said donation rescinded pursuant to Article 1381(4) of the
Civil Code.
RESCISSION UNDER ARTICLE 1381(4) OF THE CIVIL CODE IS NOT
PRECONDITIONED UPON THE JUDICIAL DETERMINATION AS TO THE
OWNERSHIP OF THE THING SUBJECT OF LITIGATION. The primordial
purpose of Article 1381(4) of the Civil Code is to secure the
possible effectivity of the impending judgment by a court with
respect to the thing subject of litigation. It seeks to protect the
binding effect of a courts impending adjudication vis--vis the
thing subject of litigation regardless of which among the
contending claims therein would subsequently be upheld.
Assuming arguendo that a rescissory action under Article 1381(4)
of the Civil Code could only be instituted after the dispute with
respect to the thing subject of litigation is judicially determined,
there is the possibility that the same may had already been
conveyed to third persons acting in good faith, rendering any
judicial determination with regard to the thing subject of
litigation illusory
EVEN IF THE DONATION INTER VIVOS IS VALIDLY RESCINDED, A
DETERMINATION AS TO THE OWNERSHIP OF THE SUBJECT PARCELS
OF LAND IS STILL NECESSARY.

OBLIGATIONS AND CONTRACTS

BY: KRISTINE CONFESOR

VOIDABLE CONTRACTS
SAMONTE V. CA (July 12, 2001)
FACTS: There was a parcel of land (lot No. 216) which was a
subject of dispute situated in Agusan del Norte covered by
original certificate of title RO 238 (555) issued in the name of
Apolonia Abao and the daughter Irenea Tolero pro indiviso. Two
cases were separately filed in RTC. The first case was an action
for quieting of title and recovery of possession of a parcel of land
formed the entire property. On the other hand, the second case
had similar action except that a portion of land was involve in
the entire lot 216. Both cases were filed by the heirs of Abao and
Tolero.
The litigation that stems out the second cases started when the
OCT No. RO 238 (555) issued in 1927 in the name of Apolonia
Abao and Irenea Tolero in equal undivided shares was
administratively reconstituted on August 8, 1957 based on an
Affidavit of Extrajudicial Settlement and Confirmation of Sale.
That OCT No. RO 238 was cancelled in lieu thereof TCT No. RT 476
issued in the name of Irenea Tolero and Nicholas Jadol and that
each of them has half of the shares of the property. On Feb. 13,
1959 based on subdivision plan subdividing the lots, the Register
of Deeds cancelled the TCT No. RT 476 and issued RT 553 in the
name of Tiburcio Samonte as to lot 216-A and TCT No. RT- 554.
For lot 216-B, it was then cancelled to issue TCT No. RT 555 issued
in the name of Jacobo Tagorda and TCT No. 556 in the name of
Irenea Tolero.
Plaintiff claim ownership of the entire lot as of the area 12, 753
sq.m was registered in the name of their Mother Irenea Tolero
and half to their grandmother Apolonia Abao. They also
questioned the series of cancellation of certification of titles
starting from the original title and the Deed of Extra Judicial
Settlement and Confirmation of Sale executed by Ignacio
Atupan who claim to be the sole son of Apolonia Abao and that
the 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.
CA affirmed the trial courts decision that the consequent
issuance of TCT of the Jadol Spouses were through fraudulent
means. Citing the case of Adille vs CA where petitioner
executed a deed of extrajudicial partition misrepresenting
himself to be the sole heir of his Mother.

ISSUE: Did the CA erred in departing from the prevailing

doctrine supported by the weight of authorities that the
discovery of the fraud is deemed to have taken place at the
time of the registration
HELD: Ignacio Atupan caused the fraudulent cancellation of title
by falsely claiming in his affidavit that he was the sole heir of
Abao when in fact, he merely lived and grew up with
her. Despite knowledge of this fact however, the Jadol spouses
still presented the affidavit of Atupan before the Register of
Deeds of the Province of Agusan when they caused the
cancellation of OCT No. and issuance of the new title in their
names covering that portion owned by Abao.
It was noted that the documents evidencing the alleged
transactions were not presented in the Register of Deeds. It was
further pointed out that the Jadol spouses only sought the
registration of these transactions in 1957, eighteen (18) years
after they supposedly took place or twelve (12) years after Abao
died.
Generally, an action for reconveyance of real property based
on fraud may be barred by the statute of limitations which

requires that the action must be commenced within four (4)

years from the discovery of fraud, and in case of registered land,
such discovery is deemed to have taken place from the date of
the registration of title
Article 1456 of the Civil Code, however, provides:
Art. 1456. If property is acquired through mistake or fraud,
the person obtaining it is, by force of law, considered a
trustee of an implied trust for the benefit of the person from
whom the property comes.
Since fraud attended the registration of a portion of the subject
property, it can be said that the Jadol spouses were trustees
thereof on behalf of the surviving heirs of Abao. An action based
on implied or constructive trust prescribes in ten (10) years from
the time of its creation or upon the alleged fraudulent registration
of the property.[9]
DEFENSE OF PRESCRIPTION IS UNTENABLE; RULE ON CONSTRUCTIVE
NOTICE DOES NOT APPLY It is petitioners contention that since
eighteen years had already lapsed from the issuance of TCT No.
RT-476 until the time when respondents filed the action in the
courta quo in 1975, the same was time-barred. 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[10] does not apply in this
case. Instead, the CA correctly applied the ruling in Adille vs.
Court of Appeals[11] which is substantially on all fours with the
present case.
It is true that registration under the Torrens system is
constructive notice of title, but it has likewise been our
holding that the Torrens title does not furnish a shield for
fraud. It is therefore no argument to say that the act of
registration is equivalent to notice of repudiation,
assuming there was one, notwithstanding the longstanding rule that registration operates as a universal
notice of title.
For the same reason, we cannot dismiss private
respondents claims commenced in 1974 over the
estate registered in 1955. While actions to enforce a
constructive trust prescribes in ten years, reckoned
from the date of the registration of the property, we, as
we said, are not prepared to count the period from
such a date in this case. We note the petitioners sub
rosaefforts to get hold of the property exclusively for
himself beginning with his fraudulent misrepresentation
in his unilateral affidavit of extrajudicial settlement that
he is the only heir and child of his mother Feliza with the
consequence that he was able to secure title in his
name [alone]. Accordingly, we hold that the right of
the private respondents commenced from the time
they actually discovered the petitioners act of
defraudation. According to the respondent CA, they
"came to know [of it] apparently only during the
progress of the litigation." Hence, prescription is not a
bar.[12]
petitioner cannot pretend to be a purchaser in good faith. It is
axiomatic that one who buys from a person who is not a
registered owner is not a purchaser in good faith.[14]
Moreover, with respect to the other portion which petitioner
bought from Jacobo Tagorda, the trial court held that he was,
as in the first case, a buyer in bad faith. The general rule is that a
person dealing with registered land has a right to rely on the
Torrens certificate of title and to dispense with the need of
making further inquiries.[15] This rule, however, admits of
exceptions:

OBLIGATIONS AND CONTRACTS

BY: KRISTINE CONFESOR
1.

when the party has actual knowledge of facts and

circumstances that would impel a reasonably cautious
man to make such inquiry or when the purchaser has
knowledge of a defect;
2. the lack of title in his vendor or of sufficient facts to
induce a reasonably prudent man to inquire into the
status of the title of the property in litigation.[16]
One who falls within the exception can neither be denominated
an innocent purchaser for value nor a purchaser in good faith;
and hence does not merit the protection of the law.[17]
The CA established that petitioner is not a purchaser in good
faith with respect to this portion of the subject property, thus:
xxx While it may be true that the second portion was purchased by
Samonte from Tagorda in whose name the same was then
registered under TCT No. RT-555, 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 No. RT-555 and the issuance of TCT
No. 1658 in his favor. xxx[18]

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.[19]

MENDEZONA V. OZAMIZ (Feb 6, 2002)

FACTS: Civil Case No. CEB-10766 is a suit for quieting of title. In
their complaint, the petitioners own a parcel of land each in the
Banilad Estate, Lahug, Cebu City with almost similar areas
covered and described in (TCT) Nos. of the Registry of Deeds of
Cebu City. The petitioners ultimately traced their titles of
ownership over their respective 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 their said
respective titles caused by the inscription thereon of a notice of
lis pendens, which came about as a result of an incident in
Special Proceeding No. 1250 of the RTC of Oroquieta City for
guardianship over the person and properties of Carmen Ozamiz
initiated by the respondents.
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; no longer take care of herself nor manage
her properties by reason of her failing health, weak mind and
absent-mindedness. In the course of the guardianship
proceeding, the petitioners and the oppositors thereto agreed
that Carmen Ozamiz needed a guardian over her person and
her properties, and thus 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 Roberto J. Montalvan and Julio H.

Ozamiz filed with the guardianship court their inventories and
Accounts, listing therein Carmen Ozamizs properties and assets,
including a 10,396 square meter property known as the Lahug
property. Said Lahug 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 Roberto
J. Montalvan and Julio H. Ozamiz caused the inscription on the
titles of petitioners a notice of lis pendens, regarding Special
Proceeding No. 1250, thus giving rise to the suit for quieting of
title, Civil Case No. CEB-10766, filed by herein petitioners.
Respondents 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.
ISSUES:
1.

2.

the validity or nullity of the Deed of Absolute Sale

dated April 28, 1989 executed by Carmen Ozamiz in
favor of herein petitioners;
whether the titles over the subject parcel of land in
plaintiffs names be maintained or should they be
cancelled and the subject parcels of land reconveyed;

HELD:
The appellate court erred in ruling that at the time of the
execution of the Deed of Absolute Sale on April 28, 1989 the
mental faculties of Carmen Ozamiz were already seriously
impaired.[27] It placed too much reliance upon the testimonies
of the respondents witnesses. However, after a thorough scrutiny
of the transcripts of the testimonies of the witnesses, we find that
the respondents core witnesses all made sweeping statements
which failed to show the true state of mind of Carmen Ozamiz at
the time of the execution of the disputed document. The
testimonies of the respondents witnesses on the mental capacity
of Carmen Ozamiz are far from being clear and convincing, to
say the least.
Carolina Lagura, a househelper of Carmen Ozamiz, testified that
when Carmen Ozamiz was confronted by Paz O. Montalvan in
January 1989 with the sale of the Lahug property, Carmen
Ozamiz denied the same. She testified that Carmen Ozamiz
understood the question then.[28] However, this declaration is
inconsistent with her (Carolinas) statement that since 1988
Carmen Ozamiz could not fully understand the things around
her, that she was physically fit but mentally could not carry a
conversation or recognize persons who visited her.[29]
Furthermore, the disputed sale occurred on April 28, 1989 or
three (3) months after this alleged confrontation in January 1989.
This inconsistency was not explained by the respondents.
The revelation of Dr. Faith Go did not also shed light on the
mental capacity of Carmen Ozamiz on the relevant day - April
28, 1989 when the Deed of Absolute Sale was executed and
notarized. At best, she merely revealed that Carmen Ozamiz was
suffering from certain infirmities in her body and at times, she was
forgetful, but there was no categorical statement that Carmen
Ozamiz succumbed to what the respondents suggest as her
alleged second childhood as early as 1987. The petitioners

OBLIGATIONS AND CONTRACTS

BY: KRISTINE CONFESOR
rebuttal witness, Dr. William Buot, a doctor of neurology, testified
that no conclusion of mental incapacity at the time the said
deed was executed can be inferred from Dr. Faith Gos clinical
notes nor can such fact be deduced from the mere prescription
of a medication for episodic memory loss.
It has been held that a person is not incapacitated to contract
merely because of advanced years or by reason of physical
infirmities. Only when such age or infirmities impair her mental
faculties to such extent as to prevent her from properly,
intelligently, and fairly protecting her property rights, is she
considered incapacitated.[30] The respondents utterly failed to
show adequate proof that at the time of the sale on April 28,
1989 Carmen Ozamiz had allegedly lost control of her mental
faculties.
We note that the respondents sought to impugn only one
document, namely, the Deed of Absolute Sale dated April 28,
1989, executed by Carmen Ozamiz. However, there are nine (9)
other important documents that were, signed by Carmen
Ozamiz either before or after April 28, 1989 which were not
assailed by the respondents.[31] Such is contrary to their
assertion of complete incapacity of Carmen Ozamiz to handle
her affairs since 1987. We agree with the trial courts assessment
that it is unfair for the [respondents] to claim soundness of mind
of Carmen Ozamiz when it benefits them and otherwise when it
disadvantages them.[32] A person is presumed to be of sound
mind at any particular time and the condition is presumed to
continue to exist, in the absence of proof to the contrary.[33]
Competency and freedom from undue influence, shown to
have existed in the other acts done or contracts executed, are
presumed to continue until the contrary is shown.[34]
All the foregoing considered, we find the instant petition to be
meritorious and the same should be granted.

ISSUE:
HELD:
FAMANILA V. CA
FACTS:
ISSUE:
HELD:
CATALAN V. BASA
FACTS:
ISSUE:
HELD:
VILLANUEVA V. CHIONG
FACTS:
ISSUE:
HELD:
AYSON V. PARAGAS
FACTS:
ISSUE:
HELD:

DESTREZA V. ALAROS
FACTS:
ISSUE:
HELD:
KINGS PROPERTIES V. GALIDO
FACTS:
ISSUE:
HELD:

UNENFORCEABLE CONTRACTS
REGAL FILMS V. CONCEPCION
VALENCIA V. LOCQUIAO
LITOJUA V. FERNANDEZ
GOZUN V. MERCADO
CABALES V. CA
PENALBER V. RAMOS
GONZALES V. PEREZ
BUCTON V. RURAL BANK
VOID CONTRACTS
MODINA V. CA
DOMINGO V. CA
BAUTISTA V. SILVA
RAMIREZ V. RAMIREZ
BAUTISTA V. BAUTISTA
HULST V. PR BUILDERS
QUIMPO V. BELTRAN
ALINAS V. ALINAS
CAMPOS V. PASTRANA
TECSON V. FAUSTO
BORROMEO V. MINA
GONZALO V. TARNATE
ESTOPPEL
LIM V. QUEENSLAND TOKYO COMMODITIES
REPUBLIC V. CA 301 s 366
HERMOSILLA V. REMOQUILLO
ACCESSORIES SPECIALISTS, INC V. ALABANZA
ASILO, KR. PEOPLE AND SPS BOBASI
PRISMA CONSTRUCTION V. MENHAVEZ
DIZON V. PHIL. VETERANS BANK
HOJAS V. PHILIPPINE AMANAH BANK