G.R. No. 105567 November 25, 1993 GSIS v. CA AND SPS.

RAUL AND ESPERANZA LEUTERI

O Facts: GSIS increased the purchase price stipulated in the Deed of Conditional
Sale with the Sps., involving one of its house and lots in its village after th
e final construction costs. Because the Deed did not subject the price to change
, where the marginal notation of such effect was only inserted, the agreement wa
s only to pay the original price, which obligation the Sps had already complied
with and which necessitates the execution of a Final Deed of Sale. > Deed of Con
ditional Sale (1965) between GSIS and Sps. Raul and Esperanza Leuterio where the
former would sell a house and lot to the latter ~ by virtue of a lottery for lo
ts and housing units of GSIS Village on December 18, 1963 where Sps. Leuterios wo
n > Certificate of Acknowledgement to purchase were issued to the Sps. (December
27, 1963) > CONDITIONS: Sps. to pay P19,740 within 15y, in 180 equal monthly in
stallments (P168.53); Par. 11: Upon full payment by the Vendee of the purchase pr
icethe Vendor agrees to execute in favor of the Vendee a final Deed of Sale > Dee
d of Conditional Sale notarized after 3y > Completion of the Village ~ Board of
Trustees increased the purchase price (allegedly due to the final costs of the c
onstruction) in accordance with (1) the marginal notation subject to adjustment p
ending approval of the Board of Trustees on the face of the Deed; (2) the recomme
ndation of an ad hoc committee created by President Marcos to investigate the pr
ice increase which it found to be justified ~ pursuant to the petition of a grou
p of vendees > SUIT for Specific Performance with Damages (May 20, 1984), after
the Sps completion of payment of the original purchase price (plus taxes) and GSI
S failure to execute a final deed of sale > CONTENTION OF THE SPS: Marginal notat
ion was not there when they signed it > CONTENTION OF GSIS: Sps. was bound by th
e Ad hoc committees recommendation of the price increase > RTC Held in favour of
Sps: Marginal notation was inserted without the Sps. knowledge or consent (such f
act was not questioned during appeal to CA) > CA Upheld by virtue of estoppels >
FINAL DEED OF SALE SHOULD BE EXECUTED IN FAVOUR OF THE SPOUSES > Parties only a
greed on the purchase price of P19,740 ~ the agreement was not made subject to a
ny posterior event or condition > (A) Marginal Notation was not included in the
contract when signed: Judicial admission by GSIS in (1) its Answer to the Compla
int that it was only an honest mistake (made by the clerk who typed it) and in (
2) its Petition for Review on Certiorari that it was only inserted > (B) Also, R
ecommendation by the ad hoc committee was set aside by President Marcos (May 30,
1970) and GSIS reconsideration was denied (December 18, 1990) > HENCE, the oblig
ation mutually agreed upon was the payment of
P19,740 > Art. 1473: GSIS cannot unilaterally adjust the price without the Sps kn
owledge and consent > Obligation was thus completed by the Sps. upon full paymen
t > Failure of GSIS to foresee the construction costs is due to their own fault
> It cannot excuse itself from performing > BAD BUSINESS JUDGMENT IS NOT AN EXCU
SES G.R. No. 148599 March 14, 2005 PROFESSIONAL ACADEMIC PLANS, INC., FRANCISCO
COLAYCO and BENJAMIN DINO v. DINNAH L. CRISOSTOMO Facts: Sales associate Crisost
omo negotiated with AFPSLAI and received commission for the initial MOA contract
ed, involving educational plans. When the MOA was amended, PAPI stopped her comm
ission, alledging the termination of the first MOA and hence, Crisostomos lack of
right to said commissions. However, the second MOA was only a modification of t
he first since the abandonment of contracts must be mutual between the contracti
ng parties. Crisostomo and the new president of AFPSLAI did not intend to rescin
d the contract and hence, the former remains entitled to her commission. > Memor
andum of Agreement (November 9, 1988) between PAPI and AFPSLAI > District Manage
r of PAPI for MM, Dinnah L. Crisostomo, and VP for Sales, Guillermo Macariola, a
greed to sell and AFPSLAI agreed to purchase educational plans from PAPI ~ Origi
nally offered by Noel Rueda (PAPIs sales consultant) but finalized by Crisostomo
as his supervisor when he was terminated > Commission for the contract was given
to Crisostomo by the Executive Committee when Macariola declined (disqualified
because she was an employee) in favor of Crisostomo (she receives no salary but
is entitled to franchise commission worth 10% of remittances for every contract
negotiated by her for PAPI) > Crisostomo received the commission from December 1
988 to April 1989 > Commission was later reduced (to 5%, 4%, 3.75%, 2%) upon the

instance of Benjamin Dino, Ass. VP for Marketing, allegedly to support operatio

nal expenses > Crisostomo was issued a Memorandum (February 7, 1991) by Dino and
Cruz (VP for Finance and Admin) reducing the commission to 2% > Amendment of th
e MOA with AFPSLAI between the new AFPSLAI President and PAPI (April 1992) after
the former wrote a letter and suspended the first MOA > Crisostomo no longer re
ceived her commission after the amendment > Crisostomo was issued a Memorandum (
June 1, 1992), terminating her franchise commission on the transactions with AFP
SLAI ~ WHY: (1) Amendment of the contract due to the sales associates misrepresen
tations; (2) Amendment was largely due to managements efforts; (3) Crisostomo fai
led to complete 100 new plans as stipulated in the first MOA
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> Insistence and Demand by Crisostomo for continued payment of her 2% commission
~ Proposed to resign for P5M or to resign but continue receiving the commission
as royalty until the contract with AFPSLAI exists > PAPI denied her proposal, p
reventively suspended her and subsequently terminating her services > SUIT for s
um of monet and damages (January 21, 1993) amounting to P183,867.34 as commissio
n of AFPSLAIs payment worth P9,193,367.20 as of October 2, 1992 > CONTENTIONS OF
PAPI: (1) Crisostomo failed to complete 100 new paid plans; (2) Crisostomos right
to commission was subject to the existene of a contrace and the Amended MOA wit
h AFPSLAI was a new contract with the old one rescinded; (3) Crisostomo was not
entitled to commission but was given only because those entitled were disqualifi
ed (as terminated and as an employee) > RTC Held in favor of Crisostomo > CA Uph
eld since (1) no cancellation of the first MOA that was only modified; (2) the r
equirement of 100 new paid plans was amended by the Memorandum which reduced the
commission to 2% > FIRST MOA NOT CANCELLED BUT ONLY MODIFIED BY THE SECOND > Le
tter of new AFPSLAI President only signified the suspension of the acceptance of
new applications under the first MOA, until such time that a new agreement mutu
ally beneficial to both parties was entered into ~ Only inconsistent provisions
were rescinded or modified > Abandonment must be (1) Actually intended; (2) Mutu
ally assented to by both contracting parties ~ Art. 1308 > Non-participation of
Crisostomo in the negotiations is immaterial because the commission was granted
as an incentive to the one who initiated and successfully negotiated the contrac
t given that the agent remains connected with PAPI and that the commission was n
on-transferable > Crisostomo was still with PAPI and hence entitled to the commi
ssion even under the second MOA > No moral damages for absence of bad faith in t
he breach of contract > No exemplary damages due to absence of finding of moral,
temperate or compensatory damages G.R. No. 11318 October 26, 1918 MANILA RAILRO
AD CO. v. LA COMPANIA TRASATLANTICA and THE ATLANTIC, GULF & PACIFIC CO. Facts:
Atlantic, in negligently lifting the boiler of Company from the steamship of Com
pania, thereby damaging such boiler, is liable only to Compania and not to Compa
ny because the contract exists only between Atlantic and Compania. There was no
contract with Company and hence, the latter cannot reinforce performance nor cla
im damages for damages arising from such breach of duty.
> Steamship of Compania arrived with Companys two locomotive boilers but the form
er was not able to discharge the boilers because they were too heavy for its equ
ipment > Compania thus hired Atlantic for the purpose > One boiler was severely
damaged due to ineffective lifting that dropped the boiler twice (caused by impr
oper adjustment of the sling due to Leydens gross negligence, the foreman in char
ge) ~ Had to be sent back to England for repair and shipped bank > Company spent
P22,343.39 for the damage, repair and loss of use of the boiler > Company sued
Compania and latter insisted that Atlantic be made its codefendant > RTC ruled i
n favor of Company against Atlantic but absolved Compania > Contract between Com
pania and Company > Former to transport safely the boiler from England to Manila
, including its discharge from the ship > Compania is liable for negligence, fai
ling to exercise due diligence in delivering safely the boiler to the port of Ma
nila > No ruling yet that the failure to comply with a contractual obligation ca
n be excused by showing that such delinquency was due to the negligence of one t
o whom the contracting party had committed the performance of the contract > Obl
igation of Atlantic to Compania > Atlantic agreed to render its service when Com
pania assumed all risk (of damages) incident to the discharge of the boilers ~ t
hat while Atlantic would use all due care in getting the boilers out, no respons
ibility was assumed for damage done either to ship or cargo (testimony of Atlant
ics VP as the practice being customary to Atlantic) ~ BUT diligence is an implied
obligation arising from law > Exemption from liability excludes those caused by
negligence and referred to disasters which might result from some inherent hidd
en defect in the lifting apparatus or other unforeseen occurrence not directly a
ttributable to negligence of Atlantic in the lifting operations > (1) Liability
from negligence is demandable in all kinds of obligations (Art. 1103) > Contract
s against liability for damages are not favored by the law (Crew v. Bradstreet C
ompany) > (2) Exempted negligence, if so allowed, must have been not gross and s

uch conditions must have been expressly declared; (3) Absolute exemption is ineq
uitable and unfair; (4) Promise to exercise due care has a legal effect as much
as the exemption promised > Art. 1903 which absolves liability by proving due ca
re applies only to those acquired outside a contract > No Obligation of Atlantic
to Company > Contract was between Atlantic and Compania > No contract between A
tlantic and Company > No right was conferred to Company for damages > No double
responsibility of Atlantic to Compania (contract) and to Company (culpa aquilian
a) because the liability arises only from its obligation to Compania which was a
uthorized to contract
2

with Atlantic when Company impliedly assented to the employment of Atlantic (whe
n it was informed about the need to hire a contractor to carry the boiler) >> Cu
lpa Aquiliana, those not growing out of preexisting duties of the parties to one
another >> Culpa Contractual, those growing out of relations already formed to
give rise to duties G.R. No. 118248 April 5, 2000 DKC HOLDINGS CORPORATION v. CA
, VICTOR U. BARTOLOME and REGISTER OF DEEDS FOR METRO MANILA, DISTRIC III Facts:
Son of land owner Encarnacion is bound to recognize the contract of lease betwe
en his mother and DKC over his mothers land even after the death of her mother an
d even after he had inherited the same as sole heir. Property right is transmiss
ible and thus, under Art. 1311, obligations arising from it binds heirs. > Contr
act of Lease with Option to Buy (March 16, 1988) between Encarnacion Bartolome a
nd DKC over the formers parcel of land as a potential warehouse for the latters te
xtile plant beside it > Conditions: DKC to (a) either lease the land for 6y, ren
ewable for another 6y, or to lease with purchase the land ~ option to be exercis
ed in 2y from the signing of the contract; (b) pay P3k/m for the reservation of
its option > Death of Encarnacion (January 1990) > Payment of the P3k/m by DKC t
o Victor Bartolome, Encarnacions son > Victor refused to accept > Letter by DKC t
o Victor (March 14, 1990) notifying him of its intention to lease the land and t
endering payment of P15k for the first 6y > Victor refused to accept and to surr
ender possession of the property > DKC deposited its payment to a bank account i
t had opened in China Banking Corporation under the name of Victor > DKC paid th
e Register to have the Title annotated but the Register refused to do so after >
Suit (April 23, 1990) by DKC against Victor and Register for Specific Performan
ce and Damages > Contention of Victor: The contract expired with Encarnacion and
he is not bound by it as he was not a party to it > Victor is bound by the cont
ract > Art. 1311 ~ heirs are bound by contracts entered into by their predecesso
rs-in-interest ~ Exception is when the right and obligation is NOT TRANSMISSIBLE
by (1) its nature, (2) stipulation, (3) provision of law > No stipulation or la
w and the nature of the obligation is transmissible (property right and not pers
onal right as defined below) > He who contracts does so for himself and his heir
s > Principle: heirs cannot escape the
legal consequence of a transaction entered into by their predecessor-in-interest
because they have inherited the property subject to the liability affecting the
ir common ancestor (Carillo v. Salak de Paz) > Heirs only succeeds what rights t
he predecessor had ~ what is valid and binding against the latter is the same ag
ainst the former > DKC properly exercised its option to lease by paying the fees
and informing Victor of its exercise >> Intransmissible Contracts > Those which
are purely personal, either by provision of law (partnerships and agency) or by
the very nature of the obligations arising therefrom (those requiring special p
ersonal qualifications of the obligor; acts require the special knowledge, geniu
s, skill, taste, ability, experience, judgment, discretion, integrity or other p
ersonal qualification) > It may be stated that contracts for the payment of mone
y debts are not transmitted to the heirs of a party but constitute a charge agai
nst his estate > Terminates on the death of the party required to render such se
rvice because it cannot be performed by the promissors personal representative
G.R. No. 9188 December 4, 1914 GUTIERREZ HERMANOS v. ENGRACIO ORENSE Facts: Oren
ses nephew sold his uncles land to Gutierrez without his written consent, thereby
nullifying the contract, but due to Orenses verbal declaration in Court, which wa
s proven as fact during the estafa case against Duran, the defect was cured as a
llowed by Art. 1259. > Deed of Sale (February 14, 1907) between Jose Duran (neph
ew of Engracio Orense and manager of his business) and Gutierrez Hermanos where
Duran, allegedly with Orenses knowledge and consent, sold the latters property as
the absolute owner to Gutierrez with the right to repurchase for the same price
of P1,500 after 4y > Contract of Lease where Gutierrez leased the property to Or
ense and Duran until February 14, 1911 ~ O,D continued to occupy the land > Guti
errez demanded a deed of conveyance of the property to perfect its title but Ore
nse refused > Non-possession of the property and loss by Gutierrez of its value
(P3k) and non-payment of Orense and Duran of the rentals after Feb. 14, 1911 > P

revious Complaint by Gutierrez against Duran for estafa (allegedly misrepresenti

ng himself as the owner) but latter was acquitted due to Orenses testimony that h
e had consented to the sale > Complaint (March 5, 1913) by Gutierrez for declara
tion of his ownership, the execution of the deed of
3

conveyance, and the payment of rentals or damages > Contention of Orense: that t
he sale was executed without his knowledge and consent, express or implied ~ tha
t he did not authorize Duran verbally or thru a special power of attorney and th
at he knew of the sale long after it was made > Orense knew and consented to the
sale: Ratification of the sale by means of Orenses verbal declaration (March 14,
1912) that he gave consent during the estafa case against Duran ~ proven as fac
t during the trial and made the basis of Durans acquittal > Constitute an express
grant of a power of agency to Duran to sell the property Despite lack of writte
n authority > Consent is valid even if SUBSEQUENT to the sale > Art. 1259: No on
e can contract in the name of another without being authorized by him or without
having his legal representation according to law. A contract executed in the na
me of another by one who has neither his authorization nor legal representation
shall be void, unless it should be ratified by the person in whose name it was e
xecuted before being revoked by the other contracting party. > Thought the sale
was initially void, Orenses subsequent consent cured the defect > Testimony of Or
ense that verbally declared his consent to the sale was the basis of Durans acqui
ttal and hence, Orense could not deny it thereafter because it would be unjust t
o Gutierrez who would thereby be a victim of estafa
the mortgage were in fact his salaries; (2) his acquittal in a criminal case tha
t used the chattel mortgage as evidence of his liability was a bar to the presen
t civil case > Chattel Mortgage does not violate the law, morals or public polic
y > Chattel Mortgage does not lack consideration > It was executed voluntarily t
o guarantee the deficiencies resulting from his erroneous appraisals of the jewe
ls (CA Held) > Thus, a preexisting admitted liability is a good consideration fo
r a promise > EXCEPTIONS: if the inadequacy of the consideration is so gross as
to amount to fraud, oppression or undue influence, or when statutes require the
consideration to be adequate > Compliance with the Act 1508, Chattel Mortgage La
w, Section 5 > Marco signed as Director-Manager with confirmation from the admin
istration > Law on chattel mortgage contracts only need substantial compliance a
nd not literal > No res judicata where acquittal in criminal case bars the prese
nt civil case > No identity of subject matter and no dependence of the civil to
the criminal >> Public Policy > A contract which is neither prohibited by law no
r condemned by judicial decision, nor contrary to public morals, contravenes no
public policy > Violative of public policy if the contract has for its considera
tion a tendency to injure the public, or if it is against the public good, or if
it contravenes some established interests of society, or is inconsistent with s
ound policy and good morals, or tends clearly to undermine the security of indiv
idual rights, whether of personal liability or of private property >> Considerat
ion > right, interest, benefit, or advantage conferred upon the promisor, to whi
ch he is otherwise not lawfully entitled, or any detriment, prejudice, loss, or
disadvantage suffered or undertaken by the promise other than to such as he is a
t the time of consent bound to suffer G.R. No. 61594 September 28, 1990 PAKISTAN
INTERNATIONAL AIRLINES CORPORATION v. HON. BLAS F. OPLE (as Minister of Labor),
HON. VICENTE LEOGARDO, JR. (as Deputy Minister), ETHELYNNE B. FARRALES and MARI
A MOONYEEN MAMASIG Facts: PIA illegally dismissed Farrales and Mamasig because t
heir termination was without clearance from MOLE. Despite the contractual agreem
ent that
4
G.R. No. 47806 April 14, 1941 LEONCIO GABRIEL v. MONTE DE PIEDAD Y CAJA DE AHORR
OS and CA Facts: Chattel mortgage executed by Leoncio in favour of Monte de Pied
ad was valid for not being contrary to public policy, the law and morals, absent
proof. > Chattel Mortgage (December 13, 1932) where Leoncio Gabriel, appraiser
of jewels in the pawnshop of Monte de Piedad, promised to pay P14,679,07 (the va
lue of the deficiencies due to erroneous appraisal of the pawned jewels), payabl
e by P300/m > Alleged failure to pay > Termination of Leoncio allegedly without
cause and notice > SUIT by Monte de Piedad against Leoncio for payment of the de
bt where the mortgage was insufficient > Contention of Leoncio: (1) the chattel
mortgage was void because (a) it is contrary to law, morals and public policy; (

b) he was made to sign it against his will and through misrepresentation where E
. Marco (Director-General) signed in behalf of Monte de Piedad without the latte
rs authority, (c) the subject matter and considerations of the mortgage do not ex
ist, and (d) the payments already made allegedly for

reserved the right of termination to PIA, labor is a matter of public policy and
interests and hence, the Labor Code applies. The Labor Code prohibits the limit
ation of employment for the purpose of circumventing security of tenure and requ
ires MOLE clearance for termination. Hence, the termination was illegal because
the provision in the contract is facultative, dependent solely upon the will of
PIA and thus preventing security of tenure of F,M, and because the termination w
as made without clearance, thus presumed to be without cause. > Two Contracts of
Employment (signed December 2, 1978, effective January 9, 1979) between PIA, a
foreign corporation with license in the Ph, and Ethelynne Farrales and Maria Mam
asig as flight stewardesses for a 3y period > Conditions: Right of PIA to termin
ate employment given a 1m notice in writing or payment of 1ms worth of salary; Ap
plicability of Pakistan laws and sole jurisdiction of the Courts of Karachi in a
ny matter arising from the agreement > Employment of Farrales and Mamasig until
Notices of Termination (dated August 1, 1980, effective September 1, 1990) was s
erved to them on August 2, 1980, 1y4m prior to the expiration of their contracts
> JOINT SUIT by Farrales and Mamasig against PIA in Ministry of Labor and Emplo
yment for illegal dismissal and nonpayment of benefits and bonuses > Contention
of PIA: that F,M were habitual absentees, that they bring in sizeable quantities
of personal effects from abroad, that customs officials warned Manila Internati
onal Airport to advise F,M to stop the habit > MOLE, thru the Regional Director,
ruled in favor of F,M (January 22, 1981), ordering their reinstatement because
(1) their dismissal was (conclusively presumed to be) without just cause because
it was without MOLEs clearance (as required by Sec. 278, (Labor Code concerning
regular employees), and hence, illegal; (2) the 3y period of employment violated
the Labor Code (Art. 280-281) on regular and casual employment where F,M have b
ecome regular employees for having rendered continued services for more than 1y
> Contention of PIA: (1) MOLE has no jurisdiction; (2) No due process due to no
oral hearing; (3) order of reinstatement is a violation of their rights in the e
mployment contracts > SC HELD: Illegal Dismissal > Ph Laws apply despite agreeme
nt that Pakistan laws should govern BECAUSE Labor is a matter of public policy >
Party Autonomy is not absolute > Contract is the law between the parties but Ar
t. 1306 requires that they not be contrary to law, morals, good customs, public
order or public policy > Laws relating to public policy are thus deemed written
into the contract > Laws on labor and employment cannot thus be excluded from co
ntracts especially where (1) the contracts were executed and performed in the Ph
; (2) F,M are Ph citizens and are based in the Ph; (3) PIA is a resident of the
Ph; (4) No proof of the relevant Pakistani laws and hence, they are presumed to
be the same as the Ph
> Par. 5&6 of the Contract, providing for the 3y period and right of PIA to term
ination, is void for circumventing the security of tenure of the employees > Con
dition is facultative ~ authority to shorten the term is solely dependent upon t
he will of PIA at any time and for any cause satisfactory to itself > Although a
contract providing for employment with a fixed period is not necessarily unlawf
ul, it must have no intent to circumvent the law(ie where the employee insists u
pon a period; where the nature of the engagement is such that a definite date of
termination is a sine qua non ~ Otherwise, the law would restrict without reaso
nable distinctions the right of an employee to freely stipulate with his employe
r the duration of his engagement) > Evil sought to be avoided: agreements entere
d into precisely to circumvent security of tenure > Must have been mutually and
voluntarily made by the parties > MOLE with jurisdiction > Regional Director giv
en authority under Labor Code to reinstate employees who were illegally dismisse
d by reason of lack of clearance from MOLE > Due process present > Opportunity t
o be heard in position papers > PIA did not choose to present evidence G.R. No.
L-15127 May 30, 1961 EMETERIO CUI v. ARELLANO UNIVERSITY Facts: Contract of Waiv
er between Emeterio, law student/scholar, and Arellano University, where the for
mer is granted scholarship but prohibited to transfer schools, is prohibited for
being contrary to public policy, embodied in Memorandum No. 38 that deems schol
arships as recognitions of merit and not as business schemes, and good morals, w
here such practice is not generally accepted. > Emeterio Cui was a scholar in th

e College of Law of the Arellano University until the last semester of his final
school year when he left with his uncle, Francisco R. Capistrano who was Dean o
f the College of Law, to transfer to the College of Law of Abad Santos Universit
y where his uncle became Dean and Chancellor > Arellano University subsequently
refused to release his transcripts of records which Emeterio needed to apply for
the bar exams until he has paid back the value of the scholarship which the lat
ter refunded to him per semester, which amounted to P1,033.87 (Each tuition that
Emeterio had paid at the start of the semester was refunded to him at the end o
f the semester for scholastic merit) > Memorandum No. 38 (August 16, 1949) of th
e Director of Private Schools prohibited the refund of scholarship when students
transfer to other schools > Bureau of Private Schools advised Arellano Universi
ty to release Emeterios
5

records without requiring him to pay the tuition fee > Arellano refused > Emeter
io paid under protest in order to take the bar > SUIT by Emeterio for recovery o
f the amount > Contention of Arellano: Scholarship Contract of Waiver (September
10, 1951) with Emeterio provided that the latter, in consideration of the schol
arship grant, waives any right to transfer to another school without having refu
nded to the University the equivalent of the scholarship cash > Contract provisi
on is Null and Void for violating public policy > Memorandum of the Bureau of Pr
ivate Schools, considered as a practice of government officials, is a factor in
determining a public policy of the state > Director submitted (1) that the polic
y of the Memorandum was a sound policy where scholarships are awarded to recogni
ze merit and help gifted students in whom society has an established interest or
a first lien and not to keep outstanding students in the school to bolster its
prestige; (2) that Arellano treated the scholarship as a business scheme designe
d to increase its business potential; (3) that, thus, Arellanos contract is contr
ary to public policy and even good morals > Contrary to Public Policy > if its c
onsideration contravenes the interests of society and in inconsistent with sound
policy and good morals and tends to undermine the security of individual rights
> Contrary to Good Morals > if against good customs, those generally accepted p
rinciples of morality which have received some kind of social and practical conf
irmation G.R. No. 10551 March 3, 1917 IGNACIO ARROYO v. ALFRED BERWIN Facts: Agr
eement between Ignacio and Marcela, client of Alfred, where Ignacio agreed to ha
ve the case for theft (on appeal) against Marcela dismissed for some benefit is
void. It is against public policy where the criminal justice system is perverted
by the mere purchase of immunity by the accused from a private individual at th
e prejudice of the public. > Judgment of theft against Marcela Juanez, represent
ed by Alfred Berwin (as procurador judicial of the law office of Atty. John Bord
man) and prosecuted by Ignacio Arroyo, for having the canes on the land of Ignac
io cut > Verbal Agreement (August 14, 1914, during hearing for appeal) before Ro
que Samson where Marcela recognized Ignacios ownership of the land in which she o
rdered the canes therein cut and promised not to oppose Ignacios application for
registration for a Torrens title; Ignacio agreed to dismiss the case > Requests
for
the dismissal of the case > Non-compliance and refusal of Marcela to sign a writ
ten agreement > SUIT by Ignacio > RTC ruled in favor of Marcela due the illegali
ty of the contracts consideration > Agreement contrary to public policy > Owner o
f stolen goods cannot stifle the prosecution of the accused charged with theft m
erely for a pecuniary or other valuable consideration > It is a public interest
that criminals be prosecuted and punished > Hence, criminal proceedings should a
bide by the laws > It is a perversion of justice to allow the offender to purcha
se immunity from private individuals and escape the penalties prescribed by law
> Art. 1255: conditions should not contravene the law, morals or public order >
Art. 1275: Contracts with illicit considerations, or those contrary to law and g
ood morals, are without effect G.R. No. L-19638 June 20, 1966 FILIPINAS COMPANIA
DE SEGUROS, ET AL v. HON. FRANCISCO Y. MANDANAS (as Insurance Commissioner) and
AGRICULTURAL FIRE INSURANCE & SURETY CO., INC., ET AL Facts: The power of the P
h Rating Bureau to refuse to do business with insurance companies that are not i
ts members is valid because it is not contrary to law or public policy as it rea
sonably restraints competition merely by fixing rates which it has, in the first
place, the license to do. > Letters (March 11, 1960, April 11, 1960, April 9, 1
961) by Insurance Commissioner Mandanas to the Ph Rating Bureau, requesting the
deletion of Art. 22 of the Constitution of the Ph Rating Bureau because it was a
llegedly unlawful for allowing the Bureau to refuse representation or reinsuranc
e from companies not members in good standing of the Bureau ~ otherwise he would
suspend the license issued to the Bureau and its members > SUIT (May 16, 1961)
by non-life insurance companies against Hon. Mandanas for Declaratory Relief re:
constitutionality of Art. 22 of the Constitution of the Ph Rating Bureau, the f
ormer alleging its constitutionality while the former assailing its validity for
being an illegal or undue restraint of trade > Test of Legality of an Agreement
restraining trade: (1) Reasonable Necessity in protecting the parties interests;

(2) Effect on competition ~ to regulate and promote competition is valid while

to suppress and destroy it is unlawful; BUT considering the particular circumsta
nces of the case and the nature of the particular contract, where public interes
t and welfare are not involved > PURPOSE OF ART. 22 (testimony of Salvador Estra
da, Chairman of the Bureau): to promote ethical practices in order to earn the r
espect of the public,
6

and to avoid the unethical practice of underrating of the insurance companies th

at resulted from intense competition BY coordinating with the various companies
in fixing the rates and applying it as a standard to all > NOT ILLEGAL, IMMORAL,
UNREASONABLE, or CONTRARY TO PUBLIC POLICY in both objectives and means > FURTH
ERMORE, Circular No. 54 (February 26, 1954) requires the approval of the Insuran
ce Commissioner before non-life insurance companies can implement its rates > An
nual grant of license (April 28, 1954) by the Insurance Commissioner to the Bure
au with knowledge of its constitution and with grant of authority to fix rates G
.R. No. 126800 November 29, 1999 NATALIA P. BUSTAMANTE v. SPOUSES RODITO F. ROSE
L and NORMA A. ROSEL Facts: Stipulation in the loan agreement where lender Sps.
Rosel have the right to purchase the collateral property of the borrower Sps. Bu
stamante is void. Such condition is a pactum commissorium because it is an autom
atic appropriation of the mortgaged thing in case of non-payment which the law p
rohibits in order to protect the interests of the borrowers from lenders who see
k to unjustly appropriate their properties. > Loan Agreement with Option to Buy
(March 8, 1987) between Norma Rosel and Sps. Natalia and late Ismael Bustamante
where former lent P100k and the latter offered part of their land as collateral
with right to purchase (for P200k, inclusive of the debt) in case of failure to
pay ~ debt payable in 2y (starting March 1, 1987 and due March 1, 1989) > Exerci
se of Option to Purchase by Sps. Rosel when the loan was about to mature > Sps.
Bustamante refused, requested an extension of time for the payment, and offered
to sell instead another house another lot > Sps. Rosel refused because the offer
ed lot were not owned by Sps. Bustamante (since the latter are only developers e
ntitled to subdivision shares) and it was full of squatters > Tender of Payment
by Bustamante (March 1, 1989) ~ Rejected by Sps. Rosel who demanded a deed of ab
solute sale of the collateral > SUIT for Specific Performance with Consignation
(February 28, 1990) by Sps. Rosel and Demand Letter (March 4, 1990) to sell the
collateral > Petition for Consignation (March 5, 1990) and Deposit (August 10, 1
990) by Sps. Bustamante, worth P153k > Consignation of Sps. Rosel, worth P47,500
(Purchase price of P200k P100k loan+P52,500 interests) > SC Previously ruled in
favor of Sps. Rosel because the contract is the law between parties > Contentio
n of Sps. Bustamante: that the purpose of
collateral as guarantee was similar to that of an equitable mortgage under Art.
1602 > Sale of the collateral as an obligation with a suspensive condition ~ hap
pening of an event that is the failure of payment > Event did not happen ~ Sps.
Bustamante tendered payment but Sps. Rosel refused so the former consigned it wi
th the court > Sps. Rosel thus do not have the right to demand the fulfillment o
f the obligation > Contracts as Law between Parties > EXCEPTIONS (Art. 1306) > S
tipulation of automatic right to purchase in case of failure to pay is a pactum
commissorium prohibited by law > Why is it a pactum commissorium: Intention of t
he party, Sps. Rosel to appropriate the collateral in the event of non-payment o
f the loan > Why prohibited: Under Art. 2088 ~ Intention: Protection of persons
in need of money in entering contracts ~ intention to alleviate themselves of th
eir financial burden ~ Purchase price of P200k for a 70sq.m. property in Congres
sional Ave, QC is unjust *Automatic ~ happening of event, no need to do anything
else >> PACTUM COMMISSORIUM (Art. 2088) > Elements: (1) there should be a credi
tor-debtor relationship between the parties; (2) there should be property mortga
ged by way of security for the payment of the principal obligation; (3) there sh
ould be a stipulation for automatic appropriation by the creditor of the thing m
ortgaged in case of non-payment of the principal obligation within the stipulate
d period proscribe G.R. No. L-36821 June 22, 1978 JOSE P. DIZON v. ALFREDO G. GA
BORRO (Substituted by PACITA DE GUZMAN GABORRO as Judicial Administratrix of his
Estate) and the DEVELOPMENT BANK OF THE PHILIPPINES Facts: The two contracts be
tween Dizon and Gaborro are innominate because both parties agreed to give and t
o do certain rights and obligations partaking the nature of antichresis. > Two m
ortgages by Jose Dizon over his property to the DBP in order to secure a loan (P
38k) and to the Ph National Bank to secure his debt to PNB (P93,831.91) > Extraj
udicial Foreclosure of mortgage by DBP after default in payment (sold at P31,459
.21 on May 26, 1959 with issuance of a Certificate of Sale) > Deed of Sale (Nove

mber 12, 1959) by Dizon in favor of DBP > Two instruments (October 6, 1959) betw
een Jose Dizon and Alfredo Gaborro over the formers foreclosed land: (1) Deed of
Sale with Assumption of Mortgage,
7

where the former agreed to sell his land for P131,831.91 and latter agreed to pu
rchase the same and to assume Dizons debt to DBP and PNB; (2) Option to Purchase
Real Estate where Dizon was granted the right to repurchase the properties from
Gaborro (from January 1965 to December 31, 1970) for the same amount plus 8% ann
ual interest > Gaborro possessed the land > Letter (October 7, 1959) by Gaborro
to DBP, informing the latter of his assumption of mortgage ~ Approved by the Boa
rd of Governors, DBP (October 21, 1959) ~ Conditional Sale of the Properties (Ju
ly 11, 1960) between DBP and Gaborro, over the land for P36,090.95 ~ Assignment
of Right of Redemption (January 7, 1960) by Dizon, as owner and mortgagor, to Ga
borro of his right to redeem the land within 1y from the foreclosure > Payment a
nd improvements by Gaborro > Letter-Offer to Reimburse (July 5, 1961) by Dizon,
thru counsel, to Gaborro but without tender of payment ~ Gaborro refused > Conte
ntion of Dizon: agreement was not an absolute sale but merely an equitable mortg
age by way of security for the reimbursement or refund by Dizon to Gaborro of an
y payments made by the latter for the mortgages ~ only a grant of possession and
enjoyment of the property > Contention of DBP: Dizons right is limited to redemp
tion because was no longer the owner of the land > DBPs Inchoate Right in the Pro
perty > Mortgage was foreclosed extrajudicially and hence, debtor has 12m to red
eem it (Act 3135, Sec. 6) during which he has the right of possession and enjoym
ent of the property and its fruits > the only rights that Dizon could have trans
ferred to Gaborro: redemption, possession and enjoyment > Deed of Sale is invali
d for lack of consideration (property because Dizon no longer has the full right
and capacity to dispose of it as owner money, and money) > Gaborro thus has no
more than these same rights to grant to Dizon under the Option to Repurchase > N
o transfer of full title and ownership between Dizon and Gaborro because DCB was
already the owner > True intention of the parties: Gaborro to assume the debt o
f Dizon to DBP and PNB and Dizon to give Gaborro the possession and enjoyment of
his properties until he had reimbursed Gaborro of the amounts the latter had pa
id > to pay the debts to the banks, to make the land productive, and to return t
he land to the original owner > Mutual Mistake by both Dizon and Gaborro in word
ing their deeds as one of absolute sale > Cause for reformation > Grant of Recon
veyance of Property to Dizon upon his payment to Gaborro of the principal obliga
tion which the latter had paid to the banks within 1y from the decisions finality
>> Innominate Contracts (Art. 1307) > agreement to give and to do certain rights
and obligations respecting the land and mortgage debts of Dizon but partaking t
he nature of antichresis G.R. No. L-40424 June 30, 1980 R. MARINO CORPUS v. COUR
T OF APPEALS and JUAN T. DAVID Facts: Atty. David is entitled to attorneys fees d
espite the absence of an express contract providing for the same due to the prin
ciple of innominate contracts where he does and his client Corpus gives. > Dismi
ssal of R. Marino Corpus (March 1958 after suspension on March 18, 1958, pending
investigation) by Governor of Central Bank, Miguel Cuaderno, Sr., despite the i
nvestigating committees finding that there was no merit, because he had lost conf
idence in him, by virtue of the Monetary Boards resolution of July 20, 1959 > SUI
T (August 18, 1959) by Corpus thru Atty. Alvarez for certiorari, mandamus and qu
o warranto with preliminary mandatory injuction and damages against Cuaderno and
Mario Marcos who was appointed to his position ~ Dismissed (June 14, 1960) due
to Corpus failure to exhaust, available administrative remedies > (Contention of
David) Prior to the expiration of the period for appeal, Meeting between Atty. J
uan T. David and Corpuss father where the latter requested the former to handle t
he case of his son due to Atty. Alvarezs disenchantment and desire to give it up
~ Atty. David accepted the request but only as a collaborating atty. with Atty.
Alvarez > (Contention of Corpus that David approached him and offered his servic
es) > Joint efforts of Atty. Alvarez and Atty. David > SC ruled in favor of Corp
us (March 30, 1962) ~ dismissal reversed and case remanded > Letter (April 18, 1
962) from Corpus to David where the former enclosed a check worth P2k for legal s
ervices, thanked David and stated that I could give more but as you know we were b
anking on a SC decision reinstating me and reimburse my back wageLooking forward
to a continuation of the case in the lower court > Reply-Letter (April 25, 1962)
by David to Corpus where the former declined the check, explaining that his prof

essional fee was not his primary motive but their friendship (very intimate relat
ions) which you and I have enjoyed > Remand of the Case ~ Ruled (June 24, 1963) il
legal dismissal, Corpus reinstatement, and payment of his back salaries and allow
ances and award of P5k as attorney s fees ~ David appealed ~ SC affirmed (March
31, 1965) > Demand (April 19, 1965) by Davids law office for collection of 50% of
the amount recovered by Corpus ~ Corpus refused due to his outstanding obligati
ons and expectation to net only around P10k > Letter (April 19,1965) by David to
the Governor of Central Bank, that the payment to Corpus be made out in two: on
e in favor of Corpus and the other representing the professional fees equivalent
to 50% of the
8

said back salaries being claimed ~ ACTION by David (July 20, 1965) for certiorar
i to obtain a favorable decision from the Governor > RTC ruled in favor of David
(September 4, 1967) for payment of P30k as attorneys fees ~ CA Affirmed, finding
that Corpus accepted Davids services with the understanding of both that the lat
ter was to be compensated in money > Contention of Corpus: that David is not ent
itled to attorney s fees because there was no contract to that effect > Contenti
on of David: that the absence of a formal contract for the payment of the attorn
ey s fees will not negate the payment because the contract may be express or imp
lied, and there was an implied understanding between them that Corpus will pay D
avids attorney s fees when a final decision shall have been rendered in favor of
Corpus reinstating him to his former position and paying his back salaries > Att
orneys fees to David is JUSTIFIED: (1) Implied Agreement; (2) Innominate Contract
> Implied Agreement between Corpus and David for payment of attorneys fees > Adm
itted and recognized by Corpus in: (1) payment of P2k in check with the wish I co
uld give more but as you know we were banking on a SC decision reinstating me an
d reimbursing my back salaries and with the anticipation of the cases continuation
, constituting a promise to pay more upon his reinstatement and payment of his b
ack salaries; (2) request for help by Corpus father and acceptance of David as co
llaborate lawyer where it would have been unethical for him to even offer his se
rvices when Corpus had a competent counsel in the person of Atty. Alvarez; (3) r
eply of Corpus to Davids demand of payment (May 7, 1965) which disagreed as to th
e amount of attorney s fees demanded but without a categorical denial of Davids r
ight to attorney s fees; (4) payment of P2500 ( of the awarded P5k as attorneys fe
es); (5) admission in Corpus motion for recon in CA that David was entitled to c
ompensation for legal services > Absence of express contract explained by their
close relationship which signifies mutual trust and confidence between them > In
nominate Contract where David rendered service and hence becomes entitled to com
pensation by Corpus who had benefited from such rendered service > Right to Reas
onable Amount, determined by the extent of his services, given that there is not
contract for contingent fee (which depends on an express contract and hence, an
attorney is not entitled to a percentage of the amount recovered by his client
in the absence of an express contract to that effect) > David was collaborating
counsel of principal counsel Alvarez, for 4y, entered at the crucial stage (afte
r dismissal of the case by RTC), advanced legal propositions (while Alvarez laid
down the basic theory and foundation of the case), joint efforts of Atty. Alvar
ez and Atty. David: in filing the motion for reconsideration (both signed), argu
ing the case before the SC, Baguio (David),
arguing the remanded case before the lower court (both) > Alvarez was paid P20k,
David demands P75k but since Corpus received only P150,158.50 as back salaries
and emoluments after deducting taxes, the reasonable amount for Davids fees is P2
0k >> Innominate Contract of facio ut des > I do and you give > based on the pri
nciple that no one shall unjustly enrich himself at the expense of another > Art.
1307 that such contracts shall be regulated by (1) the stipulations of the parti
es, by (2) the general provisions or principles of obligations and contracts, by
(3) the rules governing the most analogous nominate contracts, and by (4) the c
ustoms of the people > Perez vs. Pomar: consideration of a tacit and mutual cons
ent as to the rendition of the services, giving rise to the obligation upon the
person benefited by the services to make compensation since the bilateral obliga
tion to render service, on the one hand, and on the other to pay for the service
rendered, is thereby incurred G.R. No. L-27696 September 30, 1977 MIGUEL FLOREN
TINO, ROSARIO ENCARNACION de FLORENTINO, MANUEL ARCE, JOSE FLORENTINO, VICTORINO
FLORENTINO, ANTONIO FLORENTINO, REMEDION ENCARNACION and SEVERINA ENCARNACION [
or A] v. SALVADOR ENCARNACION, SR., SALVADOR ENCARNACION, JR., and ANGEL ENCARNA
CION [or B] Facts: Stipulation in Deed of Extrajudicial Partition, favoring the
Church, cannot be revoked by the appellees because as a stipulation pour autrui
which confers benefit to a third person, the acceptance of the beneficiary, the
Church, need not follow any form or be done in a fixed period as long as it had
been done before revocation. The Church had already impliedly accepted it by its
unquestioned enjoyment long before the revocation of appelees. Hence, given tha

t the stipulation has not been revoked on time, the contract is binding on all p
arties. > Application for Registration of a parcel of agricultural land (May 22,
1964) A and B as the common and pro-indiviso owners in fee simple of the land,
acquired by virtue of the Deed of Extrajudicial Partition of the estate of their
predecessor-in-interest, aunt Dona Encarnacion Florentino ~ that they knew of n
o mortgage, lien, or encumbrance or third persons interested > Hearing set by an
d published, No opposition (Director of Lands withdrew opposition), Order of def
ault against the world, Evidence presented > Registration of property to A and B
~ CFI Denied the request of Miguel Florentino (A) to consider as an encumbrance
the arrangement (stipulated in the Deed of Extrajudicial Partition),
9

that the fruits of the land is for payment of the expenses for religious functio
ns specified, due to its non-registration in the Register of Deeds, the absence
of acceptance by the donee Church (considering the arrangement as a donation, pu
re and simple), the non-grant of Angel and Salvador Encarnacion, Jr. (B) when th
ey did not sign the Deed ~ such payment was ordered deducted from the undivided
shares of A only, excluding B who denied it > CFI Modified its answer: that as a
donation, usufruct or ellemosynary gift, the arrangement can be revoked as what
B have done given that there had been no proof of acceptance by the Church; als
o, A is not a real party in interest and the Church should have been the right p
arty to demand the arrangement > Arrangement cannot be revoked unilaterally at t
he option of co-owners B > Why: stipulation is a stipulation pour autrui ~ Inten
tion of A and B: to confer a direct and material benefit upon the Church > Hence
, Requirement of acceptance has no required form or specified time limit! ~ as l
ong as done before revocation > Implied Acceptance by Church before revocation:
enjoyment without question of the arrangement since time immemorial (17y from th
e time of Dona Encarnacions ownership of the land) > HENCE, stipulation is bindin
g on all parties of the Deed, which is a contract, the law among the parties > A
rt. 1309 (1257): force of law of contracts and mutuality among parties > B, even
if non-signatories, are bound for having purchased the shares of the original h
eirs and for not objecting to the stipulation > Church need not be the plaintiff
> Stipulation is already binding among all parties given that the Church has al
ready accepted it ~ thus, the stipulation is valid >> Stipulation pour autrui >
stipulation in favor of a third person conferring a clear and deliberate favor u
pon him ~ merely part of a contract entered into by the parties, neither of whom
acted as agent of the third person, and such third person may demand its fulfil
lment provided that he communicates his acceptance to the obligor before it is r
evoked > Requisites: (1) that the stipulation in favor of a third person should
be a part, not the whole, of the contract; (2) that the favorable stipulation sh
ould not be conditioned or compensated by any kind of obligation whatever; (3) n
either of the contracting parties bears the legal representation or authorizatio
n of the third party; (4 - JJ) Acceptance by the third party > Validity: purpose
and intent of the stipulating parties is to benefit the third person (not mere
incidental benefit), regardless of the nature of the obligation in which it is s
tipulated (ie donation, contract) >> Cristobal v. Gomez: A trust constituted bet
ween two contracting parties for the benefit of a third person is not subject to
the rules governing donation of real
property > Beneficiary may demand performance of the obligation without having f
ormally accepted the benefit in a public document, upon mere acquiescence in the
formation of the trust and acceptance under Art. 1257 G.R. No. L-23276 November
29, 1968 MELECIO COQUIA, MARIA ESPANUEVA and MANILA YELLOW TAXICAB CO., INC. v.
FIELDMENS INSURANCE CO., INC. Facts: As sole heirs of their son, the parents of
Carlito Coquia can demand the fulfillment of the insurance policy even if they a
re not parties to it because the contract is a contract pour autrui. The benefic
iary is a third person for whose favor the contract was made and can demand its
fulfillment. > Common Carrier Insurance Policy (December 1, 1961) of Manila Yell
ow Taxicab, Inc., issued by Fieldmens Insurance Company, Inc. covering a 1y perio
d and indemnifying the latter for any sum held against it in case of death or bo
dily injury of a passenger, driver, conductor or inspector > Vehicular Accident
(February 10, 1962) by a taxicab wherein the driver, Carlito Coquia, died > Clai
m for P5k by Yellow but Fieldmen offered only P2k which the former refused > SUI
T by the parents of Carlito (Melecio and Maria) against Yellow, which was ordere
d to pay P4k > Contention of Yellow: Parents have no cause of action because the
y are not parties to insurance contract, hence they cannot demand its enforcemen
t, and Fieldmen has not complied with the insurance policy > Parents are parties
by virtue of Art. 1311 or the principle of contracts pour autrui > third partie
s for whose benefit the contract was made may demand its enforcement ~ need not
be parties > Benefit to Driver: Section II, 3 where the Insurance Company will in
demnify any authorized Driver who is driving the Motor Vehicle and 8 where indemni
ty payable directly to the heirs of claimants and 7 In the event of death of any p

erson entitled to indemnity > Driver Carlito also paid 50% of the premiums, which
were deducted from his commissions > Right of Yellow and Fieldmen to arbitratio
n, pursuant to Section 17 of the policy where there is dispute in the amount of
liability, cannot be invoked at present for failure to invoke it previously ~ co
nstitutes a waiver of its right G.R. No. L-22404 May 31, 1971 PASTOR B. CONSTANT
INO v. HERMINIA ESPIRITU
10

Facts: The benefit in favor of the son of Pastor and Herminia, as the purpose of
the Deed of Absolute Sale between the parents, is a cause of action for the fat
hers case against the mother, seeking to restraint the latter from alienating the
subject properties. Even if their son was not a party to the Deed of Absolute S
ale, the latter was constituted for his benefit and as a third person, he may de
mand its fulfillment as co-plaintiff. (*Even if he was not co-plaintiff, the fat
her could have demanded the fulfillment with the acceptance of the son of the be
nefit by being co-plaintiff and absent revocation by mother.) > Deed of Absolute
Sale (October 30, 1953) between Pastor Constantino and Herminia Espiritu where
former sold his house and lots to the latter for P8k ~ understanding the Hermini
a would hold it in trust for their unborn, illegit son, Pastor Jr. > Mortgage an
d Sale of the house and lots by Herminia to Republic Savings Bank to secure the
payment of her loans (amounting P5k) > SUIT for Preliminary Injunction by Pastor
against Herminia ~ to restraint Herminia from alienating the properties and to
compel her to execute a Deed of Absolute Sale in favor of Pastor Jr. (5y/o alrea
dy) > Contention of Herminia: No cause of action where Pastor Jr. was not includ
ed as party-plaintiff > Contention of Pastor: the properties were held in trust
> Complaint Dismissed but a new Amended Complaint was submitted by Pastor which
includes Pastor Jr. > Deed of Absolute Sale is a Contract pour autrui between Pa
stor and Herminia > (Action is for specific performance) > Third person for whos
e benefit the contract was entered into, their son, may also demand its fulfillm
ent > Inclusion of Pastor Jr. in amended complaint as co-plaintiff served as acc
eptance of the benefit, before revocation > Thus, the contract has become bindin
g on all of the three > Third party need not be identified > What applies to Thi
rd Party is merely the benefit but not the other stipulations G.R. No. 79518 Jan
uary 13, 1989 REBECCA YOUNG, assisted by her husband ANTONIO GO v. CA, PH CREDIT
CORP., PHIL. HOLDING, INC., FRANCISCO VILLAROMAN, FONG YOOK LU, ELLEN YEE FONG,
and THE REGISTER OF DEEDS OF MANILA Facts: The Compromise Agreement between Reb
eccas dad and Ph Holding conferring to Antonio the right of first refusal to purc
hase is not pour autrui in favor of Rebecca. The intention of the parties was no
t to include her where her involvement was subject to her being impleaded in the
civil action and to her affixing her signature in the agreement, both of which
were unsatisfied. Hence,
Rebecca does not have such right since she is not a third party beneficiary nor
a party to the agreement. > Order of Demolition obtained by Ph. Holding, Inc. ov
er its building ~ occupied by Antonio Young, his daughter Rebecca Young, and Sps
. Foong Yook Lu and Ellen Yee Fong, among others > Action for Annulment of the D
emolition Order by Antonio Young ~ Compromise Agreement (submitted September 24,
1981) where Antonio and Rebecca would voluntarily vacate their tenanted units i
n 60d but would have the right of first refusal should Ph Holding decide to sell
the property > Sale of the property (September 17, 1981) by way of dacion by Ph
Holding to Ph Credit Corporation ~ Latter subdivided the property (November 9,
1982) into two parcels and sold it to Blessed Land Development Corporation (Anto
nio Young, President; December 8, 1982) and to Sps. Fong Yook Lu and Ellen Yee F
ong (September 16, 1983) > SUIT for Annulment of Sale (to Sps. Fong) and Specifi
c Performance by Rebecca Young, among others > Contention of Rebecca: Right of f
irst refusal to purchase the property sold to Sps. Fong > RTC Dismissed: (1) Reb
ecca not a party to the Compromise Agreement; (2) Even if agreement pour autrui,
lack of notice to the obligor of her acceptance of her right of first refusal;
(3) Lack of evidence of exercise of right of first refusal > Rebecca has no righ
t of first refusal > (1) Compromise agreement not pour autrui > WHY: Intention o
f Antonio and Holding: not to include Rebecca in the beneficient provisions of t
he agreement > though impleaded in the compromise agreement (Antonio Young and Ho
lding agree to implead in this action as necessary party-plaintiff, Rebecca Youn
gwhose written conformity appears hereunder), it was subject to her being impleade
d in the civil case and to her written conformity which was unsatisfied ~ not im
pleaded by either Antonio or Holding and no signature; (2) Rebecca not a party t
o the compromise agreement and hence, not entitled to enforce it which is grante
d and binding only to the parties G.R. No. L-79734 December 8, 1988 MARMONT RESO

RT HOTEL ENTERPRISES v. FEDERICO GUIANG, AURORA GUIANG, and CA Facts: Marmont Ho

tel is a third person beneficiary of the Sale between Maris and Sps. Guiang beca
use the sole purpose of the sale is to provide a water supply system for Marmont
. Hence, Marmont has possessory rights and thus cannot have been prevented from
accessing the water supply facility.
11

> MOA (May 2, 1975) between Marmont (hotel and resort business) and Maris Tradin
g where latter is to install the water system of the Marmont Resort Hotel for P4
0k > Maris installed a water supply facility (well and water pump) on the proper
ty owned by Sps. Guiang > MOA between Maris and Aurora, witness by Federico Guia
ng where latter would be paid P1500 for the portion of the property wherein the
well and pump were installed and would transfer all rights to Maris > Inadequacy
of water supply to meet demand of Marmont Hotel, Advise of another contractor t
o install a submersible pump in the well (to increase pressure and improve water
flow), Permission to inspect and modify water pump from Marmont not granted by
Sps. Guiang (*Maris apparently not informed) > SUIT (May 13, 1980) by Marmont ag
ainst Sps. Guiang for damages resulting from latters refusal to allow inspection
of the water facility site > Contention of Sps. Guiang: No knowledge of MOA 1 an
d Invalidity of MOA 2 because the property sold was conjugal and sold by Aurora
Guiang without the consent of her husband, and was still part of the public doma
in pending Federicos Miscellaneous Sales Application > RTC Dismissed where sale o
f land by Aurora was valid but no evidence that Maris transferred its rights to
Marmont > Marmont has possessory right over the water supply facility > MOA 2 wh
ich conferred possessory rights of the property from Sps. Guiang to Maris has a
stipulation pour autrui where Marmont was to benefit by way of having a water sy
stem facility, which was installed by Maris in the property of Sps. Guiang with
the latters knowledge and consent > Purpose of Maris in acquiring the property: t
o supply the water requirements of Marmont ~ water facility intended solely for
Marmont ~ interest not incidental > BUT alleged stipulation is merely a recital/
statement but not terms of agreement > No deliberate conferment of right to a be
neficiary > Even if MOA 2 is read as having no stipulation pour autrui, Sps. Gua
ing are still liable for damages > Refusal of access to Marmont forced the latte
r to locate alternative sources of water > MOA 2, or sale by Aurora, is valid be
cause Federico was then present and even gave consent by signing as a witness >
Sale valid even if covering public land because Sps. had possessory and other ri
ghts which they could have validly appropriated > Two MOAs admissible in evidenc
e due to the Sps. and Marmonts stipulation of facts that judicially admitted the
existing of the MOAs >> Stipulation pour autrui > a stipulation in favor of a th
ird person conferring a clear and deliberate favor upon him > found in a contrac
t entered into by parties neither of whom acted a agent of the beneficiary
G.R. No. 119850 June 20, 1996 MANDARIN VILLA, INC. v. CA and CLODUALDO DE JESUS
Facts: Atty. Clodualdo has a right to demand the fulfillment of the Agreement be
tween Mandarin and Bankard where the former is to accept the credit cards issued
by the latter because said agreement has a stipulation pour autrui that confers
the right to card holders. > SUIT for Damages by Atty. Clodualdo de Jesus again
st Mandarin Villa, Inc. because the latters Seafoods Village refused his unexpire
d credit card ~ when Atty. Clodualdo hosted dinner for his friends (October 19,
1989), he offered to pay his bill with his Ph Commercial Credit Card, was told t
hat said card was expired (Card expiration said September 1990 but restaurants ve
rification computer said Card Expired), was humiliated and embarrassed in front of
his guests (aggravated when one guest commented that baka kailanganga maghugas n
a kami ng pinggan), and was made to pay by his BPI Express Credit Card which was
accepted and honored > Damages Granted against Mandarin and BANKARD (PCCCI) > Co
ntention of Mandarin: that it was not obligated to accept the credit card becaus
e it is not a legal tender and payment by means of credit card is a novation of
the existing obligation to pay for which Mandarin, as creditor, must first give
consent > Atty. Clodualdo can pay by means of his PCCI credit card arising from
the right to fulfill the Agreement between Mandarin and PCCI (dated June 23, 198
9) where the former is to honor validly issued PCCI credit cards in payment of p
urchased goods given that the card has not expired or among those cancelled or s
uspended > Stipulation is pour autrui, conferring a favor upon Atty. Clodualdo a
s holder of PCCI card ~ Right is valid and binding because his offer to pay by m
eans of his PCCI card is an acceptance of the stipulation, made prior to revocat
ion > Benefit conferred to Clodualdo is the ability to pay thru his Bankard card
> Logo that Bankard is accepted here is binding upon Mandarin for having it poste

d inside its restaurant > STIPULATION POUR AUTRUI, in addition to the Agreement
(JJ) > Mandarin is Negligent > Point of Sales Guidelines (of the verification ma
chine) that if CARD EXPIRED flashes, Mandarin should have checked the expiry date
on the card and should have honored it if it was not expired > Date of dinner wa
s October 19, 1989 while Expiration embossed on Card was September 1990
12

> But is it an enforceable obligation? Just a guideline, not part of contract wi

th Bankard > Can Mandarin sue Clodualdo if latter had no money in the bank that
resulted to the dishonor of his card? NO, Mandarin not a beneficiary/third perso
n in contract between Clodualdo and Bankard > Atty. Clodualdo not negligent in n
ot bringing sufficient cash > Common Practice in restaurants to honor credit car
ds as means of payment > Humiliation not due to comment of one guest but because
Mandarin dishonored his credit card G.R. No. 13505 February 4, 1919 GEO W. DAYW
ALT v. LA CORPORACION DE LOS PADRES AGUSTINOS RECOLETOS, ET AL Facts: Church not
liable for damages as a stranger when Teodorica for a long time refused to surr
ender the title of her property to Daywalt, as agreed by the Deed of Sale, resul
ting to losses he had incurred in failing to pursue a mining enterprise. Strange
rs cannot be liable for than the person they had benefitted. Church has no liabi
lity because Teodorica herself is not liable where: (1) the right of Daywalt to
recover such damages from Teodorica had been exhausted by his previous action ag
ainst her and thus, cannot be recovered in an independent action; (2) damage, as
a special damage, had not been contemplated by the parties; (3) damage was too
remote to breach of contract. > Three Documents Teodorica Endencia and Geo W. Da
ywalt: (A) Contract of Conveyance (1902) between Teodorica Endencia and Geo W. D
aywalt covering the formers land which was to be conveyed upon the perfection of
Torrens title to Teodorica by the Court of Land Registration > Grant of Right to
Property as Owner (August 1906) to Teodorica but without issuance of Torrens ti
tle > (B) Deed of Conveyance (August 16, 1906) where Teodorica would convey her
property for P4k ~ Did not take effect due to non-issuance of Torrens title > (C
) Contract (October 3, 1908) where Teodorica was to deliver the Torrens title to
the Hongkong and Shanghai Bank in Manila upon its receipt ~ superseded the old
contract > Issuance of the Torrens title (1909) but property was larger than exp
ected (1,248 hectares where contract contemplated 452 hectares) ~ Reluctance of
Teodorica to convey the entire land > Contract of Sale (1911) between Daywalt an
d S.B. Wakefield > Surrender by Teodorica of the Title to Fr. Isidoro Sanz (and
then to procurador Fr. Juan Labarga in Manila) of the La Corporacion de los Padr
es Recoletos whom she trusts and who knew about her contracts ~ that she was mis
informed about the area of her property and did not intend to sell so large an a
mount and that the latter proposed to pay Teodorica
P424/y for use and occupation of her property, which was adjacent to theirs, for
the pasturing of their cattle > Church surrendered the Title by virtue of the S
C Decision pursuant to Suit by Daywalt for enforcement of contract (C) ~ Granted
, contract in full force and effect while decree attained finality in 1914 > SUI
T by Daywalt against the Church for having unlawfully interfered and induced Teo
dorica to refrain from the performance of her contract and to withhold the deliv
ery of the Title ~ Damage in failure of the sugar growing and milling enterprise
with Wakefield due to dispossession of title > Liability of Teodorica from Dama
ges consequent to breach of contract > Present BUT cannot be claimed due to res
judicata of the action for specific performance (1909) which was granted in favo
r of Daywalt > HENCE, if damages are not sought in the action to enforce perform
ance, they cannot be recovered in an independent action ~ WHY: Indemnification f
rom breach of contract is a right inseparably annexed to every action for the fu
lfillment of the obligation > Right of Daywalt had already been exhausted thus ~
res judicata > Liability of Teodorica from Wrongful detention of real property
as vendor > Value dependent on the interest: the value of the use and occupation
of the land from the time it was withheld > YET, such damage, as a special dama
ge, was not within contemplation of the parties when the contract was made and w
as too remote to be the subject of recovery > Liability of the Church > Liabilit
y of Strangers > No more than what could be recovered from the party in whose be
half he intermeddles > (1) Teodorica has no liability, Church has no liability >
MOREOVER, (2) Church NOT liable to damages to vendee > Mere advise is not an ac
tionable interference with such contract of sale > They merely sympathized and b
elieved in good faith that the contract could not be enforced and that Teodorica
would be wronged if it should be carried into effect > No improper motive, no d
esire to secure to themselves the property > Reconciliation of Liability of Stra

ngers and Exclusivity of Parties to a Contract > A stranger to a contract may, b

y an unjustifiable interference in the performance thereof, render himself liabl
e for the damages consequent upon non-performance > Principle that any person wh
o entices a servant from his employment is liable in damages to the master ~ Bas
is: Masters juridical right in the service rendered by his employee > Presumption
of Malice in interference ~ that the wrongful-doer, having knowledge of the exi
stence of the contract relation, in bad faith sets about to break it up or to pr
event its performance by
13

force, intimidation, coercion, or threats, or by false or defamatory statements,

or by nuisance or riot >> Damages recoverable in case of breach of contract: (1
) Ordinary Damages > found in all breaches of contract where there are no specia
l circumstances to distinguish the case specially from other contracts > Damages
recoverable are those that naturally and generally would result from such a bre
ach ~ immediate and inevitable damages; > (2) Special Damages > found in case wh
ere some external condition, apart from the actual terms to the contract exists
or intervenes, as it were, to give a turn to affairs and to increase damage in a
way that the promisor, without actual notice of that external condition, could
not reasonably be expected to foresee > Necessity that the particular condition
which made the damage a possible and likely consequence of the breach was known
to the defendant at the time the contract was made ~ condition should be made th
e subject of contract > Pursuing business interest will harm others but no contr
act interference because constructive destruction is inherent in a market > Mali
ce is required in contract interference > When does it become contract interfere
nce: Malice ~ What constitutes Malice: G.R. No. 120554 September 21, 1999 SO PIN
G BUN v. CA, TEK HUA ENTERPRISING CORP. and MANUEL C. TIONG Facts: Trendsetter i
nterfered with the fulfillment of Tek Hua of its lease contract with DCCSI when
it obtained a lease for its own, covering the warehouse of the property, because
it deprived Tek Hua of its property right. But since such act was justified by
Trendsetters motive to benefit itself, damages cannot be granted to Tek Hua but t
he lease contract of Trendsetter had been nullified. > Lease Agreements (1963) b
etween Tek Hua Trading Co. (thru managing partner, So Pek Giok) and Dee C. Chuan
& Sons, Inc. where the latter leased its property for 1y, renewable for a month
ly basis ~ Expired, Non-renewal but Continued Possession of Tek Hua > Dissolutio
n of Tek Hua Trading (1976), Formation of Tek Hua Enterprising > Death of So Pek
Giok (1986) and Occupation of his grandson, So Ping Bun (Trendsetter Marketing)
, of the warehouse in the property which Tek Hua was leasing from DCCSI > Notice
of Rent Increase (August 1, 1989) by DCCSI, (first effective September 1, 1989
then January 1, 1990, then December 1, 1990, from 25% to 20% then to 30%) ~ New
Lease Contracts for signing, the failure of which would be deemed as
termination of the lease > Failure of Tek Hua to respond ~ Lease contract rescin
ded > Letter (March 1, 1991) by Manuel Tiong, President of Tek Hua, to So Ping B
un, demanding the possession of the warehouse in 14d because he would need it fo
r his textile business ~ So Pin Bum refused, requested a contract of lease with
DCCSI (March 4, 1992), and claimed that he had been paying rents ~ Lease Contrac
t granted > SUIT for Nullification of Lease Contract by Tek Hua and Tiong agains
t So Ping Bun > Liability of So Pin Bum (Trendsetter Marketing) > In asking DCCS
I for a contract of lease, it deprived Tek Hua of its property right by virtue o
f its lease > BUT his act was not motivated by malice but only the intention to
benefit himself > YET detrimenting Tek Hua is not without consequences ~ Injunct
ion and Nullification of Lease granted but without Damages
>> Damage > the loss, hurt, or harm which results from injury; the recompense or
compensation awarded for the damage suffered > Liability for an action for dama
ge for a nontrespassory invasion of anothers interest in the private use and enjo
yment of asset if OR an unlawful interference by one person of the enjoyment by
the other of his private property: (a) the other has property rights and privile
ges with respect to the use or enjoyment interfered with, (b) the invasion is su
bstantial, (c) the defendants conduct is a legal cause of the invasion, and (d) t
he invasion is either intentional and unreasonable or unintentional and actionab
le under general negligence rules > Elements of Tortuous Interference: (1) exist
ence of a valid contract; (2) knowledge on the part of the third person of the e
xistence of contract; and (3) interference of the third person is without legal
justification or excuse >> Legal Justification: sole purpose of the defendant is
to benefit himself, ie the furtherance of his own financial or economic interes
t or any substantial interest > financial or profit motivation will not necessar
ily make a person an officious interferer liable for damages as long as there is
no malice or bad faith involved > HENCE, where the alleged interferer is financ

ially interested, and such interest motivates his conduct, it cannot be said tha
t he is a malicious intermeddler G.R. No. 119107 March 18, 2005 JOSE V. LAGON v.
CA and MENANDRO V. LAPUZ Facts: In purchasing the property of Bai from her heir
s, Lagon did not interfere the contract of lease of Lapuz with the late Bai beca
use Lagaon did not know of the existence of the valid contract and had no malice
in purchasing said property.
14

> Contract of Lease (1964) between Bai Tonina Sepi and Menandro Lapuz where the
former leased her property to the latter who would construct commercial building
s thereon and who would lease it to new tenants, the rentals of which would serv
e as payment of Lapuz to Sepi > Renewal of the Contract (1974) due to the non-co
mpletion of the commercial buildings > Death of Bai, Payment by Lapuz of rent to
the administrator of her estate > Sale (June 23, 1982) where Jose Lagon bought
two parcels of land from the Estate (thru an intestate court) > Administrator th
us advised Lapuz to stop collecting rents and Lapuz then discovered that Lagon b
ecame the new owner and had been collecting the rents > SUIT for torts and damag
es by Menandro Lapuz who had induced the heirs of Bai to sell the property to hi
m and had violated his leasehold rights > RTC ruled in favor of Lapuz where Cont
ract of Lease was authentic > Contention of Lagon: (1) denied interfering with L
apuzs leasehold rights because, based on his personal investigation, there were n
o lease claims or encumbrances when he purchased the lots, that he knew of no le
ase contract ~ went to Atty. Fajardo who had notarized the lease between Bai and
Lapuz and was shown that the copies of lease renewal were not signed; (2) denie
d inducing the heirs who were in dire need of money to pay Bais obligations > The
re was no interference > Absence of the 2nd and 3rd Elements > 2nd Element of Kn
owledge of Contract ~ Personally investigated the property and found no suspicio
us circumstance that would have made a cautious man probe deeper > 1st Element o
f a valid contract is present ~ notarized lease contract that has the value of a
prima facie evidence and which was declared valid by the trial court > 3rd Elem
ent is not present because (A) there was no bad faith on the part of Lagon ~ all
egation of inducing the heirs was not supported by evidence and disproved by the
records that show the voluntariness of the heirs acts; (B) no ill motive ~ only
motive was to advance his financial interests, absent proof to the contrary > Ca
se is damage without injury > Hence, Suit for damages cannot prosper and petitio
n is granted > Interference with Contractual Relations (Art. 1314) > When a thir
d party induces another to violate his contract ~ liable for damages to the othe
r contracting party > WHY: It violates the property rights of a party in a contr
act to reap the benefits that should result therefrom > Elements of Tortuous Int
erference: (1) existence of a valid contract; (2) knowledge on the part of the t
hird person of the existence of contract ~ need not be actual knowledge but mere
awareness of the facts which, if followed by a reasonable inquiry, will lead to
a complete disclosure of the contractual relations and rights of the parties in
the contract; and (3) interference of the third person is without legal justifi
cation
or excuse ~ defendant must have acted with malice, or must have been driven by p
urely impious reasons to injure the plaintiff ~ financial or profit motivation w
ill not necessarily make a person an officious interferer liable for damages as
long as there is no malice or bad faith involved > Induction > where a person ca
uses another to choose one course of conduct by persuasion or intimidation > Dam
num Absque Injuria > Damage without Injury where Injury is the legal invasion of
a legal right and Damage is the hurt, loss or harm which results from the injur
y G.R. No. 20732 September 26, 1924 C. W. ROSENSTOCK, as administrator or the es
tate of H. W. Elser v. EDWIN BURKE and THE COOPER COMPANY Facts: Elser cannot be
compelled to purchase the yacht of Burke because his letter to him did not cons
titute an offer of purchase but a mere invitation to his offer of purchase. The
words used did not manifest his resolution to purchase, which was testified by E
lser himself and his stenographer. > Written Offer of Purchase (February 12, 192
2) by H.W. Elser of the yacht being sold by Edwin Burke (which was mortgaged to
Asia Banking Corporation for a debt due prior to the negotiations with Elser) fo
r the purpose of organizing a yacht club and selling the same to it thru him aft
erwards ~ Offer to pay P120k valid for 30d from date of letter > Without accepta
nce of the offer by Burke, Elser paid for the repairs to the yacht (P6972.21 to
Cooper Company) pursuant to his suggestion that he would invite businessmen to a
voyage to sell it to them and to Burkes lack of funds > Voyage (March 6, 1922 to
March 23, 1922) > Application (March 31, 1922) by Elser to Bank for a loan of P
20k which he would use to replace the engine but stated that he could not purcha

se the yacht for more than P70k ~ Bank refused ~ Request that Burke communicate
with the Bank > Agreement (April 3, 1922) that Elser is in position and willing
to entertain the purchase of the yacht for P80k according to terms that were acc
epted by Burke > Disapproval of the Loan Application of Elser worth P20k from th
e Bank for the yachts engine ~ Return of the yacht to Burke > Demand (April 8, 19
22) by Burke for the performance of the sale because he had already accepted, wi
th the consent of Asia Banking Corporation > SUIT by Elser for Recovery of P6139
.28, the value of the repairs made on the yacht paid by him > Contention of Burk
e: that the agreement about the repairs was that Elser was to pay for them for h
is own account in exchange of the gratuitous use of the yacht by him > Cross-Com
plaint by Burke to reinforce the sale which offer was accepted by him on April 3
, 1922
15

> Agreement of April 3, 1922 was NOT a contract of sale BUT mere invitation to a
n offer > (1) No resolution of Elser to purchase the yacht ~ I am in position and
am willing to entertain the purchase of it under the following terms ~ to enterta
in an act is not a resolution to perform it > a man in his transactions in good f
aith uses the best means of expressing his mind that his intelligence and cultur
e permit so as to convey and exteriorize his will faithfully and unequivocally ~
Elser is a prominent merchant > Resolution to Purchase must be of easy and uneq
uivocal meaning, ie. I want to purchase / I offer to purchase / I am in position
to purchase > HENCE, agreement is not a definite offer but only a position to d
eliberate > Testified by Elser, his stenographer and another employee that while
the letter was being dictated by Elser, Burke interrupted and requested a defin
ite offer to which Elser replied that he was not in position to make such; (2) N
o intention to offer purchase ~ intention was to sell the yacht to another but t
hru him in order to gain from the transaction; (3) Resolution to Purchase of Els
er was dependent upon the grant of loan which he would use to replace the engine
of the yacht ~ not granted to him > Payment of Repairs by Elser ~ in exchange f
or the use of the yacht > Whats the relationship between Offer-Acceptance and the
essential elements of contracts? (Consent, Object, Cause) ~ External manifestat
ion of the elements
16

G.R. No. 125761 April 30, 2003 SALVADOR P. MALBAROSA v. HON. COURT OF APPEALS an
d S.E.A. DEVELOPMENT CORP. Facts: Letter-Offer by SEADC, offering a car and shar
es to Malbarosa for his incentive, was not deemed accepted because Malbarosa did
not conform to it by signing his name and the date when they met and he did not
return it before SEADC has already withdrew it. > Resignation (January 8, 1990)
by Salvador P. Malbarosa from S.E.A. Development Corporation group of companies
(effective February 28, 1990, as President and General Manager of Philtectic Co
rporation, SEADC member) and Request for his 1989 Incentive Compensation > Meeti
ng (March 16, 1990) between SEADC President, Louis Da Costa, and Malbarosa where
the former presented SEADCs Letter-Offer (dated March 14, 1990, signed by Senen
Valero, Vice-Chairman of the Board of Directors) which offered P251,057.67 for h
is 1989 incentive compensation payable thru the company car (Mitsubishi Gallant
worth P220k) and thru the membership share of Tradestar International, Inc. in t
he Architectural Center, Inc. (worth P60k) allegedly due to SEADCs bankruptcy ~ R
equired conformity thru Malbarosas signing of his name and the date on the space
provided ~ Not accepted/denied by Malbarosa but received only for review because
he expected to receive P395k as ventured by Da Costa during their previous meetin
g (February 5, 1990) > Withdrawal by Philtectic of SEADCs Offer (April 4, 1990) a
nd Demand to Return the Car within 24h which Malbarosa received on the same day
~ Pursuant to: (a) Nonresponse by Malbarosa for 2w; (b) Decision of SEADC to wit
hdraw the offer; (c) Resolution (April 3, 1996) by SEADC where the Board authori
zed Philtectic and/or Valero to demand the return of the car and to take such ac
tion against him, including the institution of an action in court for the recove
ry of the car > Response of Malbarosa (April 7, 1990) refusing to comply because
he had already accepted the March 14, 1990 Letter-Offer ~ attached a photocopy
of the Letter-Offer to prove that he had already signed it on March 28, 1990 > S
UIT by SEADC for Recovery of personal property with replevin > CONTENTION of Mal
barosa: (1) Implied Acceptance when he retained possession of the car after it w
as offered on March 16, 1990; (2) Acceptance when he signed the LetterOffer on M
arch 28; (3) Notification of SEADC when he called Da Costas office on March 29, 1
990 ~ Receptionist communicated to Da Costa that Malbarosa accepted the offer an
d the former merely nodded > No perfected contract > No acceptance of the Letter
-Offer: (1) Receipt by Malbarosa of the original for review purposes amounted me
rely to a counteroffer because he accepted only for review; (2) Failure by Malba
rosa to effectively notify SEADC of his acceptance of said Letter-Offer before t
he latter
withdrew ~ Signed on March 28 but Sent only on April 7, 3d after the Withdrawal
of the Offer on April 4; (3) No proof that SEADC had granted him a period within
which to accept its offer ~ SEADC deemed its offer as not accepted in light of
Malbarosa s ambivalence and indecision on March 16, 1990 ~ no time frame fixed f
or Malbarosa to accept or reject its offer ~ Hence, offer must have been accepte
d immediately > Authority of Philtectic to withdraw the offer > authority to dem
and for and recover the subject car and to institute action for the recovery of
the car necessarily included the authority to withdraw the offer ~ Withdrawal ma
de with the instruction of Valero >> Article 1318: Essential requisites of a con
tract ~ (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
>> Article 1319: Consent by a party is manifested by the meeting of the offer a
nd the acceptance upon the thing and the cause which are to constitute the contr
act > Acceptance of the Offer is a Consent without which, there would be no cont
ract > Acceptance is Implied or Express but cannot be Qualified ~ Otherwise, it
is a Counter-Offer >> Acceptance: (1) Express or Implied (2) Absolute, Unconditi
onal and Without variance of any sort from the offer (3) Made known to the Offer
or, otherwise there would be no meeting of minds (4) Made before the Offeror wit
hdraws/revokes the Offer, otherwise acceptance after knowledge of the revocation
or withdrawal of the offer is inefficacious (5) Made exclusively according to t
he manner prescribed for acceptance by the Offeror, otherwise the acceptance is
considered as a counter-offer which the offeror may accept or reject (6) Made im
mediately before the Offeror withdraws offer if it is made inter praesentes or i

f the Offeror has not fixed a period for the offeree to accept the offer and the
offer is made to a person present G.R. No. 124242 January 21, 2005
17

SAN LORENZO DEVELOPMENT CORPORATION v. COURT OF APPEALS, PABLO S. BABASANTA, SPS

. MIGUEL LU and PACITA ZAVALLA LU Facts: Contract between Pacita Lu and Babasant
a was only a contract to sell which does not transfer ownership upon perfection
or consent because it is the payment that gives rise to the obligation of transf
erring title. Assuming that it was a contract of sale, its perfection is also no
t the consummation of transfer of ownership which takes place only upon the deli
very of the thing sold which did not take place in the case. > Verbal Sale (Augu
st 20, 1986) between Pacita Zavalla and Pablo Babasanta over the formers 2 parcel
s of land (cp) ~ latter previously loaned Pacita P50k but Pacita agreed to sell
her land for P15/sq.m. where P50k loan as downpayment for which she issued a Mem
orandum Receipt > Subsequent Payment by Babasanta, amounting to P200k but Balanc
e still of P260k > Demand (May 1989) by Babasanta for the Execution of a Final D
eed of Dale in his favor so that he could effect full payment of the purchase pr
ice and cancellation of the 2nd sale that he had heard about > Refusal of Pacita
: (1) that she agreed to sell the property but Babasanta rescinded the sale when
Pacita refused his request to lower the purchase price to P12/sq.m. when the ba
lance of the purchase price became due; (2) that she had returned the P50k; (3)
that Babasanta novated the contract to sell when he opted to pursue the original
loan transaction in that the spouses would be indebted to him worth P200k; (4)
Deed of Absolute Sale with Mortgage (May 3, 1989) between Sps. Lu and San Lorenz
o Development Corporation pursuant to the latters Option to Buy (February 11, 198
9) previously executed by the former when it agreed to purchase the property for
P1,264,640 and had paid P632,320 (after advancing P200k because Pacita needed m
oney to pay her indebtedness to Babasanta) ~ Titles bore no adverse claims and/o
r notice of lis pendens > SUIT (June 2, 1989) by Babasanta for Specific Performa
nce ~ execution of a final deed of sale in his favor > Sps. Lu settled with CA D
ecision upholding the Sale to Babasanta due to financial constraints > CONTENTIO
N of Babasanta against SLDC: Purchaser in Bad Faith for registering its sale aft
er knowledge of the lis pendens and hence, since it was a double sale, the regis
tration made in bad faith does not confer any right as if there is no registrati
on at all, and the buyer who has taken possession first of the property in good
faith shall be preferred > Babasanta has no right of ownership: > Contract to Se
ll Only > Receipt signed by Pacita merely states that she accepted the P50k from
Babasanta as partial payment > No stipulation that the seller reserves the owne
rship of the property until full payment of the price BUT
such intention is manifested in Pacitas subsequent acts: (1) Letter of Babasanta
that he repeatedly requested for the execution of the final deed of sale in his
favor so that he could effect full payment ~ Recognition that ownership of the p
roperty would not be transferred to him until full payment; (2) Non-execution of
Deed of Sale that they could have easily done if the sellers intended to transf
er title > As Contract to Sell, ownership transfers by Payment of the Purchase P
rice which obligation Babasanta did not do ~ Babasanta should have made the prop
er tender of payment and consignation of the price in court as required by law ~
Mere sending of a letter by the vendee expressing the intention to pay without
the accompanying payment is not considered a valid tender of payment > HENCE, ob
ligation on the part of Pacita to convey title never acquired obligatory force >
EVEN IF it is a Contract of Sale, No Ownership Still > Perfected Contract of Sa
le only CONFERS title but ownership is transferred by the DELIVERY of the thing
sold > Babasanta did not acquire ownership > No legal delivery because receipt w
as not a public instrument nor constructive delivery because he did not possess
the property at any time > Dangerous ruling by SC that contract of sale cannot b
e consummated due to lack of delivery > Ownership of SLDC: (1) Purchaser in good
faith ~ titles bore no adverse claim, encumbrance, or lien at the time it was s
old to it ~ Sale consummated on May 3, 1989 but lis pendens annotated only on Ju
ne 2, 1989 > EVEN IF registration was only on June 30, 1990, SLDCs lack of knowle
dge of Babasantas claim during the sale and its possession of property is not aff
ected by the subsequent annotation of the lis pendens ~ Hence, it had every reas
on to rely on the correctness of the certificate of title and it was not obliged
to go beyond the certificate to determine the condition of the property; (2) Ac

tual Possession of the Property ~ after the execution of the sale in its favor i
t immediately took possession of the property and asserted its rights as new own
er as opposed to Babasanta who has never exercised acts of ownership; (3) Not a
double sale but in either case, First criterion of the Law on Double Sale is pri
ority of entry in the registry of property; there being no priority of such entr
y, the Second is priority of possession; and, in the absence of the two prioriti
es, the third priority is of the date of title, with good faith as the common cr
itical element ~ SLDC acquired possession of the property in good faith in contr
ast to Babasanta, who neither registered nor possessed the property at any time,
SLDCs right is definitely superior to that of Babasantas
18

>> Contract to sell > TITLE is reserved in the vendor and is not to pass until t
he FULL PAYMENT of the price ~ Retained by the vendor until the full payment of
the price, a positive suspensive condition and failure of which is not a breach
but an event that prevents the obligation of the vendor to convey title from bec
oming effective >> Contract of sale > TITLE passes to the vendee upon the DELIVE
RY of the thing sold ~ Lost and cannot be recovered by the vendor until and unle
ss the contract is resolved or rescinded >> Sale > A consensual contract perfect
ed by mere consent > Essential Elements for PERFECTION: (1) consent or meeting o
f the minds, that is, to transfer ownership in exchange for the price; (2) objec
t certain which is the subject matter of the contract; (3) cause of the obligati
on which is established > PERFECTION IS NOT CONSUMMATION of the acquisition and
transfer of ownership because sale is only a title and not a mode >> Contracts,
in general, are perfected by mere consent ~ manifested by the meeting of the off
er and the acceptance upon the thing which are to constitute the contract > Offe
r must be certain and the Acceptance absolute > Contracts shall be obligatory pr
ovided all the essential requisites for their validity are present >> only const
itute titles or rights to the transfer or acquisition of ownership ~ Delivery or
Tradition is the mode of accomplishing the same > Sale by itself does not trans
fer or affect ownership but only creates the obligation to transfer ownership >>
Mode is the legal means by which dominion or ownership is created, transferred
or destroyed ~ ie Delivery or Tradition (Article 1497 to 1501) > (1) Actual Deli
very consists in placing the thing sold in the control and possession of the ven
dee; (2) Legal or Constructive Delivery thru (a) the execution of a public instr
ument evidencing the sale, (b) symbolical tradition such as the delivery of the
keys of the place where the movable sold is being kept, (c) traditio longa manu
or by mere consent or agreement if the movable sold cannot yet be transferred to
the possession of the buyer at the time of the sale, (d) traditio brevi manu if
the buyer already had possession of the object even before the sale, (e) tradit
io constitutum possessorium, where the seller remains in possession of the prope
rty in a different capacity >> Title is only the legal basis by which to affect
dominion or ownership ~ ie Contracts >> Double Sale > Rules of preference betwee
n the two purchasers of the same property > Principle of primus tempore, potior
jure (first in time, stronger in
right) > Art. 1544. If the same thing should have been sold to different vendees
, the ownership shall be transferred to the person who may have first taken poss
ession thereof in good faith, if it should be movable property. Should it be imm
ovable property, the ownership shall belong to the person acquiring it who in go
od faith first recorded it in the Registry of Property. Should there be no inscr
iption, the ownership shall pertain to the person who in good faith was first in
the possession; and, in the absence thereof, to the person who presents the old
est title, provided there is good faith. >> Purchaser in good faith > one who bu
ys 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 ti
me of such purchase, or before he has notice of the claim or interest of some ot
her person in the property >> Notice of lis pendens only serves as a warning to
a prospective purchaser or incumbrancer that the particular property is in litig
ation; and that he should keep his hands off the same, unless he intends to gamb
le on the results of the litigation
G.R. No. 147465 January 30, 2002 METROPOLITAN MANILA DEVELOPMENT AUTHORITY v. JA
NCOM ENVIRONMENTAL CORPORATION and JANCOM INTERNATIONAL DEVELOPMENT PROJECTS PTY
. LIMITED OF AUSTRALIA Facts: Contract with JANCOM and MMDA and Republic regardi
ng a solid waste management project in San Mateo was valid and remains to be des
pite the lack of the Presidents signature and changes in policy because there was
already a meeting of minds. The Presidents signature only makes the contract eff
ective and the policies did not actually annul the contract because they are not
incompatible. > Waste Management or Build-Operate-Transfer Contract (December 1
9, 1997) between the Metropolitan Manila Development Authority with the Presiden
tial Task Force on Solid Waste Management (thru DENR Secretary Victor Ramos, COR

D-NCR Chairman Dionisio dela Serna), Republic of the Philippines (thru the Secre
tary of National Resources and the Executive Committee) and JANCOM Environmental
Corporation to oversee the build-operate-transfer implementation of solid waste
management projects ~ JANCOM was one of the bidders recommended by the Pre-qual
ification, Bids and Awards Committee (PBAC), approved by EXECOM approved , and t
hen declared as a winning bidder (February 12, 1997) after the bidding conferenc
es for the San Mateo
19

landfill project ~ Letter (February 27, 1997) where MMDA Chairman Prospero I. Or
eta informed JANCOMs Chief Executive Officer Jay Alparslan that the EXECOM had ap
proved the PBAC recommendation to award to JANCOM the San Mateo Waste-to-Energy
Project on the basis of the final Evaluation Report declaring JANCOM as the sole
complying (winning) bidder for the San Mateo Waste Disposal site, subject to ne
gotiation and mutual approval of the terms and conditions of the contract of awa
rd > Submission of the Contract (March 5, 1998) to the President ~ Ramos term end
ed but he endorsed it to Estrada who appointed the Chairman of the Presidential
Committee on Flagship Programs and Project to be the EXECOM chairman, adopted th
e Clean Air Act of 1999 and ordered the closure of the San Mateo landfill > Reso
lution by Greater Manila Solid Waste Management Committee not to pursue the BOT
contract with JANCOM ~ Letter of Notice (November 4, 1999) to JANCOM due to chan
ges in policy and economic environment > (Pending appeal by JANCOM to Estrada) P
ublication (February 22, 2000) by MMDA of its invitation to prequalify and to su
bmit proposals for solid waste management projects for Metro Manila > SUIT by JA
NCOM certiorari to declare i) the resolution disregarding the BOT Contract and i
i) the acts of MMDA calling for bids as illegal, unconstitutional, and void; and
for prohibition to enjoin the GMSWNC and MMDA from implementing the resolution
and disregarding the Award to and the BOT contract with JANCOM > CONTENTION OF M
MDA: No valid contract because: a) the contract does not bear the signature of t
he President; b) the conditions precedent specified in the contract were not com
plied with; and c) there was no valid notice of award as required by the BOT Law
> Valid and binding contract between the Republic of the Philippines and JANCOM
: (1) Consent and meeting of minds when the parties signed the contract, concurr
ing in the offer (JANCOMs bid proposal) and acceptance with respect to the object
(waste management project) and the cause (BOT scheme) where the effect of an un
qualified acceptance of the offer or proposal of the bidder is to perfect a cont
ract; (2) Lack of Presidents Signature only suspended the effectivity of the cont
ract but not its validity ~ (i) DENR Secretary had the authority to sign in beha
lf of the Republic pursuant to Section 1 of Executive Order No. 380 that Secreta
ries of all Departments can enter into publicly bidded contracts regardless of a
mount; (ii) Contract stipulated that the Presidents signature is necessary only f
or its effectivity; (3) Failure to comply with several conditions precedent also
contemplates an effective contract where the conditions where to be undertaken
within 2 months from execution of this Contract as an effective document; (4) De
fect in Notice of Award was cured by the subsequent execution of the contract en
tered into and signed by authorized representatives of the parties ~ in negotiat
ing on the terms and conditions and signing said contract, the government had le
d JANCOM to believe that the notice of award given to them satisfied all the req
uirement of the law ~ Form is
Not responsibility of JANCOM but the Governments duty ~ [BOT Law required that i)
prior to the notice of award, an Investment Coordinating Committee clearance mu
st first be obtained; and ii) the notice of award indicate the time within which
the awardee shall submit the prescribed performance security, proof of commitme
nt of equity contributions and indications of financing resources] > > Revocatio
n of the Valid Contract requires the consent of both parties, not just MMDA > Be
cause the contract has the force of law, parties are bound to the fulfillment of
what has been expressly stipulated and to all the consequences which, according
to their nature, may be in keeping with good faith, usage, and law > Defects as
causes for annulment must be conclusively proven since the validity and the ful
fillment of contracts cannot be left to the will of one of the contracting parti
es > Reasons cited by MMDA for not pushing through were: 1) the passage of the C
lean Air Act, which allegedly bans incineration but not absolutely and only thos
e which emit poisonous and toxic fumes; 2) the closure of the San Mateo landfill
site yet the contract stipulates that in case the site is not delivered, the Re
public would provide within a reasonable period of time, a suitable alternative
acceptable to JANCOM; and 3) the costly tipping fee are not, by itself, enough t
o abrogate the entire agreement because neither the law nor the courts will extr
icate a party from an unwise or undesirable contract, or stipulation for that ma

tter, he or she entered into with full awareness of its consequences >> Contract
s (Art. 1305) > A meeting of minds between two persons whereby one binds himself
, with respect to the other, to give something or to render some service > Three
distinct stages: (a) Negotiation begins from the time the prospective contracti
ng parties manifest their interest in the contract and ends at the moment of agr
eement of the parties; (b) Perfection or birth of the contract takes place when
the parties agree upon the essential elements of the contract ~ by mere consent
(Art. 1315) manifested by the meeting of the offer and the acceptance upon the t
hing and the cause which are to constitute the contract (Art.1319); (c) Consumma
tion of the contract wherein the parties fulfill or perform the terms agreed upo
n in the contract, culminating in the extinguishment thereof
G.R. No. L-25494 June 14, 1972 NICOLAS SANCHEZ v. SEVERINA RIGOS > Option to Pur
chase (April 3, 1961) between Nicolas Sanchez and Severina Rigos where the latte
r promised to sell her land to the former for P1,510 within
20

2y from said date, with the understanding that said option shall be deemed termi
nated and elapsed if Sanchez shall fail to exercise it > Several tenders of paym
ent by Sanchez but rejected by Mrs. Rigos ~ Consignation (March 12, 1963) by San
chez to CFI > SUIT by Sanchez for specific performance and damages > CONTENTION
of Rigos: that the contract was void because it is a unilateral promise to sell,
and the same being unsupported by any valuable consideration, by force of the N
ew Civil Code, is null and void (ART. 1479 that an accepted unilateral promise t
o buy or to sell a determinate thing for a price certain is binding upon the pro
missor if the promise is supported by a consideration distinct from the price) >
CONTENTION of Sanchez: that Rigos agreed and committed to sell and Sanchez agre
ed and committed to buy the land ~ promises as "reciprocally demandable" (Art. 1
479) JJ: INCONSISTENCY BETWEEN 1324 and 1479: (a) former allows the withdrawal o
f the offer by offeror while the latter makes it immediately binding (b) contrac
t is valid in the former and its merely the withdrawal that is restricted but the
contract is not valid in the latter if it is without a consideration ~ subject
is the Restriction of ability to withdraw the offer, on the one hand, and the ex
istence of contract itself *What if: 1479 whose validity and binding force depen
ds upon a consideration is consistent with the exception of 1324 where the contr
act cannot be withdrawn if it has a consideration *But Sir: Whats the legal effec
t of 1479? Invalidity if without consideration? ~ 1479 Due to binding nature of
the contract, there is no option to speak of that can be withdrawn pursuant to 1
324 ~ Exception of 1324 speaks only of the option to withdraw and not validity /
legal effects of contract without consideration ~ Does 1479 add another require
ment of consideration for validity of a contract? ~ Is 1479 a special situation
where it nullifies 1324 itself > Contract of Option to Sell ~ Not enforceable un
til payment ~ No contract > Option is a mere agreement in advance ~ itll always b
e independent consideration > Consideration must exist independently of each con
tract entered into; does not pass from one contract to another ~ consideration i
n option and sale is necessarily different > Contract is VALID > Option did not
impose upon Sanchez the obligation to purchase but merely granted an "option" to
buy > Unilateral promise may be binding upon the promisor but Article 1479 requ
ires the concurrence of a condition, namely, that the promise be supported by a
consideration distinct
from the price ~ nothing in the contract to indicate that her agreement, promise
and undertaking is supported by a consideration distinct from the price ~ no va
lid contract without a cause or consideration unless the former establishes the
existence of said distinct consideration > Promisee cannot compel the promisor t
o comply with the promise ~ not bound by his promise and may, accordingly, withd
raw it upon notice of its withdrawal
>>> What is the mistake that can vitiate consent?
that had the party known the mistake, he would not have contracted? G.R. No. L-2
0435 October 23, 1923 LUIS ASIAIN v. BENJAMIN JALANDONI Facts: Asiain sold his 2
5-hectare property, more or less to Jalandoni, including the sugar canes therein.
But because the actual property and produce that were delivered to Jalandoni wer
e less than stated (from 25 to 18 hectares, and 2000 to 800 piculs of sugar), th
e agreement is rescinded due to gross mistake. Although the sale is a sale in gr
oss where the size of the property was variable, such variability was not meant
to be gross that it would have been beyond the contemplation of the parties. Hen
ce, due to their mutual mistake regarding such qualities of land and sugar, the
contract is rescinded. > Agreement of Sale between landowner Luis Asiain and Ben
jamin Jalandoni over the formers parcel of land and the sugar cane therein, expre
ssed in four agreements: (1) Verbal Agreement (May 1920) that Asiain was willing
to sell a portion of his hacienda, between 25 and 30 hectares, and the crop of
sugar cane there planted, producing 2k piculs of sugar, for the sum of P55k; (2)
Letter (May 26, 1920) by Asiain to Jalandoni that he is willing to sell the par
cel of land, assuring the latter there are 2,000 piculs therein, otherwise he wo
uld pay in sugar all such amount as will be necessary to complete the 2,000 but
in case of excesses, it shall pertain to him; (3) Memorandum-Agreement between A

siain and Jalandoni (July 1920) where Asiain (a) sold his land, containing 25 hec
tares more or less, with its corresponding crop, estimated at 2,000 piculs for a
total value of P55k (payable by P30k dp and P25k in 1y); (b) is obligated to tak
e care of all the plantation until the planting is finished; and (c) is to vacat
e the property after the planting
21

of cane is completely finished; while Jalandoni is to answer for all the rights
and obligations of the land; (4) Agreement due to Jalandonis doubt that the amoun
t of the land and of the crop was overestimated where Asiain promised to sell to
the former his land and the former to pay P55k, both with a reserved right to f
orfeit the expenses already advanced on account of the sale by the other who sho
uld decide to withdraw > Payment by Jalandoni of P30k with balance of P25k, whic
h was not paid due to Discrepancy between the Contemplated and Actual Size of Pr
operty and Amount of Sugar Cane Output ~ Sugar cane produced only 800 piculs and
property only contained an area of 18 hectares, as derived from the certificate
of title and survey of the land > SUIT by Asiain to compel Jalandoni to fulfil
the contract (to pay the balance) > Relief prayed for by Jalandoni: to annul the
contract and to return what each had received > CFI HELD: Agreement Null and Vo
id ~ Refund of P30k to Jalandoni and Return of Property to Asiain > Sale is Sale
in Gross (size is more or less) but with Gross Mistake as to Quality of Land Sold
and Standing Crop (size is not just more or less but a lot less) which produces t
he effect of rescission given that the Consent was given by reason of error > Sa
le was a Sale in Gross (Number 3) and not a Contract of Hazard > Description of m
ore or less in Agreement is that they did not contemplate or intend to risk more
than the usual rates of excess or deficit in similar cases, or than such as migh
t reasonably be calculated on as within the range of ordinary contingency> Vende
e does not thereby ipso facto take all risk of quantity in the tract ~ covers on
ly inconsiderable or small differences > Gross Mistake and a Mutual Mistake as t
o the quantity of the land sold and as to the amount of the standing crop > HENC
E, both parties acted obviously under a mistake in regard to the subject-matter
of the sale that is so material that if the truth had been known to the parties,
the sale would not have been made > RELIEF: that equity will rescind a contract
for the sale of land for mutual mistake as to the quantity of land which the bo
undaries given in the contract contained, where the deficiency is material > SC
UPHELD CFI where Agreement rescinded and parties put back in exactly their respe
ctive positions before they became involved in the negotiations (refund of payme
nt and payment for rent) > Entitled to Rescission? > Unilateral Mistake is suffi
cient ~ Vitiates consent of the party ~ Contract requires both consent > Must no
t always be mutual > To claim mistake, is it necessary to communicate hesitation
to other party?
>> Sales in gross: (A) Cannot be modified even if fraudulent: (1) Sales strictly
and essentially by the tract, without reference in the negotiation or in the co
nsideration to any designated or estimated quantity of acres; (2) sales of the l
ike kind, in which, though a supposed quantity by estimation is mentioned or ref
erred to in the contract, the reference was made only for the purpose of descrip
tion, and under such circumstances or in such a manner as to show that the parti
es intended to risk the contingency of quantity, whatever it might be, or how mu
ch so ever it might exceed or fall short of that which was mentioned in the cont
ract; (B) Equitable Relief if there is an unreasonable surplus or deficit: (3) s
ales in which it is evident, from extraneous circumstances of locality, value, p
rice, time, and the conduct and conversations of the parties, that they did not
contemplate or intend to risk more than the usual rates of excess or deficit in
similar cases, or than such as might reasonably be calculated on as within the r
ange of ordinary contingency; (4) sales which, though technically deemed and den
ominated sales in gross, are in fact sales by the acre, and so understood by the
parties ~ EFFECTS (Commentators Opinion): Vendor shall be obliged to deliver all
that is included within such boundaries, even should it exceed the area specifi
ed in the contract, OTHERWISE, should he not be able to do so, he shall suffer a r
eduction of the price in proportion to what is lacking of the area, unless the c
ontract be annulled by reason of the vendee s refusal to accept anything other t
han that which was stipulated > WHY: Vendor sold everything within the boundarie
s and this is all the purchaser has paid, or must pay, for whether much or littl
e it is found > Obligation of Vendor: to deliver all the land included within th
e boundaries assigned to the property, although the area may be found to be much
greater or far less than what was expressed > ERRONEOUS TO HOLD AS AN ABSOLUTE

RULE for it would do injustice to have the vendor suffer the loss of the value o
f the excess of his land and of the value of the price which would be reduced if
the land is smaller ~ must take into account the conduct of the parties, the va
lue, extent, and locality of the land, the date of the contract, the price, and
other nameless circumstances > EXCEPTIONS: Gross Mistake as if the area of the l
and sold is grossly deficient from that expressed in the sale ~ Slight excess or
deficiency is immaterial > RELIEF ON THE GROUND OF GROSS MISTAKE: Vendee can op
t (i) to have the price reduced proportionately; or (ii) to ask for the rescissi
on of the contract > GRANTED WHERE (1) the sale is of a specific quantity which
is usually denominated a sale by the acre; (2) the sale is usually called a sale
in gross > FAVOURABLE TO VENDEE, giving the excess to the purchaser without com
pensation to the vendor and allows the purchaser either to secure a deduction fr
om the price in case a deficiency or to annul the contract
22

>> Contract of Hazard where the sale is a sale in gross and not by acreage or qu
antity as a basis for the price WHERE mistake on the part of the vendor as to qu
antity of thing sold constitutes no ground for relief >> Art. 1471 applies to: (
1) Sale of Real Estate for a lump sum (and not at the rate of specified price of
each unit or measure) > No relief (increase/decrease of the price) even if the
area be found to be more or less than that stated in the contract (2) Sale of Tw
o or More Estates are sold for a single price (3) Sale of Real Estate where the
boundaries and area estate are stated >> Non-Application of Arts. 1469 and 1470
~ sale being made at a certain price for each unit of measure or number G.R. No.
150179 April 30, 2003 HEIRS OF WILLIAM SEVILLA, NAMELY: WILFREDO SEVILLA, WILSO
N SEVILLA, WILMA SEVILLA, WILLINGTON SEVILLA, AND WILLIAM SEVILLA, JR., HEIRS OF
MARIA SEVILLA, NAMELY: AMADOR SEVILLA, JENO CORTES, VICTOR CORTES, MARICEL CORT
ES, ALELEI* CORTES AND ANJEI** CORTES v. LEOPOLDO SEVILLA, PETER SEVILLA, AND LU
ZVILLA SEVILLA Facts: Felisa donated her share of her sisters estate to her nephe
w, Leopoldo. Despite her old age and alleged sickness at the time of the executi
on of the Deed of Donation, the donation remains valid because of the lack of ev
idence to rebut the presumption of valid consent. There was no proof of specific
acts that Leopold had employed to vitiate the consent of his aunt. Also, the co
ndition of Felisa was also not proven to show her susceptibility to fraud. > Thr
ee Instruments Executed by Felisa Almirol: (1) Last Will and Testament (November
25, 1985) where she left to her nephew, Leopoldo, her undivided share to the pa
rcel of land, which she co-owned with her sisters (Honorata already died on 1982
and hence, only Felisa ad Filomena share it); (2) Donation Inter Vivos (August
8, 1986) where she ceded to Leopoldo the same undivided share that was accepted
by Leopoldo in the same document; (3) Deed of Extrajudicial Partition (September
3, 1986) of Honoratas estate where she adjudicated the formers 1/3 share in favou
r of herself and the heirs of Filomena who had already died as well (December 10
, 1973) ~ New TCTs issued in favour of Felisa and Filomenas heirs but were withou
t signatures of the Register of Deeds pending submission by Peter Sevilla, son o
f Filomena, of a Special Power of Attorney authorizing him to represent the othe
r heirs of Filomena
> SUIT (June 21, 1990) for Annulment of the Deed of Donation and the Deed of Ext
rajudicial Partition by Filomenas heirs > CONTENTION of Heirs: that the Deed of D
onation was void for being tainted with fraud because Felisa was already 81y and
seriously ill and of unsound mind at the time of its execution; that the Deed o
f Extrajudicial Partition was void because it was executed without their knowled
ge and consent > CONTENTION of Leopoldo: that the Deed of Donation was valid bec
ause Felisa was of sound mind at the time of its execution and that she freely a
nd voluntarily ceded her undivided share in favour of Leopoldo > RTC Held (Decem
ber 16, 1994): Donation Valid due to absence of proof of fraud but Partition Voi
d due to lack of legal requisites of SPA > VALID DONATION (SC Upheld RTC) > Cons
ent of Filomena: presumption of valid consent absent full, clear and convincing
evidence of fraud or undue influence > Must be established by specific acts that
vitiated a party s consent ~ allegation only that she lived with Leopoldo, that
she was already 82, that she was seriously ill and of unsound mind BUT without
specifying what acts of Leopoldo constituted fraud and undue influence and on ho
w these acts vitiated the consent of Felisa and why Felisa should be held incapa
ble of exercising sufficient judgment > Legal Capacity of Filemona: already the
owner of 1/2 undivided portion of the Lot when she and Filomena inherited the 1/
3 share of their sister Honorata after the latter s death ~ unnecessary that par
tition of Honoratas estate should first be had because what was donated to Leopol
do was the 1/2 undivided share of Felisa > Deed of Extrajudicial Partition VOID
AB INITIO > Felisa had no legal capacity to execute the deed dividing the share
of her deceased sister Honorata between her and the heirs of Filomena ~ WHY: she
was no longer the owner of the 1/2 undivided portion of the Lot, having previou
sly donated the same to Leopoldo ~ she was neither the owner nor the authorized
representative of Leopoldo >> Donation > an act of liberality whereby a person d
isposes gratuitously of a thing or right in favor of another who accepts it > Ag
reement of the parties is essential ~ OTHERWISE, attendance of a vice of consent

renders the donation voidable > CAPACITY TO DONATE (Art. 737): the donor s capa
city shall be determined as of the time of the making of the donation >> Donatio
n inter vivos > immediately operative and final and results in an effective tran
sfer of title over the property from the donor to the donee > Perfected from the
moment the donor knows of the acceptance by the done ~ donee becomes the absolu
te owner of the property donated
23

>> Fraud > When through the insidious words or machinations of one of the contra
cting parties, the other is induced to enter into a contract which, without them
, he would not have agreed to >> Undue influence > When a person takes improper
advantage of his power over the will of another, depriving the latter of a reaso
nable freedom of choice ~ the circumstances of confidential, family, spiritual a
nd other relations between the parties, or the fact that the person alleged to h
ave been unduly influenced was suffering from mental weakness, or was ignorant o
r in financial distress, are considered > Where is the mistake here: Mistake of
Felisa in thinking that she can donate the property to Leopolodo because she sti
ll does not own the undivided share to the parcel of land
> What is the mistake that can vitiate consent?
that had the party known the mistake, he would not have contracted? > INCONSISTE
NT ruling that Deed was Void Ab Initio because mistake can only make a contract
voidable G.R. No. 82670 September 15, 1989 DOMETILA M. ANDRES (under "IRENE S WE
ARING APPAREL") v. MANUFACTURERS HANOVER & TRUST CORPORATION and COURT OF APPEAL
S Facts: Hanover mistakenly remitted the payment of FACETS to Dometila twice bec
ause the first one was delayed in receipt and record due to an incorrect stipula
tion of name. The first remittance was already received when the second was made
. Hence, there was a recredit against FACETS which it demanded from Hanover. Han
over demanded refund from Dometila who refused allegedly due to the negligence o
f Hanover and FACETS outstanding debt. Hanover had the right to recover pursuant
to Art. 2154 because it was not negligent but merely made a mistake in remitting
twice due to the same reference invoice number of the account of FSNB.
> Double Remittance in favour of Irene s Wearing Apparel from Facets Funwear, In
c. when the latter, an American company, paid the former twice for its manufactu
red ladies/childrens/mens wear ~ (1) from First National State Bank of New Jerse
y, thru Manufacturers Hanover and Trust Corporation, to Philippine National Bank
, and then to Dometilas account in Pilipinas Bank (August 1980), worth $10k ~ pay
ment was not effected immediately because the payee designated in the telex send
by Hanover to PNB was only Wearing Apparel ~ Received only on August 28, 1980, da
y after Hanover clarified it to be madse to Irene s Wearing Apparel; (2) from FNB
thru Hanover to Philippine Commercial and Industrial Bank (September 8, 1980), w
orth 10k, upon instruction by FACETS as the latters response to the delay in paym
ent ~ Received on September 11, 1980 > Demand by FNSB from Hanover for a recredi
t of its account due to the double remittance > Refund by Hanover > Demand by Ha
nover from FACETS for a refund of the double remittance > Refusal by FACETS to p
ay > SUIT (May 12, 1982) by Hanover > CONTENTION of Dometila: that FACETS still
had a balance of $49,324 and hence, the $10k remittance was payment of the preex
isting debt > Right to Recover > Doctrine of solutio indebiti > Art. 2154 ~ If s
omething received when there is no right to demand it, and it was unduly deliver
ed through mistake, the obligation to return it arises > Requisites: (1) that he
who paid was not under obligation to do so; (2) that payment was made by reason
of an essential mistake of fact > From Art. 1895 ~ If a thing is received when
there was no right to claim it and which, through an error, has been unduly deli
vered, an obligation to restore it arises > Double Remittance not due to Neglige
nce > that when one of two innocent persons must suffer by the wrongful act of a
third person, the loss must be borne by the one whose negligence was the proxim
ate cause of the loss > BUT Second remittance a mistake than negligence due to t
he fact that both remittances have the same reference invoice number in FNSB > S
econd Remittance as Payment of Pre-Existing Debt is UNTENABLE > no contractual r
elation between Dometila and Hanover > Dometila has no right to apply the second
$10k remittance delivered by mistake by Hanover to the outstanding account of F
ACETS G.R. No. 126013 February 12, 1997 SPOUSES HEINZRICH THEIS AND BETTY THEIS
v. HONORABLE COURT OF APPEALS, HONORABLE ELEUTERIO GUERRERO, ACTING PRESIDING JU
DGE, BRANCH XVIII, REGIONAL TRIAL
24

COURT, TAGAYTAY CITY, CALSONS DEVELOPMENT CORPORATION Facts: Sale of Parcel 4 (i

n title) to Sps. Theis by Calsons is void because the said title mistakenly conv
eyed the real properties of Calsons (Parcels 1&2) as Parcel 4 which he did not o
wn. Hence, Calsons could not have sold such lot because he did not own them. Als
o, Sps. Theis cannot insist on keeping the mistaken survey of Parcel 1 which is
Parcel 3 in reality because the latter has a house constructed theron which valu
e exceeds the purchase price. Hence, due to the erroneous survey of the lots tha
t was translated to the title, the consent of Calsons was vitiated when it sold
Parcel 4/1&2 because of the lack of his full and correct knowledge about the thi
ng of the sale. > Erroneous Survey (1985) of the Parcels (1-3) of Lands of Calso
ns Development Corporation where Parcel 1 and 2 were surveyed to be located on P
arcel 4 while the building constructed by Calsons on Parcel 3 (1985) was indicat
ed to be on Parcel 1 > Deed of Sale (October 26, 1987) between Calsons and Sps.
Theis where the former sold the latter Parcel 4, unaware of the mistake by which
he appeared to be the owner of Parcel 4, instead of Parcels 1&2, in the erroneo
us survey > Registration of the Sale and TCTs (October 28, 1987) > No actual pos
session of the property since Sps. Theis went to Germany until they returned and
discovered (1990) that Parcel 4 was owned by another person and what was sold t
o them was actually Parcels 2&3 > Calsons offered Parcels 1&2 (which were what h
e owned and intended to sell ) or refund of the purchase price, twice the value
> Denied by Sps. Theis who insisted on taking Parcels 2&3 > SUIT by Calsons for
Annulment of Deed of Sale and Reconveyance > Contract VOID on the ground of Mist
ake > Art. 1390 that the following contracts are voidable or annullable, even th
ough there may have been no damage to the contracting parties: 2) Those where th
e consent is vitiated by mistake, violence, intimidation, undue influence, or fr
aud > Consent of Calsons vitiated by honest mistake when he sold Parcel 4 based
on the erroneous survey that conveyed Parcels1&2 as Parcel 4 ~ Lack of full and
correct knowledge about the thing of the contract of sale > Quite impossible for
Calsons to sell the lot at it was not owned by it > Good faith manifested in im
mediate offer, (a) to sell the two other vacant lots or, (b) to reimburse them w
ith twice the amount paid, after discovery of error > Cannot allow retention of
Parcel 3 where a 2-storey house has been constructed thereon > Unjust enrichment
~ Sps. Theis only paid P486k while house was constructed prior to the sale for
the amount of P1.5M > Unreasonable
for Sps. Theis to insist on the house and lot when they intended to purchase a v
acant lot in the first place >> Error > Includes (a) Ignorance, which is the abs
ence of knowledge with respect to a thing; (b) Mistake, which is a wrong concept
ion about said thing, or a belief in the existence of some circumstance, fact, o
r event, which in reality does not exist > There is a lack of full and correct k
nowledge about the thing of the obligation G.R. No. L-10462 March 16, 1916 ANDRE
A DUMASUG v. FELIX MODELO Facts: Due to a previous debt arising from a lawsuit,
Andrea signed a document wherein she acknowledged her P101 debt to Felix Modelo
who had lent him the amount. Even though Andrea did not know how to write, she s
igned the document believing Felix in good faith. The document turned out to be
a Deed of Sale of her land and carabao. Because her consent was given by mistake
, on the premise that the document was an acknowledgement of debt than a sale, i
t is void and hence, the Deed of Sale which she actually signed was also void. >
When you enter a contract, its your responsibility to know what youre getting you
rself into > Why make the responsibility to the other party > HENCE, doesnt make
sense ~ you should take the risk or have a friend explain it *Yahoo gives out yo
ur IP address :p hahaha **TERM INSURANCE :p haha > Deed of Sale (November 3, 191
1) between Andrea Dumasug and Felix Modelo where the former allegedly sold her 2
-parcel land and carabao to the latter for P333.49 which she received > Possessi
on (February 1912) by Felix of her land and carabao > SUIT (June 17, 1912) by An
drea for Annulment of the Deed of Sale > CONTENTION of Andrea: (a) that she does
nt know how to write; (b) that Felix had sent for her and had persuaded her to si
gn the document (placed a cross between her Christian name and surname) by false
ly and maliciously making her believe that it was a mere acknowledgement that sh
e owed him the sum of P101 for the work he had performed in her behalf in the tw

o actions she had brought to recover her land (recovery of land against Rosales
Albarracin and Gaudencio Saniel who had filed an annulment of the judgment in An
dreas favour in Cebu; Felix was not her counsel but was asked for advise by Andre
a and he merely told her to bring the matter to the authorities and helped engag
e the services of Atty. Andres Jayme to be her counsel) ~ did not object because
25

she believed in good faith that he had told her the truth and discovered the tru
th only when Felix took possession of the same ~ No witnesses to the signing but
she was afterwards taken to the notary who did not ask her any question; (c) th
at Felix offered to buy her carabao for P120 but she refused because it was her
only means of livelihood > CONTENTION of Felix: that Andrea sold the land and ca
rabao to him, which sale was executed and signed by Andrea in the presence of wi
tnesses, Mariano Abear and Apolina Minosa and notarized even by Anselmo S. Legas
pi after the latter had explained to her that it was a conveyance by absolute sa
le of the lands and carabao > Deed of Sale is NULL AND VOID > No Consent ~ obtai
ned by means of fraud and deceit on the part of Felix > contents were not duly a
nd faithfully explained to Andrea > Made to believe that the Deed of Sale was an
instrument wherein she recognizes her debt > Andrea thus signed by mistake, whi
ch error invalidates the contract because it goes to the very substance of the t
hing which was the subject matter of said contract > Document which she signed w
ith her own free will and which she authenticated with her mark is not the Deed
of Sale > That the debt arose from the expenses of suit which Andrea defrayed >
UNTENABLE > (1) Andrea could not have defrayed Judge Minosa s expenses in Cebu,
allowing him to board in restaurants, to amuse himself in the cinematographs and
to remain four days in that city each time that he went there all at her expens
e when the proceedings in the case had not gone beyond the filing of a demurrer
and was dismissed before the complaint was answered and the trial was held where
no witnesses were examined and Andrea, the principal defendant, went to Cebu on
ly twice, staying there one day each time ~ It would have been better for her to
let go of the usurped property that maintain the suit because the latter would
have cost more ~ REAL DEBT was P101 than P333.49 since the most that she could h
ave spent on, attorneys fees, was only P80-90; (2) Felix was neither an attorney
nor a procurador judicial, and the record does not show that he acted as an atto
rney, procurador judicial, or friend of Andrea in the case G.R. No. 107132 Octob
er 8, 1999 MAXIMA HEMEDES v. THE HONORABLE COURT OF APPEALS, DOMINIUM REALTY AND
CONSTRUCTION CORPORATION, ENRIQUE D. HEMEDES and R & B INSURANCE CORPORATION G.
R. No. 108472 October 8, 1999
R & B INSURANCE CORPORATION v. THE HONORABLE COURT OF APPEALS, DOMINIUM REALTY A
ND CONSTRUCTION CORPORATION, ENRIQUE D. HEMEDES and MAXIMA HEMEDES Facts: The De
ed of Conveyance executed by Justa Kausapin in favor of her step-daughter Maxima
Hemedes (pursuant to her late husbands request) was made in English where she al
leged that she cannot read or write. She thus challenged its validity because it
was not explained to her by Maxima as required by Art. 1332. However, she canno
t invoke the provision because she also alleged that she did not know of such De
ed and did not give any consent at all. Art. 1332 only applies when consent was
given to a contract but was only vitiated due to mistake or fraud. Hence, by cla
iming that she did not execute the Deed at all, Justa cannot invoke Art. 1332. >
Five Transfer of Ownership of an unregistered parcel of land (1) March 22, 1947
: Owner Jose Hemedes to 3rd wife, Justa Kausapin by virtue of a Donation Inter V
ivos With Resolutory Conditions ~ Jose conveyed ownership of the property to Jus
ta with the Resolutory Condition that she revert the ownership of the same to Jo
ses children and/or heirs if she dies or remarries, to be done expressly in a pub
lic document or automatically absent such express designation (2) September 27,
1960: Justa to Maxima Hemedes, child of Jose, by virtue of a Deed of Conveyance
of Unregistered Real Property by Reversion ~ Justa conveyed ownership of the pro
perty to Maxima but reserved usufructuary rights where she would continue to pos
sess and enjoy the property during her lifetime or widowhood (where occurrence o
f either of the latter would automatically revert ownership to Maxima) > Maxima
registered the property and acquired a TCT on June 8, 1962, with the annotation
that Justa Kausapin shall have the usufructuary rights over the parcel of land he
rein described during her lifetime or widowhood (3) May 3, 1968: Maxima to R & B
Insurance, by virtue of an extrajudicial foreclosure of mortgage over the proper
ty ~ Maxima mortgaged it to R&B (June 2, 1964) to secure the latters loan of P6k
but failed to pay (due August 2, 1964) and failed to redeem the property after t
he foreclosure ~ Issuance of a new TCT in favor of R&B but with the annotation o

f usufruct (4) May 27, 1971: Justa to Enrique D. Hemedes, son of Jose, by virtue
of a Kasunduan ~ Justa conveyed ownership of the property to Enrique and affirm
ed the same thru an Affidavit (April 10, 1981) wherein she denied conveyance to
Maxima ~ Enrique obtained two declarations of real property (1972 and 1974),
26

paid its realty taxes, and was named owner of the property in the cadastral surv
ey and in the records of the Ministry of Agrarian Reform (5a) February 28, 1979:
Enrique to Dominium Realty and Construction Corporation by virtue of a Deed of
Sale (5b) May 14, 1981: Dominium to its sister corporation, Asia Brewery, Inc.,
by virtue of a Lease >Asia Brewery constructed two warehouses made of steel and
asbestos costing about P10M each > Prompted (i) R&B to write AB (March 16, 1981)
, claiming ownership and its right to appropriate the constructions; (ii) Maxima
to write AB (May 8, 1981), claiming ownership and its right to appropriate the
constructions; (iii) Maxima to write R&B (May 8, 1981), denying mortgage > SUIT
(August 27, 1981) by Dominium and Enrique for Annulment of TCT of R&B and Convey
ance of Property to Dominium as the absolute owner of the subject property > CON
TENTIONS of Dominum and Enrique: (1) that Justa Kausapin never transferred the l
and to Maxima as repudiated in her April 10, 1981 Affidavit ; (2) that Maxima fa
iled to explain the Deed of Conveyance, that was in English, to Justa who did no
t know how to read and write English ~ required by Art. 1332; (3) that Enrique h
ad no knowledge of the registration proceedings initiated by Maxima > SC HELD: R
&B AS OWNER (from Maxima who owned and mortgaged it) > Maxima, not Enrique, was
the Owner of the Property > VALIDTY OF THE DEED OF RECONVEYANCE IN HER FAVOR > >
WHY NOT Spurious/Sham: (1) Art. 1332 NOT APPLICABLE ~ Justas Claim of Non-existe
nce of the Deed of Conveyance ~ Claim of Complete Absence of Consent ~ Art. 1332
contemplates a situation where a contract is entered into and consent of a part
y was given but vitiated due to mistake/fraud > Nonetheless, Justa never questio
ned the validity of Joses Donation which was also in English (2) Failure to Dispr
ove the authenticity of Justas thumbmark in the Deed of Conveyance ~ refused to h
ave Justas thumbmark and the one in the Deed checked and compared ~ Legal presump
tion that evidence willfully suppressed would be adverse if produced where the f
ailure to refute the due execution of the Deed by making a comparison with Justa
s thumbmark necessarily leads one to conclude that she did in fact affix her th
umbmark upon the Deed (3) Repudiation by Justa cannot prosper > Failed to prove
invalidity of the Deed of Conveyance which is a public instrument with prima fac
ie authenticity > A party to a contract cannot just evade compliance with his co
ntractual obligations by the simple expedient of denying the execution of such c
ontract > Any claim
of defect must be conclusively proven and must be so clear, strong and convincin
g as to exclude all reasonable controversy as to the falsity of the certificate
> Validity is otherwise upheld because the fulfillment of contracts cannot be le
ft to the will of one of the contracting parties (4) Mere denial of Justa is not
enough ~ Justa is a biased witness ~ already 80y with worsening physical infirm
ities ~ completely dependent upon Enrique for financial support (as testified by
Justa and Enrique) who could have easily influenced her to execute the Kasundua
n in his favor > HENCE, Enrique and Dominium did not acquire any rights over the
subject property since ownership had already been vested to Maxima > Object of
Justas donation to Enrique and of Enriques sale to Dominium did not exist at the t
ime of the transfer, having already been transferred to his sister > Enrique had
no more than usufructuary rights where mere tax certificates cannot prove owner
ship and cannot defeat a certificate of title, which is an absolute and indefeas
ible evidence of ownership of the property in favor of the person whose name app
ears therein > R&B IS NOW THE OWNER OF THE PROPERTY > (1) Validity of the Mortga
ge ~ Mortgage of property with usufructuary rights is valid since the presence o
f an encumbrance on the certificate of title is not reason for the purchaser or
a prospective mortgagee to look beyond the face of the certificate of title WHER
E the owner of a parcel of land may still sell the same even though such land is
subject to a usufruct > Usufruct only restricts the title over the property > H
ENCE, mortgage was valid and only subject to Justas usufructuary rights (2) EVEN
IF R&B had investigated beyond the title, there would have been no controversy s
ince the Mortgage was on 1964 while the Kasunduan in Enriques favor was on 1971 a
nd the Affidavit repudiating Maximas claim was only on 1981 > Asia Brewery cannot
be compelled to deconstruct its warehouses > a necessary party that was not joi
ned in the action > HENCE any judgment rendered in this case shall be without pr

ejudice to its rights >> Non-Applicability of Art. 1332 > PURPOSE: the protectio
n of a party to a contract who is at a disadvantage due to his illiteracy, ignor
ance, mental weakness or other handicap ~ contemplates a situation wherein a con
tract has been entered into, but the consent of one of the parties is vitiated b
y mistake or fraud committed by the other contracting party >> Mistake may inval
idate consent ~ should refer to the substance of the thing which is the object o
f the contract, or to those conditions which have principally moved one or both
parties to enter into the contract
27

>> Fraud may vitiate consent ~ when, through insidious words or machinations of
one of the contracting parties, the other is induced to enter into a contract wh
ich, without them, he would not have agreed to >> Usufruct gives a right to enjo
y the property of another with the obligation of preserving its form and substan
ce > RIGHTS: right to personally enjoy the thing in usufruct, and all the natura
l, industrial and civil fruits of the property, to lease it to another, or alien
ate his right of usufruct, even by a gratuitous title > BUT all the contracts he
may enter into as such usufructuary shall terminate upon the expiration of the
usufruct > Only jus utendi and jus fruendi over the property >> RIGHT OF THE OWN
ER TO ALIENATE DESPITE USUFRUCT: jus disponendi or the power to alienate, encumb
er, transform, and even destroy the same > owner of property the usufruct of whi
ch is held by another, may alienate it, although he cannot alter the property s
form or substance, or do anything which may be prejudicial to the usufructuary >
> An innocent purchaser for value > one who buys the property of another without
notice that some other person has a right to or interest in such property and p
ays a full and fair price for the same at the time of such purchase or before he
has notice of the claim of another person > Every person dealing with registere
d land may safely rely on the correctness of the certificate of title issued and
the law will in no way oblige him to go behind the certificate to determine the
condition of the property >> witness is said to be biased ~ when his relation t
o the cause or to the parties is such that he has an incentive to exaggerate or
give false color to his statements, or to suppress or to pervert the truth, or t
o state what is false
which is the mere security of loan by property, which reason Lustan signed the c
ontract, shall prevail. > Special Power of Attorney (July 29, 1970 and February
18, 1972) executed by Adoracion Lustan in favour of Nicolas Parangan where the l
atter, as lessee of Lustans property (since February 25, 1969), was to secure loa
ns from Philippine National Bank with the lot as collateral in order to help her
with her childs educational expenses (in addition to the loans he had been givin
g her) > Loans acquired by Parangan by virtue of the 2nd SPA: (a) P24k (December
15, 1975) with Lustans knowledge; WITHOUT Lustans knowledge and USED for Parangans
own benefit, (b) P38k (September 6, 1976); (c) P38,500 (July 2, 1979); (d) P25k
(June 2, 1980) > Deed of Pacto de Retro Sale (April 16, 1973) and Deed of Defin
ite Sale (May 4, 1979) which Lustan, who was illiterate, was made to sign upon P
arangan s representation that the same merely evidences the loans extended by hi
m unto the former ~ BUT actual stipulation is that Lustan is to absolutely conve
y the property to Parangan for P75k > Demand by Lustan for the Return of her TCT
> Refusal of Parangan, asserting his rights over the property which allegedly h
ad become his by virtue of the Deed of Definite Sale > SUIT by Parangan for the
cancellation of liens, quieting of title, recovery of possession and damages > D
eed of Definite Sale is REALLY AN EQUITABLE MORTGAGE > Intention Prevails over L
anguage > Agreement intended was one of a loan secured by Lustans property ~ to c
onsolidate the Lustan s indebtedness to Parangan in a single instrument and to s
ecure the same with the subject property > WHY Equitable Mortgage: Art. 1602 (6)
where it may be fairly inferred that the real intention of the parties is that
the transaction shall secure the payment of a debt or the performance of any oth
er obligation > INFERRED CIRCUMSTANCES: (i) Lustan, an illiterate, had no knowle
dge that the contract she signed was not a Consolidation of Debts BUT a Deed of
Sale ~ NOT informed or explained of the contract and its content as required und
er Art. 1332 > BURDEN TO PROVE EXPLANATION: (a) when one of the contracting part
ies is unable to read, or (b) if the contract is in a language not understood by
him, and (c) mistake or fraud is alleged, the person enforcing the contract mus
t show that the terms thereof have been fully explained to the former ~ Burden i
s on the party interested in enforcing the contract to prove that the terms ther
eof are fully explained to the former in a language understood by him (ii) FAILU
RE OF PARANGAN TO PROVE EXPLANATION TO LUSTAN: (1) testimony of the witness to t
he notarization, Celso Pamplona, that the contract was not read nor explained to
Lustan and he himself was informed by Parangan that he will witness a document
consolidating Lustans debts; (2)

28
G.R. No. 111924 January 27, 1997 ADORACION LUSTAN v. COURT OF APPEALS, NICOLAS P
ARANGAN and SOLEDAD PARANGAN, PHILIPPINE NATIONAL BANK Facts: The Deed of Sale e
xecuted by Lustan and Parangan where the former sold her property to the latter
is merely an Equitable Mortgage because the real intention of the parties was ju
st to secure the loans given by Parangan to Lustan with the latters property. Thi
s real intent is manifested by the lack of Lustans understanding of the Sale beca
use she was illiterate and was not informed of the Deeds content. Hence, despite
the language of the contract, its true intention,

testimony of notary, Judge Lebaquin, that he did not know of Lustans illiteracy ~
had he known that Lustan is illiterate, his assistance would not have been nece
ssary; HENCE Lustan failed to intelligibly formulate in her mind the consequence
s of her conduct and the nature of the rights she was ceding in favor of Paranga
n ~ Merely relied upon Parangans assurance that the contract only evidences her i
ndebtedness to the latter > CONSENT BY MISTAKE ~ NO INTENTION TO SELL > Three Mo
rtgages for Parangans Benefit and Without Knowledge of Lustan STILL VALID AND ENF
ORCEABLE AGAINST LUSTANS PROPERTY > By virtue of the SPAs: Parangans acts are deem
ed to have been performed within the scope of the agent s authority > SPAs are a
continuing one and absent a valid revocation in a public instrument and duly fu
rnished to the mortgagee, the same continues to have force and effect as against
third persons who had no knowledge of such lack of authority > No proof that PN
B was aware of Lustans lack of knowledge and express authority >> INTENTION OF A
CONTRACT OVER ITS LANGUAGE > A contract is perfected by mere consent while a con
tract of sale is perfected at the moment there is a meeting of minds upon the th
ing which is the object of the contract and upon the price > MEETING OF MINDS IS
THE INTENT of the parties in entering into the contract respecting the subject
matter and the consideration thereof > IF WORDS ARE CONTRARY TO THE EVIDENT INTE
NTION, the latter prevails ~ EVEN IF a document appears on its face to be a sale
, the owner of the property may prove that the contract is really a loan with mo
rtgage by raising as an issue the fact that the document does not express the tr
ue intent of the parties >> Art. 1602 where The contract shall be presumed to be
an equitable mortgage in any of the following cases: 1) When the price of a sal
e with right to repurchase is unusually inadequate; 2) When the vendor remains i
n possession as lessor or otherwise; 3) When upon or after the expiration of the
right to repurchase, another instrument extending the period of redemption or g
ranting a new period is executed; 4) When the vendor binds himself to pay the ta
xes on the thing sold; 5) When the purchaser retains for himself a part of the p
urchase price; 6) In any other case where it may be fairly inferred that the rea
l intention of the parties is that the transaction shall secure the payment of a
debt or the performance of any other obligation. >> Art. 1604 where The provisi
ons of Article 1602 shall also apply to a contract purporting to be an absolute
sale. >> Presumption of an equitable mortgage > Requisites: (1) that the parties
entered into a contract denominated as a contract of sale; (2) that their inten
tion
was to secure an existing debt by way of mortgage ~ Deed of Sales are presumed t
o be an equitable mortgage should ANY of the conditions in Art. 1602 be present
G.R. No. 132415 January 30, 2002 MIGUEL KATIPUNAN, INOCENCIO VALDEZ, EDGARDO BAL
GUMA and LEOPOLDO BALGUMA, JR. v. BRAULIO KATIPUNAN, JR. Facts: A Deed of Absolu
te was executed by Braulio in favor of the brothers Balguma. But the document is
void because Braulio is not capacitated to give consent, with a very low IQ who
was not informed of the contents and the nature of the English document, and mo
reover, his consent was vitiated by the undue influence of his brother, Sencio a
nd Atty. Balguma > Deed of Absolute Sale (December 29, 1985) between Braulio Kat
ipunan, Jr. (lot and apartment owner), with his brother, Miguel Katipunan, and b
rothers Edgardo Balguma and Leopoldo Balguma, Jr., represented by their father A
tty. Leopoldo Balguma, Sr. where Braulio sold his lot and apartment for P187k >
New TCT in favor of Balguma brothers, Collection of Rentals by Atty. Balguma sin
ce January, 1986 > SUIT (March 10, 1987) by Braulio for annulment of the Deed of
Absolute Sale > CONTENTIONS of Braulio: (1) that his brother Miguel, Atty. Balg
uma and Inocencio Valdez convinced him to work abroad and through insidious word
s and machinations, they made him sign a document purportedly a contract of empl
oyment, which document turned out to be a Deed of Absolute Sale; (2) that he did
not receive the consideration stated in the contract; (3) that he only reached
3rd grade > CONTENTIONS of Petitioners: (1) that Braulio was aware of the conten
ts of the Deed of Absolute Sale; (2) that he received the consideration involved
; (3) that he knew that the Balguma brothers have been collecting the rentals si
nce December 1985 but has never objected or confronted them; (4) that he filed t
he complaint because his sister, Agueda Savellano, urged him to do so (where his

motions to dismiss his complaint had been granted on the same ground for which
Atty. Balguma paid P2500; but motioned for reconsideration since he did not sign
the motions to dismiss voluntarily due to his poor comprehension and the lack o
f assistance of counsel ~ sister Agueda was thus appointed as his guardian ad li
tem) > Deed of Absolute Sale is VOID >
29

(I) INCAPACITY TO GIVE A RATIONAL CONSENT ~ (a) medical report of Dr. Annette Re
villa (Resident Psychiatrist, PGH) that he has a very low IQ and a mind of a six
-year old ~ unrebutted by petitioners; (b) fact that he only reached 3rd grade;
(c) difficulty of the trial court in communicating with him where it had to clar
ify certain matters because Braulio was either confused, forgetful or could not
comprehend; (II) VITIATED CONSENT ~ intimidation and undue influence exerted upo
n him by his brother Miguel and Inocencio Valdez and Atty. Balguma: (1) It was h
is brother Miguel who negotiated with Atty. Balguma; (2) Braulio was not informe
d of the nature and contents of the document he signed ~ written in English and
embellished in legal jargon; (3) Braulio was forced to sign the document by the
shoving of his brother Miguel and Sencio and the threat that if he does sign, so
mething will happen; > HENCE, deprivation of reasonable freedom of choice and im
possibility of understanding the contract > His ignorance and weakness made him
most vulnerable to the deceitful cajoling and intimidation of petitioners > No M
utual Restitution > Principle of mutual restitution (Art. 1399) when the defect
of the contract consists in the incapacity of one of the parties, the incapacita
ted person is not obliged to make any restitution, except when he has been benef
ited by the things or price received by him > Only Miguel profited from the enti
re transaction ~ that it was Miguel who wanted to go abroad and needed money, gi
ving loose change only to Braulio that are grossly disproportionate to the value
of his property ~ Atty. Balguma admitted that it was Miguel who received the mo
ney from him > Restitution only to Braulio ~ possession and fruits (rentals from
lessees) of the property
>> Contracts with incapable consent or vitiated (by mistake, fraud, or intimidat
ion) IS NOT void ab initio BUT ONLY voidable and is binding upon the parties unl
ess annulled by proper Court action > Effect of Annulment ~ to restore the parti
es to the status quo ante insofar as legally and equitably possible > EXCEPTION:
when the defect of the contract consists in the incapacity of one of the partie
s, the incapacitated person is not obliged to make any restitution, except when
he has been benefited by the things or price received by him
G.R. No. 125485 September 13, 2004 RESTITUTA LEONARDO, assisted by JOSE T. RAMOS
v. COURT OF APPEALS, and TEODORO SEBASTIAN, VICENTE SEBASTIAN, CORAZON SEBASTIA
N, assisted by ANDRES MARCELO; PEDAD SEBASTIAN, HEIRS OF EDUVIGIS SEBASTIAN, nam
ely: EDUARDO S. TENORLAS, ABELARDO J. TENORLAS, ADELA S. and SOLEDAD S. TENORLAS
, represented by EDUARDO S. TENORLAS, and HEIRS OF DOMINADOR, namely: NAPOLEON S
EBASTIAN, RUPERTO SEBASTIAN, ADORACION SEBASTIAN, PRISCILLA SEBASTIAN, LITA SEBA
STIAN, TITA SEBASTIAN and GLORIA SEBASTIAN, represented by NAPOLEON SEBASTIAN; E
VELYN SEBASTIAN; AURORA SEBASTIAN; and JULIETA SEBASTIAN Facts: An Extrajudicial
Settlement of Tomasinas estate was signed by her only legitimate daughter, Resti
tuta where her share was less than in favour of her step-siblings. The Deed was
annulled because Restituta signed it without understanding it where it was writt
en in English when she can only understand the Pangasinan dialect and where no p
roof was given that Judge Austria explained it in Pangasinan or that he explaine
d it with all parties present. Because of such illiteracy, the consent of Restit
uta was vitiated by her lack of intelligence and freedom. > Extrajudicial Settle
ment of the estate of Jose Sebastian and Tomasina Paul (June 24, 1988) ~ Restitu
ta was the only legitimate child of Tomasina with her husband Balbino Leonardo w
hile the Sebastians (Corazon, Teodoro, Victor, Piedad, Eduvigis and Dominador) w
ere the illegitimate children of Tomasina with Jose Sebastian after she separate
d in fact from Balbino > SUIT for Nullity of Extrajudicial Settlement of the Est
ate of Tomasina Paul and Jose Sebastian > CONTENTION of Restituta: that Corazon
and her niece Julieta Sebastian, and a certain Bitang came to her house and pers
uaded her to sign the deed despite the latters insistence to wait for her husband
, Jose Ramos, who could translate the English document to Pangasinan dialect and
explain it to her; that Corazon assured her that she would get her share as a l
egitimate daughter of Tomasina;
30

>> Contract of sale ~ Perfected from the meeting of minds upon the thing which i
s the object of the contract and upon the price > Intent of the parties in enter
ing into the contract respecting the subject matter and the consideration thereo
f > Elements of a Contract of Sale: (a) consent, (b) object, and (c) price in mo
ney or its equivalent > Consent may be vitiated by the presence of ANY: (1) mist
ake, (2) violence, (3) intimidation, (4) undue influence, and (5) fraud (Art. 13
30)

they did not wait of Jose, as requested, but left after she signed it without le
aving a copy; that she received a copy only when she hired a lawyer > HENCE, Dee
d was void because her consent was vitiated and because Tomasina and Jose were n
ever married and can thus have no cp but only co-ownership > CONTENTION of Sebas
tians: that they all appeared before Judge Juan Austria on July 27, 1988 to ackn
owledge the execution of the extrajudicial partition; that Judge Austria read an
d explained the contents of the document which all of them, including Restituta,
voluntarily signed > RTC Held: (1) that the element of duress or fraud that vit
iates consent was not established; (2) that the proper action was the reformatio
n of the instrument, not the declaration of nullity of the extrajudicial settlem
ent of estate > Deed IS VOID > Vitiated Consent > (1) Deed was not explained in
a language known to her ~ did not know English, only Pangasinan; finished only 3
rd grade; (2) No proof that Judge Austria explain the Deed in Pangasinan dialect
, known to Restituta; (3) Uncertainty of Judge Austria regarding the presence of
all parties during the notarization > HENCE, not in a position to give her free
, voluntary and spontaneous consent DUE TO THE misrepresentation, deception and
undue pressure of her half-sister Corazon ~ Presumption of Mistake not rebutted
> EFFECT: Annulment on the ground of Mistake ~ involves a substantial mistake re
garding her alleged share in the estate clearly prejudicial to the substantive i
nterests of Restituta in her mothers estate > Although Action filed is Declaratio
n of Nullity, what is sought by the allegation and evidence is the Annulment > n
ot the caption of the pleading but the allegations that determine the nature of
the action >> Consent > Essence: the agreement of the parties on the terms of th
e contract ~ acceptance by one of the offer made by the other ~ concurrence of t
he minds of the parties on the object and the cause which constitutes the contra
ct > must extend to all points that the parties deem material or there is no con
sent at all > Requisites of Validity: (a) it should be intelligent, or with an e
xact notion of the matter to which it refers ~ can be vitiated by error; (b) it
should be free ~ vitiated by violence, intimidation or undue influence; (c) it s
hould be spontaneous ~ vitiated by fraud > EFFECTS OF MISTAKE: invalidity of the
consent if it refers to the substance of the thing which is the object of the c
ontract, or to those conditions which have principally moved one or both parties
to enter into the contract >> Contracts where consent is given by mistake or be
cause of violence, intimidation, undue influence or fraud > VOIDABLE > WHY: defe
cts of the will ~ impairs the freedom, intelligence, spontaneity and voluntarine
ss of the
party in giving consent to the agreement ~ consideration of the age, physical in
firmity, intelligence, relationship and the conduct of the parties at the time o
f making the contract and subsequent thereto, irrespective of whether the contra
ct is in a public or private writing >> VOIDABLE: An action for annulment of con
tract IF consent is vitiated by lack of legal capacity of one of the contracting
parties, or by mistake, violence, intimidation, undue influence or fraud > cont
emplates a contract which is voidable, that is, valid until annulled ~ binding o
n all the contracting parties until annulled > four-year prescriptive period >>
An action for declaration of nullity of contract > void contract or one where al
l of the requisites prescribed by law for contracts are present but the cause, o
bject or purpose is contrary to law, morals, good customs, public order or publi
c policy, prohibited by law or declared by law to be void > produces no legal an
d binding effect even if it is not set aside by direct legal action; cannot be r
atified; imprescriptible >> Art. 1332 > History: necessitated by the fact that t
here continues to be a fair number of people in this country without the benefit
of a good education or documents have been written in English or Spanish > Purp
ose: to protect a party to a contract disadvantaged by illiteracy, ignorance, me
ntal weakness or some other handicap > Applicability: contemplates a situation w
herein a contract is entered into but the consent of one of the contracting part
ies is vitiated by mistake or fraud committed by the other >> Presumption of Mis
take > in case one of the parties to a contract is unable to read and fraud is a
lleged ~ tantamount to mistake or fraud of consent > rebutted only if the person
enforcing the contract shows that the terms thereof have been fully explained t

o the former >> Proven Defect in Consent > one who alleges any defect or the lac
k of a valid consent to a contract must establish the same by full, clear and co
nvincing evidence, not merely by preponderance of evidence > must show that his
personal circumstances warrant the application of Art. 1332. G.R. No. L-5496 Feb
ruary 19, 1910 MERCEDES MARTINEZ Y FERNANDEZ, ET AL. V. THE HONGKONG & SHANGHAI
BANKING CORPORATION, ET AL. Facts: Mercedes entered into a Contract of Reparatio
n whereby she ceded her claim over P45k worth of notes and over share to their M
alate property in
31

favour of Aldecoa and Bank for the dismissal and withdrawal of the latters civil
and criminal suits against her husband. The contract is valid because it was not
obtained thru force or intimidation where she had the aid of her counsel (who w
ere also her in-laws) who represented her during all the negotiations and where
she acted according to reason when she chose the Win-Win situation of losing her
property but not her husband because in either judicial or extrajudicial way, A
ldecoa and Bank would have acquired the properties in question. Latter two merel
y allowed the Sps. to choose the manner by which their action would be pursued a
nd the Sps. chose the amicable settlement to save the husband from imprisonment.
> Suits against Alejandro S. Macleod, managing partner of Aldecoa & Co. (1) Civ
il Action (April 1907) by Hongkong & Shanghai Banking Corporation, creditor of A
ldecoa against Alejandro, his wife Mercedes Martinez, Aldecoa and Viuda e Hijos
de Escao ~ that P45k notes granted in favour of Aldecoa as security for latters de
bt had been wrongfully transferred by Alejandro to his wife Mercedes ~ HENCE, pr
ejudice to Bank, having a creditor s lien in the nature of a pledge over certain
properties of the debtor (2) Civil Action (May 1907) by Aldecoa against Alejand
ro for Recovery of certain shares of stock worth P161k ~ that Alejandro mismanag
ed the firms affairs during his management (3) Criminal Action (July 17, 1907) by
Aldecoa against Alejandro for falsification of a commercial document ~ Warrant
of Arrest (4) Criminal Complaint (August 9, 1907) by Prosecuting Atty. against A
lejandro for Embezzlement ~ Issuance of Warrants of Extradition > Previous Escap
e by Alejandro (July 13, 1907) to Macao ~ No extradition agreement between US an
d Portuguese where latter denied formers request > Contract of Settlement (August
14, 1907) executed by Mercedes (represented by William Macleod, attorney-in-fac
t) and entered into with Aldecoa and Bank ~ Product of negotiations, commenced b
y the former, mediated by Mr. Cohn as requested by both parties, where latter tw
o insisted upon the conveyance of all the property of Alejandro and also of shar
e of the Malate property claimed by Mercedes but offered to dismiss the civil su
its and withdraw the criminal charges ~ Wife, with assistance from family and co
unsels, stoutly objected to the conveyance required of her, claiming the propert
y to be her separate and exclusive property and not liable for the debts of her
husband > Possession of the Properties, Dismissal of Civil Cases and Withdrawal
of Criminal Charges by Aldecoa and Bank > Return of Alejandro to Manila > SUIT f
or Annulment of Contract (December 3, 1907) by Mercedes
> CONTENTION of Mercedes > Signed under Duress > that Mr. Kingcome, her son-in-l
aw and a businessman, and William Macleod, attorney-in-fact, nephew and close fr
iend of the Sps., got the impression from Mr. Stephen, Bank manager, during the
negotiations they respectively attended, that unless their differences were amic
ably settled, additional and mortifying misfortunes wound fall upon Mr. Macleod
s family ~ Alejandro was one of the prominent members of society > SC HELD: CONT
RACT VALID > CONSENT FREELY GIVEN > REQUISITES OF DURESS > Influence must have b
een exercised over the party that she was deprived of her free will and choice >
She must have acted from fear and not from judgment (a) that there was no time
within which to deliberate the matter as it should have been deliberated (b) tha
t there was no time or opportunity to take the advice of friends or of disintere
sted persons (c) that there was no time or opportunity to take advice of counsel
(d) that threats were made to secure the performance of the acts complained of,
made directly to the complaining party by the person directly interested or by
someone in his behalf ~ There was no time during the course of the negotiations
that there were any direct personal relations or communications between the part
ies ~ All offers, proposition, or treats, if any, made by Aldecoa and Bank were
made through the personality, mind, and judgment of Mercedes own attorneys or rel
atives, all of them being persons who had her welfare and the welfare of her fam
ily deeply at heart and who were acting for her and her husband and not for the
former (e) that there was no consideration for the performance of the act compla
ined of except immunity from the prosecution threatened ~ The negotiations also
settled Mercedes own controversies ~ Suit by Bank against her, Aldecoa and Escao (
April 1907) where she was able to settle the Banks claim (of P45k worth of notes
fraudulently taken from the assets of Aldecoa and transferred into the name and

possession of Mercedes) by releasing her rights to the Escao notes under the sett
lement (f) that the property transferred or incumbered by the act complained of
was the separate property of the person performing the act in which the person f
or whom the act was performed claimed no interest whatever (g) that there was no
dispute as to the title of the property transferred or incumbered, no claim mad
e to it by anybody, no suits pending to recover it or any portion of it, and no
pretension that it could be taken for the debts of the husband or of any other p
erson
32

> Mercedes ceded the Escao notes and interest in the Malate property ~ Both claim
s were substantially in litigation and the legality of both was seriously questi
oned and strongly doubted even by her own attorneys who advised her that the rig
hts claimed by her in the property transferred are fictitious, unreal, and defea
sible, having no foundation in law ALSO, ~ Mercedes did not challenge the contra
cts validity when, after its execution, she required the fulfillment of every one
of its provisions which are favorable to herself ~ partition of the Malate prop
erty, payment of P2k, dismissal of the pending action against her on account of
the Escao notes ~ Aldecoa and Bank could not have benefitted from the settlement
as much as it could have by pursuing the suits ~ Dropped the charges after secur
ing exactly the same property in the settlement proposed ~ Immaterial to them wh
ether they obtain those properties through the courts or by means of a settlemen
t ~ Left Macleod and his wife to choose for themselves, upon their own judgment
and upon the advice of their attorneys and relatives, the course to be by them p
ursued ~ That the Sps. chose the settlement (where Mr. Fisher, their atty, was e
ven made to withhold an important information from Aldecoa for fear that such in
formation would deter them at the last moment from giving their assent to the ar
rangement) > HENCE, she entered the contract acting accordingly to the dictates
of good business judgment rather that from duress and undue influence ~ to lose
her property and save her husband OR to lose her property and her husband > Cont
racts of Reparation are Not duress: ~ that Mercedes loathed to relinquish certai
n rights which she claimed to have in certain property and that she persisted fo
r a considerable time in her refusal to relinquish such claimed rights and now r
egrets having performed at their demand instead of compelling a resort to judici
al proceedings ~ WHY: Made by free choice, although these may be evidence of dur
ess or facts from which duress may be inferred, they are not duress of themselve
s ~ OTHERWISE, If such a contract were null and void, then would be null and voi
d every contract of reparation > Relevant Provisions: ART. 1265. Consent given u
nder error, violence, intimidation, or deceit shall be null. ART. 1267. There is
violence when, inorder to obtain the consent, irresistible force is used. There
is intimidation when one of the contracting parties gives his consent on accoun
t of a reasonable and well-grounded fear of suffering an imminent and
serious injury to his person or property, or to the person or property of his sp
ouse, descendants, or ascendants. In determining whether or not there is intimid
ation the age, sex, and status of the person intimidated must be considered. Fea
r of displeasing the persons to whom obedience and respect are due shall not ann
ul the contract. ART. 1268. Violence or intimidation shall annul the obligation,
even though such violence or intimidation shall have been used by a third perso
n who did not take part in the contract. >> RATIONALE: Contracts Void due to Fra
ud, Duress or Undue Influence > Because there was No Consent at all > Party neve
r really gave consent thereto > BUT if a competent person has once assented to a
contract freely and fairly, he is bound by it >> Real duress > Not undue influe
nce: Solicitation, importunity, argument, persuasion, appeals to the affection >
> Motive > Reluctance is not sufficient > VALID CONTRACT: Consenting against ones
wishes and desires or even against his better judgment, or without hope of adva
ntage or profit >> Contract of Reparation > VALID even if Inherently entered int
o with extreme reluctance and only by the compelling force of the punishment thr
eatened and against the strong desires of the party making the reparation ~ situ
ation where in one necessarily makes reparation or else, take the consequences,
civil or criminal, of his unlawful acts >> Contract for the purpose of gain > Ma
de with pleasure and its terms complied with gladly >> Contracts by Wife, convey
ing exclusive property, for the sole consideration of obtaining her husband immu
nity from criminal prosecution ~ Suspicious G.R. No. 90423 September 6, 1991 FRA
NCIS LEE v. COURT OF APPEALS, PEOPLE OF THE PHILIPPINES AND PELAGIA PANLINO DE C
HIN Facts: After the discovery that the check deposited and withdrawn from her u
ncles account was spurious, due to the forged signature of his uncle, Maria was c
onfronted by the Banks manager and was made to sign a withdrawal slip against her
own account to pay for the amount and an affidavit admitting her swindling. Int
imidation or force could not have been present during the confrontation despite

the gender and pregnancy of Maria because she was highly educated and was accomp
anied by her sister and was able to move about freely where the shouting of Fran
cis was insufficient or constant as to compel her to sign the documents.
33

> Withdrawals made by Maria Pelagia Paulino de Chin, employee of Pacific Banking
Corporation, from her uncle, Honorio Carpios account after he has allegedly left
abroad: (a) Deposit of a Midland National Bank Cashier s check payable to Carpi
o, worth $5,200/ P92,557.44 to Carpios savings account thru Lamberto R. Cruz (Ban
ks Foreign Departments PRO Manager) ~ account totalling P92,607.44 (b) Withdrawal
of P12,607 thru a withdrawal slip purportedly signed by Carpio but without a pas
sbook (c) Withdrawal (June 13, 1984) of P80,000.44 thru a withdrawal slip allege
dly signed by Carpio but without a passbook (d) Closing of the savings account ~
redeposited P50k to her own savings account and received in cash the remaining
balance of P30,000.44 (e) Withdrawals (June 15, 18, 1984) of P2k and P18k, respe
ctively, from her savings account > Confrontation June 20, 1984 between Francis
Lee, Branch Manager of Pacific Banking Corporation, and Maria because the check
she deposited was spurious where Carpios signature was forged ~ Francisco demande
d the return of all the money equivalent of the subject cashier check and Maria
was made to sign a ready-made withdrawal slip against her RCBC Time Deposit acco
unt to pay for the same, and an Affidavit where she admitted that she had swindl
ed the bank and had return the money equivalent of the spurious check > SUIT and
Conviction against Francis for Grave Coercion > CONTENTIONS of Maria: Use of fo
rce against her in signing the withdrawal slip and Affidavit: (a) Francis shoute
d at her with piercing looks and threatened to sue her (b) She is a woman who wa
s 5m pregnant (c) The withdrawal slip and Affidavit she was made to sign were al
ready prepared (latter by the bank s lawyer) > MTC applied RPC Article 286: ART.
286. Grave coercions. The penalty of arresto mayor and a fine not exceeding 500
pesos shall be imposed upon any person who, without authority of law, shall, by
means of violence, prevent another from doing something not prohibited by law,
or compel him to do something against his will, whether it be right or wrong. If
the coercion be committed for the purpose of compelling another to perform any
religious act or to prevent him from so doing, the penalty next higher in degree
shall be imposed. > SC applied Article 1335 because case is not about violence
but intimidation: Art. 1335. There is intimidation when one of the contracting p
arties is compelled by a reasonable and well-grounded fear of an imminent and gr
ave evil upon his person or property, or upon the person or property of his spou
se, descendants or
ascendants, to give his consent. To determine the degree of the intimidation, th
e age, sex and condition of the person shall be borne in mind. A threat to enfor
ce once s claim through competent authority, if the claim is just or legal, does
not vitiate consent. > No Intimidation > Voluntary Consent despite Reluctance a
nd Protestations (a) She is highly educated and very familiar with banking proce
dures ~ graduate with a degree of Business Administration in Banking and Finance
from NCBA, with a Masters degree, with job experience with the Insular Bank of
Asia and America as a bank teller (b) She admittedly actively participated in th
e deposit and withdrawal of the proceeds of the controversial check ~ She was ev
en willing to return P48k which she took since it was only up to this amount whe
re her involvement lies ~ Only when she realized that she would have the enormou
s task of reimbursing the bank the balance of the proceeds of the forged check a
llegedly taken by Carpio, she refused to cooperate any further (c) Threat to sue
is not unlawful (d) She was able to move freely, unguarded, from the office of
Francis at the ground floor to the office of Cruz at the mezzanine floor where h
er sister found her ~ Presence of many bank clients and bank security guards tha
t Francis could not have manifested overt acts to prevent her from leaving, as a
dmitted by Maria herself > She and her sister actually left the bank unescorted
to eat their snack and that they went home instead despite Francis demand for the
ir return (e) Alleged detention at the Bank was not due to Francis threat but due
to Marias desire to prove her innocence ~ she could have just left the Bank but
chose not to Because I cannot just leave him that way, insisting that the responsi
bility of one person be my responsibility (f) Encashment of the RCBC Time Deposi
t Certificate was suggested by her sister and not by Francis and was accepted by
Cruz (PRO) and not by Francis (g) Her sister failed to corroborate her claim th
at she was denied the opportunity to read the Affidavit > Francis NOT NEGLIGENT

in allowing the checks

> Bank NOT NEGLIGENT in
ation of the passbook ~
customer in depositing
NOT Absence of Consent
inst his good sense and
y and independently
34

deposit and withdrawal ~ He was on leave when it was made

allowing the withdrawal of the check without the present
Exception of the rule is when the depositor is a regular
or withdrawing money in the bank >> Reluctant Consent is
> There is consent even if it was given reluctantly, aga
judgment, with hesitation BECAUSE it is still voluntaril

> There is no consent where he acts against his will under a pressure he cannot
resist as when his sense, judgment, and his will rebel and he refuses absolutely
to act as requested BUT is nevertheless overcome by force or intimidation to su
ch an extent that he becomes a mere automaton and acts mechanically only > BECAU
SE of the Disappearance of the personality of the actor ~ ceases to exist as an
independent entity with faculties and judgment, and in his place is substituted
another the one exercising the force or making use of the intimidation > HENCE,
there is only one party to the contract >> FORCE that has compelled conduct agai
nst the will of the actor must be present, immediate and continuous and threaten
grave danger to his person during all of the time the act is being committed >
JJ: Threat to sue not simply legal or just but enforceability ~ not just claim b
ut the ability to enforce the claim G.R. No. L-9421 July 24, 1915 L.L. HILL v. M
AXIMINA CH. VELOSO, ET AL. Facts: A promissory note was executed by Maximina and
Franco in favour of Michael & Co. for a sale of goods delivered to the company
of Maximina. However, Maximina refused to honour the debt because she alleged th
at she signed it on the premise that, according to Franco, it was for a debt she
owed Damasa, widow of her brother and not to Michael & Co. to whom she owed not
hing. The note remains valid, however, because the defense of fraud that Franco
allegedly employed against her cannot prosper where fraud must have been employe
d by the other contracting party inducing the other. Franco is not the other con
tracting party and in fact, constitutes one single contracting party with Maximi
na. Absent proof that Michael & Co. threatened to sue Maximina and/or that Lever
ing, guardian of Damasas children, required her to issue the note in Michael & Cos
favor, fraud is not present. > Promissory Note (December 30, 1910), worth P6,31
9.33, by Maximina Veloso (with consent of husband Manuel M. Tio Cuana) and Domin
go Franco in favour of Michael & Co., S. en C. (for payment of goods sold and de
livered to Maximinas La Cooperativa Filipina) ~ to pay, jointly and severally, P5
00/m with interest/m > Indorsed (January 12, 1911) or made payable to L.L. Hill
by Michael & Co. > Payment of P2k > SUIT (July 5, 1911) by Hill against Maximina
and husband Manuel for Recovery of remaining P4,319.33, with 1.5% interest from
July 1, 1911 until payment, plus P473.18 interest from December 30 to June 30,
1911 ~ Franco had already died (May 1911)
> CONTENTIONS of Maximina: Promissory Note was allegedly obtained by means of fr
aud, where she was made to sign it on the premise that it was for a debt of P8k
she owed to Damasa Ricablanca, her sister-in-law, mother and former guardian of
the children of her brother Potenciano Chiong Veloso, but was actually made out
to Michael & Co. to which they owe nothing (a) that son-in-law Franco had her si
gn a blank document pursuant to the demand of Martin M. Levering, new guardian o
f the children, that she should pay Levering, in his capacity of guardian of sai
d minors, the sum of P8k which the Sps. had kept in trust for the children of Da
masa; (b) that because Franco was a member of their family, they were willing to
execute the document BUT the paper that he had them sign was filled out with a
totally different obligation from that which they had been made to believe would
be set forth therein; (c) that only after Francos death did they discover that h
e never delivered the document to Levering; (d) that they had not received any k
ind of goods from Michael & Co. and had never intended to execute any promissory
note in its favour > No Fraud > Signature is Valid > Note is Binding and Effect
ive > NO FRAUD (1) No proof of mistake in signing the document ~ (a) admitted th
at she signed the note for her actual debt to Damasa but it was in blank; (b) co
ntradicted herself when she admitted her debt to the children in the Suit by Hil
l but denied the same in the Suit by Levering (November 1, 1911) wherein Leverin
g sought recovery of P8k but she contended that she owed Damasa herself and not
her children (2) No proof of fraud or deceit allegedly employed by Franco (3) Bu
t even if such deceit or error was present, it could not have annulled the conse
nt BECAUSE it must have been caused by one of the contracting parties against th
e other who is induced ~ Franco is not the other active contracting party who co
uld have induced the passive party of Maximina ~ Both Maximina and Franco were t
he passive subjects and are but one single contracting party ~ Deceit was by a t
hird person (4) Deceit by a third person (Franco against Maximina) does not in g

eneral annul consent ~ Must have been in connivance with, or at least with the k
nowledge, without protest, of the favored contracting party ~ BECAUSE there is n
o reason for making one of the parties suffer for the consequences of the act of
a third person in whom the other contracting party may have reposed an impruden
t confidence > Right of Action is against the third person by the contracting pa
rty prejudiced, by Maximina against Franco (5) No proof that Michael & Co. threa
tened to bring suit against Franco unless Maximina signed the promissory note
35

(6) No proof that Levering required Maximina or Franco to issue the promissory n
ote (7) No doctrine that no right can be acquired by a person who obtains a prom
issory note by indorsement ~ Cited cases dealt with promissory notes issued for
a sum of money but lost at a prohibited game (8) Debt to Michael & Co. is not ye
t due and demandable at the time of indorsement ~ Payment of the first amount of
P500 of the principal had not yet arrived *hence, credit can be indorsed (9) Ma
ximina benefited from Michael & Co. because it La Cooperativa Filipina (whose li
cense was issued in the name of Maximina) received the goods delivered ~ Franco
had no share/interest in the Company ~ No proof that the sale was to Franco only
(10) No reason for Franco to sign the promissory note in favour of the minors h
e did not owe anything to (11) No reason why husband Manuel did not have to sign
the instrument except merely to authorize his wife > HENCE, Sps. must pay princ
ipal remainder of P4,319.33, with 1.5% interest from July 1, 1911 until payment
BUT NOT P473.18 interest on the principal because receipt from the creditor for
the principal that contains no stipulation regarding interest extinguishes the o
bligation of the debtor with regard thereto > KINDS OF FRAUD Performance of obli
gation ~ Claim for damages Vitiate consent No contract at all Notebook: WOODHOUS
E v. HALILI GERALDEZ v. CA
default, the notes are binding. There is no duress, fear or undue influence empl
oyed for them to sign it. They are educated persons with business experience. Ab
sent proof to of vitiated consent, the notes remain valid and effective. > Notar
ized Promissory Notes (September 8, 1984) executed by EPIFANIA EBARLE and daught
ers SOL EBARLE and ELE EBARLE in favour of Armando V. Sierra ~ Worth P85k and P5
4,550 each, former signed in the morning, latter in the afternoon > Note for P85
k due on October 8, 1984, for value received worth P85k, paid at Sierras residenc
e, includes expenses for collection and 12% interest/y in case of default > SUIT
(November 2, 1984) for Recovery of Sum of Money by Sierra pursuant to Note of P
85k > CONTENTION of Ebarles: Note was executed under duress, fear and undue infl
uence (a) that Epifanias debt was only P20k which Sierra loaned for the formers lo
gging and cattle business ~ to fatten the cattles and impress the Land Bank with
whom they applied for a loan but which was denied (b) that they hesitated to si
gn the documents but did it anyway upon Sierras assurance that the documents were
a mere formality that he had to show his business partner, who was demanding it
s immediate payment (c) that they were told by Sierra to simply ignore the compl
aint if one should be filed against them for recovery so that they would be decl
ared in default and then a new agreement would be concluded for the correct amou
nt of the loan and with easier terms of payment (d) that they have not received
the amount (beyond P20k) and it was unlikely that Sierra would keep such large a
mounts of cash in his house > No duress, fear or undue influence (a) Ebarles wer
e educated persons accustomed to business affairs and legal transactions ~ own a
nd operate a hacienda; Epifania is an English professor for 25y at Silliman Univ
; Sol holds a degree in commerce; Ele holds a degree in agriculture > HENCE, the
y fully understood the import and consequences of what they were doing (b) Note
was written in plain English and consisted of only two short paragraphs ~ No fin
e print or Whereas clauses ~ Merely a simple promise to pay, for value received,
the amount indicated, not later than October 8, 1984, at his residence and to a
ssume all litigation expenses, with 12% interest, in case of default (c) Questio
nable that all three signed the Notes which amount was seven times beyond (P139,
550) what they owed (P20k), on the same day, without reservation ~ Reaction shou
ld have been an irate refusal and demand for the correction of the notes ~ Alleg
ed uneasiness or reluctance is belied by the fact
36
G.R. No. 90270 July 24, 1992 ARMANDO V. SIERRA v. HON. COURT OF APPEALS, EPIFANI
A EBARLE, SOL AND ELE EBARLE Facts: Ebarles issued two promissory notes in favou
r of Sierra for a loan granted by the latter for the formers cattle business. Whi
le Ebarles contend that the amounts therein were false, where they owe only P20k
and not P85k and P54550k, and they signed it merely on the assurance that it wa
s just for formality where they can just ignore the suit against them and be dec

lared in

that not one of them voiced his or her apprehensions and made efforts to be diss
uade the others from signing (d) Sol Ebarle admitted that no harassment or threa
t in any form was employed by Sierra upon any of them (e) Existence of two promi
ssory notes signed on the same day is not spurious because it indicates the ackn
owledgement of two loans (P85k and P54550), as opposed to one (P20k) which could
have been made in only one note (f) Notarization of the notes without Ebarles pr
esence is immaterial because notarization is not necessary for the validity of t
he notes (g) No evidence of the P20k loan ~ Sierra, as a businessman having no s
pecial relationship with the Ebarles, would have required a written acknowledgme
nt of that loan (h) Source of the money (WON it came from Sierras house wherein h
e operates his own vineyard as well as his father s hacienda, besides dealing in
the sale of cars and real estate or from the bank) is Immaterial to the Validit
y of the Notes signed, expressly and categorically acknowledged that they receiv
ed the specific amounts indicated therein >> Undue influence ~ any means employe
d upon a party which, under the circumstances, he could not well resist, and whi
ch controlled his volition and induced him to give his consent to the contract,
which otherwise he would not have entered into ~ it must destroy the free agency
of a party and interfere with the exercise of that independent discretion which
is necessary for determining the advantage or disadvantage of a proposed contra
ct ~ inherent is moral coercion, effected through threats, expressed or implied,
or through harassing tactics >> Fraud ~ misrepresentation must be serious; suff
icient to impress, or to lead an ordinarily prudent person into error; establish
ed by full, clear, and convincing evidence, and not merely by a preponderance th
ereof; >> Notarial Document as Prima Facie Evidence of Facts therein ~ A notaria
l document, guaranteed by public attestation in accordance with the law, must be
sustained in full force and effect so long as he who impugns it does not presen
t strong, complete, and conclusive proof of its falsity or nullity on accounts o
f some flaw or defect provided against by law >> Promissory note > a genuine doc
ument, acknowledging a loan duly received and promising to pay the same on the d
ate indicated, in accordance with the conditions therein set forth ~ a solemn ac
knowledgment of a debt and a formal commitment to repay it on the date and under
the conditions agreed upon by the borrower and the lender ~ A person who signs
such an instrument is bound to honor it as a legitimate obligation duly assumed
by him through the signature he affixes thereto as a token of his good faith
>> Presumption of Validity of a Written Agreement ~ when the terms of an agreeme
nt have been reduced to writing, it is to be considered as containing all such t
erms, and, therefore, there can be, between the parties and their successors in
interest, no evidence of the terms of the agreement other than the contents of t
he writing ~ Challenged only where there is a mistake or imperfection of the wri
ting, or failure to express the true intent and agreement of the parties, or the
validity of the agreement is put in issue by the pleadings ~ BUT evidence must
be clear and convincing and of such sufficient credibility as to overturn the wr
itten agreement G.R. No. L-20659 November 3, 1923 MARIANO S. TUASON v. CRISANTO
MARQUEZ Facts: Tuason purchased a plant from Crisanto after the latters franchise
to operate it had already expired, without communicating the same to the former
. This non-disclosure, however, is insufficient to rescind the sale because the
franchise was not the determining cause of the purchase and its status could hav
e been easily verified by either party thru the Public Utility Commissioner. > G
rant of Franchise (1913 or 1914) for 35y to Lucena Electric Company whose rights
passed to Crisanto Marquez (at a sheriff s sale September 10, 1919), owner of a
n electric light plant > Cancellation of the Franchise (March 29, 1921) by the P
ublic Utility Commissioner after Crisanto communicated (February 28, 1921) his i
ntention to give it up > Contract of Sale (March 5, 1921) between Crisanto and M
ariano S. Tuason over the formers electric light plant despite the cancellation o
f the franchise ~ Purchase price of P14,400 (1st instalment of P2,400 already pa
id; balance of P12k within 1y) > Possession by Tuason and Management by the Cons
olidated Electric Company (March 20, 1921 - July 19, 1922) pursuant to a special
license which was to continue until they obtained a new franchise which they ac
quired but which stipulated conditions amounting to a renovation of the entire p

lant > Sale (July 19, 1922) under execution by reason of a judgment in the case
of Levy Hermanos vs. The Philippine Electric Light Company ~ Sold to Gregorio Ma
rquez, brother of Crisanto, for P5,501.57 > SUIT by Tuason against Crisanto for
a rescission of the contract and payment of P37,400 > RTC Upheld validity of Con
tract and demanded payment of P12k still due from the purchase price
37

> CONTENTION of Tuason: Concealment of the fact that the franchise had already b
een lost by Crisanto when he sold the plant to him > VALID CONTRACT: Innocent no
n-disclosure of a fact (cancellation of franchise) does not effect the formation
of the contract or operate to discharge the parties from their agreement (1) Fr
anchise was not the determining cause of the purchase ~ contract merely renewed
a previous inventory of the property when it mentioned the property of the elect
ric light company; (2) Franchise was then in force (by virtue of a special licen
se) and either party could easily have ascertained its status by applying at the
office of the Public Utility Commissioner (3) No proof of fraud on the part of
Crisanto (4) Tuason is estopped by laches ~ Operated the plant for 16m without q
uestion and even made the first payment without protest ~ Suit only after the ve
nture had proved disastrous >> Estoppel by laches > Inexcusable delay in asserti
ng a right and acquiescene in existing conditions are a bar to legal action G.R.
No. 110672 September 14, 1999 RURAL BANK OF STA. MARIA, PANGASINAN v. THE HONOR
ABLE COURT OF APPEALS, ROSARIO R. RAYANDAYAN, CARMEN R. ARCEO G.R. No. 111201 Sep
tember 14, 1999 ROSARIO R. RAYANDAYAN and CARMEN R. ARCEO v. COURT OF APPEALS, HA
LSEMA INC. and RURAL BANK OF STA. MARIA, PANGASINAN, INC. Facts: Because Manuel
has become delinquent on his debts, he sold his property, which was then mortgag
ed to Bank, to Rosario and Carmen with Assumption of Mortgage. It was not until
later when Rosario and Carmen communicated the Assumption to Bank who agreed to
honor the Assumption allegedly due to the financial capacity of Rosario and Carm
en. But because Rosario and Carmen did not disclose the Second Agreement they en
tered into with Manuel which stipulated the higher purchase price for the proper
ty, the Bank denied the validity of its MOA with Rosario and Carmen. However, th
ere was no fraud when the real purchase price was concealed because (1) the purc
hase price was not the determining cause for the Bank to enter into the MOA but
to effect the payment of Manuels debt; (2) the non-disclosure could not have prej
udiced the security of the Bank because the property was kept as a
security in case of default in the assignment of mortgage; (3) Rosario and Carme
n were not duty-bound to disclose such fact; and (4) Bank had other means of det
ermining the financial capacity of Rosario and Carmen. > Extrajudicial Settlemen
t with Simultaneous Sale of Inheritance (September 28, 1978) among the children
of Behis where the siblings sold the subject parcel of land to their brother Man
uel Behis but only to facilitate transactions over the land (pursuant to Confirm
ation of Rights of Co-Ownership over real Property on September 26, 1983 where t
hey clarified that all siblings are still co-owners) > Real Estate Mortgage (Oct
ober 23, 1978) between Manuel together with his wife Cristina, and the Rural Ban
k of Sta. Maria, Pangasinan over the subject parcel of land as security for the
six promissory notes and trust receipts worth P156,750 granted in his favour und
er the Supervised Credit Program of the Bank ~ Annotated in the title (February
13, 1979) > Delinquency of Manuel > Deed of Absolute Sale with Assumption of Mor
tgage and Another Agreement (January 9, 1985) between Manuel and Rosario R. Raya
ndayan and Carmen R. Arceo where Manuel sold the subject property for P250k in th
e 1st document BUT the real consideration of P2.4M was accepted by Rosario and C
armen by indebting themselves to pay the same in the 2nd agreement ~ Not registe
red to the Register of Deeds, not annotated in the Title, not communicated to th
e Bank; no request for new TCTs ~ Payment made by Rosario and Carmen amounting t
o P10k + P50k + P145,800 + P21,353.75 ~ Non-completion of full payment due to Ma
nuels death (June 21, 1985) > Memorandum of Agreement (August 1, 1985) between Ba
nk and Rosario and Carmen AFTER Bank initiated foreclosure proceedings due to th
e continued delinquency of Manuel in the Bank (accumulating from P156,750 to P31
6,368.13 according to a Statement of Account on May 30, 1985) and AFTER Rosario
and Carmen presented to it the Deed of Absolute Sale with Assumption of Mortgage
(but not the Other Agreement) > Bank accepted Rosario and Carmens offer to redee
m the real property for the amount of P343,782.22, which was Manuels total debt,
and promised to release the mortgage of Manuel, execute a new mortgage with Rosa
rio and Carmen and transfer the title to them ~ MOA not annotated to the TCT > A
ccumulated Payment of P106k by Rosario and Carmen > Demand (January 7, 1986) by
Rosario and Carment for the release of the mortgage, transfer of title, and exec

ution of a new mortgage for the balance of P20k, as agreed upon ~ Not Granted du
e to: > Letters (September 5, 1985, October 28, 1985, February 15, 1986) by Cris
tina to Bank alleging that the Real Estate Mortgage was without her genuine sign
ature (forged) and Redemption of the Property was without her authorization ~ Th
at Rosario and Carmen settle the matter with Cristina > Assignment of Mortgage (
July 28, 1986) by Bank from Manuel (October 23, 1978 Mortgage and not the Assign
ment on January 9, 1985 by Rosario and
38

Carmen) to Teodoro Verzosa (Halsema, Inc.) where latter is to pay P520,765.45, t

he total indebtedness of Manuel ~ after the Bank considered the MOA with Rosario
and Carmen to have been cancelled due to (a) concealment of the real considerat
ion of P2.4M and hence, Banks consent was fraudulently obtained because it concea
l the real capacity and financial standing of Rosario and Carmen, where the Bank
would not have consented to the latters assumption of Manuels P343k debt when the
y still had the burden of paying a purchase price of P2.4M; (b) their non-update
about and their failure to settle the objections of Cristina; (c) failure to co
mply with the payment schedule of the MOA ~ Bank refunded P143k to Rosario and C
armen > Foreclosure and Auction Sale by Halsema (September 2, 1986) > Registrati
on and Annotation of Adverse Claims (September 3, 1986) by Rosario and Carmen af
ter they told Halsema that the land foreclosed was also sold to them but could n
ot do anything anymore > SUIT (September 5, 1986) by Rosario and Carmen against
the Bank for fulfilment of MOA, Annulment of the Assignment of Mortgage and Dama
ges (in favour of Halsema), Annotation of a Notice of lis pendens at the back of
the title > NO FRAUD > MOA b/w Rosario and Carment and Bank is VALID (a) Consid
eration for the purchase of the land was NOT the determining cause for Bank to e
nter the MOA BUT it was To Effect the Payment of the Indebtedness of Manuel ~ Re
ceived the payments made even if late and Initial excuse for the nullity of the
MOA was the forged signature and lack of consent of Cristin; (b) Non-disclosure
of the purchase price could not have induced the Bank into giving its consent to
the MOA Or could have made the Bank not give consent had it known the purchase
price ~ Purchase price did not affect the security of the Bank because the prope
rty remained as security, in the MOA, for the payment of the indebtedness in cas
e of default of payment ~ Bank even admits that no damages has been suffered by
it; (c) Rosario and Carmen were not duty-bound to disclose the consideration for
the sale, did not thus act in bad faith; (d) Bank had other means to verify the
financial capacity of Rosario and Carmen >> Fraud > To vitiate a contract, must
be those insidious words or machinations resorted to by one of the contracting
parties to induce the other to enter into a contract which without them he would
not have agreed to > must be the determining cause of the contract or must have
caused the consent to be given >> Silence or Concealment, by itself, does not c
onstitute fraud UNLESS required by law or according to good faith, or the usages
of commerce >> ELEMENTS: (a) It was employed by a contracting party upon the ot
her; (b) It
induced the other party to enter into the contract; (c) It was serious; and; (d)
It resulted in damages and injury to the party seeking annulment >> Deceit > by
means of concealing or omitting to state material facts, with intent to deceive
, by reason of which omission or concealment the other party was induced to give
a consent which he would not otherwise have given >> Presumption of Ordinary Ca
re, Fairness and Regularity Taken by a person for his concerns and private trans
actions > Whosoever alleges fraud or mistake in any transaction must substantiat
e his allegation
G.R. No. L-29449 December 29, 1928 LEODEGARIO AZARRAGA v. MARIA GAY Facts: Leode
gario sold two parcels of land to Maria. Maria subsequently refused to fulfil th
e sale, or at least, to complete payment of the agreed purchase price, because t
he 2nd land sold was actually smaller than that stipulated in the contract. But
because she had opportunity to check the actual quality of the land and Leodegar
io did not prevent her from investigating it, she cannot claim that she had been
defrauded. > Contract of Sale (January 17, 1921) between Leodegario Azarraga an
d Maria Gay where former sold two parcels of land (102 and 98 hectares each) to
latter for the lump sum of P47k, payable in instalments > Payment of P25k accord
ing to schedule but failure to pay P10k and P12k despite issuance of the Torrens
title of the 2nd parcel as agreed upon > SUIT by Leodegario for payment of P22k
> CONTENTION of Maria: Admitted the sale but alleged that Leodegario defrauded/
induced/deceived her when he represented in the Contract that the 2nd parcel was
98 hectares but it was just actually 60 hectares according to the Title ~ HENCE
, she is entitled to a reduction in the price worth P38k; that she also paid oth

er sums amounting to P4k and she never refused payment but it was Leodegario who
refused to receive it > CONTENTION of Leodegario: that the contract of sale in
question was made only for the lump sum of P47k and not at the rate of so much p
er hectare > NO FRAUD > Maria had the opportunity to know the facts before the e
xecution of the sale (a) Maria went over to the property and made her own calcul
ations as to the area of the 2 parcels (b) Leodegario delivered to her the docum
ents covering the land he was trying to sell ~ On September 30, 1920, the Deed b
y which he acquired the land from the original owner in which it appears that th
e area of the second parcel is about 70 hectares
39

(c) Maria did not complain of the difference in the area of said second parcel u
ntil 1926: (i) On June 1924, Copy of the plans of the two parcels, wherein appea
r their respective areas; (ii) From 1921-1925, Letters by Maria to Leodegario wh
ere she acknowledges her debt but confining herself to petitioning for extension
s of time for payment (d) Maria had her attorney draw the Deed of Sale, based on
the Deed of Leodegario which he gave to her ~ Despite mistake in hectares, Leod
egario signed it because he did not pay any attention to the area of the second
parcel anymore with the belief that the area of the land stipulated had been tak
en from his Deed (e) No evidence that Leodegario misrepresented the size of the
property BUT EVEN IF HE DID, Maria accepted such representations at her own risk
and she is the only one responsible for the consequences of her inexcusable cre
dulousness (f) No evidence that Leodegario prevented her from investigating the
property > No right to claim the shortage in area of the second property > WHY:
No legal basis > ART. 1471 DOES NOT APPLY: In case of the sale of real estate fo
r a lump sum and not at the rate of a specified price for each unit of measure,
there shall be no increase or decrease of the price even if the area be found to
be more or less than that stated in the contract. The same rule shall apply whe
n two or more estates are sold for a single price; but, if in addition to a stat
ement of the boundaries, which is indispensable in every conveyance of real esta
te, the area of the estate should be designated in the contract, the vendor shal
l be obliged to deliver all that is included with such boundaries, even should i
t exceed the area specified in the contract; and, should he not be able to do so
, he shall suffer a reduction of the price in proportion to what is lacking of t
he area, unless the contract be annulled by reason of the vendee s refusal to ac
cept anything other than that which was stipulated. ~ 2nd parcel, in its entiret
y, had already been delivered to Maria >> Songco v. Sellner: Exceedingly risky t
o accept seller s statements or dealer s talk at its face value > assertions con
cerning the property which is the subject of a contract of sale, or in regard to
its qualities and characteristics, are the usual and ordinary means used by sel
lers to obtain a high price ~ He who relies upon such an affirmation made by a p
erson whose interest might so readily prompt him to exaggerate the value of his
property does so at his peril, and must take the consequences of his own imprude
nce > HENCE, Misrepresentation by a vendor of real property with reference to it
s area are not actionable, where a correct description of the property was given
in the deed and recorded chain of
title, which the purchaser s agent undertook to investigate and report upon, and
the vendor made on effort to prevent a full investigation ~ One who contracts f
or the purchase of real estate in reliance on the representations and statements
of the vendor as to its character and value, but after he has visited and exami
ned it for himself, and has had the means and opportunity of verifying such stat
ements, cannot avoid the contract on the ground that they were false or exaggera
ted >> Sale of Determinate Objects: Sale is for a lump sum with its consideratio
n an object sold independently of its number or measure, the thing as determined
by the stipulated boundaries > The price is determined in relation to the deter
minate object, and not the number of units it contains ~ greater or lesser area
cannot influence the increase or decrease of the price agreed upon > Sale is eit
her of a single realty or when it is two or more so long as they are sold for a
single price constituting a lump sum and not for a specified amount per unit of
measure or number > HENCE, no increase or decrease in price, no matter whether t
he area be more or less than that given in the contract AS LONG AS everything in
cluded within the boundaries is delivered ~ WHY: there is, strictly speaking, no
excess of area with respect to the area appearing in the deed because it was no
t taken into account in entering into the contract inasmuch as the parties made
neither the amount of the price, nor the efficacy of the contract to depend on t
he number of its units > WHAT THE LAW MEANS BY INABILITY TO DELIVER: When the pr
operty contains a part, a building, a valley, various pieces of land, a glen, et
c., which are not his BECAUSE THEN he cannot deliver a determinate object ~ Reme
dy of Annulment or Price Reduction applies

G.R. No. L-65922 December 3, 1991 LAURETA TRINIDAD v. INTERMEDIATE APPELLATE COU
RT and VICENTE J. FRANCISCO Facts: Laureta purchased Vicentes house and lot in Co
mmonwealth. Due to repeated flooding, she refused to continue to pay the purchas
e price and sought the annulment of the sale. She alleged to have been fraudulen
tly induced by Vicente who assured her that no flooding can ever happen again be
cause the house had been fixed. However, such assurance does not constitute frau
d because Laureta had the opportunity to inspect the property, which she did, be
fore she purchased it. Her acceptance of Vicentes assurances was a risk assumed b
y her in taking it in face value. But the forfeiture of her payment in favor of
Vicente is not warranted because Laureta did not default in payment but merely r
efused to pay upon the belief of her right. Hence, it is only just and equitable
to let her retain the property upon completion of the purchase price.
40

> Contract of Conditional Sale (August 8, 1969) between Vicente J. Francisco and
Laureta Trinidad where the latter offered to buy the formers house and lot in Co
mmonwealth Village and the former agreed to sell it for P70k ~ AFTER Initial agr
eement on 1969; Inspection by Laureta of the property; Examination of the Vicini
ty Map indicating the drainage canals; Partial Payment and Possession of the pro
perty by Laureta (March 29, 1969) > Refusal of Laureta to continue payment DUE T
O flooding of the property up to 5ft. high (July 18, 21, 30, 1972) despite Vicen
tes assurance that he had fixed everything and the house would never be flooded a
gain > Letter (October 11, 1972) to the City Engineer s office which inspected t
he premises and found that the cause of the flooding was the location of the pre
mises in a low and narrowed portion of a creek > SUIT (January 10, 1973) by Laur
eta for annulment of the Contract and Refund of her payment > CONTENTION of Laur
eta: She was induced by Vicente to enter into the contract because of his misrep
resentations that the property would not be flooded > CONTENTION of Vicente: (i)
that Laureta thoroughly inspected the property before she bought it; (ii) that
floods were common in the area; (iii) that floods were fortuitous events that ca
nnot be imputed to him; COUNTERCLAIM of rescission of the contract and forfeitur
e of her payment pursuant to Contract Stipulation that should the SECOND PARTY fa
il to make any of the payments, [the contract] shall be considered automatically
rescinded and cancelled without the necessity of notice to the SECOND PARTY, or
of any judicial declaration to that effect, and any and all sums paid by the SE
COND PARTY shall be considered rents and liquidated damages for the breach of th
is contract, and the SECOND PARTY shall forthwith vacate the foresaid property p
eacefully > Death of Vicente pending appeal > Not an illegal transaction vitiated
by fraud but merely a bad bargain > NO FRAUD ON THE PART OF VICENTE: (1) It was
Laureta who approached Vicente who never advertised the property nor offered it
for sale; (2) Laureta had full opportunity to inspect the premises; (3) She ins
pected the property not with the untrained eye of the ordinary prospective buyer
but with the experience and even expertise of the licensed real estate broker t
hat she was; (4) She herself negligently minimized the presence of the drainage
canals; (5) She was forewarned of the possibility of flooding by the depression
of the lot and presence of the drainage lot; (6) No evidence of her claim that t
wo buyers had previously vacated the property because it was subject to flooding
; (7) She continued to pay without objection until 1971 despite her claim that t
here had been flooding since 1969; > But, people also pay despite dissatisfactio
n because they dont know the law and fear that they might breach contract and los
e their right and hence, pay anyway
(8) She still made annexes and decorations of permanent nature upon the premises
notwithstanding the floods > RISKS ASSUMED BY LAURETA > In purchasing the prope
rty upon the assurances of Vicente, she is deemed to have accepted them at her o
wn risk and must therefore be responsible for the consequences of her careless c
redulousness > SC HELD: Laureta retains the property but must pay the remainder
of the purchase price, P52,500 of P70k > Not Annulment of Contract but Fulfillme
nt for purposes of Justice and Equity: Laureta not in default as to warrant the
annulment and forfeiture of her payment where she was not simply unable to pay b
ut refused to do so upon the conviction that she was justified in doing so in vi
ew of the defects she found in the property ~ Merely standing up to what she con
sidered her right ~ She was the one who sued Vicente and first argued that the s
eller was not entitled to the additional installments because of his violation o
f the contract > BUT Court cannot always extricate a person from bad bargains, u
nwise investments, one-sided contracts, or foolish acts ~ Only if he has been de
feated or overcome illegally, or where there has been a violation of law > Relev
ant Provisions ~ Art. 1338. There is fraud when, through insidious words or mach
inations of one of the contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to. ~ Art. 1339. Failure
to disclose facts, when there is a duty to reveal them, as when the parties are
bound by confidential relations, constitutes fraud. ~ Art. 1340. The usual exag
gerations in trade, when the other party had an opportunity to know the facts, a
re not in themselves fraudulent. >> Songco v. Sellner: Exceedingly risky to acce

pt seller s statements or dealer s talk at its face value > assertions concernin
g the property which is the subject of a contract of sale, or in regard to its q
ualities and characteristics, are the usual and ordinary means used by sellers t
o obtain a high price ~ He who relies upon such an affirmation made by a person
whose interest might so readily prompt him to exaggerate the value of his proper
ty does so at his peril, and must take the consequences of his own imprudence >
HENCE, Misrepresentation by a vendor of real property with reference to its area
are not actionable, where a correct description of the property was given in th
e deed and recorded chain of title, which the purchaser s agent undertook to inv
estigate and report upon, and the vendor made on effort to prevent a full invest
igation ~ One who contracts for the purchase of real estate in reliance on the r
epresentations and statements of the vendor as to its character and value, but a
fter he has visited and examined it
41

for himself, and has had the means and opportunity of verifying such statements,
cannot avoid the contract on the ground that they were false or exaggerated >>
Presumption of Ordinary Care, Fairness and Regularity Taken by a person for his
concerns and private transactions > Whosoever alleges fraud or mistake in any tr
ansaction must substantiate his allegation G.R. No. L-11513 December 4, 1917 LAM
BERTO SONGCO v. GEORGE C. SELLNER Facts: Sellner bought the sugar canes of Songc
o in order to mix his own canes to the latters to have it processed at the centra
l which refused his canes. Songco estimated his sugarcanes to produce 3k piculs
but was only able to harvest 2,107 piculs. Sellner thus refused to pay the purch
ase price due to this alleged misrepresentation. However, the misrepresentation
of Songco is not sufficient for fraud because fraud must have been related to a
material interest of the buyer and not to mere matters of opinion. > Sale (Decem
ber 1915) between George C. Sellner and Lamberto Songco where the former bought
the latters sugarcane, intending to have it milled at the sugar central, together
with his own sugarcanes which the central refused to process ~ Consideration of
P12k for the estimated 3k piculs of sugar on Songcos 96.5 hectare farm > Refusal
by Sellner to issue the third and last promissory note (last of 3 installments
of P4k) > SUIT by Songco for Payment of P4k > CONTENTION of Sellner: Sale / Prom
issory notes were obtained by means of certain false and fraudulent representati
ons regarding the quantity of uncut cane standing in the fields of Songco ~ that
Songco estimated his canes to produce 3,000 piculs of the sugar but only produc
ed 2,017 piculs ~ that despite Sellners request to guarantee the quantity which t
he latter claimed to be in fields, he would not do so > NO FRAUD > EVEN IF Songc
o exaggerated about his produce where he knew what these same fields had been pr
oducing over a long period of years and that the harvest of this year should fal
l far below the amount stated BECAUSE misinterpretation upon a mere matter of op
inion is not an actionable deceit, nor is it a sufficient ground for avoiding a
contract as fraudulent > NOT EVERY FALSE REPRESENTATION relating to the subject
matter of a contract will render it void ~ Fraud must relate to matters of fact
substantially affecting the buyer s interest, not as to matters of opinion, judg
ment, probability, or expectation
> NOT FRAUD: (1) Seller s statements, or dealer s talk; assertions by the seller
concerning the property which is the subject of a contract of sale, or in regar
d to its qualities and characteristics ~ usual and ordinary means used by seller
s to obtain a high price ~ HENCE exceedingly risky to accept it at its face valu
e > A man who relies upon such an affirmation made by a person whose interest mi
ght so readily prompt him to exaggerate the value of his property does so at his
peril, and must take the consequences of his own imprudence; (2) When the purch
aser undertakes to make an investigation of his own, and the seller does nothing
to prevent this investigation from being as full as he chooses to make it, the
purchaser cannot afterwards allege that the seller made misrepresentations > ONL
Y WHEN one party to a contract, having special or expert knowledge, takes advant
age of the ignorance of another to impose upon him, the false representation may
afford ground for relief, though otherwise the injured party would be bound > N
o action for damages > Songco sued Sellner for disposing his property in fraud o
f his creditors > Claim refuted by showing that Sellner is a man of large resour
ces and had not attempted to convey away his property as alleged G.R. No. 11872
December 1, 1917 DOMINGO MERCADO and JOSEFA MERCADO v. JOSE ESPIRITU, administra
tor of the estate of the deceased Luis Espiritu Facts: When Luis Espiritu died,
his four children inherited his 84-hectare property, divided accordingly: Victor
ia and Ines with around 20-hectares each; Luis and Margarita with 24 hectares ea
ch. On May 25, 1984, Margarita sold part of her 24-hectare property to her broth
er Luis for P2k. On May 14, 1901, Wenceslao (husband of Margarita who had died a
lready), as administrator of his childrens property which they inherited from the
ir mother, sold the remaining property to Luis for P375. He also borrowed money
from Luis to meet the expenses of the maintenance of his children. All in all, L
uis gave him P600. On May 17, 1910, Domingo (allegedly 19) and Josefa (18), chil
dren of Margarita, claimed to be of legal age before a notary and sold to their
uncle Luis the property which their mother and father had previously sold Luis f

or an additional amount of :400, which sale was now absolute and in perpetuity.
However, on April 9, 1913, Domingo and Josefa sought the recovery of the propert
y and annulment of the sale, alleging that it was executed by means of fraud and
that they were still minors at the time of its execution. Issue/s: WON Contract
of Sale by minors is valid
42

Held: NO in general, EXCEPT if there were no deceit or fraud on the part of the
other party in the execution of the contract Apart from the issue of the real mi
nority of Domingo and Josefa during the execution of the contract because their
age were not proven, minors who enter into a sale of real estate, pretending to
be of legal age when in fact they are not, cannot excuse themselves from the ful
filment of the obligations contracted by claiming their minority. The contract i
s and remains valid and its annulment cannot be sought by the deceitful minors w
ho had wilfully and voluntarily but fraudulently acted on their own behalf. G.R.
No. L-12471 April 13, 1959 ROSARIO L. DE BRAGANZA, ET AL. v. FERNANDO F. DE VIL
LA ABRILLE Facts: On October 30, 1944, Rosario de Braganza wrote a promise, sign
ed by her sons Rodolfo (16) and Guillermo (18) to Fernando de Villa Abrille that
they would pay him P10k plus interests in consideration of a loan granted by Ab
rille worth P70k. When they failed to pay, Abrille sued them but the sons conten
ded that they were just minors at the time of the promises making. Issue/s: WON N
on-statement of age constitutes fraud on the part of the minor Held: No Non-appr
aisal of their age in the promissory note did not constitute a fraudulent act of
pretending to be of legal age when in fact they were not. The fraud/misrepresen
tation must be actual and active. Mere silence or failure of the minor to disclo
se his age is not sufficient to be the basis of an actual deceit. However, since
the minors benefited from the loan, they are liable to return such amount.
43

G.R. No. L-23002 July 31, 1967 CONCEPCION FELIX VDA. DE RODRIGUEZ v. GERONIMO RO
DRIGUEZ., ET AL. Facts: Concepcion conveyed her fishponds to her daughter, who c
onveyed the same
back to her mother and her new husband, Domingo, thereby making it their conjuga
l property. When her husband died, Concepcion divided the fishponds with Domingos
children and grandchildren but had a usufruct and leased their share of the pro
perty. She eventually refused to pay them the balance of the earnings of the fis
hponds, claiming that the conveyances are void for being obtained thru force and
for being simulated and for lacking consideration. However, the claim of simula
tion is untenable because Concepcion and her daughter really intended the fishpo
nds to become cp by circumventing the prohibition on donations between spouses.
Hence, there could not have been a simulation when the parties intended the cont
ract to be operative and effective. Although the circumvention of the law is a g
round for nullity of the conveyances, she still cannot recover the fishponds bec
ause she is a guilty party. Violence cannot also be appreciated due to lack of e
vidence and prescription, where she waited 28y to file a complaint after the con
veyances had been made. The Deeds also have a consideration, and hence, are vali
d.
> No violence or intimidation (a) Biased testimony of daughter Calderon which wa
s contradicted by Bartolome Gualberto who had lived with the Rodriguez spouses;
(b) Improbability of Rodriguez threatening his stepdaughter in front of the Nota
ry Public who ratified her signature; (c) Death of Rodriguez when the suit was b
rought ~ No more opportunity to defend himself; (d) Prescription for rescission
since consent vitiated by duress must be brought within 4y ~ Lapse of 28y from D
eed of Conveyance to Suit > Not simulated or fictitious (a) Intention to really
convey the property, to have it legally effected and operative, from paraphernal
to conjugal ~ Done thru Sale and then Conveyance in order to evade the prohibit
ion of donations between Sps ~ Concepcion could not intend to keep the ownership
of the fishponds and at the same time vest half of them in her husband (b) Circ
umvention of the legal prohibition against donations would have invalidated the
conveyances for having an illegal causa/prestation/subject matter > BUT due to g
uilt of both parties, there can be no recovery by either one (pursuant to 1305 a
nd 1306) > No lack of consideration (a) Price of P2500 for the Sale to Calderon
recited in the Deed itself ~ Buyer Calderon became obligated to pay a definite p
rice of money ~ Even if not paid, sale is still existent (b) Price of P3k in the
Lease to Concepcion; (c) Assuming it lacked consideration, legal effect is only
voidable that can be ratified ~ Concepcions ratification or confirmation in her
execution (with the other heirs) of the extrajudicial settlement of estate Simul
ation >> Simulation ~ the fact that the apparent contract is not really desired
or intended to produce legal effects or in way alter the juridical situation of
the parties ~ Party does not really intend to divest himself of his title and co
ntrol of the property and hence, the deed of transfer is but a sham >> Simulated
transactions versus Transactions in fraudem legis Consideration >> Cause ~ pres
tation or promise of a thing or service by the other in onerous contracts (Artic
le 1274, Old CC) ~ Subject matter of the contract > In contract of sale, buyers o
bligation to pay a definite price in money constitutes the actual causa or consi
deration for the object sold > Consideration (causa) need not pass
44
> Deeds of Transfer of Ownership of Two Fishponds, Property of Concepcion Felix
Vda. de Rodriguez (1) Thru a Deed of Sale (January 24, 1934), from Concepcion Fe
lix to her daughter Concepcion Calderon, for P2500 ~ Notarized and Registered (2
) Thru a Deed of Conveyance (January 27, 1934), from Calderon back to her mother
Concepcion with 2nd husband Domingo Rodriguez ~ Notarized, Registered, Issued n
ew TCTs in Sps names ~ Fishponds became Conjugal Property > Extrajudicial Settlem
ent (March 16, 1953) of the Intestate Estate of Domingo (who died March 6, 1953)
~ Fishponds listed and agreed as CP and divided among Concepcion, on one hand,
and Domingos children/grandchildren, on the other hand > SPA (March 23, 1953) by
Domingos children/grandchildren in favour of Concepcion as atty-in-fact to manage

their shares in the fishponds ~ terminated by virtue of > Deed of Partition (Ju
ly 2, 1954), segregating the latters respective shares in the fishponds > Grant o
f Usufruct (October 12, 1954) to Concepcion over their respective shares in the
fishponds > Contract of Lease (December 15, 1961) over their shares in favor of
Concepcion for 5y > Failure to Deliver the Balance of the Earnings of their Fish
ponds, worth P3k, by Concepcion > Demand-Letter (May 16, 1962) by Children/Grand
children to Concepcion > SUIT (May 28, 1962) by Concepcion for declaration of nu
llity of Deeds of Sale and Conveyance and recovery of property > CONTENTIONS of
Concepcion: Deeds of transfer are inexistent/void because (1) fictitious and sim
ulated; (2) without consideration; (3) obtained thru duress

from one (party) to the other at the time the contract is entered into ~ ie, pay
ment need not be made right there and then G.R. No. 114950 December 19, 1995 RAF
AEL G. SUNTAY, substituted by his heirs, namely: ROSARIO, RAFAEL, JR., APOLINARI
O, RAYMUND, MARIA VICTORIA, MARIA ROSARIO and MARIA LOURDES, all surnamed SUNTAY
v. THE HON. COURT OF APPEALS and FEDERICO C. SUNTAY Facts: There was a contract
of Sale between Federico and Rafael whereby former allegedly sold his property
to latter so that latter can obtain a loan agreement for formers expansion of his
rice mill. Title was transferred to Rafael although no payment had been made or
demanded and Federico kept possession of the property without any claim of poss
ession by Rafael. Although a Deed of Counter Sale was executed in favour of Fede
rico over the property, Rafael denied its validity for not being notarized and c
laimed the validity of the Sale as genuine. Both Deeds were declared a simulatio
n, however, because the intention to retain ownership with Federico was obvious
in his continued possession of the property and in Rafaels lack of claim of owner
ship. > Absolute Deed of Sale (May 19, 1962) between Federico Suntay (wealthy la
ndowner) and his lawyer/nephew Rafael Suntay where former allegedly sold a parce
l of land and all its improvements to the latter for P20k ~ Federico: that it wa
s for the purpose of obtaining a loan from the National Rice and Corn Corporatio
n as a miller-contractor, in the name of Rafael, because his own application was
declined due to his existing unpaid loans ~ Notarized > Issuance of a New TCT i
n Rafaels name > Continued Possession by Federico of the property > Counter Deed
of Sale by Rafael, selling back the property to Federico also for P20k ~ Not not
arized where the page number indicated does not refer to the same document in th
e notarial register > Letter Request (August 14, 1969) by Federico for the deliv
ery of the TCT so that he could have the Counter Deed of Sale in his favor regis
tered and use the property as collateral in securing a bank loan to finance the
expansion of the rice mill and warehouse facilities > Rafael Denied > Suit by Fe
derico for the surrender by Rafael of the TCT ~ Withdrawn due to Rafaels claim th
at the Counter Sale was a counterfeit due to discrepancy in the notarization > S
UIT (July 8, 1970) by Federico for reconveyance and damages > CONTENTIONS of Fed
erico: Simulated contract of sale ~ (i) that he remained in possession of the pr
operty; (ii) that Rafael never exercised a single act of ownership; (iii) that R
afael never paid and he never demanded the payment P20k; (iv) that he paid all t
axes > CONTENTION of Rafael: (i) Genuine sale of the property as dacion en pago
in satisfaction of Federicos unpaid attys fees; (ii) Estoppel against Federico in
claiming the simulation of the Sale due to his judicial admissions of the sale i
n his DemandLetter, withdrawn Petition for the surrender of the title, and Notice of Adverse
Claim on the property > CONTRACT OF SALE WAS A SIMULATION > Mere accommodation
agreement ~ Executed without any consideration > Void and Not susceptible of Rat
ification ~ No legal effects (1) 2 Deeds were executed closely one after the oth
er, both involving the transfer and re-transfer of the same property at exactly
the same price > Agreement for repurchase just three months later is consistent
with Simulation (2) Federico and Rafael had an existing close relationship as un
cle and nephew > Complete and mutual trust and business and professional interde
pendence between them where Rafael signed the Counter-Deed even without prior pa
yment by Federico of the alleged purchase price of P20k and Federico blindly sin
ged and executed the Deed of Sale > Practice in the typical Filipino family wher
e the patriarch, with the capital and business standing, takes into his fold the
young, upcoming, inexperienced but brilliant and brashly ambitious son, nephew
or godchild who, in turn, becomes to his father, uncle, or godparent, the jack o
f all trades, trouble shooter and most trusted liaison officer cum adviser > He
wittingly serves his patron without the security of a formal contract and withou
t clarifying the matter of compensation > Fraud is generally accompanied by trus
t (3) The value and location of the property purportedly sold was grossly inadeq
uate for the consideration of a measly P20k > Alleged dacion en pago for Rafaels
attys fees was raised onlyin 1976 when he testified on direct examination > Even
testified that no accounting was undertaken between uncleclient and nephew-lawye
r in order to arrive at the definite amount of the alleged unpaid attorney s fee

s; (4) Federico remained in physical possession, enjoyment and use of the proper
ty through the years and up to the present > Rafael did not even include the pro
perty in his statement of assets and liabilities nor paid the taxes nor collecte
d any rents from Federico > Federico retained exclusive possession of the proper
ty, contrary to the principle of ownership; (5) No estoppel because the Demand-L
etter, withdrawn Petition for the surrender of the title, and Notice of Adverse
Claim on the property did not claim that Federico sold the property > Only alleg
ed that Rafael resold to Federico the said property; (6) Delay of Federico in as
serting his title (7y) was not questionable > There was no pressing reason for F
ederico to have a title in his name issued > only when Federico needed the title
in order to obtain a collaterized loan that Federico began to attend to the tas
k of obtaining a title in his name > ALSO, his title was not in the hands of a s
tranger or mere acquaintance but in the possession of his nephew who, being his
lawyer, had served him faithfully for many years
45

> Even if Deed was notarized and hence prima facie evidence of its contents, the
stated circumstanced rebutted the presumption > Intention of the parties still
and always is the primary consideration in determining the true nature of a cont
ract ~ It may always be shown that the transaction was understood by the parties
not to have jural effect ~ not the intention nor the function of the notary pub
lic to validate and make binding an instrument never, in the first place, intend
ed to have any binding legal effect upon the parties G.R. No. L-32437 August 31,
1982 SALANDANG PANGADIL et al. V. THE COURT OF FIRST INSTANCE OF COTABATO, BRAN
CH I, et al. Facts: The children of Pangadil executed a Document in favour of Ka
gui allegedly to formalize their fathers obligation to his in the form of a mortg
age. The Document, however, is a Sale but it was not an absolute simulation that
would have rendered it void. If any, the simulation consisted only in the assum
ption that it was a mortgage. The siblings recognize their obligation and bind t
hemselves to the contract but only to the extent that they believed it to be a m
ortgage. Hence, it was not a contract wherein the parties do not intend to be bo
und at all which would thereby make it absolutely simulated and, therefore, void
. Moreover, the siblings cannot claim that they did not know of the true nature
of the contract because in two documents, private handwritten and petition for g
uardianship, they recognized and sought to formalize the verbal sale made by the
ir father in favour of Kagui. Moreover, the annulment of a fraudulent contract h
ad already prescribed (4y) when they sought its annulment only after 21y. > Sale
(December 1941) between Pangadil Maslamama and Tandingan Kagui over the formers
parcel of land for P750 ~ (i) Oral Sale by Pangadil himself; (ii) Private Handwr
itten Document (August 3, 1944) signed by the chidren of Pangadil confirming the
sale made by their father in favor of Kagui, witnessed by Datu Ugalingan Piang,
a former congressman of Cotabato; (iii) Deed of Absolute Sale (February 10, 194
7) by daughter Salandang Pangadil, applying (December 20, 1946) and acting as th
e guardian of her minor siblings in order to execute the necessary document to f
ormalize the verbal sale executed by their father Pangadil ~ Deed approved by Co
urt (May 19, 1947) > SUIT by Panagadil for Annulment of the Deed of Sale (Januar
y 7, 1969) > CONTENTION of Pangadil: that transaction was merely a mortgage and
not a sale > CONTENTION of Kagui: that transaction was a sale and the action to
annul the
sale was barred by the statute of limitations because it was filed more than 27y
after its approval > Deed of Sale is VALID > Not Fictitious > Allegation that K
agui misled the siblings into affixing their thumbmarks to the Deed on the misre
presentation that it was merely to ratify an oral contract of mortgage entered i
nto by their father in his favour is belied by the fact that the nature of the t
ransaction as a sale was brought to their attention twice: (i) Handwritten Docum
ent confirming the sale made by their father in favour of Kagui; (ii) Petition f
or appointment of guardianship to enable her to formalize the same sale orally d
one by her father during his lifetime > NEVERTHELESS, misrepresentation of the s
ale as a mortgage is Not an absolute simulation of contract > Siblings recognize
d their obligation but merely contended that they thought it was to ratify a con
tract of oral mortgage, instead of an oral sale of land > Not a contract wherein
the parties do not intend to be bound at all which would thereby make it absolu
tely simulated and, therefore, void > Not Contrary to Public Policy > Allegation
that it deprived the minor brothers and sisters of Pangadil of their shares in
the inheritance from their father cannot prosper BECAUSE the conveyance of the l
and had been effected by their father during his lifetime > Fraudulent Contracts
ONLY VOIDABLE > Prescribes in 4y (Art. 1391) > Not void ab initio which is impr
escriptible ~ does not fall upon the list in Art. 1409 > Sale made December 1941
but annulment filed only after 27y on January 7, 1969 ~ Inaction for such a con
siderable period of time reflects on the credibility of their pretense that they
merely intended to confirm an oral mortgage, instead of a sale of the land in q
uestion >> Simulation of a contract > Either absolute or relative > absolute sim
ulation when the parties do not intend to be bound at all ~ legal effect: void >
relative if the parties merely conceal their true agreement ~ legal effect: bin
ding upon the parties unless it prejudices a third person and is intended for a

purpose contrary to law, morals, good customs, public order or public policy
46

G.R. No. 89561 September 13, 1990 BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTIL
LO, VICTORIA M. CASTILLO, BERTILLA C. RADA, MARIETTA C. ABAEZ, LEOVINA C. JALBUEN
A and SANTIAGO M. RIVERA v. COURT OF APPEALS, BORMAHECO, INC. and PHILIPPINE MAC
HINERY PARTS MANUFACTURING CO., INC. Facts: Foreclosure of Castillo property by
ICP due to alleged failure of Slobec to honor contract is void because said cont
ract of surety has already expired. > Extrajudicial Partition of 4 Parcels of La
nd of Felipe Castillo by his heirs > New TCTs in the name of his wife Mauricia M
eer Vda. de Castillo and their children > MOA between Santiago Rivera (P, Slobec
Realty Corporation) and aunt Mauricia Castillo and children where Castillos wou
ld convert the property into a subdivision and Rivera who would pay them P70k +
P400k in order to raise the funds needed to pay the Castillos loan and prevent th
e foreclosure of their other property > Sale of a Tractor by Bormaheco, Inc. to
Slobec (dated November 25, 1970 but actually executed December 11, 1970) ~ Suret
y is Insurance Corporation of the Philippines; Guaranty of Surety are Rivera and
Castillos by way of Chattel-Real Estate Mortgage (October 24, 1970) of the Cast
illo property in favour of ICP > Properties Foreclosed and Sold (September 28, 1
973) by ICP to Philippine Machinery Parts Manufacturing Co., Inc. (April 10, 197
5) due to violation of the terms and conditions of the Counter-Guaranty Agreemen
t by Slobec > Letter-Demand (August 9, 1975) by Modesto N. Cervantes (former VP,
now P, PM Parts) to Castillos for them to vacate the property > Letter (August
26, l976) by Mauricia to Modesto, refusing to comply with demands > SUIT (Septem
ber 29, 1976) by Buenaflor M. Castillo, administratrix of the Castillo estate, a
nd Rivera for annulment of title against PM Parts, ICP and Bormaheco ~ that all
transactions, from the Agreement of Counter-Guaranty with Real Estate Mortgage,
Certificate of Sale, and the Deeds of Authority to Sell, Sale and the Affidavit
of Consolidation of Ownership, as well as the Deed of Sale are void for being en
tered into in fraud and without the consent and approval of the CFI QC before wh
om the administration proceedings has been pending > RTC Held: null and void for
being fictitious, spurious and without consideration > Void Sales due to Void F
oreclosure > No fraud or simulation in Transactions between Rivera (Slobec) and
Cervantes (Bormaheco) (i) Acts of Rivera in receiving and making use of the trac
tor and the simultaneous issuance of a surety bond in favor of Bormaheco, concom
itant with the execution of the Agreement of Counter-Guaranty with Chattel/Real
Estate Mortgage, conduce to the conclusion that he and Castillos had every inten
tion to be bound by these contracts ~ strong indication that the parties actuall
y intended, or at least expected, to exact fulfillment of their respective oblig
ations from one another (ii) That Rivera never made any advance payment, in the
alleged amount of P50,000.00, to Bormaheco is a breach of contract that can be a
vailed of only by the innocent party (iii) Bormaheco, and not Rivera, paid the p
remium for the surety bond issued by ICP only because Rivera executed a Deed of
Sale with Right of Repurchase of his car in favor of Bormaheco and agreed that p
art of the proceeds shall be used to pay the premium for the bond ~ Payment to B
ormaheco as agent of ICP > No Fraud (i) No proof of induction thru insidious wor
ds and machinations by Bormaheco and PM Parts without which Rivera and Castillo
would not have executed such contract (ii) Foreclosure proceeding and subsequent
sale not done by under veil of corporate entity because its really the corporati
on of PM Parts which desire to enforce an alleged right against Castillos and Ri
vera > Invalidity of Foreclosure: (i) Failure of Bormaheco to demand payment fro
m ICP where contract requires that ICP be informed in writing within 30d from ex
piration of bond > ICP released from liability; (ii) Expiration of Surety at the
time Slobec allegedly defaulted in payment > ICPs surety expired on January 22,
1972 while Slobec s installment payment was to end on July 23, 1972 ~ from Janua
ry 23, 1972 up to July 23, 1972, the liability of Slobec became an unsecured obl
igation > HENCE, default of Slobec during this period cannot be a valid basis fo
r the exercise of the right to foreclose by ICP since its surety contract had al
ready been terminated >> Absolute Simulation > when the parties do not intend to
be bound at all by the contract > fact that the apparent contract is not really
desired or intended to either produce legal effects or in any way alter the jur
idical situation of the parties > Legal Effect: contract null and void >> Doctri

ne of piercing the veil of corporate entity when valid grounds therefore exist ~
corporation will be considered as a mere association of persons and the members
or stockholders of the corporation will be considered as the corporation > liab
ility will attach directly to the officers and stockholders > APPLIES WHEN the c
orporate fiction is used to defeat public convenience, justify wrong, protect fr
aud, or defend crime, or when it is made as a shield to
47

confuse the legitimate issues or where a corporation is the mere alter ego or bu
siness conduit of a person, or where the corporation is so organized and control
led and its affairs are so conducted as to make it merely an instrumentality, ag
ency, conduit or adjunct of another corporation >> Bond, as contractual in natur
e, is ordinarily restricted to the obligation expressly assumed therein ~ except
where required by the provisions of the contract, a demand or notice of default
is not required to fix the surety s liability
24, 1989) of Property by Corazon to Laurelia ~ Issuance of TCT in Laurelias name
(July 21, 1989) > Sale (August 24, 1989) of Property by Catalina to Mariquita Ma
capagal > SUIT (November 28, 1989) by Laurelia against Macapagal for ejectment >
SUIT by Macapagal for nullification of the Sale to Laurelia > CONTENTION of Mac
apagal: that the contract of sale between Corazon and Laurelia was invalid becau
se it did not reflect the true purchase price; that Catalina was authorized to s
ell the property as provided in the MOA that Catalina shall pay off her mortgage
obligation and incidental expenses from the proceeds of the sale > Sale of Prop
erty by Corazon to Laurelia is VALID even if it did not accurately reflect the t
rue consideration, the actual purchase price of the property > Not cause for dec
laration of its nullity ~ only a relative simulation of the contract which remai
ns valid and enforceable ~ valid but subject to reformation > Catalina NOT AUTHO
RIZED to sell the property > Not Authorized under the MOA ~ MOA not a Waiver by
Corazon, as owner of the property, of right to enjoy and dispose her property ~
Parties did not intend the MOA to be the document itself considering that they a
greed to execute such other documents or papers as are necessary to implement th
e agreement ~ Necessity of a special power of attorney for an agent to enter int
o any contract by which the ownership of an immovable property is transmitted >
Macapagal cannot enforce the MOA > stranger/third party > not identified outrigh
t as the buyer for whom he has been conferred a favor > Macapagal not a buyer in
good faith ~ did not buy the disputed lot from its registered owner > Laurelia
as the rightful owner > Double sales of real property, ownership passes to the v
endee who, in good faith, first recorded it in the Registry of Property > Laurel
ia registered the sale and was issued a TCT in her name on July 21, 1989, even b
efore the sale to Macapagal
G.R. No. 158380 May 16, 2005 MARIQUITA MACAPAGAL v. CATALINA O. REMORIN, CORAZON
CALUZA-BAMRUNGCHEEP, and LAURELIA CALUZAVALENCIANO Facts: Corazon sold her prop
erty to mortgagor Laurelia. Although the contract did not accurately reflect the
actual purchase price of the property, it remains valid because it is only a re
lative simulation which does not affect the validity of the contract but does re
quire its reformation. > Sale (July 1986) of the Property of Corazon Caluza-Bamr
ungcheep (which was inherited from her father) by her step-mother Purificacion A
rce-Caluza to Catalina Remorin ~ Corazon left for Thailand (after marriage to a
Thai), Purificacion was entrusted with the administration of the property, Purif
icacion obtained Titles in her name by claiming to be the sole heir of her decea
sed husband and to have lost her TCTs > Catalina mortgaged the property to L & R
Lending Corporation for P200k and then to Laurelia Caluza-Valenciano for P295k
to pay off the former mortgage > Civil Suit (December 29, 1986) by Corazon for r
econveyance and damages against Purificacion and Catalina upon discovery of the
sale of her property and Criminal Suit by Corazon against Purificacion and Catal
ina for falsification and perjury > Deed of Transfer (May 4, 1987) executed by C
atalina, signed by Purificacion as witness, admitting the wrong they did in ille
gally transferring the lots in their names and acknowledging Corazon to be the r
ightful owner ~ presented to the Register of Deeds which caused the cancellation
of TCT in favor of Catalina and issuance of TCT in favor of Corazon but with an
notation of Laurelias mortgage > MOA (September 9, 1988) among Corazon, Catalina
and Laurelia where Corazon would sell her property and from its proceeds, Catali
na would pay her mortgage obligation to Laurelia ~ Approved (September 16, 1988)
~ (revision of the March 21, 1988 MOA that ceded ownership to Purificacion upon
satisfaction of mortgage to Laurelia due to Purificacions death on July 28, 1988
) > Sale (May

48

G.R. No. L-14070 March 29, 1961 MARIA GERVACIO BLAS, MANUEL GERVACIO BLAS, LEONC
IO GERVACIO BLAS and LODA GERVACIO BLAS v. ROSALINA SANTOS, in her capacity as S
pecial Administratrix of the Estate of the deceased MAXIMA SANTOS VDA. DE BLAS,
MARTA GERVACIO BLAS and DR. JOSE CHIVI Facts: The 2nd marriage of Simeon Blas to
Maxima Blas included the conjugal property of Simeon with 1st wife Marta becaus
e the CP had not yet been liquidated upon Martas death and before Simeons remarria
ge. Simeon thus executed his Will wherein he identified the share of Maxima in t
heir cp and a Document, read and signed by Maxima too, wherein Maxima made a pro
mise to convey of her share in the cp to the heirs of Simeon. Such Agreement is
valid as a compromise to avoid litigation because the consideration is not futur
e inheritance but well-defined and existing properties, identified as of Maximas
share in the cp in Simeons will, in the inventory of his estate, and in the proje
ct of partition submitted by Maxima. Hence, because said properties were already
existing at the time of the execution of the contract, they are not future inhe
ritance which involves properties that she would inherit because those were alre
ady her own share. > Marriage of Simeon Blas and Marta Cruz (before 1898) ~ 3 ch
ildren > Death of Marta (1898) but without liquidation of CP with Simeon > 2nd M
arriage of Simeon to Maxima Santos Vda. de Blas (June 28, 1898) ~ CP with Marta
became part of CP with Maxima due to lack of liquidation > Two Documents by Sime
on (December 26, 1936), read and signed by Maxima: (1) Last Will and Testament w
herein he identified his CP with Maxima as consisting of lands, fishponds and oth
er kinds of properties, the total assessed value of which reached the amount P67
8,880 and of which belonging to Maxima; (2) COMPROMISE AGREEMENT between Simeon,
Maxima, on the one hand, and the heirs of Simeon and Marta, on the other WHERE (
i) Simeons share in the CP with Maxima would go to his heirs with Marta; (ii) of
Maximas share in the CP would go to Simeons heirs ~ PURPOSE OF DOCUMENTS: because
the properties that Simeon had acquired during his first marriage with Marta Cru
z had not been liquidated and were not separated from those acquired during the
second marriage where all those properties were included all in the assets of th
e second marriage, and that is the reason why this document was prepared (as tes
tified by son-in-laws / witnesses of Simeon in executing the documents) ~ HENCE,
Maxima is to convey in her testament, upon her death, one-half of the conjugal
properties she would receive as her share in the conjugal properties
> Death of Simeon (January 9, 1937) > Death of Maxima (October 5,1956) ~ Last Wi
ll and Testament of her Estate, covering 1045.7863 hectares of properties, confe
rred only 80 hectares to Marta Gervacio plus an existing obligation on said fish
ponds to pay to the Rehabilitation Finance Corporation; only 150 sq.m. to Angeli
na Blas; only P300 to Leony Blas > NOT > SUIT (December 27, 1956) by heirs of Si
meon for declaration of ownership of properties that were identified as theirs i
n the Document > CONTENTION of Estate of Maxima: (1) Documents void for lacking
consideration, involving future inheritance ~ no right created in favor of heirs
of Marta; (2) Prescription because no action to recover were instituted in the
proceedings for the settlement of the estate of Simeon > CONTENTION of Heirs of
Simeon: (1) Right arises from the document which constitutes a Trust Agreement a
nd a Contract in the nature of a compromise to avoid litigation WHERE she would
hold of her said share in the conjugal assets in trust for the heirs and legatee
s of her husband in his will, with the obligation of conveying the same to such
of his heirs or legatees as she may choose in her last will and testament; (2) D
id not institute action to recover in the settlement of Simeons estate exactly be
cause of the promise of Maxima to convey the same in her will > Document is a Va
lid Compromise Agreement >> Compromise Agreement, a contract by which each of th
e parties in interest, by promising, avoids the provocation of a suitor terminat
es one which has already the provocation been instituted > No Future Inheritance
involved > Consideration is well-defined and existing properties, namely of Max
imas share in CP which: (a) had already been identified in Simeons Will, in the In
ventory of Simeons estate (June 2, 1937) submitted by Maxima herself where all hi
s property were identified as CP, and in project of partition submitted by said
Maxima (March 14, 1939); (b) were already existing at the time of the execution
of the Document > Obligation is to transmit of her share in the conjugal propert

ies acquired with her husband NOT a promise to convey any properties that she wo
uld inherit > Not yet Prescribed > Action to Enforce the Promise of Maxima to co
nvey in her testament, upon her death, of the CP she would receive as her share
did not arise until and after her death > Maximas Death on October 5,1956, Action
on December 27, 1956
49

> SC HELD: (i) to convey and deliver of the properties adjudicated o Maxima Sant
os as her share in the conjugal properties to the heirs and the legatees of her
husband Simeon Blas; (ii) to remand to let the heirs file their respective adver
sary pleadings to determine the participation of each and every one of them in s
aid properties >> future inheritance (Article 1271) > any property or right not
in existence or capable of determination at the time of the contract, that a per
son may in the future acquire by succession >> Compromise Agreement (Article 180
9, OCC): Compromise is a contract by which each of the parties in interest, by g
iving, promising, or retaining something avoids the provocation of a suitor term
inates one which has already the provocation been instituted. (Emphasis supplied
.) > Why not future inheritance > Inchoate right but is it not that at the time
of sale, you can sell what you dont own? Because it might prejudice other heirs?
> Why does the law prohibit certain things from being object of the contract ~ i
e health, organs > G.R. No. 141882 March 11, 2005 J.L.T. AGRO, INC. (thru manage
r JULIAN L. TEVES) v. ANTONIO BALANSAG and HILARIA CADAYDAY Facts: The Compromis
e Agreement between Julian and children Josefa and Emilio where certain properti
es were assigned to Josefa and Emilio and the rest to his 2nd wife and their chi
ldren, is valid even though it concerns future legitime because it is a partitio
n inter vivos (before death) of Julians estate which is valid in law as long as i
t is not prejudicial to compulsory heirs. His 2nd wife and their children had no
t been prejudiced because they were assigned the remainder of Julians properties.
Concerning Lot No. 63 that had been adjudicated to 2nd wife and kids but subseq
uently assigned to Agro, the right of the former to the properties did not arise
until the death of Julian as the legal effect of a partition inter vivos. Hence
, they cannot contend that the assignment was void due to their alleged ownershi
p being operative upon the Compromise Agreement, because prior to Julians death t
hey only had an inchoate interest but not ownership. However, the ownership of L
ot No. 63 did not validly confer to Agro due to spurious acquisition of title ba
sed on an alleged loss of owners duplicate as presented to the Deed of Register a
nd not on the assignment. HENCE, 2nd wife and kids acquired title upon the death
of Julian and without any valid transfer of ownership of property prior to his
death upon which their right of ownership arose.
> Two Marriages by Don Julian L. Teves, first with Antonia Baena and then with M
ilagros Donio Teves after Antonias death > Suit between Julian and daughter Josef
a (1st marr) for Partition and Damages of the cp of Julian with wife/mother Anto
nia > Decision by CFI (January 31, 1964), incorporating the COMPROMISE AGREEMENT
between them which divided the properties of Julian: (i) siblings Josefa and Em
ilio and Julian as co-owners of Hacienda Medalla Milagrosa, an electric plant, a
movie property, the commercial areas, and Julians house but to remain undivided
during the lifetime of Julian; (ii) Julian as owner of remainder of the properti
es; (iii) BUT UPON JULIANS DEATH (Paragraph 13): (a) the properties adjudicated t
o Josefa and Emilio would constitute their inheritance from their mothers estate
and from Julians estate as well; (b) the properties remaining with Julian (includ
ing Lot. No. 53) shall exclusively be adjudicated to Milagros and their 4 minor
children > Death of Julian (April 14, 1974) > Different Ownership of Lot No. 63
(1) By J.L.T. Agro, Inc., owned by Julian: (i) Deed of Assignment of Assets with
Assumption of Liabilities (November 16, 1972) by Julian, Josefa and Emilio in f
avor of Agro; (ii) Supplemental to the Deed of Assignment of Assets with the Ass
umption of Liabilities (July 31, 1973), transferring ownership over Lot No. 63,
among others, in favor of Agro; (iii) Reconstitution of TCT, Issuance of New TCT
(November 12, 1979) by Court Order to reconstitute the owners duplicate of the T
CT and to replace it with a new one pursuant to petition for the reconstitution
of the owners duplicate (2) By Milagros and kids: (i) Possession after the Compro
mise Agreement; (ii) Deed of Extrajudicial Partition of (Julians) Real Estate (Ma
rch 18, 1980); (iii) Lease Agreement with Sps. Antonio Balansag and Hilaria Cada
yday (1974); (iv) Deed of Absolute Sale of Real Estate (November 9, 1983) with S
ps. Antonio Balansag and Hilaria Cadayday; (v) Failure to Register the Deed due
to Agros ownership of the property > SUIT by Sps. Balansag-Cadayday as vendees fo
r Declaration of Nullity of Agros TCT > CONTENTION of Agro/RTC: (1) Adjudication

in the Compromise Agreement did not become automatically operative upon the appr
oval of the Compromise Agreement because future legitime cannot be determined, a
djudicated and reserved prior to the death of Don Julian; (2) Lot No. 63 could n
ot have transferred to Milagros and kids by the Deed of Extrajudicial Partition
(March 18, 1980) because prior to it, it had already been assigned to Agro (July
31, 1973) and hence, could not have been part of his estate > CONTENTION of Sps
/CA: (1) Compromise Agreement, incorporated in the CFI Decision had already tran
sferred the properties of Julian to his heirs who
50

acquired full ownership and possession of the properties and hence, Don Julian h
imself could no longer dispose of the same; (2) New TCT issued in favor of Agro
is spurious and of dubious origin because the spaces for the Book No. and Page N
o. of the TCT, referring to the exact location where the said title was register
ed or transferred, were not filled up > Ownership is with Sps., not Agro > NOT B
ECAUSE the Compromise Agreement involved Future Inheritance > It was a Valid Com
promise Agreement AS a Partition inter vivos WHERE future legitime had been vali
dly adjudicated already prior to Julians death BECAUSE it was a not prejudicial t
o compulsory heirs WHERE Julian did not totally omit them by assigning other pro
perties which they could inherit upon his death (everything but those assigned t
o Josefa and Emilio and but Lot No. 63) > LEGAL EFFECT of Partition inter vivos
is transfer of ownership ONLY AFTER DEATH > Reservation of ownership to Julian,
as well as the right to dispose of it > No right conferred to Milagros and Child
ren; only an inchoate/prospective/non-existent interest > BUT BECAUSE of an Inva
lid Transfer to Agro ~ Invalid Deed of Assignment > HENCE, Property not assigned
and thereby transferring to Milagros and kids upon Julians death (1) Erring Regi
ster of Deeds: Agro acquired the new TCT by a petition for reconstitution of the
owners deed allegedly because it lost the owners duplicate > Agro thus presented
to the Register of Deed the Court Order issuing a new TCT and not the Supplement
al Deed, thereby misrepresenting that the new TCT was because of an alleged loss
of the owners duplicate > Agro did not present at all the Supplemental Deed > HE
NCE, Register of Deeds exceeded its authority in issuing not just a reconstitute
d owners copy of the original certificate of title but a new transfer certificate
of title in place of the original certificate of title; (2) No Consideration >
Art. 1318 requires a cause for a valid contract and Art. 1352 declares that cont
racts without cause, or with unlawful cause produce no effect whatsoever > (i) P
84k in the dispositive portion does not represent the consideration for the assi
gnment made by Julian but is a mere statement of the fair market value of all th
e 19 properties enumerated in the instrument that were transferred to Agro; (ii)
Mortgage in favor of Rehabilitation Finance Corporation not a consideration the
re being no showing that Agro itself paid off the mortgate obligation; (3) Not a
donation > Art. 749 requires acceptance for validity of donations > Absence of
acceptance by the done Agro in the same deed or even in a separate document
>> Future Inheritance > any property or right not in existence or capable of det
ermination at the time of the contract > Cannot be an object of a contract (Art.
1347) ~ Requisites of a Contract upon future inheritance: (1) That the successi
on has not yet been opened; (2) That the object of the contract forms part of th
e inheritance; (3) That the promissor has, with respect to the object, an expect
ancy of a right which is purely hereditary in nature >> GENERAL RULE: Contracts
may have for its object all things, even future ones, which are not outside the
commerce of man > EXCEPTION: Future Inheritance (Art. 1347) > EXCEPTION TO THE E
XCEPTION: A partition inter vivos (Article 1080), authorizing a testator to part
ition inter vivos his property, and distribute them among his heirs >> Partition
inter vivos (Art. 1080): Should a person make a partition of his estate by an a
ct inter vivos, or by will, such partition shall be respected, insofar as it doe
s not prejudice the legitime of the compulsory heirs > LEGAL EFFECT: Partition w
ill be effective only after death ~ An instrument of a special character that do
es not operate as a conveyance of title until his death > Different from OCC Art
. 1056 in permitting any person (not a testator, as under the old law) to partit
ion his estate by act inter vivos ~ WHY: to do away with the requisite that test
ator must first make a will with all the formalities provided by law in order to
partition his estate inter vivos >> Prejudice to Compulsory Heirs > Absolute No
n-mention in the Will (Art. 854), that a preterition or omission of one, some, o
r all of the compulsory heirs in the direct line, whether living at the time of
the execution of the will or born after the death of the testator, shall annul t
he institution of heir; but the devises and legacies shall be valid insofar as t
hey are not inofficious > Preterition as the total omission of compulsory heir i
n the will, in the direct line from inheritance, either by not naming him at all
or, while mentioning him, by not instituting him as heir without disinheriting

him expressly, by not assigning to him some part of the properties, by not givin
g him anything in the hereditary property G.R. No. L-11240 December 18, 1957 CON
CHITA LIGUEZ v. THE HONORABLE COURT OF APPEALS, MARIA NGO VDA. DE LOPEZ, ET AL.
Facts: In order to live with minor Conchita and have sexual relations with her,
married man Salvador donated a parcel of land to her. Even if the donation was p
remised upon an illicit causa (sex with a minor as a married man), manifested in
his motive to cohabit with her which is considered cause because it predetermin
ed the contract, the donation remains partly valid because Conchita was not a gu
ilty party since she did not participate much in the formation of the
51

donation and/or because even if both Salvador and Conchita were guilty, they can
not invoke the donations illegality to null the same. Absent proof of illegality
against a donation valid on its face because it was ratified by the Justice of P
eace, the donation remains valid. However, inasmuch as the interest of wife Mari
a and their children in the conjugal property are concerned, the donation may be
invalidated according to the prejudice against them which would still be determ
ined by the lower court by remand. > Deed of Donation (May 18, 1943) by married
man Salvador P. Lopez in favour of 16 y/o Conchita Liguez covering a parcel of l
and > They thereafter lived together until the Death of Salvador (July 1, 1943)
> Adjudication of the Same Property to Salvadors wife Maria Ngo and their childre
n (1949) > Possession by Maria and children > SUIT for Recovery by Conchita > CO
NTENTIONS of Maria and Children: Donation is null and void: (1) Has an illicit c
ausa or consideration > that the donation, although ratified by the Justice of t
he Peace of Davao for the consideration of Salvadors love and affection for Conchi
ta and for the good and valuable services rendered by her to him, was actually ma
de in order for Salvador, a married man, to live with minor (16 y/o) Conchita an
d have sexual relations with her, such donation being required by Conchitas paren
ts; (2) Involves conjugal property co-owned by Salvador with wife Maria; > CONTE
NTIONS of Conchita: Donation was a contract of pure beneficence, the considerati
on of which is the liberality of the donor ~ Desire of Salvador to have sex with
her is his mere motive, different from the causa > HENCE, Liberality per se is
not illegal since it is neither against law or morals or public policy > Donatio
n was an Onerous Contract with an Illicit Causa > Not Pure Beneficence > Salvado
r not moved exclusively by the desire to benefit appellant Conchita Liguez, but
also to secure her cohabiting with him, so that he could gratify his sexual impu
lses > With Illicit Causa > Motive of Lopez to cohabit and have sex with Conchit
a also served as the Causa because it predetermined the purpose of the contract
> Lopez would not have conveyed the property in question had he known that Conch
ita would refuse to cohabit with him > Cohabitation was an implied condition to
the donation > Unlawful/Illicit because cohabitation by a married man with anoth
er is unlawful ~ Necessarily tainted the donation itself > BUT DONATION STILL VA
LID (Partly) > (a) Valid on its face > Accepted by Conchita, Signed and Ratified
by Justice > Perfect and Binding UNLESS Declared null > Illegality is not presu
med, but must be duly and adequately proved; (b) Art. 1412 (2): Donation valid b
ecause Conchita was not at fault > Conchita was only a minor (16) when the donat
ion was made while Salvador
was already advanced in years > No proof that she was fully aware of the terms o
f the bargain entered into by and Lopez and her parents who insisted on the dona
tion before allowing her to live with Lopez > illegality is not presumed, but mu
st be duly and adequately proved; (c) Even if both parties to an illegal contrac
t are guilty, they are barred from pleading the illegality of the bargain either
as a cause of action or as a defense where they will not be aided by the law but
will both be left where it finds them > Since the defense of illegality cannot b
e invoked by Salvador himself, if living, his heirs can have no better rights th
an Lopez himself > BUT DONATION VALID NOT IN ITS ENTIRETY > Donation of Conjugal
Property > (a) But Prejudicial to the interest of Wife Maria ONLY IF the value
of her share in the property donated cannot be paid out of the husbands share of
the community profits > REMAND; (b) But Prejudicial to Heirs ONLY IF inofficious
or in excess of the portion of free disposal > REMAND >> Pure beneficence (Art.
1274) > contracts designed solely and exclusively to procure the welfare of the
beneficiary, without any intent of producing any satisfaction for the donor > i
dea of self-interest is totally absent on the part of the transferor > liberalit
y of the donor is deemed causa >> Remuneratory Contracts > consideration is the
service or benefit for which the remuneration is given >> Motive is Causa in Exc
eptional Cases > General Rule: Motive is inoperative and immaterial in determini
ng the validity of the contract > Exception: When contracts are conditioned upon
the attainment of the motives of either party ~ Motive may be regarded as causa
when it predetermines the purpose of the contract >> ART. 1412. If the act in w
hich the unlawful or forbidden cause consists does not constitute a criminal off

ense, the following rules shall be observed: (1) When the fault is on the part o
f both contracting parties, neither may recover what he has given by virtue of t
he contract, or demand the performance of the other s undertaking; (2) When only
one of the contracting parties is at fault, he cannot recover, what he has give
n by reason of the contract, or ask for fulfillment of what has been promised hi
m. The other, who is not at fault, may demand the return of what he has given wi
thout any obligation to comply with his promise. G.R. No. L-33360 April 25, 1977
52

MAXIMINO CARANTES (Substituted by Engracia Mabanta Carantes) v. COURT OF APPEALS

, BILAD CARANTES, LAURO CARANTES, EDUARDO CARANTES and MICHAEL TUMPAO Facts: The
siblings of Maximino executed a Deed of Assignment in his favour covering their
rights to Lot No. 44 for P1 and the acknowledgement that their father/owner had
considered Maximino as the owner of the property. The Deed is valid because it
has a consideration as previously stated and the action for its annulment, which
was based on fraud, has already prescribed (4y). > Settlement of the Estate of
Mateo Carantes (1933) where his son Maximino (one of six children) was appointed
as judicial administrator > Partition involved Lot No. 44, which was subdivided
into Lots A, B, C, D, and E where A had previously been expropriated by the Gov
ernment (for the construction of the Loakan Airport), while B and C were subsequ
ently sold to the Government as well by Maximo thru a Formal Deed of Sale by vir
tue of an Assignment of Right to Inheritance (October 23, 1939) where 4 of his s
iblings assigned their rights to inheritance in Lot No. 44 to Maximino for a con
sideration of P1.00 and the declaration that they acknowledge Mateos representati
on that Maximino is the exclusive, continuous, peaceful and notorious possession
of the property as its rightful and exclusive owner (By agreement of all the dir
ect heirs and heirs by representation of the deceased Mateo Carantes as expresse
d and conveyed verbally, by him during his lifetime, rightly and exclusively bel
ong to the particular heir, Maximino Carantes, now and in the past in the exclus
ive, continuous, peaceful and notorious possession of the same for more than ten
years.) ~ Deed registered (March 16, 1940) and New TCTs for B to E issued in Max
iminos name > Meanwhile, D was mortgaged (1948) by Maximino, as his exclusive pro
perty with the Philippine National Bank; and E remained registered in his name >
SUIT (September 4, 1958) for Declaration of Nullity of Deed of Assignment and P
artition of Lots D and E into 6, by Maximinos siblings (the same who executed the
Deed of Assignment ~ Bilad, Sianang, Lauro and Crispino but the latter by his h
eirs) > CONTENTIONS of Siblings: (i) Fraud, that they were made to believe by Ma
ximino that the Deed was only an authorization of the latter to convey portions
of Lot No. 44 to the Government in their behalf to minimize expenses and facilit
ate the transaction ~ That they discovered the assignment only on February 18, 1
958; (ii) CA Held: Deed is void ab initio and inexistent on the grounds that rea
l consent was wanting and the consideration of P1.00 is so shocking > CONTENTION
S of Maximino: (i) On-its-face Agreement > No other agreement than what appears
in the Deed of Assignment > Deed was an acknowledgment of the fact of designatio
n of the property as specifically pertaining or belonging by right of inheritanc
e to the Maximino Carantes ~
assignors knew fully well that the deed of assignment contained what, on its fac
e, it represented> There was never any agreement between the assignors and the a
ssignee authorizing the latter to merely represent his co-heirs in negotiations
with the Government ~ Any agreement other than the Deed of Assignment is barred
by the statute of frauds and is null and void because not in writing, much less,
in a public instrument; (ii) Prescription ~ that siblings cause was based on a w
ritten contract and hence prescription in 10y ~ Registration on February 21, 194
7 as Constructive Notice but Petition only on September 4, 1958; and (iii) No ca
use of action because ownership over the property became vested in Maximino by a
cquisitive prescription of 10y from its registration in his name on February, 21
, 1947; (iv) Siblings Action was for Reformation and not Declaration of Nullity >
BUT not raised in his Answer in the Trial Court and only raised on Appeal ~ Can
not prosper > VALID DEED (1) There is consideration > P1 and acknowledgement by
the siblings that the decedent Mateo Carantes had, during his lifetime, expresse
d to the signatories to the contract that the property subject-matter thereof ri
ghtly and exclusively belonged to Maximino > VALUABLE CONSIDERATION (2) Action i
s to Annul the Deed on the ground of fraud and thus prescribes in 4y from discov
ery of fraud > When discovered: Registration of the Deed (March 16, 1940) in the
Register of Deeds ~ Constitutes constructive notice to the whole world > Prescr
iption on March 16, 1940 ~ Suit filed on September 4, 1958; (3) Deed not a trust
created in favor of siblings > Clear and Open Repudiation by Maximino of such t
rust ~ Anathema to concept of a continuing and subsisting trust: (i) Formal deed

of sale with Government; (ii) Mortgage of Lot D with PNB as his exclusive prope
rty; (iii) Tax Declarations, Payment and Receipts in the name of Maximino > EVEN
IF DEED IS TRUST, an action for reconveyance based on implied or constructive t
rust is prescriptible in 10y from Registration of Deed (March 16, 1940) ~ Prescr
ibes March 16, 1950 > When is there inadequacy of cause but adequacy of consider
ation? HOW G.R. No. 126376 November 20, 2003 SPOUSES BERNARDO BUENAVENTURA and C
ONSOLACION JOAQUIN, SPOUSES JUANITO EDRA and NORA JOAQUIN, SPOUSES RUFINO VALDOZ
and EMMA JOAQUIN, and NATIVIDAD JOAQUIN v. COURT OF APPEALS, SPOUSES LEONARDO J
OAQUIN and FELICIANA LANDRITO, SPOUSES FIDEL JOAQUIN and CONCHITA BERNARDO, SPOU
SES TOMAS JOAQUIN and SOLEDAD ALCORAN, SPOUSES ARTEMIO JOAQUIN and SOCORRO ANGEL
ES, SPOUSES ALEXANDER MENDOZA and CLARITA JOAQUIN, SPOUSES TELESFORO CARREON and
FELICITAS JOAQUIN, SPOUSES
53

DANILO VALDOZ and FE JOAQUIN, and SPOUSES GAVINO JOAQUIN and LEA ASIS Facts: The
parents sold certain lots to some of their children. The other children assaile
d its validity for lack/inadequacy of the consideration and sought the deeds null
ity in order that the properties revert back to their parents and thus increase
their estate and subsequence inheritance. However, the Deeds show a consideratio
n in the form of prices which were valid and not grossly inadequate because ther
e is no requirement that the price be the same as the value of the property. Als
o, absent proof of fraud, inadequacy of price does not invalidate the contract.
Also, payment of the price was shown to have been made but nevertheless, it does
not affect the validity of contracts. Lastly, the children had no cause of acti
on because their interest was merely inchoate while their parents are still aliv
e. > Six Deeds of Sale of Real Property by Sps. Leonardo Joaquin and Feliciana L
andrito in favor of 8 of their children ~ (Lot to Felicitas for P6k on July 11,
1978; Lot to Clarita for P12k on June 7, 1979; Lot to Fidel and Conchita for P54
,300 on May 12, 1988; Lot to Artemio and Socorro for P54,300 on May 12, 1988; Lo
t to Tomas for P20k on September 9, 1988; Lot to Gavino for P25k on October 7, 1
988) > Issuance of New TCTs in the childrens favor > SUIT by Other Children for D
eclaration of Nullity of the Deeds and of the New TCTs > CONTENTIONS of Children
: Deeds are absolute simulation due to: (i) Lack of actual valid consideration (
ii) Consideration was inadequate where the properties were three-fold times more
valuable than the measly sums appearing therein; (iii) Deeds of sale do not ref
lect and express the true intent of the parties; (iv) Deeds was a conspiracy des
igned to unjustly deprive the rest of the compulsory heirs of their legitime ~ P
urpose of Suit: to have the Deeds of Sale declared void so that ownership of the
lots would eventually revert to their respondent parents and once parents die,
the siblings will then co-own their parents estate > VALID DEEDS (1) Consideratio
n is plainly stated in the Deeds of Sale > No proof that it was absolutely simul
ated > Vendee/Siblings had financial capacity to buy the lots; (2) Consideration
is not grossly inadequate > (a) No requirement that the price be equal to the e
xact value of the subject matter of sale; (b) No proof of fraud, mistake, or und
ue influence (Art. 1355) or defect in consent (Art. 1470) to invalidate the Deed
s; (3) Actual Payment does not affect a contracts validity > Testimony of Emma th
at their father told her that he would transfer a lot to her through a deed of s
ale without need for her payment of the purchase price > BUT Contract of Sale be
comes perfected and binding upon the meeting of minds as to the price > Nonpayment only gives the right to demand the fulfillment or cancellation of the ob
ligation under an existing valid contract; it does not result to nullity > ALSO,
Vendee/Siblings actually paid the price anyway (4) No cause of action > Childre
n had no legal right to the properties sold ~ No substantial interest but a mere
expectancy or inchoate, future, contingent, subordinate, or consequential inter
est that vests only upon their parents death > Parents are still alive and can va
lidly sell the properties > Sale did not even prejudice their share in the estat
e because cash of equivalent value replaced the lots taken from the estate >> Co
ntract Void if Consideration Inadequate BUT ONLY IF there is fraud, mistake, or
undue influence (Art. 1355) or defect in consent (Art. 1470) G.R. No. L-27010 Ap
ril 30, 1969 MARLENE DAUDEN-HERNAEZ v. HON. WALFRIDO DE LOS ANGELES, Judge of th
e Court of First Instance of Quezon City, HOLLYWOOD FAR EAST PRODUCTIONS, INC.,
and RAMON VALENZUELA Facts: Hernaez had an agreement with Hollywood to act for t
heir movies for a price. When Hollywood failed to pay, Hernaez filed a suit for
breach of contract but the same was dismissed by the CFI for having no cause of
action because the agreement was invalid and unenforceable because it was not in
writing. Hence, the agreement of Hernaez is valid and enforceable because it do
es not fall in the exception to the general rule that contracts do not require t
o be written, and Art. 1358 does not make invalid a contract involving more than
P500 not in writing. Because the general rule applies as to the form of the Agr
eement where Art. 1358 does not in any way invalidate the same, Art. 1357applies
which provides that the parties can enforce the observation of the contract onc
e perfected. > SUIT for Breach of Contract and Damages by Actress Marlene Dauden
Hernaez against Hollywood Far East Productions, Inc. and President/General Manag

er Ramon Valenzuela for failure to pay the balance of P14,700 due for her servic
es as leading actress in two motion pictures produced by the company > CFI Dismi
ssed: No cause of action since the agreement was invalid and unenforceable ~ not
in any written document, either public or private ~ defective on its face for v
iolating Art. 1359 (that it exceeds P500 and must be in a public document) and 1
358 (that it does not follow form prescribed in Art. 1359) > Valid Contract Even
if Not in Writing: (1) Exception to the General Rule that contracts do not requ
ire to be in writing is not applicable to the agreement of Hernaez > GENERAL RUL
E that contracts
54

are valid and binding from their perfection (by mere consent, Art. 1315; upon a
proper subject matter and consideration, Art. 1318) regardless of form whether t
hey be oral or written (Art. 1356) > EXCEPTIONS (Art. 1356): (a) solemn contract
s > Contracts for which the law itself requires that they be in some particular
form (writing) in order to make them valid and enforceable ~ ie donation, contra
cts to pay interest on loans; (b) Contracts that the law requires to be proved b
y some writing (memorandum) of its terms > CONTRACT of Hernaez does not come und
er either exception which require writing; (2) Art. 1358 does not provide that t
he absence of written form in its case will make the agreement invalid or unenfo
rceable; (3) Art. 1357 provides that contracts covered by Article 1358 are bindi
ng and enforceable by action or suit despite the absence of writing
and the occupied portions had not been assigned to him as his determinate share
~ In fact, he had agreed with Basilia Maneja that the latter would occupy the up
per portion of the property; (ii) Occupants were permitted by co-owners to occup
y property wherein they even built their houses > Co-Owners Right of Possession >
Art. 487 that any one of the co-owners to bring an action in ejectment > WHY: a
co-owner is the owner and possessor of the whole, and that the suit for ejectme
nt is deemed to be instituted for the benefit of all co-owners > LEGAL EFFECT: C
ategorical and an unqualified authorization of a co-owner to bring an action to
exercise and protect the rights of all > Right of Possession and Ejectment by Bo
rromeo as Co-Owner against Resuenas and Garay: (a) No proof of their right/autho
rity to occupancy ~ Persons who occupy the land of another at the latters toleran
ce or permission, without any contract between them, are necessarily bound by an
implied promise that they will vacate the same upon demand ~ Tolerance in itsel
f does not bear any legal fruit, and it can easily be supplanted by a sudden cha
nge of heart on the part of the owner > Art. 1358 that acts which have for their
object the creation, transmission, modification or extinguishment of real right
s over immovable property must appear in a public instrument; (b) Authority of B
orromeo pursuant to Art. 487 to institute the ejectment suit for the benefit of
all co-owners of the property absent proof that occupants are authorized to occu
py the same; (c) Testimony of Borromeo that he had agreed with Basilia Maneja on
the portions which they would occupy hardly establishes a definitive partition,
or moreover, any right of petitioners to dwell in any portion of Lot No. 2587 ~
the common ownership over Lot No. 2587 remained inchoate and undivided > Right
of Possession and Ejectment by Borromeo as Co-Owner against Rosario from Lot No.
2592: No proof of her right/authority to occupancy > Why writing under Art. 135
8 is required here and not in Hernaez: No allegation or proof of any act conferr
ing any right to occupants because Tolerance is not a conferment of right WHILE
in Hernaez, there was an alleged agreement to pay her an amount that is beyond P
500 > What is a statute of fraud: must be in writing otherwise unenforceable con
tract; wholly executory ~ neither party has performed the obligation but just ag
ree G. R. No. L-8060 September 28, 1955
55
G.R. No. 128338 March 28, 2005 TINING RESUENA, ALEJANDRA GARAY, LORNA RESUENA, E
LEUTERIO RESUENA, EUTIQUIA ROSARIO and UNISIMA RESUENA v. HON. COURT OF APPEALS,
11th DIVISION and JUANITO BORROMEO, SR. Facts: Borromeo co-owned some propertie
s with Sps. Bascon and the heirs of Nicolas Maneja. The shares of the latter coowners were occupied by Resuenas, Garay and Rosario upon their tolerance. When B
orromeo sought to expand his resort and filed a suit for ejectment, the occupant
s refused to vacate, claiming that Borromeo had no right to possess the shares o
f his co-owners which were allowed to be used by them. However, the occupants fa
iled to prove their own right to occupy the property as mere benefactors of the
co-owners tolerance. Art. 1358 requires that a creation of right be in writing an
d they had produced none. Moreover, Borromeo had the authority and right to file
an ejectment as coowner, pursuant to Art. 487 because he co-owns the entire pro
perty and not just part of it until the partition of said property which was not
done yet nor was proven in the case. Hence, he acted on behalf of all owners an
d not just by himself. > Properties Co-owned by Juanito Borromeo, Sr.: Lot No. 2

587 with Sps. Inocencio Bascon and Basilisa Maneja (former 6/8 and latter 1/8);
Lot No. 2592 with heirs of Nicolas Maneja > Conversion by Borromeo of his share
into the Borromeo Beach Resort > Demand and Suit for Ejectment (February 16, 199
4) by Borromeo against the occupants of his co-owners share for the expansion of
the resort > CONTENTIONS of occupants (Resuenas and Garay, occupants of upper po
rtion of Lot No. 2587 and Rosario, occupant of a portion of Lot No. 2592): No Ri
ght to Possess by Borromeo: (i) properties were not yet partitioned

PAULINO GARCIA v. MARIA BISAYA, ET AL.

Facts: Garcia bought a property from Bisaya that was designated as unregistered
property in the Deed of Sale. Upon discovery that the land was registered to a S
andoval who was not a vendor, Garcia sought the reformation of the contract to r
epresent the property as registered. However, reformation is not the proper reme
dy because there was no allegation that the agreement did not express the real i
ntention of the parties (which was the sale) nor was it alleged what the real in
tention was. Moreover, no right would be made available for Garcia to enforce up
on the reformation of the contract because the registered owner was not a vendor
of the sale which would then become ineffective if such reformation was made. B
ut since the petition did not ask for annulment, the same cannot be given Garcia
.
misrepresentation on the part of the vendor or in the mistaken belief that, as s
tated in the deed, the property he was buying was unregistered land ~ BUT Not pr
ayed for or sought; > But arent the facts alleged determinative of the remedy sou
ght? Hence, SC could have annulled it instead? BECAUSE ALLEGATIONS did not talk
about fraud (2) BUT Not yet Prescribed > Action upon a written contract prescrib
es in 10y from the day it could have been instituted Discovery of mistake only r
ecently
>> Action for Reformation > OBJECT: to make an instrument conform to the real ag
reement or intention of the parties IN ORDER THAT the party is able to assert ri
ght under the contract as reformed > NOT TO make a new agreement, but to establi
sh and perpetuate the true existing one
> Deed of Sale (November 12, 1938) between Paulino Garcia and Maria Bisaya where
the latter sold to the former a parcel of land which was erroneously designated
as unregistered land > Garcias Recent Discovery that the land sold to him was re
gistered to a Torcuata Sandoval, not a vendor > SUIT for Reformation (May 20, 19
52) by Garcia ~ to correct the designation of the property in the Deed of Sale a
s one of Registered from Unregistered > RTC Dismissed: Action Prescribed ~ refor
mation of an instrument on account of fraud prescribes in 4y (Carantes)
G.R. No. 128991 April 12, 2000 YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA and CHARIT
O PORMIDA v. HONORABLE MATEO M. LEANDA, in his capacity as Presiding Judge of RT
C, Tacloban City, Branch 8, and LEYTE GULF TRADERS, INC. Facts: Leyte Gulf Trade
rs leased the property of Bentir with the verbal agreement that Leyte will have
the right of first refusal should Bentir decide to lease or sell the property af
ter the expiration of the lease. When the contract expired but verbally extended
, Bentir subsequently sold the property to sps. Pormida without offering the rig
ht of first refusal to Leyte. Leyte challenged the sale and sought the reformati
on of the contract of lease in order to include the right of first refusal which
was allegedly omitted in the contract. However, the action for reformation has
already expired (within 10y) when Leyte filed for reformation only in 1992 when
the contract of lease was entered into since 1968. The extension of the contract
was not the starting point because such implied new leases only incorporates ri
ghts germane to the enjoyment of the property leased and not any right of first
refusal. Moreover, the action was brought after Bentir had allegedly violated th
e contract when the action for reformation is declaratory relief that can be sou
ght only before any violation can arise.
56
> DISMISSED (1) No cause of action > Action is for Reformation of Contract YET (
i) no allegation that the instrument to the reformed does not express the real a
greement or intention of the parties, moreover, (ii) no allegation of what the r
eal agreement or intention was ~ ESSENTIAL since the object sought in an action
for reformation is to make an instrument conform to the real agreement or intent
ion of the parties; (iii) no right to be asserted by Garcia under the reformed c

ontract ~ alleged registered owner was not a vendor ~ would thus make the sale i
neffective for buying property not belonging to vendor; But wont fraudulent contr
acts favor damages to Garcia? (iv) action should have been for annulment since h
e had been led to enter into the contract of sale through fraud or

> Contract of Lease (May 5, 1968) of the Property of Yolanda Rosello-Bentir to L

eyte Gulf Traders, Inc. for 20y > Upon expiration, Contract of Lease was extende
d for another 4y, until May 31, 1992 > BUT Sale of the Same Property (May 5, 198
9) by Bentir to Sps. Samuel and Charito Pormida, without offer of first refusal
to Leyte > SUIT (May 15, 1992) by Leyte for reformation of instrument, specific
performance, annulment of conditional sale > CONTENTION of Leyte: Right of first
refusal that was verbally agreed upon but inadvertently omitted in the Lease Co
ntract by its lawyer ~ Agreement that in the event Bentir leases or sells the lo
t after the expiration of the lease, Leyte has the right to equal the highest of
fer > REFORMATION NOT GRANTED: (1) Prescription is 10y for Actions based upon a
written contract and for reformation of an instrument (Art. 1144) > Contract of
Lease in 1968 but Suit was on May 15, 1992 > COUNTED FROM execution of contract
of lease AND NOT from the date of the alleged 4y extension of the lease contract
> WHY NOT: Extended pd not an implied new lease because: (i) Art. 1670 on impli
ed new lease (tacita reconduccion) applies only where at the end of the contract
, the lessee continues to enjoy the thing leased with the acquiescence of the le
ssor; (ii) Even if implied new lease, the other terms of the original contract con
templated in said provision are only those terms which are germane to the lessee
s right of continued enjoyment of the property leased; (2) Action for declarato
ry relief must have been sought prior to the breach of contract > an action for
the reformation of an instrument is instituted as a special civil action for dec
laratory relief (Section 1, Rule 64, New Rules of Court) > purpose is to secure
an authoritative statement of the rights and obligations of the parties for thei
r guidance in the enforcement thereof, or compliance therewith, and not to settl
e issues arising from an alleged breach thereof > Bentirs alleged violation of co
ntract had already been committed >> Reformation > principle of equity where, in
order to express the true intention of the contracting parties, an instrument a
lready executed is allowed by law to be reformed when some error or mistake has
been committed > rationale that it would be unjust and unequitable to allow the
enforcement of a written instrument which does not reflect or disclose the real
meeting of the minds of the parties ~ that equity treats as done that which ough
t to be done > Right vs Rule on Evidence where it is necessarily an invasion or
limitation of the parol evidence rule since, when a writing is reformed, the res
ult is that an oral agreement is by court decree made legally effective ~ HENCE,
must be decided sparingly and with great caution and zealous care > Action for
the reformation of an instrument is instituted as a special civil action for dec
laratory relief (Section 1, Rule 64, New Rules of Court) > purpose is to secure
an authoritative statement of the rights and obligations of the parties
for their guidance in the enforcement thereof, or compliance therewith, and not
to settle issues arising from an alleged breach thereof >> Prescription is inten
ded to suppress stale and fraudulent claims arising from transactions which fact
s had become so obscure from the lapse of time or defective memory G.R. No. 1589
01 March 9, 2004 PROCESO QUIROS and LEONARDA VILLEGAS v. MARCELO ARJONA, TERESIT
A BALARBAR, JOSEPHINE ARJONA, and CONCHITA ARJONA Facts: In order to avoid litig
ation where Proceso and Leonarda sought to recover their share in their grandmas
inheritance, their uncle Marcelo agreed to convey to them a parcel of land which
tenant Jose Banda agreed to surrender. The amicable settlements, however, could
not be executed by the Court because the property in the settlement was not dul
y defined. However, such defect did not render the settlements void but merely s
ubject to reformation. The settlements were valid contracts, having a consent, c
ause and object. The object was merely undefined but the same can be corrected b
y reformation and not necessarily thru a new contract especially where Marcelo d
id not deny their right to the inheritance. > Suit for Recovery of ownership and
possession of a parcel of land (December 19, 1996) by Proceso Quiros and Leonar
da Villegas against their uncle Marcelo Arjona covering their lawful share of th
e inheritance from their late grandmother Rosa Arjona Quiros > TWO AMICABLE SETT
LEMENTS (January 5, 1997): (1) Agreement with Marcelo that he was to convey land
consisting of more or less 1 hectare which he inherited from Rosa to Proceso and
Leonarda; (2) Agreement with tenant Jose Banda that he was willing to voluntaril

y surrender to Proceso and Leonarda the land of the Arjona family (in Sitio Torr
od, Brgy. Labney, San Jacinto, Pangasinan) that was entrusted to him > Petition
for Writ of Execution/Enforcement of the Compromise Agreement > DENIED because s
ubject property cannot be determined with certainty > CONTENTIONS of Proceso and
Leonarda: (1) Compromise Agreement is final and executory even without final ju
dgement given that it is not repudiated in 10d; (2) Marcelo accompanied them to
the actual site of the properties at Sitio Torod, Labney, San Jacinto, Pangasina
n and pointed to them the 1 hectare property referred to in the said agreement ~
Denied by Marcelo since he was physically incapacitated and without a vehicle t
o take him there > REFORMATION OF 1st AGREEMENT ALLOWED:
57

(a) Exception of finality of compromise agreements: When facts may have transpir
ed after the finality of judgment which would render the agreements execution unj
ust > Fact was the uncertainty of the object of the 1st agreement WHEN during th
e ocular inspection of the MTC, it found that the land referred to in the 2nd Ag
reement was different from the land being occupied by Proceso and Leonarda > Cou
ld not thus issue execution due to failure to determine with certainty what parc
el of land Marcelo intended to convey; (b) Defect in Agreement can be subject of
REFORMATION and NOT Nullity because the agreements, as amicable setllements, we
re valid contracts > (i) Meeting of minds in obligation by Marcelo to convey 1 h
ectare of land and in acceptance of P,L; (ii) Cause is the delivery of P,Ls share
in the inheritance; (iii) Object is a 1-hectare parcel of land representing P,Ls
inheritance from their deceased grandmother > HENCE, not void because there was
an object but subject to reformation because the failure to describe the subjec
t property need not be corrected in a new contract; (c) Admission by both partie
s of P,Ls right to the inheritance; (d) Unjust enrichment of Marcelo if held othe
rwise >> Finality of Compromise Agreements > Section 416 of the Local Government
Code that an amicable settlement shall have the force and effect of a final jud
gment upon the expiration of 10d from the date thereof, unless repudiated or nul
lified by the proper court > Party-litigants can enter into an agreement in the
barangay level to reduce the deterioration of the quality of justice due to indi
scriminate filing of court cases > EXCEPTIONS (Santos v. Judge Isidro): imperati
ves of substantial justice, or facts that may have transpired after the finality
of judgment which would render its execution unjust ~ Suspension of execution >
> Reformation is a remedy in equity > a written instrument is made or construed
so as to express or conform to the real intention of the parties where some erro
r or mistake has been committed > not making a new contract for the parties, but
establishing and perpetuating the real contract between the parties which, unde
r the technical rules of law, could not be enforced but for such reformation > R
equisites: (1) there must have been a meeting of the minds of the parties to the
contract; (2) the instrument does not express the true intention of the parties
; and (3) the failure of the instrument to express the true intention of the par
ties is due to mistake, fraud, inequitable conduct or accident
BERNARDO, and MAXIMO LACANDALO, ISABEL ATILANO and GREGORIO ATILANO v. LADISLAO
ATILANO and GREGORIO M. ATILANO Facts: Brothers Atilano entered into a deed of s
ale where I sold Lot A to his brother, but Lot A was mistakenly indicated as Lot
E in the contract. Nevertheless, the brothers possessed their respective proper
ties until the vendee brother discovered that what was indicated in the Deed of
Sale was Lot E and the indicated Lot A, which was retained by his brother, was a
ctually Lot E. Because the actual Lot E was bigger than Lot A, which was what th
ey received, the heirs of II demanded the exchange of property. However, because
it was evidently the intention of the brothers to sell Lot A on which vendee br
other even possessed and constructed his house thereon, while I possessed and co
nstructed his house on Lot E, the contract is valid. The mistake in the contract
need not be reformed because the intention of the parties was to sell Lot A but
was merely designated as Lot E. Hence, the parties just need to execute mutual
deeds of conveyance. > Sales of Property (1920), Lot 535 of, Eulogio Atilano I t
o 5 vendees ~ Had the property subdivided, sold Lot 535-E to his brother Eulogio
Atilano II (May 18, 1920), B, C, D to others, and retained A > I and II constru
cted their houses on their respective properties and I even expanded his propert
y by purchasing the adjacent property > Resurvey of Lot 535-E (July 16, 1959) by I
I and his children to end the co-ownership that operated upon the death of IIs wi
fe as heirs of her estate > Discovery that the land designated as E in the Deed
of Sale was actually Lot A and the one designated as Lot A was actually Lot E >
Demand (January 25, 1960) by Heirs of II against Heirs of I to surrender actual
Lot E and exchange it for actual Lot A because the real Lot E was 2,612 sq.m. an
d real Lot A was only 1,808 sq.m. > CONTENTIONS of Heirs of I: Reference in Deed
of Sale to Lot E was involuntary error and the intention of the parties to that
sale was to convey the lot correctly identified as lot No. 535-A > NO REFORMATI
ON: (1) Real intention of I and II in Deed of Sale was to sell Lot A > II had al

ready possessed Lot A prior to the subdivision and sale and had constructed his
residence therein; I had also constructed his house on Lot E after the subdivisi
on and even expanded the property by purchasing the adjoining property > I and I
I continued in possession of the respective portions the rest of their lives, ob
viously ignorant of the initial mistake in the designation of the lot subject >
When one sells or buys real property, one sells or buys the property as he sees
it, in its actual setting and by its physical metes and bounds, and not by the m
ere lot number assigned to it in the certificate of title;
58
G.R. No. L-22487 May 21, 1969 ASUNCION ATILANO, CRISTINA ATILANO, ROSARIO ATILAN
O, assisted by their respective husbands, HILARIO ROMANO, FELIPE

(2) Designation of Lot A as lot No. 535-E in the deed of sale was simple mistake
in the drafting of the document > mistake did not vitiate the consent of the pa
rties, or affect the validity and binding effect of the contract between them; (
3) Not reformation BECAUSE (i) PRESCRIPTION ~ Contract on 1920 but suit only on
1960 ~ lapse of 10y; (ii) real intention was indicated, which is to sell Lot A b
ut mistakenly inputed as E > REMEDY: mere conveyances of properties > parties ha
ve retained possession of their respective properties conformably to the real in
tention of the parties to that sale, and all they should do is to execute mutual
deeds of conveyance Under what circumstances can you Reform? Interpret? > When
to INTERPRET ~ NOT when only one party challenges the contract > When to REFORM
~ When there is error or mistake in the making of the contract (Quiros)! NOT whe
n both parties challenge the contract G.R. No. L-33360 April 25, 1977 MAXIMINO C
ARANTES (Substituted by Engracia Mabanta Carantes) v. COURT OF APPEALS, BILAD CA
RANTES, LAURO CARANTES, EDUARDO CARANTES and MICHAEL TUMPAO Facts: The siblings
of Maximino executed a Deed of Assignment in his favour covering their rights to
Lot No. 44 for P1 and the acknowledgement that their father/owner had considere
d Maximino as the owner of the property. The Deed is valid because it has a cons
ideration as previously stated and the action for its annulment, which was based
on fraud, has already prescribed (4y). > Settlement of the Estate of Mateo Cara
ntes (1933) where his son Maximino (one of six children) was appointed as judici
al administrator > Partition involved Lot No. 44, which was subdivided into Lots
A, B, C, D, and E where A had previously been expropriated by the Government (f
or the construction of the Loakan Airport), while B and C were subsequently sold
to the Government as well by Maximo thru a Formal Deed of Sale by virtue of an
Assignment of Right to Inheritance (October 23, 1939) where 4 of his siblings as
signed their rights to inheritance in Lot No. 44 to Maximino for a consideration
of P1.00 and the declaration that they acknowledge Mateos representation that Ma
ximino is the exclusive, continuous, peaceful and notorious possession of the pr
operty as its rightful and exclusive owner (By agreement of all the direct heirs
and heirs by representation of the deceased Mateo Carantes as expressed and conv
eyed verbally, by him during his lifetime, rightly and exclusively belong to the
particular heir, Maximino Carantes, now and in the past in the exclusive, conti
nuous, peaceful and notorious possession of the same for more than ten years.) ~
Deed registered (March 16, 1940) and New TCTs for B to E issued in Maximinos name
> Meanwhile, D was mortgaged (1948) by Maximino, as his
exclusive property with the Philippine National Bank; and E remained registered
in his name > SUIT (September 4, 1958) for Declaration of Nullity of Deed of Ass
ignment and Partition of Lots D and E into 6, by Maximinos siblings (the same who
executed the Deed of Assignment ~ Bilad, Sianang, Lauro and Crispino but the la
tter by his heirs) > CONTENTIONS of Siblings: (i) Fraud, that they were made to
believe by Maximino that the Deed was only an authorization of the latter to con
vey portions of Lot No. 44 to the Government in their behalf to minimize expense
s and facilitate the transaction ~ That they discovered the assignment only on F
ebruary 18, 1958; (ii) CA Held: Deed is void ab initio and inexistent on the gro
unds that real consent was wanting and the consideration of P1.00 is so shocking
> CONTENTIONS of Maximino: (i) On-its-face Agreement > No other agreement than
what appears in the Deed of Assignment > Deed was an acknowledgment of the fact
of designation of the property as specifically pertaining or belonging by right
of inheritance to the Maximino Carantes ~ assignors knew fully well that the dee
d of assignment contained what, on its face, it represented> There was never any
agreement between the assignors and the assignee authorizing the latter to mere
ly represent his co-heirs in negotiations with the Government ~ Any agreement ot
her than the Deed of Assignment is barred by the statute of frauds and is null a
nd void because not in writing, much less, in a public instrument; (ii) Prescrip
tion ~ that siblings cause was based on a written contract and hence prescription
in 10y ~ Registration on February 21, 1947 as Constructive Notice but Petition
only on September 4, 1958; and (iii) No cause of action because ownership over t
he property became vested in Maximino by acquisitive prescription of 10y from it
s registration in his name on February, 21, 1947; (iv) Siblings Action was for Re

formation and not Declaration of Nullity > BUT not raised in his Answer in the T
rial Court and only raised on Appeal ~ Cannot prosper > VALID DEED (1) There is
consideration > P1 and acknowledgement by the siblings that the decedent Mateo C
arantes had, during his lifetime, expressed to the signatories to the contract t
hat the property subject-matter thereof rightly and exclusively belonged to Maxi
mino > VALUABLE CONSIDERATION (2) Action is to Annul the Deed on the ground of f
raud and thus prescribes in 4y from discovery of fraud > When discovered: Regist
ration of the Deed (March 16, 1940) in the Register of Deeds ~ Constitutes const
ructive notice to the whole world > Prescription on March 16, 1940 ~ Suit filed
on September 4, 1958; (3) Deed not a trust created in favor of siblings > Clear
and Open Repudiation by Maximino of such trust ~ Anathema to concept of a contin
uing and subsisting trust: (i) Formal deed of sale with Government; (ii) Mortgag
e of Lot D with PNB as his exclusive property; (iii) Tax Declarations, Payment a
nd Receipts in
59

the name of Maximino > EVEN IF DEED IS TRUST, an action for reconveyance based o
n implied or constructive trust is prescriptible in 10y from Registration of Dee
d (March 16, 1940) ~ Prescribes March 16, 1950 G.R. No. 133643 June 6, 2002 RITA
SARMING, RUFINO SARMING, MANUEL SARMING, LEONORA VDA. DE LOY, ERLINDA DARMING,
NICANDRA SARMING, MANSUETA SARMING, ARTURO CORSAME, FELY CORSAME, FEDERICO CORSA
ME, ISABELITA CORSAME, NORMA CORSAME, CESAR CORSAME, RUDY CORSAME, ROBERTA CORSA
ME, ARTEMIO CORSAME, ELPIDIO CORSAME, ENRIQUITA CORSAME, and GUADALUPE CORSAME T
AN v. CRESENCIO DY, LUDIVINA DY-CHAN, TRINIDAD FLORES, LUISA FLORES, SATURNINA O
RGANISTA, REMEDIOS ORGANISTA, OFELIA ORGANISTA, LYDIA ORGANISTA, ZOSIMO ORGANIST
A, DOMISIANO FLORES, FLORITA FLORES, EDUARDO FLORES, BENIGNA FLORES, ANGELINA FL
ORES, MARCIAL FLORES, and MARIO FLORES Facts: Although Lot 4163 was registered o
nly in Silverias name, she shared the same with her brother who sold his share to
Delfino. However, the title that Silveria surrendered to Delfino was of anothers
property. Hence, the title to Lot 4163 remained in Silverias name. Nevertheless,
Delfino immediately occupied of Lot 4163 and improved it. When she expanded her
property, she then discovered that her title was to Lot 5743 instead. Hence, sh
e sought the reformation of the deed of sale which was granted because it was pr
oven that the real intention was to really sell Lot 4163 and the designation in
the deed of the subject property as 5743 was erroneous. > Properties of Silveria
Flores: (1) 1/3 of Lot 5734, covered by OCT 4918-A, inherited from her father V
alentina Unto Flores and shared with her brothers Jose and Venancio (2) of Lot 4
163, covered by OCT 3129-A, inherited from her father and shared with Jose but t
he title remains in Silverias name > Settlement of Estate and Sale (January 19, 1
956) between heirs of Jose and Alejandra Delfino over the formers share of Lot 41
63 ~ Silveria declined the offer of sale by the heirs and did not object to sale
to Delfino where in the Conference among Delfino, Venancio and Silveria, Silver
ia declared that she owned half of the lot while the other half belonged to the
vendors and that she was selling her three coconut trees found in the half porti
on offered to Alejandra > Delivery of Title by Silveria BUT NOT of Lot 4163 but
of Lot 5734; Cancellation of OCT 4918-A (Lot 5734) in favor of Delfino and Silve
ria with half share each > Possession and Improvements by Delfino on of Lot 4163
>
Discovery of Erroneous Designation of Lot 4163 as covered by OCT 4918-A in Deed
of Sale by Delfina purchase of the adjoining portion of the lot she had been occ
upying > Silveria promised to turn over the Title of Lot 4163 to Delfino who had
paid the necessary fees but Silveria failed to despite repeated demands > SUIT
(2y later) for reformation of the deed of sale > CONTENTIONS of Silveria: (i) that
she was the sole owner of Lot 4163 as shown by OCT No. 3129-A and consequently,
heirs of Jose had no right to sell the lot; (ii) contract of sale clearly state
d that the property being sold was Lot 5734; (iii) Delfino illegally took posses
sion of one-half of Lot 4163 > REFORMATION OF CONTRACT (1) Valid contract becaus
e: (i) meeting of minds upon sale of Lot 4163; (ii) cause is for delivery of pro
perty; (iii) object was Lot 4163 but mistakenly designated as the one covered by
OCT 4918-A which actually covers Lot 5743; (2) Real intention of heirs of Jose
and Delfino was to sell that portion "Y" of Lot 4163 > Immediately occupied by D
elfino, since 1956 to the present, without objection from Silveria whos son, Mich
ael Corsame, even developed the area of Delfino; Silveria also recognizes the ri
ght of Joses heirs to of the property and hence cannot claim that she is sole own
er; (3) Designation as Lot 5734 in the document of sale was a simple mistake in
the drafting of the document > DID NOT vitiate the consent of the parties or aff
ect the validity and the binding effect of the contract between them >> Requisit
es of Reformation: (1) there must have been a meeting of the minds of the partie
s to the contact; (2) the instrument does not express the true intention of the
parties; and (3) the failure of the instrument to express the true intention of
the parties is due to mistake, fraud, inequitable conduct or accident
G.R. No. L-22962 September 28, 1972 PILAR N. BORROMEO, MARIA B. PUTONG, FEDERICO
V. BORROMEO, JOSE BORROMEO, CONSUELO B. MORALES and CANUTO V. BORROMEO, JR. v.
COURT OF APPEALS and JOSE A. VILLAMOR, (Deceased) Substituted by FELISA VILLAMOR

, ROSARIO V. LIAO LAMCO, MANUEL VILLAMOR, AMPARO V. COTTON, MIGUEL VILLAMOR and
CARMENCITA VILLAMOR Facts: In promising to pay his friend even beyond 10y and wa
iving his right to prescription of action, Villamor did not intend to renounce h
is right but merely to be considerate to his creditor in allowing him to collect
for a long time because they are good friends.
60

> Jose A. Villamor, as distributor of the lumber of Mr. Miller (agent of Insular
Lumber Company), often borrowed money from friend Canuto A. Borromeo > 1933, he
borrowed a large sum and mortgaged his land and house in favor of Borromeo to p
ay off his debts to Miller who had filed a civil suit against him and even attac
hed his property, including the mortgaged house and lot because the mortgage was
not registered for not being properly drawn up > Borromeo thus demanded payment
of his loans but Villamor instead issued a promissory note (November 29, 1933)
worth the total of P7220 with annual interest of 12% payable as soon as he has m
oney and effective even beyond 10y where he waived his rights to prescriptions f
or the collection/recovery of the money ~ hereby relinquish, renounce, or otherwi
se waive my rights to the prescriptions established by our Code of Civil Procedu
re for the collection or recovery of the above sum of P7,220.00. ... at any time
even after the lapse of ten years from the date of this instrument. > Suit for c
ollection (January 7, 1953) by Borromeo due to Villamors failure to pay despite r
epeated oral demands and kindness not to sue because no property was registered
to Villamors name anyway > RTC Granted but CA Reversed since the waiver of prescr
iption was void due to lack of legal basis and the principle that a person canno
t renounce future prescription > NOT A RENUNCIATION BUT INTENDED AS SUSPENSION:
(1) 10y waiver was intended only as waiver to act within the 10y period > Debtor
Villamor was only being excessively considerate to his creditor and creditor Bo
rromeo was more than willing to give him the utmost latitude as to when his scan
tly resources will allow him to pay ~ Due to their friendship that the debtor co
uld be trusted to pay even after the termination of the 10y prescriptive period;
(2) Prescription of 10y begins after November 29, 1943 to November 29, 1953 and
Suit was filed on January 7, 1953; (3) Even if the waiver clause was invalid, t
he clause did not invalidate the whole contract > Kasilag v. Rodriguez that the
terms, clauses and conditions contrary to law, morals and public order should be
separated from the valid and legal contract when such separation can be made be
cause they are independent of the valid contract which expresses the will of the
contracting parties > When is it appropriate to interpret > Ambiguity ~ Languag
e is capable of more than one reasonable interpretation > Guide ~ Intention of t
he parties G.R. No. 46623 December 7, 1939 MARCIAL KASILAG v. RAFAELA RODRIGUEZ,
URBANO ROQUE, SEVERO MAPILISAN and IGNACIO DEL ROSARIO
Facts: The contract of loan and mortgage between Kasilag and Emiliana were not o
f sale because their intention was merely to secure the loan with the mortgage w
ith the condition that failure to pay the mortgage would give rise to the obliga
tion to execute a deed of sale. > Contracts between Emiliana Ambrosio and Marcia
l Kasilag (1) Contract of Loan worth P1k, Creditor Marcial, Debtor Emiliana; (2)
Contract of Mortgage (May 16, 1932) to secure the loan, over the improvements o
f Emilianas property (acquired as homestead, June 11, 1931), consisting of mango,
bamboo, tamarind and bonga fruit-bearing trees; CONDITIONS FOR EMILIANA: (i) Pa
yment of all taxes on the land and improvements; (ii) Payment of P1k with annual
12% by November 16, 1936 to end the mortgage; (iii) Otherwise, Continuation of
Mortgage subject to foreclosure and Execution of Deed of Absolute Sale of Proper
ty upon failure to redeem property for the same amount of P1k + interests > Emil
ianas Failure to pay (1933) > Verbal Contract where Emiliana conveyed to Marcial
the possession of the land on condition that the latter would not collect the in
terest on the loan, would attend to the payment of the land tax, would benefit b
y the fruits of the land, and would introduce improvements thereon > SUIT by Hei
rs of Emiliana for possession of the land > INVALID POSSESSION BY MARCIAL OF THE
PROPERTY (1) Contract was not of sale but of Loan and Mortgage > Intention of t
he contracting parties is to enter into the principal contract of loan in the am
ount of P1k with annual interest at 12%, and into the accessory contract of mort
gage of the improvements on the land > Intention should always prevail over lett
er because their will has the force of law between them; and although there was
a verbal agreement to possess the property (2) Verbal agreement for possession of
property was a Contract of Antichresis that is invalid where pacts made by the
parties independently of the mortgage but alters the same converts the latter in
to a contract of antichresis (Art. 1881) that is void because it is a real encum

brance burdening the land > NEVERTHELESS, LOAN/MORTGAGE VALID because terms, cla
uses and conditions contrary to law, morals and public order should be separated
from the valid and legal contract and when such separation can be made because
they are independent of the valid contract which expresses the will of the contr
acting parties; (3) Marcial possessor of property in good faith > excusable igno
rance of the law since he is not conversant with the laws because he is not a la
wyer ~ consented to receive the fruits but did not know, as clearly as a jurist
does, that the possession and enjoyment of the fruits are attributes of the cont
ract of antichresis and that the latter, as a lien, was prohibited by section 11
6, Act No. 2874
61

G.R. No. 93625 November 8, 1993 VICENTE J. SANTI v. HON. COURT OF APPEALS, HEIRS
OF AUGUSTO A. REYES, JR., represented by ALEXANDER REYES Facts: The new lease c
ontract entered into by Esperanza with new lessee Santi did not provide for the
automatic extension of the lease. The change of language from the first lease to
sps. Francisco, providing that the lease shall be automatically extended, to Sant
is, providing extendable, manifests the intention of Esperanza to reserve the optio
n to think about whether or not extending it. > Contract of lease (April 1, 1962
) between Esperanza Jose and Augusto A. Reyes, Jr. over the formers property whic
h sps. Eugenio Vitan and Beatriz Francisco had leased and constructed a cinema t
hereon but subsequently sold to Augusto ~ Effective 20y for P180/m and extendabl
e for another 20y but rent increase to P220/m > Sale and Transfer of Esperanzas r
ights over the land to Vicente J. Santi with new TCT issued February 23, 1982 >
Expiration of Lease > Demand by Santi for peaceful turn-over of possession to re
presentative of Reyes, who had died > Refusal of Reyes rep because of extension o
f lease, Tender of Payment of rents to Clerk of Court > SUIT by Santi for ejectm
ent > CONTENTION of Santi: extendable as capable of being extended and requires a
subsequent agreement > CONTENTION of Reyes: automatic extension based on contrac
t of lease with sps. Francisco that stipulates that 20y pd shall be automaticall
y extended for another 20y but with increase of rent > NO AUTOMATIC EXTENSION: C
lause automatically extended in Sps. Franciscos contract did not appear and was not
used in the subsequent lease contract with Reyes > intention was not to automat
ically extend the lease contract but to give Esperanza the time to ponder and th
ink whether to extend the lease > OTHERWISE, parties could have easily provided
for a straight 40y contract instead of 20y > IMPLIED LEASE in Continued possessi
on of Reyes even after the expiration of lease ~ created an implied lease during
that period > HENCE, payment of P220/m for such period and not P1k/m as determi
ned by RTC > Art. 1670: If at the end of the contract the lessee should continue
enjoying the thing leased for fifteen days with the acquiescence of the lessor,
and unless a notice to the contrary by either party has previously been given,
it is understood that there is an implied new lease, not for the period of the o
riginal contract, but
for the time established in Articles 1682 and 1687. The other terms of the origi
nal contract shall be revived. > Art. 1687: If the period for the lease has not
been fixed, it is understood to be from year to year, if the rent agreed upon is
annual; from month to month, if it is monthly; from week to week, if the rent i
s weekly; and from day to day, if the rent is to be paid daily. However, even th
ough a monthly rent is paid, and no period for the lease has been set, the court
s may fix a longer term for the lease after the lessee has occupied the premises
for over one year. If the rent is weekly, the courts may likewise determine a l
onger period after the lessee has been in possession for over six months. In cas
e of daily rent, the courts may also fix a longer period after the lessee has st
ayed in the place for over one month. > Automatically extended in first contract
; Extendable only in the second > Guide in choosing one interpretation over the
other ~ Contemporaneous and subsequent acts of the parties G.R. No. 109680 July
14, 1995 DIEGO RAPANUT v. THE COURT OF APPEALS and SUSAN FLUNKER Facts: The mont
hly payment of P500 by Rapanut applies to the principal debt and not to the inte
rest. > Deed of Conditional Sale with Mortgage (November 29, 1985) where Susan F
lunker sold her land to Diego Rapanut for P42,840 payable in installments but wi
th annual interest of 10% on the remaining balance until the full amount is paid
> Supplemental Agreement (April 1986), decreasing price to P37,485 payable in mo
nthly installments of P500 with an annual interest of 10% on the remaining balan
ce until the full amount is paid and with added condition that failure to pay any
monthly installments when due for 3m shall be sufficient cause for rescission >
Payment by Rapanut of total P24,500 (P500/m from January 1986 to January 1990)
> Rescission of Deed (Notice on February 13, 1990, SUIT on March 14, 1990) due t
o failure to pay annual interest on the balance > CONTENTION of Susan: 10% inter
est should be paid every year and hence, payments made by Rapanut applies not to
purchase price but to unpaid accrued annual interest pursuant to Art. 1253 that
if the debt produces interest, payment of the principal shall not be deemed to

have been made until the interests have been covered ~ Two kinds of payment, for
principal and for interest and payments made is for interest because they had n
ot been paid yet and thus cannot apply to principal > CONTENTION of Rapanut: Pay
ment of P500/m already includes principal and interest > INTENT OF THE PARTIES I
S TO APPLY P500/m TO PRINCIPAL
62

(1) Deed of Conditional Sale categorically provided for date of monthly payment
(not later than the 5th/m) while Supplemental Agreement provided for monthly pay
ment of P500 with an interest of 10% per annum on the remaining balance until th
e full amount is paid > INTERPRETATION: at the end of each year, all the install
ment payments made shall be deducted from the principal obligation and 10% inter
est on the balance is then added to whatever remains of the principal > INTENTIO
N is to pay the monthly installments at predetermined dates, until the full amou
nt, consisting of the purchase price and the interests on the balance, is paid ~
P500 for principal and ANNUAL INTEREST is added to balance of debt and not to b
e paid separately (2) EVEN IF APPLIED TO INTEREST, Silence of Susan on 10% inter
est for all 4y that Rapanut had been paying her P500/m ~ Non-exercise of right t
o rescind after Rapanut had allegedly failed to pay the monthly installments (be
cause payment had been credited to interest) ~ Waiver of right and estoppels in
not rescinding and in accepting subsequent installments; (3) Susans duty to infor
m the debtor of the amount of interest that falls due and that he is applying th
e installment payments to coc ver said interest (Art. 1253) G.R. No. 114323 July
23, 1998 OIL AND NATURAL GAS COMMISSION v. COURT OF APPEALS and PACIFIC CEMENT
COMPANY, INC. Facts: The agreement between ONG and PCC provided that disputes ar
ising from the contract are to be submitted to the arbitrator, under Clause 16.
When PCC failed to deliver the cement to ONG in India and when the replacement c
ement delivered by PCC did not conform to the specifications of ONG, the issue w
as submitted to the arbitrator who ruled in favor of ONG and which decision was
ratified by the Court, which did not accept the objections of PCC for its failur
e to pay the filing fees despite demand. PCC challenged the jurisdiction of the
arbitrator and the validity of the foreign judgments but both of which were vali
d. The arbitrator acquired jurisdiction over the dispute because the issue thus
submitted was not the non-delivery of the cement which it cannot decide (because
Clause 16 limits jurisdiction to technical aspects of the contract only) but th
e non-conformity of the replacement cement to the negotiated agreement which was
well within its jurisdiction because it relates to the technical aspect of the
contract. Judgment of Court of India was also valid. > Contract (February 26, 19
83) between Pacific Cement Company, Inc. and Oil and Natural Gas Commission (for
eign corp., India) where PCC would supply ONG 4300 metric tons of oil well cemen
t, for $477,300 payable thru an irrevocable, divisible, and confirmed letter of
credit in PCCs favor ~ Paid but not delivered to Bombay and Calcutta because ship
owner had a dispute with
PCC and thus, cargo was held up in Bangkok > Negotiations where PCC would delive
r a Class G cement, cost free ~ Delivered but did not conform to the specification
s of ONG > Arbitrator (appointed by ONGs Commission as provided in Clause 16) rul
ed on the matter of non-delivery of cement and nonconformity of replacement in f
avor of ONG (July 23, 1988) and ordered the refund and payment of expenses incur
red, totaling $899,603.77+ interest ~ Ratified by Indian Court (February 7, 1990
) after denying objections sent by PCC due to its failure to pay the filing fees
allegedly because the letter (May 18, 1989) demanding payment of fees did not s
pecify the amount needed > Refusal of PCC to pay > SUIT by ONG for enforcement o
f the foreign judgment > CONTENTION of PCC: Arbitrator had no jurisdiction since
the dispute over the non-delivery of cement cargo should have been settled thru
litigation and not arbitration under Clause 16 > ARBITRATOR HAS NO JURISDICTION
FOR NON-DELIVERY OF 4300 TONS CEMENT BUT WITH JURISDICTION IN FAILURE OF THE RE
PLACEMENT CEMENT TO CONFORM TO THE SPECS OF THE CONTRACT CLAUSE 16: Except where
otherwise provided in the supply order/contract all questions and disputes, rel
ating to the meaning of the specification designs, drawings and instructions her
ein before mentioned and as to quality of workmanship of the items ordered or as
to any other question, claim, right or thing whatsoever, in any way arising out
of or relating to the supply order/contract design, drawing, specification, ins
truction or these conditions or otherwise concerning the materials or the execut
ion or failure to execute the same during stipulated/extended period or after th
e completion/abandonment thereof shall be referred to the sole arbitration of th
e persons appointed by Member of the Commission at the time of dispute. It will

be no objection to any such appointment that the arbitrator so appointed is a Co

mmission employer (sic) that he had to deal with the matter to which the supply
or contract relates and that in the course of his duties as Commission s employe
e he had expressed views on all or any of the matter in dispute or difference. T
he arbitrator to whom the matter is originally referred being transferred or vac
ating his office or being unable to act for any reason the Member of the Commiss
ion shall appoint another person to act as arbitrator in accordance with the ter
ms of the contract/supply order. Such person shall be entitled to proceed with r
eference from the stage at which it was left by his predecessor. Subject as afor
esaid the provisions of the Arbitration Act, 1940, or any Statutory modification
or re-enactment there of and the rules made there under and for the time being
in force shall apply to the arbitration proceedings under this clause.
63

The arbitrator may with the consent of parties enlarge the time, from time to ti
me, to make and publish the award. The venue for arbitration shall be at Dehra d
un. (1) Jurisdiction only for: (a) all questions and disputes, relating to the m
eaning of the specification designs, drawings and instructions herein before men
tioned and as to quality of workmanship of the items ordered; or (b) any other q
uestion, claim, right or thing whatsoever, in any way arising out of or relating
to the supply order/contract design, drawing, specification, instruction or the
se conditions; or (c) otherwise concerning the materials or the execution or fai
lure to execute the same during stipulated/extended period or after the completi
on/abandonment thereof. > ONG misquoted CLAUSE 16 by inserting a comma between su
pply order/contact and design when there is actually none > the same in (c) third cla
use refers to supply order/order contract as referred to in the preceding words ~
limited only to the design, drawing, instructions, specifications or quality of
the materials of the supply order/contract > Except where otherwise provided in t
he supply order/contract provides that the jurisdiction of arbitrator is not allencompassing > SO, intention of the parties was that any claim, right or thing w
hatsoever that maybe arbitrated must arise out of purely technical aspects or re
late to the design, drawing, specification, or instruction of the supply order/c
ontract > OTHERWISE, CLAUSE 15 and Except would be useless > HENCE, non-delivery o
f cement does not arise out of failure to execute the supply order/contract desi
gn, drawing, instructions, specifications or quality of the materials BUT UNDER
CLAUSE 15 (2) Dispute of non-delivery should have been brought to trial court ac
cording to CLAUSE 15: All questions, disputes and differences, arising under out
of or in connection with this supply order, shall be subject to the exclusive j
urisdiction of the court, within the local limits of whose jurisdiction and the
place from which this supply order is situated. > JURISDICTION OF ARBITRATOR IN
FAILURE OF THE REPLACEMENT CEMENT TO CONFORM TO THE SPECS OF THE CONTRACT > rela
tes to the technical aspect of the contract > VALID ARBITRATION BECAUSE it was o
nly after the non-conformity was the matter brought before the arbitrator ~ arbi
tration not just non-delivery of the cargo at
the first instance but also the failure of the replacement cargo to conform to t
he specifications of the contract ~ clearly within the coverage of Clause 16 >>
Doctrine of noscitur a sociis > where a particular word or phrase is ambiguous i
n itself or is equally susceptible of various meanings, its correct construction
may be made clear and specific by considering the company of the words in which
it is found or with which it is associated ~ its obscurity or doubt may be revi
ewed by reference to associated words > WHY: provisions of a contract should not
be read in isolation from the rest of the instrument but, on the contrary, inte
rpreted in the light of the other related provisions BECAUSE it was enacted as a
n integrated measure and not as a hodge-podge of conflicting provisions > HENCE,
apparently inconsistent provisions should be reconciled whenever possible as pa
rts of a coordinated and harmonious whole > What if theres a total waiver of cour
t action? G.R. No. 136423 August 20, 2002 SPOUSES EFREN N. RIGOR and ZOSIMA D. R
IGOR, for themselves and as owners of CHIARA CONSTRUCTION v. CONSOLIDATED ORIX L
EASING and FINANCE CORPORATION Facts: To secure the loan by COLFC, sps. Rigor is
sued a promissory note and a mortgage in its favor. When they defaulted, COLFC i
nitiated foreclosure proceedings on the mortgage in Dagupan City. Sps. Rigor con
tended that Dagupan is an improper venue for the litigation because the Note exc
lusively makes Makati City as the venue. However, COLFC argued that the venue in
the Note had been modified by the Mortgage which allows the parties to file in
Dagupan City. As an accessory obligation of the principal contract of loan, the
mortgage should be construed together with the principal contract of the Note wh
ich it depends for existence. Hence, in order to reconcile the contrasting provi
sions, the Mortgage is deemed to have modified the Note especially considering t
hat COLFC opened a branch office in Dagupan and thus had the venue changed in th
e Mortgage but forgetting the Note. Also, Dagupan is the more convenient venue f
or the parties which is the primary consideration in the rules of venue. > Loan
worth P1,630,320, granted by Consolidated Orix Leasing and Finance Corporation,
in favor of sps. Efren and Zosima Rigor, was secured by: (a) Promissory Note (Ju

ly 31, 1996); (b) Deed of Chattel Mortgage over two dump trucks > Failure to Pay
several installments despite demand > SUIT for Replevin (January 5, 1998) by CO
LFC to foreclose the chattel mortgage in RTC Dagupan, following the stipulation
of venue according to Deed of Chattel Mortgage which modified the venue stipulat
ion in Promissory Note > Motion to
64

Dismiss by sps. Rigor ~ CONTENTION: Improper Venue ~ (i) should have been filed
in Makati City as provided in the promissory note ~ note was the principal contr
act being sued upon and not the Deed of Chattel Mortgage; (ii) notes terms was ex
clusive and restrictive, with shall only; (iii) Art. 1374 applies only to conflict
ing provisions in one and the same contract and not to those found in two distin
ct and entirely separate contracts such as in the instant case Promissory Note: I
t expressly (sic) agreed that all legal actions arising out of this note or in c
onnection with the chattels subject hereof shall only be brought in or submitted
to the proper court in Makati City, Philippines. Deed of Chattel Mortgage: VENUE.
The payment herein mentioned whether covered by notes or not, are payable at th
e office address of the MORTGAGEE or its assignee and in case of litigation aris
ing out of the transaction that gave rise to this contract, complete jurisdictio
n is given the proper court of the city of Makati or any proper court within the
province of Rizal, or any court in the city, or province where the holder/mortg
agee has a branch office, waiving for this purpose any proper venue. > PROPER VEN
UE IN DAGUPAN CITY (1) Promissory Note to be construed with Deed of Chattel Mort
gage > Mortgage was an accessory contract to the principal loan obligation in th
e Note ~ MEANING, Mortgage cannot exist as an independent contract since its con
sideration is the same as that of the principal contract (Note) ~ Note indispens
able to Mortgage > HENCE, accessory contract must be read in its entirety and to
gether with the principal contract between the parties (National Power Corporati
on vs. Court of Appeals) according to "complementary contracts construed togethe
r" doctrine (Velasquez vs. Court of Appeals); (2) Older Note was modified by sub
sequent Mortgage > Although shall only be in Makati in Note is mandatory and restr
ictive, the stipulation has been modified by the subsequent Mortgage to provide
alternative venues ~ WHY: COLFC subsequently opened a branch office in Dagupan C
ity and thus made corrections in the Mortgage regarding the venue but failed to
correct the Note > Absent contest by sps. Rigor on the validity of the Mortgage
was a ratification of the authenticity and due execution of the Mortgage; (3) Ru
les on Venue are intended for the convenience of the plaintiff and his witnesses
and to promote the ends of justice > Dagupan City is the more convenient than M
akati ~ COLFC has a branch in Dagupan and sps. Rigor lives in nearby Tarlac ~ In
sistence on Makati is only a dilatory tactic to evade or at the very least, prol
ong the payment of a just obligation ~ 4y already
(4) Other causes of action in Dagupan: Loan and Mortgage were negotiated and con
cluded by the parties in Dagupan City, mortgaged vehicles were seized in Dagupan
City >> General Rule on Venue > all personal actions may be commenced and tried
where the plaintiff or any of the principal plaintiffs resides, or where the de
fendant or any of the principal defendants resides, at the election of the plain
tiff > May be changed or transferred by written agreement of the parties > WRONG
DECISION! Promissory Note should have stood on its own and not construed togeth
er with Mortgae G.R. No. 119255 April 9, 2003 TOMAS K. CHUA v. COURT OF APPEALS
and ENCARNACION VALDES-CHOY Facts: Choy agreed to sell her house and lot to Chua
but only upon payment of the purchase price. The intention to retain ownership
until full payment is evident in the reserved right to forfeit the earnest money
paid in case of default which necessarily means that she still has the right of
ownership of property and the right to resell the same. This option she validly
invoked because the documents that were to be in proper order for her to rescin
d were already willing. Customarily, documents of ownership are TCT, deed of abs
olute sale, tax declaration and realty tax receipt. It does not include the capi
tal tax gains as required by Chua because the same cannot be paid by the seller
without the deed of sale which she was unwilling to deliver until payment. Also,
the condition of issuance of title before payment is not customary in sales bec
ause what is normally done is to deposit the payment in escrow pending the issua
nce. > Payments and Documents: (1) Agreement (June 30, 1989) between Tomas K. Ch
ua and Encarnacion Valdes-Choy to sell the latters house and lot for P10.8M, paya
ble in cash ~ Evidenced by RECEIPT for P100k check paid as earnest money, to be
foreited in case of failure to pay the balance by July 15, 1989 provided that all
papers are in proper order (2) Deeds of Absolute Sale (July 13, 1989) covering t

he house and lot, for P8M and its furnishings, fixtures and movable properties f
or P2.8M (3) Payment of P485k managers check, in favor of BIR, given to Choy as a
dvance so that she can pay the capital gains tax, evidenced by a RECEIPT showing
the balance as P10,215,000 > Non-Payment of balance by Chua (July 14, 1989) ~ M
erely showed a managers check of P10,215,000 BUT demanded the issuance of a TCT i
n his name before he would pay > Rescission of Contract by Choy because the TCT
65

was not part of the agreement, tearing up the Deeds of Sale > Stop Payment Order
by Chua on the P485k managers check ~ honored nonetheless because he subsequentl
y verbally advised the bank that he was lifting the stop-payment order due to hi
s "special arrangement" with the bank > (July 15, 1989) Suggestion by Choy for C
hua to deposit in escrow the P10,215,000 balance where she would still cause the
issuance of a new TCT in the name of Chua even without receiving the balance of
the purchase price > SUIT (July 17, 1989) by Chua for specific performance > CH
OYS RIGHT TO FORFEIT THE EARNEST MONEY (a) Contract to Sell > Ownership is retain
ed by Choy until full payment of the purchase price ~ seller the right to rescin
d unilaterally the contract the moment the buyer fails to pay within a fixed per
iod > Evidenced by (i) Receipt that the earnest money shall be forfeited in case
the buyer fails to pay the balance of the purchase price on or before 15 July 1
989 ~ Meaning that Choy can sell the Property to other interested parties; (ii)
Deeds of Sale was issued later only because she was under the impression that Ch
ua was about to pay the balance of the purchase price; (iii) Possession of the c
ertificate of title and all other documents relative to the sale; (b) Stipulatio
n that forfeiture can apply provided that all papers are in proper order was satis
fied > Choys failure to show that the capital gains tax had been paid after he ha
d advanced the money for its payment is irrelevant > Papers in proper order CUST
OMARILY refer to (1) owner s duplicate copy of the Torrens title; (2) signed dee
d of absolute sale; (3) tax declaration; and (3) latest realty tax receipt ~ All
of which Choy was willing to deliver > CANNOT INCLUDE capital tax gains because
the assessment of such requires the Deeds of Sale themselves and it requires th
at the seller himself pay it ~ Already executed by Choy but not willing to relea
se until payment which Chua refused to do because of non-payment of capital gain
s tax > and hence, she cannot comply with capital tax payment > HENCE, Chua had
no reason to not pay; (c) New condition by Chua to have TCT first before payment
is not considered part of the omissions of stipulations which are ordinarily est
ablished as requistes for ownership by usage or custom > customary is to deposit
in escrow the balance of the purchase price pending the issuance of a new certif
icate of title in the name of the buyer G.R. No. 133107 March 25, 1999 RIZAL COM
MERCIAL BANKING CORPORATION v. COURT OF APPEALS and FELIPE LUSTRE Facts: Lustre
purchased a car from Toyota and in order to secure the payment, he executed a ch
attel mortgage over the purchased Corola in favour of Toyota.
The contract of mortgage provided for an acceleration clause in case of failure
to pay. Hence, when Lustre issued an unsigned check, RCBC (assignee of Toyotas ri
ghts) invoked the acceleration clause and demanded payment of the entire balance
. The RTC and CA construed the clause against RCBC because the contract was a co
ntract of adhesion and must be construed against the author. However, Art. 1377
need not apply because the contract was clear and without ambiguity. Thus applyi
ng the terms, the unsigned check was not delay in payment because the same must
be with malice. Moreover, the same check was accepted by RCBC without objection
and even debited the amount against Lustres account. It was only 1y later when it
recredited it. RCBC also accepted subsequent checks and it was only thereafter
that it refused to accept the last two payments. > Promissory Note and Contract
of Chattel Mortgage (March 10, 1993) by Atty. Felipe Lustre in favour of Toyota
Shaw, Inc. for purchase of Corolla ~ Corolla mortgaged and contract provided for
an acceleration clause (par. 11) stating that should the mortgagor default in t
he payment of any installment, the whole amount remaining unpaid shall become du
e > Payment by Lustre of 24 Postdated Checks, worth P14,976 each ~ debited again
st his account by Rizal Commercial Banking Corporation who was assigned all the
rights and interests of Toyota in the chattel mortgage (March 14, 1991) > Debit
even of Unsigned Check (for August 10, 1991) ~ Later recalled and re-credited to
Lustres account and Last two checks (for February 10, 1993 and March 10, 1993) w
ere no longer presented for payment (pursuant Bank s procedure that once a clien
t s account was forwarded to its account representative, all remaining checks ou
tstanding as of the date the account was forwarded were no longer presented for
patent > Demand by RCBC (January 21, 1993) for payment of the balance of the deb
t ~ invoking par. 11, interpreting unsigned check as failure to pay > SUIT by RC

BC for replevin and damages > Art. 1377 NOT APPLICABLE, as applied by RTC and CA
> Chattel Mortgage was a Contract of Adhesion but its terms were not ambigious
> Hence, literal meaning applies > Par. 11. In case the MORTGAGOR fails to pay a
ny of the installments, or to pay the interest that may be due as provided in th
e said promissory note, the whole amount remaining unpaid therein shall immediat
ely become due and payable and the mortgage on the property (ies) herein-above d
escribed may be foreclosed by the MORTGAGEE, or the MORTGAGEE may take any other
legal action to enforce collection of the obligation hereby secured, and in eit
her case the MORTGAGOR further agrees to pay the MORTGAGEE an additional sum of
25% of the principal due and unpaid, as liquidated damages, which said sum shall
become part thereof. The MORTGAGOR hereby waives reimbursement of the amount he
retofore paid by him/it to the MORTGAGEE. > BUT NO DELAY IN PAYMENT in unsigned
66

check, which was alleged to not been encashed and hence not paid > Delay in the
performance of the obligation MUST BE either malicious or negligent: (i) no proo
f that Lustre acted with malice or negligence in failing to sign the check; (ii)
Toyota salespersons testimony that Lustre signed the check and the down payments
were deemed completed and hence the car was released; (iii) nonobjection by RCB
C of the unsigned check where it actually (a) debited the value of the unsigned
check from Lustres account and recredited it only 1y later to him and (b) encashe
d checks subsequently dated, then abruptly refused to encash the last two >> Art
. 1377: The interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity. >> Contracts of adhesion ~ VOID on
ly when the weaker party is imposed upon in dealing with the dominant bargaining
party and is reduced to the alternative of taking it or leaving it ~ VALID when
one who adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent > Ambiguities in a contract of adhesion are to be
construed against the party that prepared the same ONLY IF the stipulations in
such contract are obscure or ambiguous BUT NOT IF the terms thereof are clear an
d leave no doubt upon the intention of the contracting parties ~ literal meaning
shall control G.R. Nos. 85962-63 August 3, 1992 ROSARIO GACOS, ARNULFO PRIETO,
and RENITA PRIETO v. COURT OF APPEALS, SOLOMON BRIONES, LEONOR BRIONES and TEODU
LFO MENDONES Facts: Petrona sold a portion of her inherited property to Marcial
but the Contract of Sale indicated a larger measurement. Marcial subsequently me
asure the correct size and declared the same in his Tax Declaration. However, wh
en he sold the same property to Rosario, the Contract indicated a bigger but dif
ferent size. Hence, when the heirs of Petrona sold her remaining property to Men
dones and partitioned the estate of Petrona which adjudicated to them the proper
ty inherited by their mother, minus the portion sold to Marcial. The Contract of
Sale with Marcial was construed to transfer the least rights because the proper
ty sold was indicated by boundaries and the size stipulated turned out erroneous
. > Two Faiths of the Property of Petrona Gacos ORIGIN: > From father Eladio Gac
os > Adjudicated his 6,854 sq.m. property to his 3 daughters ~ Immediate Possess
ion by Petrona Gacos of her 1/3 share (2,242 sq.m.) > Agreement of Partition of
Real Property (May 14, 1950) among Lucia and heirs of 2 sisters, formally confir
ming what was apportioned to them by
their father as their respective shares in the 6,854 sqm. Land ~ Petrona, 2,242
square meters; Lucia, 2,148 square meters; and Fortunata, 2,194 square meters BU
T PRIOR TO CONFIRMATION OF SIZE... (1) Contract of Sale (March 13, 1948) by Patr
ona in favour of son-in-law Marcial Olaybal, of a portion of her inherited prope
rty (866 sq.m. from 2,242 sq.m.) BUT alleged to be an entire 2,720 sq.m. in the
Contract BUT measured and declared by Marcial as 866 sq.m in his Tax Declaration
(a) Deed of Absolute Sale (December 30, 1950) by Marcial in favour of Encarnaci
on Gacos, covering the parcel of land he bought from Petrona but indicated 2,025
sq.m. instead of 866 sq.m. that he declared in the Tax Declaration ~ Possession
by Rosario Gacos, sister of Encarnacio who was named as vendee and owner in Tax
Declaration > Ratification of Ownership of Realty (April 4, 1967) by Rosario, c
onsolidating her 4 properties (including purchased property from Marcial) into 1
parcel of land (b) Sale (October 24, 1973) by Rosario of her land to nephew Arn
ulfo Prieto ~ Possession and Ownership in Tax Declaration > Lease (March 14, 197
5) by Arnulfo to sister Vivencia Prieto for 15y (2) Sale (February 22, 1949) bet
ween Lucia and Teodolfo Mendones of 84 sq.m. of Petronas share ~ PURSUANT TO Inst
ruction by Petrona to sister Lucia, administrator of her remaining property, to
sell the 84 sq.m. of her property (in the east) for her funeral expenses and nov
ena (a) Deed of Extra-judicial Settlement (August 1, 1975) by heirs of Petrona,
adjudicating onto themselves the 2,242 sq.m. share of their mothers inheritance A
FTER aunt Lucia informed them that a portion of the land had been sold to Gacos
and that a ricemill had been constructed on the land > SUIT (September 1, 1975)
by heirs of Petrona against Gacos for recovery of 1,352 sq.m., alleged to be the
remnant of the 2,242 sq.m. because only 866 sq.m. was sold to Marcial Olaybal >
CONTENTION of Gacos: Sale was entire share of 2,780 sq.m. and hence, no remnant
of 1,352 to speak of > SUIT (June 1, 1976) by sps. Arnulfo Prieto and Renita Ch

ua Prieto against Teodolfo Mendones and Visitacion Borrega and sps. Jesus and Me
rced Gabitos for recovery of the 84 sq.m. property of Petrona which was fraudule
ntly sold to Mendones by Petronas sister Lucia
> PROPERTY SOLD TO MARCIAL ONLY 866 sq.m. NOT ENTIRE 2,242 sq.m. SHARE OF PETRON
A
67

(1) Contract of Sale (March 18, 1948) between Petrona and Marcial indicated 2,72
0 sq.m with bounderies as that the subject property is bounded on the North and W
est by the land of the late Eladio Gacos and other heirs abovementioned, togethe
r with the widow of the late Severo Gacos, Mrs. Angela Vda. de Gacos, on the Eas
t by National Road Irosin-Juban-Bulan, and on the South, irrigation canal, and b
eyond the heirs abovementioned. ~ Cannot be construed as a lump sale because the
given boundaries do not coincide with the boundaries declared in (i) the Tax Dec
laration of Marcial (866 sq.m.) and in the sketch plan and filed sheet attached
thereto, as testified by Marcial himself and as pointed out by him when he encir
cled the property in the sketch plan made by the Geodetic Engineer; (ii) the Par
tition of Eladios property as Petronas share (2,242 sq.m.); (iii) the Deed of Abso
lute Sale by Marcial to Rosario (2,025 sq.m.) where the property indicated was b
ounded on the west by the Heirs of Petrona Gacos (2) Construction of a Fence by Ma
rcial to separate the property he bought from that of Petronas; (3) Possession by
Petrona, her 4 minor children and sister Lucia on the remaining property; (4) I
nstruction by Petrona to Lucia to sell her remaining property (5) 27y possession
by Prietos did not give a prescriptive right because the possession must be und
er a claim of title or must have been adverse > Rosario Gacos knew and recognize
d the sale on February 22, 1949 by Lucia to Teodolfo Mendones of the eastern por
tion of the hereditary estate of Petrona ~ Mendones is mentioned as the boundary
owner on the south; (6) Non-objection of the construction by sps. Gabito of a r
esidential house on the 84 sq.m. purchased property >> Possession as prescriptiv
e right must be possession under claim of title (en concepto de dueno) or it mus
t be adverse > mere tolerance of the owner are clearly not "en concepto de dueno
," and such possessory acts, no matter how long so continued, do not start the r
unning of the period of prescription
68

G.R. No. L-29155 May 13, 1970 UNIVERSAL FOOD CORPORATION v. THE COURT OF APPEALS
, MAGDALO V. FRANCISCO, SR., and VICTORIANO N. FRANCISCO Facts: The inventor and
registered owner of Mafran Sauce, Magdalo assigned his trademark and use to UFC
provided that he is appointed as Chief Chemist in a permanent character who has
absolute control over the laboratory. When UFC stopped its operations and resum
ed, it did not recall Magdalo back and even considered his last 2mo. salary as h
is separation pay. UFC thus breached the contract when it terminated Magdalo wit
hout just cause, in violation of the Bill of Assignment. The breach was also sub
stantial because it dealt with the reasons without which Magdalo would not have
agreed to contract with them, that is the preservation of the secrecy of the for
mula and his monopoly. Hence, as the injured party, Magdalo has the option to re
scind which is granted because he has no more alternative where he had already b
een terminated. > Bill of Assignment (May 11, 1960) between Magdalo V. Francisco
, Sr. and Universal Food Corporation where former assigned, transferred, and con
veyed all his property rights and interest over his registered invention, Mafran
trademark and formula, to the latter ~ PROVIDED that (i) Magdalo receive 2% fro
m annual sales as royalty; (ii) Magdalo be appointed as 2nd VP and Chief Chemist
in a permanent character; (iii) Magdalo have absolute control and supervision o
ver the laboratory assistants and personnel and in the purchase and safekeeping
of the Chemicals and other mixtures used in the preparation; (iv) Magdalo automa
tically reacquires such rights upon dissolution of UFC > Memoranda by UFC: (i) S
topping the operations ~ including salary of Magdalo; (ii) Recalling Victoriano
Francisco to produce Mafran; (iii) Retaining and Assigning Asst. Chief Chemist R
icardo Francisco to Chief and to produce the sauce and hire all necessary employ
ees > SUIT (February 14, 1961) by Magdalo for Rescission of Bill of Assignment a
nd declaration that UFC has no right to the use of the Mafran trademark and form
ula > UFC has NO TITLE to the formula > Intention of Assignment was of the USE a
nd not TRADEMARK (1) Royalty as compensation for the use of a patented invention
; (2) Preservation of secrecy and monopoly contrary to intention to part with th
e formula > Only allowed the use and prohibited anyone from availing of the inve
ntion; (3) Automatic reversion to Magdalo of the trademark and formula upon diss
olution of UFC > Would not have been necessary if the intention was to transfer
the trademark and formula to UFC; (4) Admission by UFC of par. 3 of the Complain
t that alleged that the assignment was only for the use of the formula
3. ... and due to these privileges, the plaintiff in return assigned to said cor
poration his interest and rights over the said trademark and formula so that the
defendant corporation could use the formula in the preparation and manufacture
of the mafran sauce, and the trade name for the marketing of said project, as ap
pearing in said contract .... 3. Defendant admits the allegations contained in p
aragraph 3 of plaintiff s complaint. (5) Continued possession by Magdalo of the
formula (6) Conveyance should be interpreted to effect "the least transmission o
f right," > RIGHT OF MAGDALO TO RESCIND based on Art. 1191> Breach of Faith in a
mutual relationship and not Economic injury as contemplated in Art. 1384: (1) B
reach of Contract by UFC: Termination of Magdalo without lawful/just cause > (i)
Fact that Magdalo was not hired back after the cease of operations ~ Only hired
1mo after the suit was filed; (ii) Testimony of General Manager that the salary
paid to Magdalo until he was terminated was considered as his separation pay >
Violation of paragraph 5-(a) and (b) of the Bill of Assignment (2) Breach was su
bstantial: Magdalo would not have agreed to enter the contract were it not for s
uch measures (permanent capacity as Chief Chemist who has absolute control of th
e laboratory) in order to preserve effectively the secrecy of the formula, preve
nt its proliferation, enjoy its monopoly (3) Option to Rescind is with Injured P
arty and No alternative but to file the present action ~ He had been fired alrea
dy >> ART. 1191. The power to rescind obligations is implied in reciprocal ones,
in case one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the o
bligation, with the payment of damages in either case. He may also seek rescissi
on even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause autho

rizing the fixing of a period. This is understood to be without prejudice to the

rights of third persons who have acquired the thing, in accordance with article
s 1385 and 1388 of the Mortgage Law. >> ART. 1383. The action for rescission is
subsidiary; it cannot be instituted except when the party suffering damage has n
o other legal means to obtain reparation for the same. >> ART. 1384. Rescission
shall be only to the extent necessary to cover the damages caused.
69

>> Rescission > general rule is that rescission of a contract will not be permit
ted for a slight or casual breach, but only for such substantial and fundamental
breach as would defeat the very object of the parties in making the agreement.
12 The question of whether a breach of a contract is substantial depends upon th
e attendant circumstances > LEGAL EFFECT (Art. 1385): to return the things which
were the object of the contract >> Rescission (1) Article 1191 > Rescission bas
ed on the breach of stipulation > Predicated on breach of faith by the defendant
, that violates the reciprocity between the parties; injured party only; period;
principal action > Principal action retaliatory in character (2) Article 1659 a
s an alternative remedy, insofar as the rights and obligations of the lessor and
the lessee in contracts of lease are concerned (3) Article 1380 > Rescission ba
sed on economic prejudice > Subordinate to the economic prejudice; third parties
; no period; subsidiary action, exhaust all remedies first; >> royalty means the
compensation paid for the use of a patented invention ~ when used in connection
with a license under a patent, means the compensation paid by the licensee to t
he licensor for the use of the licensor s patented invention (Hazeltine Corporat
ion vs. Zenith Radio Corporation) G.R. No. 157480 May 6, 2005 PRYCE CORPORATION
(formerly PRYCE PROPERTIES CORPORATION) v. PHILIPPINE AMUSEMENT AND GAMING CORPO
RATION Facts: Pryce leased its hotel ballroom to PAGCOR for the operation of a c
asino in Cagayan de Oro City. Despite the validity of the casino and the declara
tion of unconstitutionality of the city ordinances prohibiting casinos, the casi
no in Pryce Plaza Hotel failed and ceased due to the incessant public rallies. N
evertheless, Pryce demanded the collection of rentals for the unexpired period.
It was rejected by PAGCOR and hence, Pryce exercised its right under the penal c
lause and terminated the contract and demanded the payment of rentals that was p
rovided as penalty. The action sought by Pryce, hence, was not of rescission but
of termination because a rescission is a declaration of a contracts nullity whil
e termination is a fulfillment of the obligations. By seeking to collect rentals
, Pryce is enforcing its right under the contract which needs to be valid thus a
nd termination was the proper remedy which the court gave.
> Contract of Lease (November 11, 1992) between Pryce Properties Corporation and
Philippine Amusement and Gaming Corporation where former is to lease the ballro
om of the Pryce Plaza Hotel for a casino (plus 1k sq.m of the hotel grounds for
casino personnel) for 3y (December 1, 1992-November 30, 1995) > Sangguniang Panl
ungsod of Cagayan de Oro Citys Policy Against Casinos that resulted to the casinos
closure: (A) LAWS (1) Resolution No. 2295 (November 19, 1990) prohibiting the e
stablishment of a gambling casino; (2) Resolution No. 2673 (October 19, 1992) ba
nning casinos in Cagayan De Oro City; (3) Ordinance No. 3353 (December 7, 1992)
prohibiting the issuance of business permits and canceling existing business per
mits to any establishment for using, or allowing to be used, its premises or any
portion thereof for the operation of a casino ~ Subsequently declared as uncons
titutional; (4) Ordinance No. 3375-93 (January 4, 1993) prohibiting the operatio
n of casinos and providing for penalty ~ Subsequently declared as unconstitution
al; (B) RALLIES (1) Afternoon of the casino opening (December 18, 1992) by local
officials, residents and religious leaders, with barricades to prevent entrance
and exit to casino of personnel; (2) After PAGCOR resumed its casino operations
upon declaration of unconstitutionality of the ordinances (July 15, 1993); (3)
Incessant rallies > Cease of Casino Operations by PAGCOR > Demand Letters (Septe
mber 1,3,15, 1993) for payment of rental by Pryce, covering September 1 November
30, 1993 > Response of PAGCOR (September 20, 1993) that (i) its not amenable to
the payment of the full rentals due to the unforeseen legal and other circumstan
ces which prevented it from complying with its obligations; (ii) its preterminati
ng the contract; (iii) its demanding the refund of its rental deposits > SUIT (No
vember 15, 1993) by Pryce for sum of money > Letter by Pryce (November 25, 1993)
: TERMINATION of the Contract by Pryce; Collection Rental Payment as penalty pur
suant to contract > CONTENTION of PAGCOR: No rent to collect for the unexpired p
eriod because of termination of contract > CONTRACT PENAL CLAUSE: That in case o
f breach or default, Pryce can terminate the contract and collect rentals for th
e remaining term of the lease, despite the exercise of such right to terminate >

Article XX. BREACH OR DEFAULT > a) The LESSEE agrees that all the terms, condit
ions and/or covenants herein contained shall be deemed essential conditions of t
his contract, and in the event of default or breach of any of such terms, condit
ions and/or covenants, or should the LESSEE become bankrupt, or insolvent, or
70

compounds with his creditors, the LESSOR shall have the right to terminate and c
ancel this contract by giving them fifteen (15 days) prior notice delivered at t
he leased premises or posted on the main door thereof. Upon such termination or
cancellation, the LESSOR may forthwith lock the premises and exclude the LESSEE
therefrom, forcefully or otherwise, without incurring any civil or criminal liab
ility. During the fifteen (15) days notice, the LESSEE may prevent the terminati
on of lease by curing the events or causes of termination or cancellation of the
lease..c) Moreover, the LESSEE shall be fully liable to the LESSOR for the renta
ls corresponding to the remaining term of the lease as well as for any and all d
amages, actual or consequential resulting from such default and termination of t
his contract. > TERMINATION, Not Rescission was the prayer of Pryce (1) An actio
n praying for the payment of rental arrearages is for the partial enforcement of
a lease contract which is not rescission, but termination or cancellation > Int
ention was not to rescind but to terminate and collect > (i) Demand Letters seek
ing to collect the rentals; (ii) No evidence of intention to rescind; (iii) Exer
cise of right to terminate from the penal clause; (2) Reduction of rentals due b
ecause it was iniquitous > From P7,037,835.40 to P687,289.50 > WHY: PAGCOR (i) f
irst conducted a series of negotiations and consultations before entering into t
he Contract ~ problems were told to be surmountable; (ii) suffered tremendous lo
ss of expected revenues; >> Rescission (1) Article 1191 > Rescission based on th
e breach of stipulation > Predicated on breach of faith by the defendant, that v
iolates the reciprocity between the parties > Principal action retaliatory in ch
aracter (2) Article 1659 as an alternative remedy, insofar as the rights and obl
igations of the lessor and the lessee in contracts of lease are concerned (3) Ar
ticle 1380 > Rescission based on exonomic prejudice > Subordinate to the economi
c prejudice >> Rescission v. Termination > Rescission > Nature: to declare a con
tract null and void ab initio; abrogate it from the beginning > Effect: mutual r
estitution; to restore the parties to relative positions which they would have o
ccupied had no contract ever been made > By both or by either of the parties > T
ermination > Nature: to end in time or existence; a close, cessation or conclusi
on > Effect > to enforce the contracts terms prior to the declaration of its canc
ellation > By both, by either exercising one of its remedies as a consequence of
the default of the other
G.R. No. 139523 May 26, 2005 SPS. FELIPE AND LETICIA CANNU v. SPS. GIL AND FERNA
NDINA GALANG AND NATIONAL HOME MORTGAGE FINANCE CORPORATION Facts: The Galangs s
old their house and lot to Cannus. But because the property was then mortgaged t
o Fortune (NHMFC), the deed of sale was accompanied by an assumption of mortgage
. The Cannus failed to pay the balance of the purchase price and of the mortgage
, thereby forcing the Galangs to pay the mortgage themselves. The suit was filed
by Cannus to prevent the NHMFC to surrender the title of the property to the Ga
langs, claiming that they are the owners pursuant to the sale. However, Galangs
have the right to rescind the contract and have done so validly. The failure of
the Cannus to pay their obligations in 18m, where the Galangs have already fulfi
lled their part of the deal by delivering the property to them, was a substantia
l breach. Though the contract did not allow for an automatic rescission, the cou
nterclaim of Galangs included a rescission and hence, the rescission was judicia
lly declared by the SC. > House and Lot of sps. Gil and Fernandina Galang which
they mortgaged to Fortune Savings & Loan Association, which loaned them the purc
hase money (Fortuness rights as creditor was purchased by National Home Mortgage
Finance Corporation) > Deed of Sale with Assumption of Mortgage Obligation (Augu
st 20, 1990) between sps. Galang and sps. Felipe and Leticia Cannu over the form
ers house and lot, for P120k (not P250k as stated in Deed) + balance of the mortg
age obligations with NHMFC > Immediate Possession and Payments by Sps. Cannu to
sps. Galang thru Galangs Atty-in-fact, Adelina R. Timbang (July 1990, March, Apri
l, November 1991), leaving a balance of P45k, and to NHMFC (July 1990, March 199
1, Feb 1992, March, April 1993), leaving a balance of P233,957.64 > Several Requ
ests by Atty-in-fact to pay the balance or to vacate the property > Refusal of s
ps. Cannu > Denial of the sps. Cannus application for assumption of mortgage to N
HMFC > Payment (May 21, 1993) by sps. Galang of the P233,957.64 balance of the f

ull payment of mortgage ~ Title of the property held in abeyance by NHMFC becaus
e of sps. Cannus contention that the subject property had already been sold to th
em > SUIT by sps. Cannu for Specific Performance, that they be declared the owne
rs of the property ~ that sps. Galangs cannot rescind without proof that latter
were ready, willing and able to comply with their own obligation to restore to t
hem the total payments they made; that sps. Galangs do not have the unilateral r
ight to rescind and should have first asked the Court
71

> RIGHT TO RESCIND by sps. Galang under Art. 1191 because of Breach of Faith in
a mutual relationship (1) Breach by sps. Cannu > Non-payment of the balance of t
he purchase price and of the monthly amortizations with the NHMFC (2) Breach by
sps. Cannu was substantial > (a) Failure to pay for 18m before sps. Galang (thru
atty-in-fact) themselves paid for the balance of the mortgage; (b) Failure to r
eligiously pay the amortization WHERE they only paid 30ms worth of debt in the sp
an of 3y AND WHERE their application for assumption of the mortgage obligation w
as not appoved because of their non-submission of requirements > sps. Cannus clea
r intention to renege on and blatant noncompliance of their obligation > Alleged
Managers Check is not tender of payment for it was not consigned; (3) Right to r
escind not waived by Galangs in accepting payments of Cannu > atty-in-fact merel
y accepted the installment payments as an accommodation since they kept on promi
sing they would pay; (4) Exercise of option to rescind > Sps. Galang (thru attyin-fact) constantly followed-up the payment of the balance, presented the option
to vacate the property, and paid the balance themselves after a considerable ti
me whereby Cannus failed to pay ~ Payment by them was the act of rescission; (5)
Compliance of sps. Galang to their obligation > Delivery of the property which
the sps. Cannus even possessed; (6) Although sps. Galang should have asked for ju
dicial intervention to obtain a judicial declaration of rescission, their Counte
rclaim seeks for the rescission of the Deed of Sale with Assumption of Mortgage
>> Rescission or Resolution > Art. 1191 > Breach of faith > not be permitted for
a slight or casual breach of the contract as to defeat the object of the partie
s in making the agreement > can be demanded only if the plaintiff is ready, will
ing and able to comply with his own obligation, and the other is not >> Rescissi
on (1) Article 1191 > Rescission based on the breach of stipulation > Predicated
on breach of faith by the defendant, that violates the reciprocity between the
parties > Principal action retaliatory in character (2) Article 1659 as an alter
native remedy, insofar as the rights and obligations of the lessor and the lesse
e in contracts of lease are concerned (3) Article 1380 > Rescission based on exo
nomic prejudice > Subordinate to the economic prejudice > Wrong to apply 1191? G
.R. No. 129107 September 26, 2001
ALFONSO L. IRINGAN v. HON. COURT OF APPEALS and ANTONIO PALAO, represented by hi
s Attorney-in-Fact, FELISA P. DELOS SANTOS Facts: Failure to pay instalment for
sale of real property rescissible only by judicial decree > March 22, 1985: Deed
of Sale over an undivided portion of lot > From Antonio Palao to Alfonso Iringa
n for P295k > Payable in: 10k upon execution of Deed of Sale, 140k by April 30,
1985, P145k by December 31, 1985 > Failure to pay in full 2nd instalment ~ only
P40k out of P140k > July 18, 1985: Notice of rescission thru Letter by Palao > A
ugust 20, 1985: Response that he was not opposing the revocation but asked for t
he reimbursement of P50k and attorneys fee and geodetic engineers fee and interest
> Palao refused > Iringan proposed the reimbursement of P50k or the sale of an
equivalent portion of the land > Palao responded that Iringans obligation reached
P61,600 (rentals from October 1985 up to March 1989) > July 1, 1991: Complaint
for Judicial Confirmation of Rescission of Contract and Damages > September 25,
1992: RTC affirmed rescission > Remedy of Palao > RESCISSION BY JUDICIAL DECLARA
TION > Letter of July 18, 1985 not enough but Complaint for Judicial Confirmatio
n of Rescission of Contract suffices > Sale of real property > governed by Art.
1592 > rescission only judicially or by a notarial act > necessary before a vali
d rescission can take place, whether or not automatic rescission has been stipul
ated > Art. 1191 NOT APPLICABLE > not for sale of REAL/IMMOVABLE PROPERTY > BUT
EVEN IF IT APPLIES > NECESSITY FOR JUDICIAL DECREE > petitioner not entitled to
automatic rescission > right must be invoked judicially > obligation is not ipso
facto erased by the failure of the other party to comply with what is incumbent
upon him > right cannot be exercised solely on a party s own judgment that the
other committed a breach of the obligation > operative act which produces the re
solution of the contract is the decree of the court and not the mere act of the
vendor *Prescription in Art. 1144: action upon a written contract should be brou
ght within ten years from the time the right of action accrues > Why not 1389 be
cause it doesnt fall in 1381 > Why use 1381 over 1191 WHY IS IT A BAD CASE: Resci

ssion only by judicial decree ~ denies injured party immediate remedy > Contrary
to UP v. De los Angeles where extrajudicial rescission is valid but provisional
72

How to harmonize with UP v. De los Angeles > automatic rescission has been stipu
lated; otherwise, only via judicial decree > My Answer to Example of Sir: Minors
Guardian sold 70% of bus companys buses for 40% less than the market value > What
is the remedy? 2 Remedies for rescission! 1381 by Minor, 1191 by Guardian in ca
se the buyer does not pay the purchase price because, for the first case, there
is economic prejudice, and for the second, there is breach of faith G.R. No. 144
934 January 15, 2004 ADELFA S. RIVERA, CYNTHIA S. RIVERA, and JOSE S. RIVERA v.
FIDELA DEL ROSARIO (deceased and substituted by her corespondents), and her chil
dren, OSCAR, ROSITA, VIOLETA, ENRIQUE JR., CARLOS, JUANITO and ELOISA, all surna
med DEL ROSARIO Facts: Fidela mortgaged her childrens property to Mariano in orde
r to secure the loan he granted to her. As part of the Agrement, the children of
Mariano would purchase the property and a Deed of Absolute Sale would be execut
ed upon the payment of the 2nd installment and the deposit of a check for the 3r
d installment to Fidela. Mariano failed to pay the full amount of the 2nd and 3r
d installments but caused the execution of the Deed of Sale which Fidela had ina
dvertently signed together with the Agreement and Mortgage. Mariano was thus abl
e to acquire title to land upon registering the Deed of Sale which prompted Fide
la to file a suit for rescission of the Agreement and annulment of the Deed of S
ale. However, as a contract to sell, the Deed is ineffective and hence cannot be
subject to rescission. The contract did not acquire obligatory force when the c
ondition by which Fidelas obligation to sell is dependent on did not arise, ie pa
yment of the 2nd installment. Hence, the contract is ineffective and without for
ce. So, Art. 1191 cannot apply because it contemplates a failure to comply with
an obligation already extant, not a failure of a condition to render binding tha
t obligation. > Deed of Real Estate Mortgage, Kasunduan (Agreement to Sell), and
Deed of Absolute Sale (March 10, 1987) between Fidela Del Rosario and Mariano R
ivera where former, under Special of Atty of her children, mortgaged the parcel
of land of the Del Rosario children in favor of Mariano to secure the payment of
the P250k loan he granted to her ~ Kasunduan provided that the children of Mari
ano would purchase property (for P2,141,622.50) and that a Deed of Absolute Sale
would be executed only after the second installment (P750k) is paid and a postd
ated check for the last installment (P1,141,622.50) is deposited with Fidela ~ B
UT Mariano already made the Deed of Absolute Sale
(where purchase price is only P601,160 and another lot was included) which Fidel
a had inadvertently signed with the Agreemend and Mortgage > Surrender of Title
by Fidela to Mariano as guarantee for compliance of Kasunduan > Failure of Maria
no to pay the 2nd and 3rd installment ~ giving only a check of P200k (October 30
, 1987) to Fidela and P67,800 to Fidelas son who is unauthorized to receive) > Re
fusal of Mariano to surrender the title ~ the affidavit of loss by Del Rosario w
as offset when Mariano subsequently registered the Deed of Absolute Sale (Octobe
r 13, 1992) > SUIT (February 18, 1993) by Del Rosario for rescission of Kasundua
n and Annulment of Deed of Absolute Sale due to fraud, that Fidela never intende
d to enter into a Deed of Sale at the time of its execution and that she signed
the said deed on the mistaken belief that she was merely signing copies of the K
asunduan (already 72y and confused as the documents were stacked one on top of t
he other at the time of signing) > CONTENTION of Mariano: failure to prove that
there was no other legal means available to obtain reparation other than to file
a case for rescission; prescription > NO RESCISSION > Contract is INEFFECTIVE,
NO OBLIGATORY FORCE > HENCE, 1385 does not apply (1) As a contract to sell, it n
ever became obligatory because of Marianos failure to pay the entire purchase pri
ce ~ did not complete the 2nd installment and the 3rd > Contract to sell imposes
reciprocal obligations where Del Rosario is to sell BUT ONLY UPON the 2nd insta
llment of Mariano and Postdated check for the 3rd installment > Contract is inef
fective > HENCE, not breach as contemplated in Art. 1191 because there is no obl
igation; case not falling under 1381; (2) No prescription yet > annulment of voi
d contracts shall be brought within four years, beginning from the time the frau
d or mistake is discovered > Fraud was discovered in 1992 and the complaint file
d in 1993; (3) In relation to 1385, there can be no restoration of what is recei
ved because Mariano did not receive anything legally ~ no effective transfer of

ownership > BUT what about the payment received by Del Rosario? >> Article 1385
that rescission creates the obligation to return the things which were the objec
t of the contract, together with their fruits, and the price with its interest >
> RESOLUTION or Rescission of reciprocal obligations (Art. 1191) > principal act
ion that is based on breach of a party > obligors failure to comply with an oblig
ation already extant, not a failure of a condition to render binding that obliga
tion >> Rescission of contracts (Art. 1383) > Rescission based on exonomic preju
dice > Subordinate to the economic prejudice
73

>>> BOTH contracts are validly entered into as well as subsisting, and both requ
ire mutual restitution when proper G.R. No. 133879 November 21, 2001 EQUATORIAL
REALTY DEVELOPMENT, INC. v. MAYFAIR THEATER, INC. Facts: Carmelo leased his prop
erties to Mayfair for 20y and with right of first refusal to sale. But during th
e lease period, Carmelo sold the properties to Equatorial without first offer to
Mayfair. Mayfair thus had the Deed of Sale annulled. Equatorial subsequently fi
led a suit for collection of the rent during the period when the leases had expi
red and before the Deed of Sale to Equatorial had been rescinded and to Mayfair
issued by the Court. However, Equatorial has no right of ownership because its D
eed of Sale was not consummated by the failure to deliver the property. Hence, i
t has no right of ownership and no right to collect the rentals. Its constructiv
e title by virtue of the Deed of Sale was effectively destroyed by Mayfair when
it filed the suit for annulment. > Contracts of Lease between Carmelo & Bauerman
n, Inc. and Mayfair Theater Inc. over the formers parcel of land and 2-storey bui
ldings ~ (i) On June 1, 1967, for 20y, covering portion of the second floor and
mezzanine of a twostorey building for the Maxim Theater, with right of first ref
usal to purchase the subject properties; (ii) On March 31, 1969, for 20y, coveri
ng another portion of the second floor and two store spaces on the ground floor
and the mezzanine for the Miramar Theater, with right of first refusal to purcha
se the subject properties > Deed of Absolute Sale (July 30, 1978, within 20y lea
se) by Carmelo to Equatorial Realty Development, Inc. for P11.3M, without first
offer to Mayfair > Suit by Mayfair for annulment of the Deed of Absolute Sale ~
Granted with Deed Rescinded; Final and Executory (March 17, 1997) > Mayfair cons
igned P11.3M and RTC issued a Deed of Sale in favor of Mayfair and Registry canc
eled Equatorial s titles and issued new TCTs in the name of Mayfair > SUIT (Sept
ember 18, 1997) by Equatorial for the collection of a sum of money against Mayfa
ir as payment of rentals or reasonable compensation for Mayfairs use of the premi
ses after its lease contracts had expired ~ that Mayfairs contracts of leases had
expired (June 1, 1987; March 31, 1989) and as owner of the premises for the per
iod before the sale to Mayfair, Equatorial should be able to collect rentals > T
hat Art. 1385 provides that rescission creates the obligation to return the thin
gs which were the object of the contract, together with their fruits, and the pr
ice with its interest > Equatorial has NO RIGHT to collect ~ Not Owners > No val
id transfer of ownership
(i) Deed of Sale between Carmelo and Equatorial was not consummated due to the f
ailure to deliver the property > Ownership is transferred only when the object o
f the sale is delivered or placed in the control and possession of the vendee >
Equatorial never took actual control and possession of the property sold ~ Payme
nt of rentals by Mayfair to it was only to avoid ejectment and maintain physical
possession of the premises while awaiting the outcome of the annulment case > N
o right of ownership conferred to Equatorial > The rentals that fell due from th
e time of the perfection of the sale to Equatorial until its rescission by final
judgment should belong to the owner of the property during that period, who is
Carmelo; (ii) Constructive title of Equatorial by virtue of the Deed of Sale was
rebutted by Mayfair when it opposed the transfer of the property in filing the
annulment suit; (iii) (RTC but held Wrong) Deed of Sale was rescinded and the ef
fect of rescission is to make the contract void from the beginning, as if it nev
er happened; (iv) Even if the Deed is valid until rescinded, Rescission was time
ly sought by Mayfair before the Deed was consummated > GENERAL PROPOSITION that
a rescissible contract is valid until rescinded is overcome by the SPECIFIC PROV
ISION that ownership is acquired, not by mere agreement, but by tradition or del
ivery in deciding specific cases (Justice Holmes) > Sale to Equatorial may have
been valid from inception, but it was judicially rescinded before it could be co
nsummated because the sale was not consummated by a legally effective delivery o
f the property sold; (v) Equatorial is a buyer in bad faith, rendering the Deed
rescissible > Equatorial was aware of the lease contracts because its lawyers ha
d, prior to the sale, studied the said contracts > Equatorial cannot tenably cla
im to be a purchaser in good faith, and, therefore, rescission lies >> Rescssion
> to rescind is to declare a contract void in its inception and to put an end a

s though it never were; to abrogate it from the beginning > EFFECT: not merely t
o terminate it and release parties from further obligations to each other but to
restore parties to relative positions which they would have occupied had no con
tract ever been made >> Ownership > a real right which the buyer acquires only u
pon delivery of the thing to him in any of the ways specified in articles 1497 t
o 1501, or in any other manner signifying an agreement that the possession is tr
ansferred from the vendor to the vendee > TRANSFER OF RIGHT not merely by contra
ct, but also by tradition or delivery >> Delivery a composite act by which one p
arty parts with the title to and the possession of the property, and the other a
cquires the right to and the possession of the sam; absolute giving up of the co
ntrol and custody of the property on the
74

part of the vendor, and the assumption of the same by the vendee; transfer of po
ssession or when the thing sold "is placed in the control and possession of the
vendee > Either actual or constructive > Execution of a public instrument of sal
e is only a constructive or symbolic delivery that becomes valid only when there
is no impediment that may prevent the passing of the property from the hands of
the vendor into those of the vendee >> Rent > a civil fruit that belongs to the
owner of the property producing it by right of accession > Dissent of Vitug > R
escissible not void ab initio > 1381 void from the beginning and hence Mutual re
stitution; 1191 only voidable and hence no restitution G.R. No. 100319 August 8,
1996 THE UNION INSURANCE SOCIETY OF CANTON v. THE COURT OF APPEALS and FAR EAST
CHEMCO LEASING AND FINANCING CORPORATIONS Facts: UISC obtained a judgment for c
ollection of money against Philippine Tugs after the former paid for the damages
incurred by the latters shipment of Litton Mills cotton. But during the pendency
of the case, Tugs was able to transfer its vessels to VWC. When their action was
granted, adverse claims were annotated on the said vessels but the same vessels
were subsequently sold to Far East Chemco then to PTSC. UISC thus sued Far East
Chemco for the recovery of the vessels. However, Far East Chemco cannot be made
to return for or pay the value equivalent of the vessels before its Sale with V
WC is rescinded, which action was not prayed for by UISC. Moreover, UISC did not
show that Tugs had not paid its debt or has no more property with which to pay
its debt. UISC also did not implead Peninsula, the current owner of the vessels,
despite knowledge that the vessels had already been sold to it when it filed th
e action. > Contract of Carriage (September 5, 1975) between Litton Mills, Inc.
and Philippine Tugs, Inc. where the latter is to carry the formers 2,045 bales of
compressed cotton from the Manila South Harbor to Magallanes Drive ~ Shipment i
nsured by Union Insurance Society of Canton, Ltd. > Delivery only of 2,036 bales
, 521 of which were totally damaged by seawater and stains; other 9 went missing
>Demand by Litton against Tugs for P1,849,044.23, total value of loss ~ Tugs re
fused, Insurer Union paid, Union demanded reimbursement from Tugs which denied t
he responsibility > Suit (March 11, 1976) by Union against Tugs for collection o
f sum of money > During pendency (September 30, 1976), Stockholders of Tugs tran
sferred some of its vessels to Valenzuela
Watercraft Corporation in which they were also stockholders > Suit Granted (July
19, 1977) in favour of Union and adverse claim on the vessels was annotated for
payment > Purchase (September 7, 1978) of the Vessels from Valenzuela by Far Ea
st Chemco Leasing Corporation, then from Far East by Peninsula Tourist Shipping
Corporation (May 27, 1980) > SUIT (February 21, 1984) by Union against Far East
for return of the vessels > Action for Recovery NOT VALID (1) Rescission is not
prayed for ~ Union alleged that the Sale to Far East is null and void ab initio
and hence, no need to rescind > BUT an order for the return of the vessels or to
pay for its value cannot be granted without the sale first being rescinded; (2)
Action did not implead Peninsula despite knowledge of Union that Far East had a
lready sold the vessels to Peninsula when it filed the Suit > Peninsula cannot b
e bound by an adverse decision in a case where it was not given a chance to defe
nd itself; (3) No poof that the judgment debtor, Philippine Tugs, has not paid o
r has no other properties to answer for its liabilities > Far East cannot be mad
e to pay ~ only sought after because the vessels were sold to it G.R. No. 144934
January 15, 2004 ADELFA S. RIVERA, CYNTHIA S. RIVERA, and JOSE S. RIVERA v. FID
ELA DEL ROSARIO (deceased and substituted by her corespondents), and her childre
n, OSCAR, ROSITA, VIOLETA, ENRIQUE JR., CARLOS, JUANITO and ELOISA, all surnamed
DEL ROSARIO Facts: Fidela mortgaged her childrens property to Mariano in order t
o secure the loan he granted to her. As part of the Agrement, the children of Ma
riano would purchase the property and a Deed of Absolute Sale would be executed
upon the payment of the 2nd installment and the deposit of a check for the 3rd i
nstallment to Fidela. Mariano failed to pay the full amount of the 2nd and 3rd i
nstallments but caused the execution of the Deed of Sale which Fidela had inadve
rtently signed together with the Agreement and Mortgage. Mariano was thus able t
o acquire title to land upon registering the Deed of Sale which prompted Fidela
to file a suit for rescission of the Agreement and annulment of the Deed of Sale

. However, as a contract to sell, the Deed is ineffective and hence cannot be su

bject to rescission. The contract did not acquire obligatory force when the cond
ition by which Fidelas obligation to sell is dependent on did not arise, ie payme
nt of the 2nd installment. Hence, the contract is ineffective and without force.
So, Art. 1191 cannot apply because it contemplates a failure to comply with an
obligation already extant, not a failure of a condition to render binding that o
bligation.
75

> Deed of Real Estate Mortgage, Kasunduan (Agreement to Sell), and Deed of Absol
ute Sale (March 10, 1987) between Fidela Del Rosario and Mariano Rivera where fo
rmer, under Special of Atty of her children, mortgaged the parcel of land of the
Del Rosario children in favor of Mariano to secure the payment of the P250k loa
n he granted to her ~ Kasunduan provided that the children of Mariano would purc
hase property (for P2,141,622.50) and that a Deed of Absolute Sale would be exec
uted only after the second installment (P750k) is paid and a postdated check for
the last installment (P1,141,622.50) is deposited with Fidela ~ BUT Mariano alr
eady made the Deed of Absolute Sale (where purchase price is only P601,160 and a
nother lot was included) which Fidela had inadvertently signed with the Agreemen
d and Mortgage > Surrender of Title by Fidela to Mariano as guarantee for compli
ance of Kasunduan > Failure of Mariano to pay the 2nd and 3rd installment ~ givi
ng only a check of P200k (October 30, 1987) to Fidela and P67,800 to Fidelas son
who is unauthorized to receive) > Refusal of Mariano to surrender the title ~ th
e affidavit of loss by Del Rosario was offset when Mariano subsequently register
ed the Deed of Absolute Sale (October 13, 1992) > SUIT (February 18, 1993) by De
l Rosario for rescission of Kasunduan and Annulment of Deed of Absolute Sale due
to fraud, that Fidela never intended to enter into a Deed of Sale at the time o
f its execution and that she signed the said deed on the mistaken belief that sh
e was merely signing copies of the Kasunduan (already 72y and confused as the do
cuments were stacked one on top of the other at the time of signing) > CONTENTIO
N of Mariano: failure to prove that there was no other legal means available to
obtain reparation other than to file a case for rescission; prescription > NO RE
SCISSION > Contract is INEFFECTIVE, NO OBLIGATORY FORCE > HENCE, 1385 does not a
pply (1) As a contract to sell, it never became obligatory because of Marianos fa
ilure to pay the entire purchase price ~ did not complete the 2nd installment an
d the 3rd > Contract to sell imposes reciprocal obligations where Del Rosario is
to sell BUT ONLY UPON the 2nd installment of Mariano and Postdated check for th
e 3rd installment > Contract is ineffective > HENCE, not breach as contemplated
in Art. 1191 because there is no obligation; case not falling under 1381; (2) No
prescription yet > annulment of void contracts shall be brought within four yea
rs, beginning from the time the fraud or mistake is discovered > Fraud was disco
vered in 1992 and the complaint filed in 1993; (3) In relation to 1385, there ca
n be no restoration of what is received because Mariano did not receive anything
legally ~ no effective transfer of ownership > BUT what about the payment recei
ved by Del Rosario?
>> Article 1385 that rescission creates the obligation to return the things whic
h were the object of the contract, together with their fruits, and the price wit
h its interest >> RESOLUTION or Rescission of reciprocal obligations (Art. 1191)
> principal action that is based on breach of a party > obligors failure to comp
ly with an obligation already extant, not a failure of a condition to render bin
ding that obligation >> Rescission of contracts (Art. 1383) > Rescission based o
n exonomic prejudice > Subordinate to the economic prejudice >>> BOTH contracts
are validly entered into as well as subsisting, and both require mutual restitut
ion when proper G.R. No. 134685 November 19, 1999 MARIA ANTONIA SIGUAN v. ROSA L
IM, LINDE LIM, INGRID LIM and NEIL LIM Facts: One year after a deed of donation
was executed by Lim, she incurred debt against Siguan for issuing 2 bouncing che
cks. The Deed of Donations were registered after the charge was filed and was so
ught to be rescinded to answer to the debt which was alleged to be fraudulent. 1
. August 10, 1989: Deed of Donation covering parcels of land > by Rosa Lim in fa
vor of her children > registered only on July 2, 1991 2. July 31, 1990: Victoria
Suarez filed a criminal charge against Lim for estafa > convicted but criminall
y acquitted by SC but with civil liability of P169k as actual damages 3. August
25&26, 1990: Lim issued 2 checks to Maria Antonia Siguan worth P300,000 and P241
,668, respectively, payable to cash > Dishonoured because account closed a. Siguan
filed a criminal charge against Lim for issuing bouncing checks > (Registration
of Deeds of Donation on July 2, 1991) > Lim convicted (December 29, 1992) > act
ion for rescission and nullification of new titles by Siguan > as creditor alleg
edly defrauded by donations because it left Lim with no sufficient properties to

pay her obligations b. Contentions of Lim i. No proof that donations were anted
ated to defraud Siguan > Deed was notarized > public document > prima facie evid
ence of the facts therein
76

ii. Siguan cannot invoke the credit of Suarez which was

incurred prior to the donation > not a party to this case to support her accion
pauliana Issue/s: WON donations were fraudulent WON awards of damages, attorney
s fees and expenses of litigation are proper Held: 1. No fraud Not fraudulent be
cause donations were made before debt was incurred a. accion pauliana > action t
o rescind contracts in fraud of creditors i. Requisites > (1) the plaintiff aski
ng for rescission has a credit prior to the alienation, although demandable late
r > existence of creditors at the time of the alleged fraudulent alienation > da
te of the judgment enforcing it retroacts to date of debt; (2) the debtor has ma
de a subsequent contract conveying a patrimonial benefit to a third person; (3)
the creditor has no other legal remedy to satisfy his claim; (4) the act being i
mpugned is fraudulent; (5) the third person who received the property conveyed,
if it is by onerous title, has been an accomplice in the fraud. ii. Without any
prior existing debt > neither injury nor fraud b. Lack of first 2 requisites > D
eed of Donation executed 1 year prior to the constitution of credit to Siguan (c
riminal charge) > credit of Suarez cannot be invoked to justify rescission > res
cission is allowed only for recovery of creditors unsatisfied credit > Art. 1384
provides that rescission shall only be to the extent necessary to cover the dama
ges caused ~ only the creditor who brought the action for rescission can benefit
from the rescission, not strangers (Suarez) c. Lack of 3rd requisite > action f
or rescission is a subsidiary remedy > the exhaustion of all remedies by the pre
judiced creditor to collect claims due him before rescission is resorted to > Si
guan had neither alleged nor proved that she did so d. Lack of 4th requisite > A
rt. 1387: All contracts by virtue of which the debtor alienates property by grat
uitous title are presumed to have been entered into in fraud of creditors when t
he donor did not reserve sufficient property to pay all debts contracted before
the donation > must be established that the
2.
donor did not leave adequate properties which creditors might have recourse for
the collection of their credits existing before the execution of the donation i.
Siguans credit existed only a year after the donation > could not have been prej
udiced or defrauded by such alienation ii. Lim still had parcels of land in Cebu
and Leyte > no proof that its actual market value were insufficient to cover he
r debts existing before the donation was made Fraudulent Acts by Jurisprudence >
not exclusive a. The fact that the consideration of the conveyance is fictitiou
s or is inadequate; b. A transfer made by a debtor after suit has begun and whil
e it is pending against him; c. A sale upon credit by an insolvent debtor; d. Ev
idence of large indebtedness or complete insolvency; e. The transfer of all or n
early all of his property by a debtor, especially when he is insolvent or greatl
y embarrassed financially; f. The fact that the transfer is made between father
and son, when there are present other of the above circumstances; and g. The fai
lure of the vendee to take exclusive possession of all the property. No legal ba
sis > Awards of damages, attorney s fees and expenses of litigation
3.
G.R. No. L-7003 January 18, 1912 MANUEL ORIA Y GONZALES v. JOSE McMICKING, as sh
eriff of the city of Manila, GUTIERREZ HERMANOS, MIGUEL GUTIERREZ DE CELIS, DANI
EL PEREZ, and LEOPOLDO CRIADO Facts: After Gutierrez sued the Oria Company, the
latter sold all its property to a coowners son. Upon judgment in favor of Gutierr
ez, he had the steamship of Company attached despite its sale to the son. The so
n thus sued for recovery but the same cannot be granted. The sale to the son of
the properties were void in so far as the steamship was concerned because it was
to bore the badges of fraud but only for the steamship because it was enough to
cover the judgment debt. Gutierrez need not file an annulment of the sale first
but can just ignore such sale and seize it under execution which he had done.
77

> Suits (August 1909, March 1910) by Gutierrez Hermanos against Oria Hermanos &
Co. for the recovery of P147,204.28 and P12,318.57 > Dissolution and Liquidation
(April 30, 1910) of Oria Hermanos & Co. and its properties > Contract of Sale (
June 1910) between Tomas Oria (managing partner; coowner) and 25y/o son Manuel O
rio Gonzales, covering all of the property of Oria Hermanos & Co. for P274k but
with prohibition not to sell, alienate, transfer or mortgage, either wholly or i
n part, the property sold without the written authorization of Tomas > Judgment
in favor of Gutierrez (September 17, 1910) ~ Attachment and Sale of Oria Cos stea
mship Serantes, which was included in the sale to Gonzales ~ Gonzales notified t
he sheriff of his ownership but Gutierrez paid a bond for his protection, as req
uired by the Sheriff > SUIT (October 19, 1910) by Gonzales against Gutierrez for
injunction to prevent the sale, declaration that he is the owner and restoratio
n of possession > CONTENTION of Gonzalez: Validity of the sale from Oria Hermano
s & Co. to him; Sufficiency of Companys other property to pay the judgment of Gut
ierrez > CONTENTION of Gutierrez: Sale is fraudulent as against himself as credi
tor > SALE WAS FRAUDULENT (1) Sale was made while the actions of Gutierrez were
already pending against the Company > Claim was for P160k and the Sale involved
assets worth P274k; (2) Vendee was the son of Tomas and nephew of the coowners >
that Company would not have sold it if vendee was a stranger; (3) No considerat
ion > No proof of payment or delivery of any consideration; (4) Oddity that vend
ee is able to afford P274k when he was just 25, a student who owned no asset nor
had any business at the time of the sale and without gainful occupation > A pro
ceeding so unusual, so devoid of care and caution, and so wholly outside of the
well defined lines of ordinary business transactions, as to startle any person i
nterested in the concern; (5) Awareness of vendee Gonzales of the two suits that
have already been begun against the Company whose assets he was purchasing; (6)
Sale offered no security to the creditors of Company > prohibition against the
sale of the properties is not security > leaves the creditors substantially with
out recourse BECAUSE the property of the company is gone, its income is gone, th
e business itself is likely to fail, the property is being dissipated, and is de
preciating in value; > HENCE, Sale is void in so far as was necessary to permit
the collection of its judgment ~ Steamship thus validly attached even without ac
tion for annulment of sale >> TEST OF FRAUD
> ELEMENTS OF VALIDITY: It is founded on good consideration AND is made with bon
a fide intent > Whether the conveyance was a bona fide > Bad faith and lack of v
aluable consideration must be proven by party seeking rescission; he who alleges
haha > t
must prove > Can you prove either or must prove BOTH? BOTH! AND nga eh
ransaction or a trick and contrivance to defeat creditors ~ MUST NOT prejudice t
he rights of creditors > BADGES OF FRAUD: 1. The fact that the consideration of
the conveyance is fictitious or is inadequate. 2. A transfer made by a debtor af
ter suit has been begun and while it is pending against him. 3. A sale upon cred
it by an insolvent debtor. 4. Evidence of large indebtedness or complete insolve
ncy. 5. The transfer of all or nearly all of his property by a debtor, especiall
y 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 abo
ve circumstances. 7. The failure of the vendee to take exclusive possession of a
ll the property. > ACTION OF CREDITORS > Can test the validity of the sale witho
ut first resorting to a direct action to annul the sale > creditor may attack th
e sale by ignoring it and seizing under his execution the property, or any neces
sary portion thereof, which is the subject of the sale G.R. No. 134685 November
19, 1999 MARIA ANTONIA SIGUAN v. ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM Fa
cts: One year after a deed of donation was executed by Lim, she incurred debt ag
ainst Siguan for issuing 2 bouncing checks. The Deed of Donations were registere
d after the charge was filed and was sought to be rescinded to answer to the deb
t which was alleged to be fraudulent. 4. August 10, 1989: Deed of Donation cover
ing parcels of land > by Rosa Lim in favor of her children > registered only on
July 2, 1991 5. July 31, 1990: Victoria Suarez filed a criminal charge against L
im for estafa > convicted but criminally acquitted by SC but with civil liabilit
y of P169k as actual damages 6. August 25&26, 1990: Lim issued 2 checks to Maria

Antonia Siguan worth P300,000 and P241,668, respectively, payable to cash > Disho
noured because account closed
78

a. Siguan filed a criminal charge against Lim for issuing

bouncing checks > (Registration of Deeds of Donation on July 2, 1991) > Lim conv
icted (December 29, 1992) > action for rescission and nullification of new title
s by Siguan > as creditor allegedly defrauded by donations because it left Lim w
ith no sufficient properties to pay her obligations Contentions of Lim i. No pro
of that donations were antedated to defraud Siguan > Deed was notarized > public
document > prima facie evidence of the facts therein ii. Siguan cannot invoke t
he credit of Suarez which was incurred prior to the donation > not a party to th
is case to support her accion pauliana
b.
Issue/s: WON donations were fraudulent WON awards of damages, attorney s fees an
d expenses of litigation are proper Held: 4. No fraud Not fraudulent because don
ations were made before debt was incurred a. accion pauliana > action to rescind
contracts in fraud of creditors i. Requisites > (1) the plaintiff asking for re
scission has a credit prior to the alienation, although demandable later > exist
ence of creditors at the time of the alleged fraudulent alienation > date of the
judgment enforcing it retroacts to date of debt; (2) the debtor has made a subs
equent contract conveying a patrimonial benefit to a third person; (3) the credi
tor has no other legal remedy to satisfy his claim; (4) the act being impugned i
s fraudulent; (5) the third person who received the property conveyed, if it is
by onerous title, has been an accomplice in the fraud. ii. Without any prior exi
sting debt > neither injury nor fraud b. Lack of first 2 requisites > Deed of Do
nation executed 1 year prior to the constitution of credit to Siguan (criminal c
harge) > credit of Suarez cannot be invoked to justify rescission > rescission i
s allowed only for recovery of creditors unsatisfied credit > Art. 1384 provides
that rescission shall only be to the extent necessary to cover the damages cause
d ~
5.
only the creditor who brought the action for rescission can benefit from the res
cission, not strangers (Suarez) c. Lack of 3rd requisite > action for rescission
is a subsidiary remedy > the exhaustion of all remedies by the prejudiced credi
tor to collect claims due him before rescission is resorted to > Siguan had neit
her alleged nor proved that she did so d. Lack of 4th requisite > 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
> must be established that the donor did not leave adequate properties which cre
ditors might have recourse for the collection of their credits existing before t
he execution of the donation i. Siguans credit existed only a year after the dona
tion > could not have been prejudiced or defrauded by such alienation ii. Lim st
ill had parcels of land in Cebu and Leyte > no proof that its actual market valu
e were insufficient to cover her debts existing before the donation was made Fra
udulent Acts by Jurisprudence > not exclusive a. The fact that the consideration
of the conveyance is fictitious or is inadequate; b. A transfer made by a debto
r after suit has begun and while it is pending against him; c. A sale upon credi
t by an insolvent debtor; d. Evidence of large indebtedness or complete insolven
cy; e. The transfer of all or nearly all of his property by a debtor, especially
when he is insolvent or greatly embarrassed financially; f. The fact that the t
ransfer is made between father and son, when there are present other of the abov
e circumstances; and g. The failure of the vendee to take exclusive possession o
f all the property. No legal basis > Awards of damages, attorney s fees and expe
nses of litigation December 19, 1995
79
6.

G.R. No. 114950

RAFAEL G. SUNTAY, substituted by his heirs, namely: ROSARIO, RAFAEL, JR., APOLIN
ARIO, RAYMUND, MARIA VICTORIA, MARIA ROSARIO and MARIA LOURDES, all surnamed SUN
TAY v. THE HON. COURT OF APPEALS and FEDERICO C. SUNTAY Facts: There was a contr
act of Sale between Federico and Rafael whereby former allegedly sold his proper
ty to latter so that latter can obtain a loan agreement for formers expansion of
his rice mill. Title was transferred to Rafael although no payment had been made
or demanded and Federico kept possession of the property without any claim of p
ossession by Rafael. Although a Deed of Counter Sale was executed in favour of F
ederico over the property, Rafael denied its validity for not being notarized an
d claimed the validity of the Sale as genuine. Both Deeds were declared a simula
tion, however, because the intention to retain ownership with Federico was obvio
us in his continued possession of the property and in Rafaels lack of claim of ow
nership. > Absolute Deed of Sale (May 19, 1962) between Federico Suntay (wealthy
landowner) and his lawyer/nephew Rafael Suntay where former allegedly sold a pa
rcel of land and all its improvements to the latter for P20k ~ Federico: that it
was for the purpose of obtaining a loan from the National Rice and Corn Corpora
tion as a miller-contractor, in the name of Rafael, because his own application
was declined due to his existing unpaid loans ~ Notarized > Issuance of a New TC
T in Rafaels name > Continued Possession by Federico of the property > Counter De
ed of Sale by Rafael, selling back the property to Federico also for P20k ~ Not
notarized where the page number indicated does not refer to the same document in
the notarial register > Letter Request (August 14, 1969) by Federico for the de
livery of the TCT so that he could have the Counter Deed of Sale in his favor re
gistered and use the property as collateral in securing a bank loan to finance t
he expansion of the rice mill and warehouse facilities > Rafael Denied > Suit by
Federico for the surrender by Rafael of the TCT ~ Withdrawn due to Rafaels claim
that the Counter Sale was a counterfeit due to discrepancy in the notarization
> SUIT (July 8, 1970) by Federico for reconveyance and damages > CONTENTIONS of
Federico: Simulated contract of sale ~ (i) that he remained in possession of the
property; (ii) that Rafael never exercised a single act of ownership; (iii) tha
t Rafael never paid and he never demanded the payment P20k; (iv) that he paid al
l taxes > CONTENTION of Rafael: (i) Genuine sale of the property as dacion en pa
go in satisfaction of Federicos unpaid attys fees; (ii) Estoppel against Federico
in claiming the simulation of the Sale due to his judicial admissions of the sal
e in his DemandLetter, withdrawn Petition for the surrender of the title, and No
tice of Adverse Claim on the property
> CONTRACT OF SALE WAS A SIMULATION > Mere accommodation agreement ~ Executed wi
thout any consideration > Void and Not susceptible of Ratification ~ No legal ef
fects (1) 2 Deeds were executed closely one after the other, both involving the
transfer and re-transfer of the same property at exactly the same price > Agreem
ent for repurchase just three months later is consistent with Simulation (2) Fed
erico and Rafael had an existing close relationship as uncle and nephew > Comple
te and mutual trust and business and professional interdependence between them w
here Rafael signed the Counter-Deed even without prior payment by Federico of th
e alleged purchase price of P20k and Federico blindly singed and executed the De
ed of Sale > Practice in the typical Filipino family where the patriarch, with t
he capital and business standing, takes into his fold the young, upcoming, inexp
erienced but brilliant and brashly ambitious son, nephew or godchild who, in tur
n, becomes to his father, uncle, or godparent, the jack of all trades, trouble s
hooter and most trusted liaison officer cum adviser > He wittingly serves his pa
tron without the security of a formal contract and without clarifying the matter
of compensation > Fraud is generally accompanied by trust (3) The value and loc
ation of the property purportedly sold was grossly inadequate for the considerat
ion of a measly P20k > Alleged dacion en pago for Rafaels attys fees was raised on
lyin 1976 when he testified on direct examination > Even testified that no accou
nting was undertaken between uncleclient and nephew-lawyer in order to arrive at
the definite amount of the alleged unpaid attorney s fees; (4) Federico remaine
d in physical possession, enjoyment and use of the property through the years an
d up to the present > Rafael did not even include the property in his statement

of assets and liabilities nor paid the taxes nor collected any rents from Federi
co > Federico retained exclusive possession of the property, contrary to the pri
nciple of ownership; (5) No estoppel because the Demand-Letter, withdrawn Petiti
on for the surrender of the title, and Notice of Adverse Claim on the property d
id not claim that Federico sold the property > Only alleged that Rafael resold t
o Federico the said property; (6) Delay of Federico in asserting his title (7y)
was not questionable > There was no pressing reason for Federico to have a title
in his name issued > only when Federico needed the title in order to obtain a c
ollaterized loan that Federico began to attend to the task of obtaining a title
in his name > ALSO, his title was not in the hands of a stranger or mere acquain
tance but in the possession of his nephew who, being his lawyer, had served him
faithfully for many years > Even if Deed was notarized and hence prima facie evi
dence of its contents, the stated circumstanced rebutted the presumption > Inten
tion of the parties still and
80

always is the primary consideration in determining the true nature of a contract

~ It may always be shown that the transaction was understood by the parties not
to have jural effect ~ not the intention nor the function of the notary public
to validate and make binding an instrument never, in the first place, intended t
o have any binding legal effect upon the parties G.R. No. 129644 September 7, 20
01 CHINA BANKING CORPORATION v. HON. COURT OF APPEALS, PAULINO ROXAS CHUA and KI
ANG MING CHU CHUA Facts: Alfonso sold his share to the family home to Metrobank
pursuant to an adverse decision in favor of Metrobank. Subsequently, Chinabank a
lso sued Alfonso for money. Before judgment was rendered, Alfonso assigned his r
ight of redemption of the property from Metrobank to his son Paulino. Paulino wa
s able to redeem the property. After which, Chinabank levied the same property a
nd bought it in a public auction. Paulino brought the suit against Chinabank. Th
e Deed of Assignment was valid because it was made in good faith (where Paulino
did not know of his fathers debt to Chinabank) and for a consideration (where he
paid his father P100k for the right of redemption and Metrobank P1,463,375.39 fo
r the redemption). But WON the Deed of Assignment was valid, Chinabank could not
have validly levied the property because by the time it made the levy, the prop
erty had already transferred to Metrobank whose title would have become complete
for failure to redeem it by Chinabank within 12m. > Adverse Decision against Pa
cific Multi Commercial Corporation and Alfonso Roxas Chua, in favor of Metropoli
tan Bank and Trust Company ~ Levy on Alfonos house and lot in North Greenhills wh
ich was questioned by wife Kiang Ming Chu Chua because it was the family home, c
onjugal property (title in the sps names) > Compromise Agreement between Metroban
k and sps. Chua that the levy shall be valid only to the extent of the share per
taining to Alfonso ~ Execution of a Certificate of Sale in favor of Metrobank, a
nnotated on the title (December 22, 1987) > Suit by and Judgment in favor of Chi
na Banking Corporation for sum of money against PMCC and Alfonso for P2.5M (Nove
mber 7, 1985) > Deed of Assignment of Right to Redeem (November 21, 1988) by Alf
onso in favor of his son Paulino Roxas Chua over the formers right to redeem the
undivided portion of the land sold to Metrobank > Redemption by Paulino of the s
hare from Metrobank (January 11, 1989) ~ Annotated to the title (March 14, 1989)
> Levy by Chinabank (February 4, 1991) on Alfonsos share to the house and lot, S
ale and Annotation (May 4, 1992) > SUIT by son Paulino against China Bank ~ CONT
ENTIONS: that it has a prior and better right over Chinabank inasmuch as the ass
ignment to him of the right to redeem and his redemption of Alfonsos share in the
property were inscribed on
the title on an earlier date than the annotation of the notice of levy and certi
ficate of sale in favor of Chinabank > Validity of Redemption by Paulino of Alfo
nsos share (1) Valid Deed of Assignment of Right to Redeem from Alfonso to Paulin
o > (i) Good Faith: Lack of knowledge of Paulino about Alfonsos debt to Chinabank
; (ii) Consideration: Paulino paid Alfonso P100k for the right to redeem and pai
d Metrobank P1,463,375.39 for the redemption ~ If it is questioned as insufficie
nt, the value was accepted by Metrobank, refers only to share of the property, a
nd value still undetermined subject only to liquidation of the conjugal partners
hip > But what is the value of a right of redemption? Option = Fair market value
minus redemption price; (2) Even if Assignment was void, redemption by Paulino
was valid as a compulsory heir of Alfonso ~ that judgment debtor or his successo
r in interest may redeem real property sold on execution (Rule 39, Section 29 (a
) of the 1964 Rules of Court); (3) Expiration of redemption period wherein China
bank, as a redemptioner, could have redeemed the property from Metrobank > 12m (
1964 Rules of Court) > Annotation of Metrobanks title on December 22, 1987; Levy
by Chinabank on February 4, 1991 > No more right to redeem as redemptioner > MEA
NWHILE, Paulino was able to redeem the property within the 12m, on January 11, 1
989; (4) As a family home, of the property could not have been acquired by eithe
r Banks as it will create an absurd co-ownership between a bank, on the one hand
, and a family, on the other hand, of the latters family home >> HENCE, with or w
ithout the Deed of Assignment, the Property was no longer Alfonsos when levied by
Chinabank ~ Already Metrobanks and Paulinos >> PRESUMPTION OF FRAUD Against Credi
tors (Art. 1387) (1) that alienations made by a debtor by gratuitous title are p

resumed fraudulent when the donor did not reserve sufficient property to pay his
outstanding debts (2) that alienations by onerous title are presumed fraudulent
when made by persons against whom some judgment has been rendered or some writ
of attachment has been issued > Presumptions NOT conclusive ~ Can be overthrown
by evidence showing that the conveyance was made (a) in good faith and (b) for a
sufficient and valuable consideration >> successor-in-interest > a person to wh
om the judgment debtor has transferred his right of redemption, or one to whom h
e has conveyed his interests in the property for purposes of redemption, or one
who succeeds to his property by
81

operation of law, or a person with a joint interest in the property, or his spou
se or heirs G.R. No. 138104 April 11, 2002 MR HOLDINGS, LTD. v. SHERIFF CARLOS P
. BAJAR, SHERIFF FERDINAND M. JANDUSAY, SOLIDBANK CORPORATION, AND MARCOPPER MIN
ING CORPORATION Facts: To secure the loan granted by ADB, Marcopper was provided
cash flow support by Placer Dome (coowner of Marcopper). When Marcopper default
ed, Placer Dome thus paid its obligations to ADB thru its subsidiary, MR Holding
s. Meanwhile, Solidbank was able to obtain a partial judgment in its favor and a
gainst Marcopper for money. Despite the partial judgment, Marcopper ceded all it
s properties to MR Holdings. Nonetheless, Solidbank levied the properties. Hence
, MR Holdings sued to prevent the auction as the owner of the properties. The De
ed of Assignment by Marcopper in favor of MR Holdings was valid even if it was m
ade after the partial judgment because it was for a valuable consideration of $1
8,453,450.02 and in good faith where even before the debt to Solidbank, MR Holdi
ngs subsidiary (Placer Dome) had already agreed to secure Marcoppers debt to ADB a
nd ADB had already transferred its rights to MR Holdings. Hence, MR Holdings righ
t has greater weight than Solidbank as the mortgage creditor for the mortgage pr
operties of MR Holdings which the Marcopper had assigned to MR Holdings as payme
nt of its debt. > Loan Agreements (November 4, 1992) by Asian Development Bank i
n favor of Marcopper Mining Corporation for $40M (Principal loan worth $15M, Com
plementary loan worth $25M to finance the latters mining project; former funded b
y ADB itself and latter funded by the Bank of Nova Scotia, participating finance
institution of ADB) > Security of Loans: (i) Placer Dome, Inc.(foreign corporat
ion owning 40% of Marcopper) agreed to provide Marcopper with cash flow support
for the payment of its obligations to ADB; (ii) Deed of Real Estate and Chattel
Mortgage (November 11, 1992) in favor of ADB, covering all of Marcoppers properti
es ~ registered (November 12, 1992) > Default of Marcopper; Assumption of Marcop
pers obligation (worth $18,453,450.02) by MR Holding, Ltd., Placer Domes subsidiar
y corporation by virtue of (i) Assignment Agreement (March 20, 1997) where ADB a
ssigned all its rights and interests under the loan agreements to MR Holding, an
d (ii) Deed of Assignment (December 8, 1997) where Marcopper assigned its proper
ties to MR Holding ~ Change of debtor in relation to ADB and of creditor in rela
tion to Marcopper (MH Holding became the creditor of Marcopper when it paid ADB
and hence, Marcopper ceded its properties to it while ADB ceded its right to col
lect to it) > MEANWHILE, Partial Judgment (May 7, 1997) in favor of
Solidbank Corporation against Marcopper for payment of P52,970,756.89 > Levy on
Marcoppers properties ~ MR Holdings served an Affidavit of ThirdParty Claim to th
e Sheriff but was denied > SUIT by MR Holding for reivindication of properties >
Assignment to MR Holding NOT Fraudulent (1) Good Faith > Even if 2nd Deed of As
signment (Marcopper to MR Holding) was made after the partial judgment (in favor
of Solidbank) latter on May 7 and former on December 8, 1997 there was no inten
tion on the part of MR Holding to defeat Solidbanks claim > WHY: (a) Obligation o
f Placer Dome to provide Marcopper with cash flow support for the payment to ADB
of its obligations was established as early as November 4, 1992 ~ HENCE, Placer
Dome (thru its subsidiary MR Holding) agreed to pay ADB when Marcopper ceased o
perations; (b) Highly inconceivable that ADB, a reputable international financia
l organization, will connive with Marcopper to feign or simulate a contract in 1
992 and to pay $18,453,450.12 just to defraud Solidbank for its claim four years
thereafter that is worth only P52,970,756.89; (2) Valuable Consideration > Paym
ent by MR Holding of $18,453,450.12 to ADB, $13,886,791.06 of which was remitted
in favor of Bank of Nova Scotia, its major stockholder > WHEREFORE, Solidbank c
annot assert a better right than ADB, the latter being a preferred creditor wher
e mortgaged properties answer primarily for the mortgaged credit, not for the ju
dgment credit of the mortgagors unsecured creditor >> Presumption of Fraud when a
debtor alienates property after a judgment has been rendered against the debtor
making the alienation > Not conclusive and may be rebutted by satisfactory and
convincing evidence that the conveyance is made in good faith and for a sufficie
nt and valuable consideration
G.R. No. L-60174 February 16, 1983 EDUARDO FELIPE, HERMOGENA V. FELIPE AND VICEN

TE V. FELIPE v. HEIRS OF MAXIMO ALDON, NAMELY: GIMENA ALMOSARA, SOFIA ALDON, SAL
VADOR ALDON, AND THE HONORABLE COURT OF APPEALS Facts: Gimena sold her and husba
nds property without latters consent. The sale is voidable for want of consent sin
ce neither spouse can alienate cp without
82

the consent of both. Gimena could not seek annulment as she was responsible for
the defect; husband had already died and should have sought annulment during mar
riage. However, the children had the right to recover the property as it prejudi
ced their rights to the share of their father. And because sps. Felipe were buye
rs in bad faith, the children were able to annul the sale in due time because th
e prescription of 30y was still operating. > Purchase (1948 and 1950) by sps. Ma
ximo Aldon and Gimena Almosara of properties during marriage (1936) ~ Conjugal p
roperty > Sale of the conjugal land by Ginema to sps. Eduardo Felipe and Hermoge
na V. Felipe (1951) ~ without Maximos consent > SUIT (April 26, 1976) by Gimena a
nd children for recovery of the property > CONTENTIONS of Gimena: that the trans
action was only an oral mortgage and that their offer to redeem it was refused >
CONTENTIONS of sps. Felipe: that it was a sale, with no right of redemption > T
ransaction was of SALE but VOIDABLE > Lack of consent by Gemina > Valid Annulmen
t by the children (1) The property was conjugal and hence, cannot be alienated b
y either spouse without the consent of the other (Arts. 166, 172, former prohibi
ting husband, latter wife) > Though there are exceptions, the sale does not fall
in it; (2) Voidable Contract for Lack of Consent > Gemina could not have sold t
he property without husbands consent > Consent must have been given by both spous
es > Not (i) rescissible ~ Gimena s consent was tainted; (ii) unenforceable ~ do
es not fit in Art. 1403; (iii) void or inexistent ~ not in Art. 1409; (3) Annulm
ent can be sought by: (i) the husband who was the victim because he had an inter
est in the contract BUT only during the marriage > He died already > Marriage te
rminated and CP dissolved already; (ii) the children > inchoate right to the sha
re of their father became actual upon their fathers death > acquired the right to
question the defective contract insofar as it deprived them of their hereditary
rights in their father s share (iii) Not Gimena because she was the responsible
party for the defect; (4) Prescription has not yet lapsed > (a) Sps. Felipe are
buyers in bad faith > knew that they did not acquire ownership because they eve
n attempted to have Gimena sign a Deed of Sale (disguised as consent to construc
tion of an irrigation pump) in December 1970 > (b) Children s cause of action ac
crued from the death of their father in 1959 and they filed the action in 1976 >
Prescription is 30y (Art. 1141) > What is capacity to contract> Civil Code 37 ~
Act with legal effect G.R. No. L-27343 February 28, 1979
MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS, BACOLOD S
OUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC. v. ISABELA SAWMILL, MARGARITA G. S
ALDAJENO and her husband CECILIO SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, an
d THE PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, defendants, MARGARITA G. SALDAJEN
O and her husband CECILIO SALDAJENO Facts: Partner Saldejeno left the partnershi
p with Tubungbanua and Garibay but instead of terminating the partnership and li
quidating the properties, she allowed her partners to continue the same. The pro
perties were mortgaged to her and when she foreclosed it, the creditors of the p
artnership sued for the annulment of the mortgage. Even if they were not parties
to the contract of mortgage, they can ask for annulment because their rights as
creditors were prejudiced when they were not informed of the dissolution of the
partnership where even the properties were conveyed to Saldejeno thru mortgage.
> Isabela Sawmill (January 30, 1951) was a partnership among Leon Garibay, Marg
arita G. Saldejeno, and Timoteo Tubungbanua > Partnership acquired a lot of debt
s from purchasing materials and from delivering short of what the purchaser had
paid: (i) P1,288.89 to Oppen, Esteban, Inc. as unpaid balance for purchase of a
motor truck, tractors (February 3, 1956); (ii) P933.73 to Agustin E. Tonssay as
balance of the value he paid for lumber where delivery fell short of what was pa
id for (October 6, 1958 to November 8, 1958); (iii) P143 to Manuel G. Singsong a
s unpaid balance of purchased nipa shingles (May 25, 1988 to January 13, 1959);
(iv) P920.56 to Jose L. Espinos as balance of the value he paid for lumber where
delivery fell short of what was paid for (October 11, 1958); (v) P1,048.78 to B
acolod Southern Lumber Yard as balance of the value he paid for lumber where del
ivery fell short of what was paid for (October 11, 1958); (vi) P2,052.10 to Jose
Balzunce as unpaid balance for purchase of gasoline, motor fuel, and lubricatin
g oils (September 14, 1958 to November 27, 1958) > MOA and Deed of Assignment of

Rights with Chattel Mortgage (May 26, 1958) by Saldejeno over her right in the
partnership in favour of her partners ~ BUT non-termination of the partnership (
continued by Garibay and Tubungbanua) and non-dissolution of the partnership pro
perties but mortgaged the same in favour of Saldejeno > Judicial Foreclosure of
the Mortgaged Properties (trucks, tractors, machinery, office equipment, etc) by
Saldejeno against Isabela Sawmill ~ Certificate of Sale in Saldejenos favour (Oc
tober 15, 1969; 1959?) > Deed of Sale (October 20, 1959) of the same properties
by Saldejeno to Pan Oriental Lumber Company for P45k > SUIT by Creditors for Ann
ulment of Chattel Mortgage ~ allegedly deprived them of their rights since they
did not know about the dissolution of the partnership
83

> Mortgage Annulled > Prejudice against Creditors > HOW: (1) No publication of t
he foreclosure of mortgage; (2) Saldejeno cannot complain > Responsible party fo
r not insisting on the liquidaiton of the assets of the partnership > even agree
d to let Garibay and Tubungbanua continue doing the business of the partnership
"Isabela Sawmill" by entering into the MOA > Instead of terminating the Partners
hip when she ceased to be associated in the carrying on of the business, Partner
ship was not terminated but continued by Garibay and Tubungbanua in the same nam
e of "Isabela Sawmill by virtue of MOA ~ no liquidation of the assets; (3) Even i
f Saldejeno was in good faith, she must suffer because where one of two innocent
persons must suffer, that person who gave occasion for the damages to be caused
must bear the consequences > She entered into a MOA allowing Garibay and Tubung
banua to continue doing the business > OTHERWISE, creditors would not have been
misled into thinking that they were still dealing with the partnership Isabela S
awmill; (4) Creditors can assail the Mortgages validity even if not a party > Pre
judiced their rights as third persons ~ detriment which would positively result
to him from the contract in which he has no intervention > Ray Question: Why ann
ulment and not rescission? Annulment v. Rescission > Prejudiced persons (Credito
rs) not parties to a contract CAN ONLY RESCIND and NOT ANNUL > When would prejud
ice allow a third person to annul the contract? NONE, Action is rescission (if c
reditor) and not Annulment *Exception in Malabanan (Ibanez v. HSBC) is theoretic
al but not practical G.R. No. 158314 June 3, 2004 SAMAHAN NG MAGSASAKA SA SAN JO
SEP, represented by DOMINADOR MAGLALANG v. MARIETTA VALISNO, ADELA, AQUILES, LEA
NDRO, HONORIO, LUMEN, NICOLAS, all surnamed VALISNO; RANDY V. WAGNER, MARIA MART
A B. VALISNO, NOELITO VALISNO, MARY ANN L. VALISNO, PHILIP V. BRANZUELA and BREN
DON V. YUJUICO; MA. CRISTINA VALISNO, BENEDICTO V. YUJUICO, GREGORIO V. YUJUICO
and LEONORA V. YUJUICO Facts: The mortgaged property of Dr. Valisno was redeemed
by his grandchildren who were minors at the time. When the entire estate was su
bjected to CARP, the children and grandchildren filed for retention of
property. SMSJ assailed the right of the grandchildren to the land as owners bec
ause they were just minors. However, the defect in the redemption can only be as
sailed by the victims, who were the minors themselves, and their lack of action
for the annulment of the same rendered the voidable contract valid until annulle
d. Hence, they had the right as owners absent annulment of their redemption. > O
wnership by Dr. Nicolas Valisno Sr. of 57-hectare property > Mortgage of 12-hect
ares (October 20, 21, 1972) by Dr. Valisno in favor of Renato and Angelito Banti
ng > Subdivision of the Property to 10 (November 8, 1972) ~ Title issued to chil
dren of Nicolas, Angelito Banting, and Renato Banting > Foreclosure of the Mortg
age, sold to Dr. Valisnos grandchildren (Maria Cristina F. Valisno, Leonora Valis
no Yujuico, Benedicto Valisno Yujuico and Gregorio Valisno Yujuico) thru their p
arents by redemption from mortgagees (October 25, 1973) ~ Issuance of title to r
edemptioners (November 26, 1998) > Subjection of 57-hectare to expropriation > M
emorandum (June 14, 1995) by Provincial Agrarian Reform Officer that although th
e property had already been subdivided among the heirs of Dr. Valisno, the exces
s over the five-hectare retention limit could still be covered (RA 6657) ~ Same
rationale by Secretary Garilao who subjected the property to Comprehensive Agrar
ian Reform Program, subject to the retention rights of the heirs > Consolidated
Application for Retention and Award under RA 6657 (September 25, 1997) by Valisn
o heirs ~ Granted > Oppostion by SMSJ ~ that the grandchildren are not actually
tilling nor directly managing the land in question as required by law ~ Grandchi
ldren not entitled to retention rights as landowners due to minority > Valid Red
emption by the Minors: Lack of Annulment by the Aggrieved Party (1) Even as the
victims or the aggrieved parties who had the only right to annul the redemption,
the minors never initiated any action > Why minors are the aggrieved ~ Contract
was made for them, not by them; (2) Hence, the properties transferred to the Re
demptioner-Grandchildren in 1973 and no longer part of the Valisno estate > Thus
, as owners, they are entitled to retention which is granted to all landowners >
Limit is 5-hectares, Entire Redeemed property is 12-hectares, Each owner only r
etains 3-hectares; (3) Even if minors in 1973 when property was redeemed, they w
ere of legal age in 1994 when SMSP initiated the petition for coverage of the su

bject landholding under the CARL, and in 1997 when all the Valisno heirs filed t
heir Consolidated Application for Retention and Award under RA 6657 >> Art. 1327
that minors are incapable of giving consent to a contract >> Art. 1390 that a c
ontract where one of the parties is incapable of giving consent is voidable or a
nnullable > not void ab initio
84

>> Requirements for an Action for the Annulment: (1) the plaintiff must have an
interest in the contract; and (2) the action must be brought by the victim and n
ot the party responsible for the defect > Art. 1397 that the action for the annu
lment of contracts may be instituted by all who are thereby obliged principally
or subsidiarily G.R. No. 74938-39 January 17, 1990
ANGELINA J. MALABANAN v. GAW CHING and THE INTERMEDIATE APPELLATE COURT
Corporation, due to Angelinas refusal to accept it > Letter (November 3, 1980) fr
om Angelina that she had sold the property to Leonida Senolos ~ Demands (Novembe
r 24, 1980, December 5, 1980) by Angelina for Ching to vacate the property > Ref
usal of Ching, doubting the veracity of the sale and demanding a copy of the Dee
d of Sale ~ Eventually given a copy and discovered that the Sale was actually on
August 23, 1979 (for P1,176.48/sq.m.) but registered only on December 9, 1980 >
Demolition (November 16, 1981) of Building by Angelinas men > SUIT by Ching agai
nst Angelina and Leonia for annulment of Sale and injunction for demolition > CO
NTENTIONS of Ching: (1) Right of first refusal; (2) Lack of notice of the demoli
tion; (3) Sale was vitiated by fraud, deceit and bad faith because it was offere
d to him when in fact, it had already been sold to Leonida
G.R. No. L-75524-25
January 17, 1990
LEONIDA CHY SENOLOS, LEONARD CHAN and LEONSO CHY CHAN v. INTERMEDIATE APPELLATE
COURT and GAW CHING
> VALID SALE > Cannot be contested and annulled by Ching who was not a party to
the contract > Does not come under exception because No right over the property
> No legal basis to grant his petition (1) Ching had no legal right of preemptio
n pursuant to Secs, 4, 6, PD 1517, PD 1893 and Letter of Instruction No. 935 whi
ch provides a preemptive right on the part of a lessee over leased property > Pr
operty of Angelina is located outside the Urban Reform Zones (as defined in PD 1
517); (2) [Assuming Property was covered by PD 1517], Ching has no right because
the preemptive/redemptive rights of a lessee under P.D. No. 1517 exists only in
respect of the urban land under lease on which the tenant or lessee had built h
is home and in which he had resided for 10y or more > Building was built and bel
onged to lessor; (3) Preemptive right that Ching could have had could only have
been created by contract > No contract of lease between Ching and Jabit/Angelina
; (4) [Assuming Ching had Preemptive Right] Angelina thrice offered the property
to Ching but the latter had consistently refused to buy it > There was no preju
dice and could not have suffered any prejudice by the sale of the same piece of
land to Leonida; (5) No fraud where the sale of the property to Leonida preceded
the offer to Ching;
85
Facts: Ching was a lessee of the property of Jabit. When Jabit died, his daughte
r offered the property for sale to Ching thrice but the latter refused. Daughter
Angelina thus demanded that he leave the property because she had already sold
it to another. Angelina also had the building thereon demolished. Ching sued for
the annulment of the sale to Leonida and the injunction of the demolish order.
However, as a third party to the contract, Ching cannot seek its annulment. He d
oes not have any right to the property as it was outside the coverage of the law
; even if it was the preemptive right cannot apply to him because the building w
as belonged to the lessor; no contract of lease to even grant him the right of f
irst refusal; even if there was Angelina had thrice offered the land for sale.
> Lease of the Lot and Bldg of Mr. Jabit to Gaw Ching, non-citizen (1951; no con
tract) ~ 1st flr, Chings Victoria Blacksmith Shop; 2nd flr, residence > Death of
Mr. Jabit; Continued Lease with daughter Angelina Malabanan (still no contract)

> Notices (April 27, 1980, May 13, 1980, October 2, 1980) by Angelina to Ching t
hat she is selling the property for P5k/sq.m. ~ Refusal of Ching (not yet a Fili
pino citizen until October 7, 1980); Threat by Angelina that she is to sell it t
o another > Payment by Ching of rentals to Pacific Banking

(6) Any lease agreement by Ching must in any case be held to have lapsed when th
e leased house was condemned and the order of demolition issued; (7) HENCE, Chin
g does not have the right or interest to annul the contract which he is not a pa
rty to
MAXIMINO CARANTES (Substituted by Engracia Mabanta Carantes) v. COURT OF APPEALS
, BILAD CARANTES, LAURO CARANTES, EDUARDO CARANTES and MICHAEL TUMPAO
>> GENERAL RULE: strangers to a contract cannot sue either or both of the contra
cting parties to annul and set aside that contract > Arts 1397 that action for t
he annulment of contracts may be instituted by all who are thereby obliged princ
ipally or subsidiarily; Art. 1311 that Contracts take effect only between the pa
rties, their assigns and > EXCEPTIONS (Ibanez v. Hongkong and Shanghai Bank): In
jury to a third person where nullification is absolutely necessary to protect th
e her lawful rights ~ the existence of an interest in a particular contract that
is the basis of one s right to sue for nullification of that contract and that
essential interest in a given contract is, in general, possessed only by one who
is a party to the contract
Facts: The siblings of Maximino executed a Deed of Assignment in his favour cove
ring their rights to Lot No. 44 for P1 and the acknowledgement that their father
/owner had considered Maximino as the owner of the property. The Deed is valid b
ecause it has a consideration as previously stated and the action for its annulm
ent, which was based on fraud, has already prescribed (10y). > Settlement of the
Estate of Mateo Carantes (1933) where his son Maximino (one of six children) wa
s appointed as judicial administrator > Partition involved Lot No. 44, which was
subdivided into Lots A, B, C, D, and E where A had previously been expropriated
by the Government (for the construction of the Loakan Airport), while B and C w
ere subsequently sold to the Government as well by Maximo thru a Formal Deed of
Sale by virtue of an Assignment of Right to Inheritance (October 23, 1939) where
4 of his siblings assigned their rights to inheritance in Lot No. 44 to Maximin
o for a consideration of P1.00 and the declaration that they acknowledge Mateos r
epresentation that Maximino is the exclusive, continuous, peaceful and notorious
possession of the property as its rightful and exclusive owner (By agreement of
all the direct heirs and heirs by representation of the deceased Mateo Carantes
as expressed and conveyed verbally, by him during his lifetime, rightly and excl
usively belong to the particular heir, Maximino Carantes, now and in the past in
the exclusive, continuous, peaceful and notorious possession of the same for mo
re than ten years.) ~ Deed registered (March 16, 1940) and New TCTs for B to E is
sued in Maximinos name > Meanwhile, D was mortgaged (1948) by Maximino, as his ex
clusive property with the Philippine National Bank; and E remained registered in
his name > SUIT (September 4, 1958) for Declaration of Nullity of Deed of Assig
nment and Partition of Lots D and E into 6, by Maximinos siblings (the same who e
xecuted the Deed of Assignment ~ Bilad, Sianang, Lauro and Crispino but the latt
er by his heirs) > CONTENTIONS of Siblings: (i) Fraud, that they were made to be
lieve by Maximino that the Deed was only an authorization of the latter to conve
y portions of Lot No. 44 to the Government in their behalf to minimize expenses
and facilitate the transaction ~ That they discovered the assignment only on Feb
ruary 18, 1958; (ii) CA Held: Deed is void ab initio and inexistent on the groun
ds that real consent was wanting and the consideration of P1.00 is so shocking >
CONTENTIONS of Maximino: (i) On-its-face Agreement > No other agreement than wh
at appears in the Deed of Assignment > Deed was an acknowledgment of the fact of
designation of the property as specifically
86
G.R. No. L-18210
December 29, 1966
LAURENTIO ARMENTIA v. ERLINDA PATRIARCA, FLORENCIA SOMECIERA JULIANA ARMENTIA JO

SE SOMECIERA and SOFRONIO FLORES in his capacity as The Register of Deeds for th
e Province of Iloilo READ!!!
G.R. No. L-33360
April 25, 1977

pertaining or belonging by right of inheritance to the Maximino Carantes ~ assig

nors knew fully well that the deed of assignment contained what, on its face, it
represented> There was never any agreement between the assignors and the assign
ee authorizing the latter to merely represent his co-heirs in negotiations with
the Government ~ Any agreement other than the Deed of Assignment is barred by th
e statute of frauds and is null and void because not in writing, much less, in a
public instrument; (ii) Prescription ~ that siblings cause was based on a writte
n contract and hence prescription in 10y ~ Registration on February 21, 1947 as
Constructive Notice but Petition only on September 4, 1958; and (iii) No cause o
f action because ownership over the property became vested in Maximino by acquis
itive prescription of 10y from its registration in his name on February, 21, 194
7; (iv) Siblings Action was for Reformation and not Declaration of Nullity > BUT
not raised in his Answer in the Trial Court and only raised on Appeal ~ Cannot p
rosper > VALID DEED (1) There is consideration > P1 and acknowledgement by the s
iblings that the decedent Mateo Carantes had, during his lifetime, expressed to
the signatories to the contract that the property subject-matter thereof rightly
and exclusively belonged to Maximino > VALUABLE CONSIDERATION (2) Action is to
Annul the Deed on the ground of fraud and thus prescribes in 4y from discovery o
f fraud > When discovered: Registration of the Deed (March 16, 1940) in the Regi
ster of Deeds ~ Constitutes constructive notice to the whole world > Prescriptio
n on March 16, 1940 ~ Suit filed on September 4, 1958; (3) Deed not a trust crea
ted in favor of siblings > Clear and Open Repudiation by Maximino of such trust
~ Anathema to concept of a continuing and subsisting trust: (i) Formal deed of s
ale with Government; (ii) Mortgage of Lot D with PNB as his exclusive property;
(iii) Tax Declarations, Payment and Receipts in the name of Maximino > EVEN IF D
EED IS TRUST, an action for reconveyance based on implied or constructive trust
is prescriptible in 10y from Registration of Deed (March 16, 1940) ~ Prescribes
March 16, 1950 > When is there inadequacy of cause but adequacy of consideration
? HOW G.R. No. 3246 February 9, 1907 CADWALLADER & COMPANY v. SMITH, BELL & COMP
ANY and HENRY W. PEABODY & COMPANY Facts: PELC delivered its cedar piles to Henr
y for the latter to sell at $15 each. Because of the misrepresentation of Henry
that there was a lack of demand for the pile and thus the amount needed to be de
creased, PELC agreed to sell them at $12 each. Henry thus purchased all piles (5
81) at that rate but without informing PELC that it had already sold 213 to the
Government for $19 each.
PELC obtained an annulment of the sale to Henry and hence, is entitled to the am
ount of its remaining cedars which Henry had purchased, plus the value of its co
mmission. The sale to the Government cannot be annulled for it was consummated b
efore the sale of PELC to Henry. Thus, the parties were ordered to paid the amou
nt due to the other. > Delivery and Subsequent Sale of 581 Cedar Piles by Pacifi
c Export Lumber Company (Portland) to Henry W. Peabody & Company (Manila) ~ Orig
inal Rate as Agent was $15/pile BUT Henry, as agent, communicated that there was
lack of demand (August 2, 1902) > MEANWHILE, Sale (August 4) by Henry of 213 pi
les to Government for $19/pile ~ Earned $10,41.66 > Offer by PELC to sell $12/pi
le (August 5) ~ Accepted (August 6) > Payment by Henry to PELC of $6,972 for the
581 piles at $12 each, which was $3,445.66 less than the amount earned by Henry
from sale to Government > ANNULMENT of Sale between PELC and Henry: (1) FRAUD >
Concealment from PELC of the negotiations with the Government > Misrepresentati
on of the condition of the market > Buying the piles at $12 but Selling them at
$19; (2) Restoration of the parties original position by mutual restitution > Hen
ry entitled to the commission of the August 5 sale to the Government (still unde
r the original agency) but not to the commission of the sale with PELC > COMPUTA
TION: (a) To PELC:
$1,760.88 (Remaining Piles purchased by Henry minus its commission) + $331.17 (C
ommission of Henry, disallowed due to annulment) + $359.77 (Interest rewarded by
Court)
$2,241.82 (TOTAL AMOUNT DUE to PELC) (b) To Henry:
$6,993.80 (Granted counterclaim of Henry) $2,241.82 (Amount due to PELC)

$4,541.98 or P9,083.96 > Payment of $4,541.98 or P9,083.96 by PELC to Henry > Fr

aud that allows annulment is before/during contract because it would vitiate con
sent > Incidental Fraud only and hence, only claim for damages (Not rescind)
87

Velarde v. CA
G.R. No. 114051 August 14, 1995 DAVID INES and HORTENCIA CASTRO-INES v. COURT OF
APPEALS and DIONISIO GERONIMO Facts: Because Hortencia sold their conjugal prop
erty without her husbands consent, the sale was void due to her fault. The sps. a
re validly ordered to refund the purchase price with legal interest (computed fr
om date of RTC judgment) as the guilty party. > Deed of Sale (April 15, 1982) of
Conjugal Residential House and Lot by Hortencia Castro-Ines in favour of sps. G
eronimo ~ Without consent of husband David Ines whose signature therein was forg
ed > RTC: Void, pertaining only to Davids share; Other half under equitable mortg
age until refund by Hortencia of P150k purchase price > CA: Null in its entirety
~ Reconveyance by sps. Geronimo of entire property and Refund by Hortencia of P
150k + Legal Interest > Appeal by sps. Ines ~ there should not have been any leg
al interest for sps. Geronimo did not ask for it > VALID imposition of Legal Int
erest but from Date of Judgment, not Sale > LEGAL BASIS: (a) Art. 1398 grants re
storation to each party of the things which have been the subject matter of the
contract, with their fruits, and the price with interest; (b) Not based on affir
mative relief but on equitable grounds, pursuant to Art. 2210 that Interest may,
in the discretion of the court, be allowed upon damages awarded for breach of c
ontract ~ It was Ines who contracted a sale over the conjugal property without h
er husbands consent, thus causing its nullity > COMPUTATION: From the time of the
rendition of the trial court s decision (July 31, 1990) and not the date of the
sale (April 15, 1982) > Why Promulgation of Lower Court Decision? Why not final
ity of SC decision? > Best is Date of Breach (JJ) > No incentive for defendant t
o delay the case G.R. No. 142310 September 20, 2004 ARRA REALTY CORPORATION and
SPOUSES CARLOS ARGUELLES and REMEDIOS DELA RAMA ARGUELLES v. GUARANTEE DEVELOPME
NT CORPORATION AND INSURANCE AGENCY and ENGR. ERLINDA PEALOZA
Facts: ARRA sold its 2nd flr. to Pealoza. Nonetheless, it mortgaged the entire lo
t and building to China Bank to secure payment of its loans. When ARRA thus defa
ulted, ARRA foreclosed the properties but the same were redeemed by ARRA thru GD
CIA which was issued a Deed of Absolute Sale in its favor. Hence, Pealoza sued fo
r fulfillment of contract or refund what she had already paid; the latter was gr
anted by the Court. The Sale with Pealoza was valid and binding and hence, she ha
d the right to annul when ARRA mortgaged the property sold. She is granted refun
d whild GDCIAs contract was maintained and valid also absent proof of bad faith.
> Letter-Contract of Sale (November 18, 1982) between Arra Realty Corporation (o
wner of lot and 5-storey building) and Engineer Erlinda Pealoza where latter boug
ht part of the 2nd flr. (552 sq.m.) for P3,105,838 ~ CONDITIONS for Pealoza is DP
P901,738 until January 30, 1983 and Balance in 20 equal quarterly installments
of P110,205; CONDITIONS for Arra is Delivery of Property and Title ASAP (as soon
as 2nd flr was constructed) > Possession (May 1983) by Pealoza of the 2nd flr. ~
Put up an Office and a School (St. Michael International Institute of Technolog
y) > Real Estate Mortgage of Lot,Building (May 12, 1983) by Arra in favor of Chi
na Banking Corporation as security for a loan ~ Annotated (June 3, 1983) BUT Unk
nown to Pealoza > Payment by Pealoza (February 23, 1983 to May 31, 1984) amounting
to P1,175,124.59 ~ Stopped after she learned of the mortgage in July 1984 > Let
ter by Pealoza to Chinabank (August 1, 1984) of her sale of 2nd flr. and offered
to pay for Arras loan up to the equivalent amount of the balance of the purchase
price; Rejected; Letter with Deed of Absolute Sale with Assumption of Mortgage (
received from Arra as demanded by her Letter on August 31, 1984) > Withholding o
f Installment Payments by Pealoza; Transfer of the School (October 3, 1984); Clos
ing of Office but which was Reopened after it was padlocked by Arra when it clos
ed > Affidavit of Adverse Claim (November 26, 1984) by Pealoza ~ Annotated (Novem
ber 27, 1984); Cancelled (February 11, 1985) > Extrajudicial Foreclosure by Chin
bank upon Failure of Arra to pay its loan; Sale to Chinabank (August 13, 1986) f
or P13,953,171.07 > Deed of Conditional Sale (April 29, 1987) byArra to Guarante
e Development Corporation and Insurance Agency which would redeem the property f
or P22M ~ Redeemed (May 4, 1987); Deed of Absolute Sale (May 14, 1987); TCT in f
avor of GDCIA (May 15, 1987) > SUIT (May 28, 1987) by Pealoza against the Arra, G

DCIA, sps. Arguelles > CONTENTIONS of Arra: (a) No contract of sale was perfecte
d between Arra and Pealoza ~ Failure of Pealoza to pay the balance of the total pu
rchase price ~ Due January 1983 but DP Completion only March 4, 1983, Payment of
only 3 installments, 4th incomplete; (b) Abandonment of property when Pealoza tr
ansferred the school without prior notice; (c) Failure of Pealoza to pay for the
advances extended to her
88

(P302,753.06) and of rentals for her occupancy of the property (P2,177,935); (d)
GDCIA was a purchaser of the property in bad faith ~ knowledge of the claims of
Pealoza and the fact that the building was occupied by private individuals; (e)
GDCIAs refusal of Arras offer to return the P21M purchase price ~ Rescission by Ar
ra of Deed of Sale with GDCIA > RTC Held: Annulled Sale between Arra and Pealoza;
Pealoza Entitled to Refund of P1,444,124.59 with 12% annual interest; Valid Sale
to GDCIA; No counterclaim for Arra ~ did not petition for any damages but raise
d only when they moved for the reconsideration of the decision of the CA > Novem
ber 18, 1982 Letter-Agreement: I would like to review the arrangement arrived at
our meeting yesterday afternoon. You shall share one (1) floor of the proposed
5-storey office building to be constructed on a 992 sq. mt. lot owned by ARRA Re
alty Corporation located at Alvarado St., Legaspi Village, Makati, Metro Mla. Th
e consideration for which you shall own one (1) floor is THREE MILLION ONE HUNDR
ED FIVE THOUSAND EIGHT HUNDRED THIRTYEIGHT PESOS (P3,105,838.00) on a deferred p
ayment plan. The initial payment of NINE HUNDRED ONE THOUSAND SEVEN HUNDRED THIR
TYEIGHT PESOS (P901,738.00) shall be paid within sixty (60) days from November 2
0, 1982 and the balance payable in 20 equal quarterly payments of ONE HUNDRED TE
N THOUSAND TWO HUNDRED FIVE PESOS (P110,205.00). Every payment that you make, AR
RA shall credit your account by way of partial payment to your stock subscriptio
ns of ARRAs capital stock. As soon as our contractor, Pyramid Construction and En
gineering Corporation, complete its commitment with us, which is not more than f
ive (5) months, you shall immediately take possession of the floor of your choic
e. Further, as soon as practicable, the Title corresponding to the floor that yo
u own shall be transferred to your name. However, should you pay in full at the
end of the fourth quarter or at any time prior to the 5-year arrangement, the pr
ice shall be adjusted accordingly. I believe that this accurately summarizes our
understanding. If you have any questions or if I have not properly stated our a
greement, please let me know, otherwise, you may signify your conformity by sign
ing the duplicate copy of this letter. > Pealozas Right to Refund (1) Perfected Co
ntract of Sale b/w Pealoza and Arra > (i) Meeting of Minds despite Lack of Owners
hip by the seller of the thing sold at the time of the perfection of the contrac
t of sale ~ not an element of its perfection > (ii) Perfection does not transfer
ownership BUT Delivery ~ Pealoza took possession of the 2nd flr, put up her offi
ce and operated the St. Michael International Institute of Technology > Thus bec
ame the owner (Art. 1477);
(2) Failure by Pealoza to Pay > Failure to Pay DP on time ~ Vendor cannot recover
the thing sold even if the vendee failed to pay in full the initial payment for
the property BUT will merely give the vendor the option to rescind the contract
of sale judicially or by notarial demand (Art. 1592) > Arra accepted the delaye
d payments without any objections; (3) Pealoza may suspend the payment of the pri
ce of the property sold (Art. 1590) ~ reasonable grounds to fear such disturbanc
e ~ mortgage of the purchased property; (4) Non-waiver by Pealoza of her right to
enforce the Letter-Agreement > maintained her office > Turned over the possessi
on of the property on October 7, 1986 BUT immediately filed her complaint agains
t Arra; (5) No proof of Bad Faith of Pealoza and GDIAC; (6) No action for resciss
ion of sale with GDCIAC >> Elements of Abuse of Rights: (a) the existence of a l
egal right or duty; (b) which is exercised in bad faith; (c) for the sole intent
of prejudicing or injuring another > Core: Malice or bad faith > Good faith is
presumed and he who alleges bad faith has the duty to prove the same >> Good fai
th refers to the state of the mind which is manifested by the acts of the indivi
dual concerned > Consists of the intention to abstain from taking an unconsciona
ble and unscrupulous advantage of another >> Bad faith connotes bad judgment to
simple negligence > Imports a dishonest purpose or some moral obliquity and cons
cious doing of a wrong, a breach of known duty due to some motive or interest or
ill-will that partakes of the nature of fraud > Implies an intention to do ulte
rior and unjustifiable harm
G.R. No. 132415

January 30, 2002

MIGUEL KATIPUNAN, INOCENCIO VALDEZ, EDGARDO BALGUMA and LEOPOLDO BALGUMA, JR. v.
BRAULIO KATIPUNAN, JR. Facts: A Deed of Absolute was executed by Braulio in fav
or of the brothers Balguma. But the document is void because Braulio is not capa
citated to give consent, with a very low IQ who was not informed of the contents
and the nature of the English document, and moreover, his consent was vitiated
by the undue influence of his brother, Sencio and Atty. Balguma
89

> Deed of Absolute Sale (December 29, 1985) between Braulio Katipunan, Jr. (lot
and apartment owner), with his brother, Miguel Katipunan, and brothers Edgardo B
alguma and Leopoldo Balguma, Jr., represented by their father Atty. Leopoldo Bal
guma, Sr. where Braulio sold his lot and apartment for P187k > New TCT in favor
of Balguma brothers, Collection of Rentals by Atty. Balguma since January, 1986
> SUIT (March 10, 1987) by Braulio for annulment of the Deed of Absolute Sale >
CONTENTIONS of Braulio: (1) that his brother Miguel, Atty. Balguma and Inocencio
Valdez convinced him to work abroad and through insidious words and machination
s, they made him sign a document purportedly a contract of employment, which doc
ument turned out to be a Deed of Absolute Sale; (2) that he did not receive the
consideration stated in the contract; (3) that he only reached 3rd grade > CONTE
NTIONS of Petitioners: (1) that Braulio was aware of the contents of the Deed of
Absolute Sale; (2) that he received the consideration involved; (3) that he kne
w that the Balguma brothers have been collecting the rentals since December 1985
but has never objected or confronted them; (4) that he filed the complaint beca
use his sister, Agueda Savellano, urged him to do so (where his motions to dismi
ss his complaint had been granted on the same ground for which Atty. Balguma pai
d P2500; but motioned for reconsideration since he did not sign the motions to d
ismiss voluntarily due to his poor comprehension and the lack of assistance of c
ounsel ~ sister Agueda was thus appointed as his guardian ad litem) > Deed of Ab
solute Sale is VOID > (I) INCAPACITY TO GIVE A RATIONAL CONSENT ~ (a) medical re
port of Dr. Annette Revilla (Resident Psychiatrist, PGH) that he has a very low
IQ and a mind of a six-year old ~ unrebutted by petitioners; (b) fact that he on
ly reached 3rd grade; (c) difficulty of the trial court in communicating with hi
m where it had to clarify certain matters because Braulio was either confused, f
orgetful or could not comprehend; (II) VITIATED CONSENT ~ intimidation and undue
influence exerted upon him by his brother Miguel and Inocencio Valdez and Atty.
Balguma: (1) It was his brother Miguel who negotiated with Atty. Balguma; (2) B
raulio was not informed of the nature and contents of the document he signed ~ w
ritten in English and embellished in legal jargon; (3) Braulio was forced to sig
n the document by the shoving of his brother Miguel and Sencio and the threat th
at if he does sign, something will happen;
> HENCE, deprivation of reasonable freedom of choice and impossibility of unders
tanding the contract > His ignorance and weakness made him most vulnerable to th
e deceitful cajoling and intimidation of petitioners > No Mutual Restitution > P
rinciple of mutual restitution (Art. 1399) when the defect of the contract consi
sts in the incapacity of one of the parties, the incapacitated person is not obl
iged to make any restitution, except when he has been benefited by the things or
price received by him > Only Miguel profited from the entire transaction ~ that
it was Miguel who wanted to go abroad and needed money, giving loose change onl
y to Braulio that are grossly disproportionate to the value of his property ~ At
ty. Balguma admitted that it was Miguel who received the money from him > Restit
ution only to Braulio ~ possession and fruits (rentals from lessees) of the prop
erty
>> Contract of sale ~ Perfected from the meeting of minds upon the thing which i
s the object of the contract and upon the price > Intent of the parties in enter
ing into the contract respecting the subject matter and the consideration thereo
f > Elements of a Contract of Sale: (a) consent, (b) object, and (c) price in mo
ney or its equivalent > Consent may be vitiated by the presence of ANY: (1) mist
ake, (2) violence, (3) intimidation, (4) undue influence, and (5) fraud (Art. 13
30)
>> Contracts with incapable consent or vitiated (by mistake, fraud, or intimidat
ion) IS NOT void ab initio BUT ONLY voidable and is binding upon the parties unl
ess annulled by proper Court action > Effect of Annulment ~ to restore the parti
es to the status quo ante insofar as legally and equitably possible > EXCEPTION:
when the defect of the contract consists in the incapacity of one of the partie
s, the incapacitated person is not obliged to make any restitution, except when

he has been benefited by the things or price received by him

G.R. No. 12605 September 7, 1918
90

UY SOO LIM v. BENITO TAN UNCHUAN, FRANCISCA PASTRANO and BASILIO CEFRANO UY BUND
AN Facts: Uy Soo Lim was the alleged son of Santiago who was born in China from
the latters paramour (wife in Chinese culture, whom he met when he returned there
after his Philippine marriage). When Santiago died, he left most of his estate
to his only son at the prejudice of his legal wife and daughters. Hence, the chi
ldren and the legal wife came to an agreement with Uy Soo Lim whereby the will w
as not to be executed but the partition would follow the deeds of cession by the
children, all in the favor of Francisca, the eldest child. After Uy Soo Lim tur
ned 21y/o, he sought the annulment of his deed of cession, contending his minori
ty at the time of its execution. However, his petition cannot prosper for two re
asons. For one, he sought the annulment 10m after he came of age and after he ha
d already spent the purchase price even after he attained the majority age. Ther
efore, his failure to rescind the contract immediately when he turned 21 and onl
y after he claimed and spent the money had ratified the deed. Second, he is unab
le to return such price due to lack of money. Hence, no restitution can be made
and hence, rescission cannot be granted. > Two Families of Santiago Pastrano Uy
Toco (13y/o) (a) August 2, 1882, in the Philippines (Cagayan de Misamis), with w
ife Candida Vivares > Children: Francisca (married Benito Tan Unchuan) and Conce
pcion > Santiago had no property at the time of marriage and acquired his large
estate during this marriage; (b) 1892, in China (when he returned), with paramou
r Chan Quieg / Chan Ni Yu ~ Wife in Chinese custom because living maritally with
Santiago during his stay in China constitutes all the forms of valid marriage i
n Chinese customs > Child: Uy Soo Lim ~ Never got to meet him because he returne
d to the Ph before he was born and was informed only by Chan thru letters; > Dea
th of Santiago (March 6, 1901) ~ Will favoured Uy Soo Lim who had larger share (
7/9) than daughters and wife > Respective shares of the children were administer
ed by their guardian Basilio Uy Bundan until October 18, 1910 upon court order b
ecause Francisca had already reached majority, Concepcion would reach her majori
ty in a few months, and Uy Soo Lim had married (1910) > Motion by Candida and da
ughters (May 25, 1991) to partition the estate not according to the will ~ that
Uy Soo Lim was not entitled under the law to the amount of the estate assigned h
im in the will because he was not a son, legitimate or illegitimate, of Santiago
~ If illegitimate, only 1/6 (or 1/3 of Santiagos share in the community property
) > Arrival of Uy Soo Lim in Manila (March 13, 1911) to protect his share in the
estate ~ Employed the assistance of Choa Tek Hee, a resident merchant of Manila
, and attorneys,
Major Bishop (to represent him in Manila) and Levering (to represent him in Cebu
) > AGREEMENT (October/November 1911) b/w Choa Tek Hee (representative of Uy Soo
Lim, under an SPA, whom he hired) and Candida, Francisca and Concepcion to let
3 designated Chinese merchants give advise on the dispute (decision not binding)
> CHINESE ADVISE: Relinquishment of Uy Soo Lims rights in the estate for P82,500
~ Accepted by the parties > Deeds of Cession (November 18, 29, December 6, 1911
, Manila) by Uy Soo Lim (with consent of his mother in a public document dated D
ecember 4, 1911), and Chan Quieg, and Candida and Concepcion, respectively relin
quishing and selling all their rights to the estate to Francisca ~ Uy Soo Lim re
ceived sold his for P82,500 > Deed by Basilio (December 4, 1911), renouncing all
his rights to Santiagos business in Cebu in favor of Francisca because he nor th
e Santiagos brother were not a co-owner as declared in latters will > Court Order
(December 11, 1911) declaring Francisca as the sole owner of the estate of Santi
ago and ordering its delivery to her > SUIT (August 24, 1914) by Uy Soo Lim for
the annulment of the Deed of Cession to Francisca and of the court order > CONTE
NTIONS of Uy Soo Lim: Minority at the time of the execution of the deed of cessi
on ~ (a) Undue influence and advantage taken by defendants of his youth, passion
s, and inexperience; (b) Deceit or Misrepresentation of the materials facts conc
erning the value of the property and interest in questions > VALID DEED OF CESSI
ON > Ratification of Deed by Failure to Repudiate: (1) With full knowledge of hi
s rights in the premises, Uy Soo Lim failed to disaffirm his contract within a r
easonable time after reaching majority > Failure by Uy Soo Lim to repudiate the
Deed of Cession upon age of majority (21 on October 8, 1913) > Actually RATIFIED

IT > Instead of repudiating it promptly upon reaching his majority, he DISPOSED

of the greater part of the proceeds after he became of age and after he had ful
l knowledge of the facts > Of the P82,500, P20k was spent before 21y/o; P62,500
upon 21y/o, P7,500 of which was spent before Annulment Case and P55k since filin
g the case, and the last P7,200 of the the P55k, spent on April 13, 1916 or 2.5y
after 21y/o and after he knew all the facts now alleged by him to constitute fr
aud; (2) Uy Soo Lim made no offer to return to Francisca the purchase price whic
h would be subject to her disposition if Deed of Cession would be annulled ~ Sti
ll P62,412.67 of the purchase price was available for refund after 21y/o and P55
k when he filed his suit to rescind > He was utterly without funds to reimburse
the consideration ~ Testified in Choa Tek Hee case that the money to be obtained
was necessary to support oneself; (3) NO DECEIT > Uy Soo Lim, though a minor th
en, acted deliberately with full knowledge of the facts and after mature deliber
ation and upon the advice of
91

capable counsel > Understood all the essential facts bearing upon his interest i
n the estate and intelligently comprehended the nature of the deed of cession, i
ts contents and its effect upon his interests; (i) He was a law student, with mo
re than ordinary intelligence and with a keen appreciation and understanding of
all the elements of strength and weakness in his case ~ Was able to avoid a dire
ct answer to inconvenient questions and in professing lack of memory in other po
ints during his testimony; (ii) Had 3 competent advisers to direct him ~ Choa Te
k Hee (a person of unusual ability ho had exerted all his ability to procure for
Uy Soo Lim the best possible terms) and lawyers Major Bishop (in Manila where D
eed was signed) and Mr. Levering (in Cebu where most of the property was situate
d) who were well and favorably known to the Bench and Bar as attorneys of abilit
y and integrity ~ Would thus not allow their client to sign without understandin
g what he is signing; (iii) No misrepresentation of rights involved; > EVIDENCE
of Recognition of Sale and Payment: (i) Revocation of Choa Tek Hees SPA and Instr
uction to pay him directly (after Choa Tek Hee failed to deliver him P42,500 or
the value of the first three promissory notes for P82,500 purchase price) ~ Gran
ted P31,511.93 ~ Also immediately spent; (ii) Suit against Choa Tek Hee for revo
cation of SPA as he was a minor when it was executed, alleging that his interest
in Santiagos estate was P200k but the same was reduced to a money basis or sold
for P83k more or less; (iii) Motion by Uy Soo Lims guardian (Chas. E. Tenney) dur
ing case against Choa Tek Hee to direct the latter to indorse the upcoming promi
ssory notes to the clerk of court for collection; (4) Contention that he was of
age in Chinese customs is set aside by Court to take assumption of minority whic
h is most favorable to appellant; > HENCE, FORFEITURE of Uy Soo Lims Right to Res
cind on account of his minority > RECAP: Not only should he have refunded all mo
neys in his possession upon filing his action to rescind, but, by insisting upon
receiving and spending such consideration after reaching majority, knowing the
rights conferred upon him by law, he must be held to have forfeited any right to
bring such action >> Purpose of Minors Exemption in Contracts (Hastings vs. Doll
arhide) > Protection of the minor from prejudice by acts done or obligations inc
urred at a time when they are not capable of determining what is for their inter
est to do > HENCE, law gives them an opportunity, after they have become capable
of judging for themselves, to determine whether such acts or obligations are be
neficial or prejudicial to them, and whether they will abide by or avoid them >
BUT CEASES if the right to affirm or disaffirm extends beyond an adequate opport
unity to so determine and to act on the result > LEGAL EFFECT (Englebert vs. Pri
tchett) > all consideration which remains in the infant s possession upon his re
aching majority or at the time of an attempted disaffirmance in case he is still
under age must be returned, but that
disaffirmance will not be defeated by inability to return what he has parted wit
h prior to such time > Not to be permitted to regain what he parted with or refu
se payment while still possessed of what he received > He must return such porti
on thereof as remains in his possession when reaching majority > WHEN MADE: Rest
itution before he can Rescind (Manning vs. Johnson) ~ Important fact is not the
time when he received the money, but the time when he disposed of it > OTHERWISE
, Affirmance of the contract when infant reaches majority still possessing prope
rty (if he disposes of it so that he cannot restore it, or retains it for an unr
easonable length of time after attaining his majority) > WHY: to avoid the tende
ncy to squander the money if allowed to rescind first only after conveyance to o
ther party > BUT tendency of courts, in their anxiety to protect the rights of i
nfants in the matter of contracts made by them during non-age, have after they h
ave become adults, to treat them to the same extent as infants still, exempting
them from the operation of rules of law, not only of general obligation, but fou
nded on essential justice; >> ART. 1295. Rescission obliges the return of the th
ings which were the objects of the contract, with their fruits and the sum with
interest; therefore it can only be carried into effect when the person who may h
ave claimed it can return that which, on his part, he is bound to do. >> ART. 13
04. When the nullity arises from the incapacity of one of the contracting partie
s, the incapacitated person is not obliged to make restitution, except to the ex

tent he has profited by the thing or by the sum he may have received. >> ART. 13
08. While one of the contracting parties does not return that which he is oblige
d to deliver by virtue of the declaration of nullity, the other cannot be compel
led to fulfill, on his part, what is incumbent on him. >> Art. 1314. The action
for nullity of a contract shall also be extinguished when the thing which is the
object thereof should be lost by fraud or fault of the person having the right
to bring the action. If the cause of the action should be the incapacity of any
of the contracting parties, the loss of the thing shall be no obstacle for the a
ction to prevail, unless it has occurred by fraud or fault on the part of the pl
aintiff after having acquired capacity.
92

93

G.R. No. L-51058 January 27, 1992 ASIA PRODUCTION CO., INC., WANG TA PENG and WI
NSTON WANG v. HON. ERNANI CRUZ PAO, LOLITA LEE LE HUA and ALBERTO DY Facts: Asia
Production had an oral agreement with Lee and Dy for the sale of the latters buil
ding and assignment of latters lease of the land on which the building stood. Des
pite payments by Asia Production, Lee and Dy failed to execute deeds of sale and
assignment as promised. Hence, Asia Production left the premises and sued for t
he refund of the payments thus made. The contention of Dy that the agreement was
void because it was oral and the Statute of Frauds require it to be written (si
nce it involved the sale of real property and lease of 1y) is without merit beca
use the Statute cannot apply where the action, for recovery of money, was not fo
r execution or specific performance of the contract and where there had already
been partial performance which serve as the contracts validation already. > Oral
Agreement (March 1976) between LOLITA LEE LE HUA and ALBERTO DY, and ASIA PRODUC
TION CO., INC., where former were to sell their building to the latter and assig
n the lease of the lot (wherein the bldg stood; owned by Lucio San Andres) in la
tters favour for P170k ~ Promise by former to execute a Deed of Conveyance and of
Assignment within 60d from downpayment > Payment (March 20, 1976) by Asia Produ
ction of Downpayment worth P20k and Issuance of 8 postdated checks representing
monthly instalments > Construction (May 1976) by Asia Production of a weaving fa
ctory > Encashment of Checks (worth P30k) but Failure of Lee and Dy to execute d
eeds of sale and assignment; Assurance by the San Andres of his unwillingness to
consent to deed of assignment (unless increase in rental or purchase of land at
high price) > Stop Payment Order by Asia Production of the remaining 6 checks;
Vacating of Property (December 29, 1976) and Return of Possession to Lee and Dy;
Demand for Refund worth P50k > Refusal of Lee and Dy > SUIT by Asia Production
for Collection of a Sum of Money > CONTENTIONS of Dy (Lee in default for failing
to respond): Agreement was barred by the Statute of Frauds because it was oral,
involving sale of real property and lease of more than 1y ~ Hence, absent writt
en proof, agreement was unenforceable >> Art. 1403, Unenforceable unless they ar
e ratified >> Purpose of the Statute of Frauds > to prevent fraud and perjury in
the enforcement of obligations, obligations which depend for their evidence on
the unassisted memory of witnesses, by requiring certain enumerated contracts an
d transactions to be evidenced by a writing signed by the party to be charged >
Requirement of writing refers only to the manner they are to be proved >> LEGAL
EFFECT >
makes ineffective actions for specific performance of the contracts covered by i
t; does not declare them absolutely void and of no effect but simply "unenforcea
ble" >> APPLIES TO Actions for execution of contracts ~ Wide field for fraud bec
ause unless they be in writing there is no palpable evidence of the intention of
the contracting parties; NOT TO executed contracts because executed ones (full
or partial) is already a BAR to the application of the statute ~ Otherwise, it w
ould enable the defendant to keep the benefits already derived by him from the t
ransaction in litigation, and, at the same time, evade the obligations, responsi
bilities or liabilities assumed or contracted by him thereby > Non-Application o
f Statute of Frauds: (1) Action is for Recovery of Partial Payments Made, not of
Specific Performance to enforce the Sale/Assignment of Lease > Not covered by S
tatute; (2) EVEN IF COVERED, Partial Execution of the Agreement barred applicati
on of Statute of Frauds; (3) Motion to dismiss is theoretically or hypotheticall
y an admission of the truth of the allegations of fact in the complaint G.R. No.
L-23213 October 28, 1977 WESTERN MINDANAO LUMBER CO., INC. v. NATIVIDAD M. MEDA
LLE and ANTONIO MEDALLE Facts: To operate its logging business, WMLC contracted
a right of way agreement with Hernandez over the road which lies on the latters p
roperty. When the property was subsequently bought by Medalles, the agreement was
initially recognized but thereafter considered it unenforceable under the Statu
te of Frauds. Medalles claimed that the agreement lacked signatures and thus sent
notice to WMLC of the closure of the road. However, the agreement for the right
of way is not covered by the Statute of Frauds because Art. 1403 is exclusive w
here such agreement is not a sale of real property or its interest. > Right of W
ay Agreement (September 8, 1955) between WESTERN MINDANAO LUMBER CO., INC. and L

uciano Hernandez whereby the latter allowed former to use the road through his p
roperty (connecting hway and concession) for the formers logging operations > Imp
rovements of the Road by WMLC > Purchase of Hernandezs Property (1958) by NATIVID
AD M. MEDALLE and ANTONIO MEDALLE ~ New owners did not oppose but instead allowe
d the continued use and maintenance of the road by WMLC and the public > Notice
by Medalles to WMLC of their intention to close the road > SUIT by WMLC for ackn
owledgment and enforcement of the Road right-ofway Agreement > CONTENTIONS of Me
dalles: Contract unenforceable under the Statute of Frauds (as a contract of sal
e?) because 1st page was not signed by
94

both parties and witnesses; 2nd is not dated; Signature of the WMLC does not app
ear; Agreement not acknowledged before a person authorized to administer oaths >
VALID CONTRACT: (1) Statute of Frauds does not apply > Art. 1403 is Exclusive >
An agreement creating an easement of right-of-way is not one of those contracts
covered because it is not a sale of property or of an interest therein > WHAT I
S IT THEN? A contract of pure beneficence since no proof/allegation of compensat
ion? But wont it be extended at the pleasure of owner?; (2) Amended Complaint was
for the recognition of the existence of an easement of right-of-way and a deman
d for the establishment of an easement of right-ofway, if none exist (Art. 649)
~ Partial enforcement due to permitted use of road granted by Medalles after pur
chase of lot > Is not an Easement an Interest on real property? > What is the ef
fect if not in writing? > How does Statute discourage Fraud?
Property by BPI to National Book Store > CONTENTIONS of BPI: Sale with Limketkai
not perfected but continuing negotiations only ~ No written contract, No author
ity of AVP Amorin to sell, Counter-Offer by Limketkai when it offered to pay on
terms instead > PERFECTED CONTRACT OF SALE (1) Lack of written contract of sale
of real property BUT Statute of Frauds does not apply: (a) Exception to Statute
of Frauds > existence of a written note or memorandum evidencing the unwritten c
ontract of sale > Complaint, par. 3 pleads that the deal had been
closed by Letter and Telegram which was signed by BPI, referring to the property
sold, the purchase price of P4/sq.m.; Letter of Kenneth Richard Awad addressed
to Roland Aromin, authorizing the sale of the subject property at the price of P
1k/sq.m. giving 2% commission to the broker and instructing that the sale be on
cash basis; Authority to sell by BPI to Pedro Revilla, Jr., authorizing the latt
er to sell the property at the initial quoted price of P1k/sq.m.; Letter authori
ty signed by Aromin allowing the buyer, Limketkai, to enter the premises of the
property to inspect the same; Letter by Pedro Revilla, Jr., that he had procured
a buyer in the name of Limketkai; Letter by Limketkai to BPI confirming their t
ransaction regarding the purchase of the subject property; Tender of Payment by
Limketkai thru check for P33,056,000; Letter by Alfonso Zamora to Aromin to resu
bmit new offers only if there is no transaction closed with Assetrade Co.;
G.R. No. 118509 December 1, 1995 LIMKETKAI SONS MILLING, INC. v. COURT OF APPEAL
S, BANK OF THE PHILIPPINE ISLANDS and NATIONAL BOOK STORE Facts: BPI had a verba
l agreement with Limketkai, selling the property of Ph Remnants Co. as its trust
ee. When BPI subsequently refused payment of Limketkai, latter sued for specific
performance. Contract of Sale, although oral and concerns real property, does n
ot fall under Statutes of Fraud because other documents were presented to prove
such contract and because such agreement had been ratified when BPI cross-examin
ed Limketkai on the details of the contract thereby acknowledging its existence.
> Verbal Agreement (July 11, 1988) between Limketkai Sons Milling, Inc. (repres
ented by Alfonso Lim and Albino Limketkai) and Bank of the Philippine Islands wh
ere latter is to sell the property (of Philippine Remnants Co., Inc. as its trus
tee, pursuant to authority granted May 14, 1976) to former ~ Lim and Limketkai m
et with BPI VP Albano and Asst. VP Aromin and agreed to pay P1k/sq.m. in cash bu
t asked if they can pay on terms instead; BPI said it would ask the Trust Commit
tee but clarified that should the term payment be disapproved, then the price sh
all be paid in cash; Promissory note by Limketkai > Tender of Full Payment (July
18, 1988) by Limketkai upon knowledge that its offer to pay on terms had been f
rozen ~ Refusal by VP Albano since his authority to sell had been withdrawn; Ref
usal of BPI VP Bona > SUIT (August 25, 1988) by Limketkai for Specific Performan
ce > SALE (July 14, 1989) of the
(b) Ratification IF Statute of Frauds applies > Cross-examination by BPI of Limk
etkais witnesses on the contract itself, the purchase price, the tender of cash p
ayment, the authority of Aromin and Revilla, and other details of the litigated
contract > Elicited evidence proving the evidence of a perfected contract > Waiv
er of Defense of Statute of Frauds; (2) Authority of AVP Amoric to sell the prop
erty > job was to manage and administer real estate property > (i) Evidence: Let

ter of Instruction (June 14, 1988) from

Philippine Remnants Co. regarding the sale of its property ~ Addressed to Aromin
; P1k purchase price was changed to P1,100 by Aromin and later brought down agai
n to P1k by Aromin; Permission given to Limketkai to view the lot was signed by
Aromin and honored by the BPI guards; Letter (July 9, 1988) from BPI real estate
broker Revilla informing BPI that he had a buyer (Limketkai) for the property w
as addressed to Aromin; Conference (July 11, 1988) when the contract was perfect
ed was with Aromin and VP Albano; Albano and Aromin were the ones who assured Li
mketkai that term payment was possible; Aromin called up Miguel Bicharra of Phil
ippine Remnants to state that the BPI rejected payment on terms; Aromin to whom
Philippine Remnants gave the go signal to proceed with the cash sale > Full auth
ority of Aromin to bind BPI; (ii) Trust
Committee does not approve regular transactions ~ Sale already perfected upon mu
tual agreement of purchase price of P1k and that if the proposed payment on terms
will not be approved by our Trust Committee, Limketkai should pay in cash ~ Amo
unt was no longer subject to the approval or disapproval of the Committee (3) NB
S buyer in bad faith > ignored the notice of lis pendens annotated on the title
when it bought the lot > Able to purchase it just because its President is a clo
se friend of BPI Senior VP Barcelon > Even offered P7M to Limketkai just to drop
the case and give up the lot
95

>> Phases of a Contract > (a) Preparation, conception or generation, which is th

e 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; (c) Consummation or death, w
hich is the fulfillment or performance of the terms agreed upon in the contract
>> Waiver of Defense of Statute of Frauds: RATIFICATION > Contracts infringing t
he Statute of Frauds are ratified when the defense fails to object, or asks ques
tions on cross-examination > No timely objection or protest was made to the admi
ssion of the testimony of the plaintiff with respect to the contract; Cross-exam
ination put by their counsel to the witnesses in respect to said contract, tacit
ly waived their right to have it stricken out > How do you know whether writing
is sufficient to remove Agreement from Statute of Frauds G.R. No. L-8334 Decembe
r 28, 1957 BIENVENIDO BABAO, ETC. v. FLORENCIO PEREZ, ETC., ET AL. Facts: An Ora
l Agreement was allegedly made between Celestina and Santiago where Celestina al
lowed Santiago to plant and administer her property and promised him of the prop
erty upon her death. After the death of both parties, the Estate of Santiago sou
ght the recovery of said after the sale of the property to another. RTC Granted
such, ruling that the Statute of Frauds does not apply due to partial performanc
e of the Agreement by Santiago (oral evidence was thus allowed), and that the Ag
reement was valid. However, the Agreement falls under the Statute of Frauds as a
n Agreement not to be performed within a year and as a Sale of Real Property bec
ause the Doctrine of Partial Performance applies only if the Agreement was fully
performed within a YEAR (Santiago performed Agreement in 23y) and only if the A
greement was clear (Agreement vague without specs as to what size was to be plan
ted to coconuts and to crops). Hence, Statute of Frauds apply and the oral evide
nce presented failed to satisfy it. Hence, Agreement is unenforceable. > Alleged
Oral Agreement (1924) b/w Celestina Perez and Santiago Babao (husband of Celest
inas niece, Maria Cleofe Perez) where former allowed latter to improve (by cleari
ng all forest trees, by planting coconut trees and crops, rice, corn, and bamboo
trees) and administer her 156-hectare land (during her lifetime) and promised t
o give him or his wife of her estate, Lupang Parang, and its improvements after
her death ~ Where all expenses for labor, and materials would be at his cost > S
ALE (1945) by Celestina thru Leovigildo Perez by Special Power of Atty of 127 he
ctares > CONTENTIONS of Babao: (1) That he left his work as administrator of the
Llana Estate, with P150/m salary; (2) Cleared, administered, and planted, from
1924-1946, 50 hectares for
coconuts trees; 70 hectares for rice, corn; 50 hectares unimproved; (3) Balance
due him was P47k ~ Planting worth P7,400; P150/m salary worth P39,600; > CONTENT
IONS of Celestina: (1) No oral agreement ~ Property actually cleared, planted an
d administered by Celestinas husband, Esteban de Villa, her overseers and tenants
(truco system where persons were allowed to clear the land and plant thereon an
d from the harvest were compensated according to a graduated scale of division v
arying from year to year); (2) Santiago did not have anything to do with the lan
d ~ Only in 1930 when Santiago Babao began administering the land after Esteban
died, and Until 1935 when she prohibited Santiago from interfering with the admi
nistration of the land because of his disgusting behaviour; (3) Compensation for
work from 1930-1935 by receiving the proceeds of the harvests; (4) Leovigildos S
PA was executed in the presence of Santiago who did not object > Death of Celest
ina (August 24, 1947) > Death of Santiago (January 6, 1948) > SUIT by Estate of
Santiago for recovery of of 156-hectare parcel of land and P47k (value of the pr
oduce gathered from August 1947), for annulment of sale; Motion to dismiss becau
se the verbal agreement was unenforceable under the Statute of Frauds > RTC In f
avour of Santiago because the Statute of Frauds cannot be invoked for the reason
that performance by one party of his part of the contract takes the case out of
the Statute ~ Santiago fully complied with his part of the oral contract betwee
n the parties; CA Reversed but Decision Set Aside for lack of jurisdiction > > A
greement falls under Statute of Frauds; Fails to Satisfy Doctrine of Partial Per
formance to take it out of Statute of Frauds; Failure to Satisfy Statute of Frau
ds; NO VALID AGREEMENT (1) Agreement is one that is not to be performed within a

year > Agreement was allegedly made in 1924 where Santiago was to clear, level
and plant coconut trees and crops on 156 hectares of forest land > Obligations c
ould not be accomplished in one year and were in fact, accomplished during the l
ifetime of Celestina which lasted over a period of 23y > WHY PARTIAL PERFORMANCE
IS NOT AN EXEMPTION HERE: Execution of Agreement by more than 1 Year (23y) wher
e the Doctrine of Partial Performance taking an Oral Contract out of the Statute
of Frauds only applies if the obligation is not to be performed by BOTH PARTIES
and ONE has completely performed it WITHIN 1 YEAR ~ Other party cannot avoid th
e fulfillment of those incumbent on him under the same contract by invoking the
statute of frauds because the latter aims to prevent and not to protect fraud; (
2) Agreement is one of sale of real property > WHY PARTIAL PERFORMANCE IS NOT AN
EXEMPTION: Vague Agreement where Doctrine only applies if Agreement is certain,
definite, clear, unambiguous and unequivocal in its terms and subject matter, a
nd completed in every respect except for the writing required before the Statute
may operate > All the essential terms of the contract must be established by co
mpetent proof to have been
96

definitely understood and agreed upon by the parties, and shown to be definite,
certain, clear, and unambiguous > WHY VAGUE: without specifications on how many
hectares was to be planted to coconuts, to rice and corn, and to bananas and bam
boo trees ~ Easier and cheaper to plant crops than coconut trees > No sane prope
rty owner would enter into such contract as it would cost much more time, money,
and labor to convert forest land to rice and corn land than to convert it into
a coconut plantation > Celestinas obligation also impossible because executed onl
y upon her death > Testimony of alleged witness, Carlos Orense that Agreement wa
s for Santiago to clear the land and plant coconuts, for the land will eventuall
y fall in his hands G.R. No. L-5447 March 1, 1910 PAUL REISS, ET AL. v. JOSE M.
MEMIJE Facts: Because Lumber owner Reiss refused to further extend credit to Kab
alsa, contractor of Memije for the repair of his house, Memije promised to pay f
or the lumber delivered and used. When Reiss sued for collection, Memije alleged
that the contract was unenforceable because it was oral and no written evidence
was presented thereof. However, the Statute of Frauds that requires written evi
dence as to the promise to answer for anothers debt applies only to agreements of
surety, guaranty. The debt of Memije to Reiss was of a original debtor and not
as a collateral. Hence, written agreement was not required and evidence was suff
icient to establish the actual debt for and delivery of the lumber. > Credit is
given to a 3rd person ~ Agency of a creditor > Oral Agreement b/w Paul Reiss (ow
ner, Lumber company) and Jose Memije (house owner, active Manila lawyer) for the
repair of latters house ~ Memije, accompanying contractor Buenaventura Kabalsa,
agreed to pay for the lumber needed after Kabalsa was unable to secure credit fo
r the lumber needed, having no money and after Reiss absolutely refused to allow
any lumber to leave their yard without payment in advance > Delivery of the lum
ber for the house repair > SUIT by Reiss for recovery of unpaid balance of the p
urchase price of lumber > CONTENTIONS of Memije: No guaranty of payment and even
if there was, it was not in writing, HENCE proof thereof was not admissible in
evidence under Sec. 335 of the Code of Civil Procedure > RTC admitted all the ev
idence offered by both parties which established the existence of Memijes promise
to pay for the lumber and of a balance due on account of the lumber delivered t
o Memijes contractor > Oral Agreement Enforceable even if without Written Agreeme
nt or Evidence therof BUT even if Written Evidence is required, weight of all th
e evidence,
including the evidence, thus admitted, supports Reiss allegation and establishes
his contention that this lumber was in fact delivered > Oral Agreement not Unenf
orceable > Statute of Frauds does not apply > Sec. 335, Act No. 190 or Statute o
f Frauds NOT APPLICABLE because Agreement was of Original Debt, NOT of Surety >
As a special promise to answer for anothers debt, default or miscarriage, Require
ment of Writing applies only to Agreement of Guarantiship, to a Collateral Promi
se and NOT IF Promise is Original > Original Debt of Memije because: (i) Charges
in Reiss Books were made against Kabalsa and Bill was presented to Memije ONLY B
ECAUSE Reiss acting manager mistakenly sent the Bill to Memije while he was in th
e US and had no opportunity to go over the accounts with their acting manager ~
Acting Mgr had no knowledge whatever as to Reiss agreement with Memije; (ii) Cred
it for the lumber was extended solely and exclusively to Memije, lawyer, where K
abalsa had no commercial credit or standing in the community and Reiss absolutel
y refused to extent him any credit >> Statute of Frauds applicable only if Colla
teral and not Original Debt >> Original, Independent Promise if promisor becomes
primarily liable for the payment of the debt > Debt is his own and his promise
is good without writing >> Collateral Promise if promisor is merely a surety or
if any credit is given to a third party alone and not to himself nor to both of
them jointly > Promise must be in writing in aid of the third party s liability
>> Intention Determined from the language and expressions used by the parties pr
omising and from an examination of the circumstance G.R. No. 107624 January 28,
1997 GAMALIEL C. VILLANUEVA and IRENE C. VILLANUEVA v. COURT OF APPEALS, SPOUSES
JOSE and LEONILA DELA CRUZ, and SPOUSES GUIDO and FELICITAS PILE Facts: The own
er of the apt offered to sell their land and bldg to Villanueva, a tenant. Becau
se of arrears in realty taxes, Villanueva advanced P10k but it was alleged to be

considered as part of the purchase price. Subsequently, of the property was sol
d to another tenant with the permission of Villanueva to split the purchase. The
issue came about when Dela Cruz assigned the remaining of the property to sps.
Pile due to loans granted by the latter to the former. Villanueva sought its ann
ulment due to the alleged sale to them but no contract of sale had been perfecte
d. First, there was no meeting of minds as to the purchase price. Dela Cruz quot
ed P550k on the Deed of Sale that remained unsigned while Villanueva alleged it
to be P550k, where the other tenant-buyer paid P275k for . However, no proof of t
he Deed of Sale was presented and
97

Dela Cruz testified that they did not sign the Deed exactly because Villanueva w
as still haggling on the price. Second, Statute of Frauds does not apply because
there was no perfected contract. Hence, even if there was no written agreement,
alleged sale is still not perfected due to lack of price and evidence thereof.
> Oral Agreement to Sell (February 1986) b/w Jose Dela Cruz and Gamaliel Villanu
eva where former offered to sell his and wifes apartment bldg and 403 sq.m. land
to latter-tenant-occupant ~ Letter of Authority (February 12, 1986) in favour of
Irene Villanueva (mother) to inspect the property BUT CounterOffered when Irene
agreed to advance P10k for payment of realty taxes in arrears of property if it
were to be considered part of purchase price, alleged to be P550k by Villanueva
while Dela Cruz contended it to be P575k > Sale of Property be Dela Cruz to Ben
Sabio, another tenant, for P275k after permission from Villanueva > Deed of Ass
ignment over Remaining (March 6, 1987) by Dela Cruz to sps. Guido Pile and Felic
itas Pile as full payment of loan granted by latter to former > SUIT (December 1
8, 1992) by Villanueva for annulment of Deed of Assignment > CONTENTION of Dela
Cruz: Statute of Frauds require written evidence of sale of real property > NO P
ERFECTED CONTRACT OF SALE, STATUTE OF FRAUDS INAPPLICABLE (1) No Perfected Contr
act of Sale > (i) No agreement yet on the Purchase Price, expressly or impliedly
, directly or indirectly ~ EVEN IF Advancement of P10k supposedly to form purcha
se price and IF Other Tenant Paid P275k BECAUSE NO PROOF of meeting of minds on
Price and of Intention to Make P10k Earnest Money > Draft of Deed of Sale was no
t presented where Sps. Dela Cruz quoted P575k but Villanueva claimed it was redu
ced to P550k; Testimony of Dela Cruz that Deed was unsigned because still haggli
ng on price; Advancement of P10k not earnest money absent proof that it was inte
nded to form part of the purchase price; (2) Statute of Frauds Not Applicable >
Statute of Frauds applies only to executory contracts and not to partially or co
mpletely executed ones > No perfected contract b/w Dela Cruz and Villanueva ~ On
ly a prolonged negotiation to buy and sell where offer was counter-offered > Hen
ce, No basis for the application of the Statute of Frauds which presupposes the
existence of a perfected contract and requires only that a note or memorandum be
executed in order to compel judicial enforcement thereof
Facts: DOUBLE CHECK. VERY UNSURE. PVOC was placed under receivership due to its
outstanding debts. Its largest stockholder, Whitaker, executed a guaranty over h
is personal properties in favour of the creditors. The creditors thereafter assi
gned their claims to Whitaker in consideration of his security. PNB, PVOCs larges
t creditor, knew of such assignment but was not part of it. Instead, it acquired
a new mortgage over the properties of PVOC while its Directors were members of
PVOCs Board. When the receivership ended due to PNBs promise to finance it, PNB fo
reclosed the mortgage, leaving PVOC inoperable. Whitaker thus intervened due to
the alleged promise of PNB to finance PVOC. However, the promise was not proven,
orally or by written evidence. The Statute of Frauds does not apply since the P
romise was not for both parties where PNB did not bind itself to answer for PVOCs
operations indefinitely but only expressed gratification to Whitaker. The Promi
se is not proven and PNB cannot be held responsible. > Indebtedness (1920) of Ph
ilippine Vegetable Oil Co., Inc. to its creditors worth P30M ~ P17M to Philippin
e National Bank, its largest creditor, secured principally by 3 chattel mortgage
s (April 11, 1919 with unknown amount, November 18, 1920, January 10, 1921) resp
ectively worth P3.5M and P4M > Additional Guaranty (January 1, 1921) by Phil. C.
Whitaker, PVOCs Largest Stockholder (5,893 of 28k shares), who pledged private p
roperties, to secure the other creditors of PVOC > Receivership of PVOC (March 1
1, 1921) > Assignment of Claims against PVOC (June 27, 1921) by creditors to Whi
taker in consideration of his Trust Deed over his own property ~ Known and O.K.
by PNB on Draft > Appointment of E. W. Wilson and Miguel Cuaderno, PNB Directors
in the PVOC Board of Directors where neither one of them has any interest other
than that of PNBs in the PVOC ~ Wilson became President (September 12, 1921) > N
ew Mortgage (February 20, 1922) by PVOC in favour of PNB > Termination of PVOC R
eceivership (February 28, 1922), after Representation by PNB counsel that latter
would furnish it with funds necessary for its continued operations > Mortgage o
f Feb. 20 Notarized (March 8, 1922) and Registered (March 21, 1922) > Closing of

PVOC (August 14, 1922) > SUIT for Foreclosure of Feb. 20, 1922 Mortgage (May 7,
1924) by PNB, for debt worth P15,787,454.54 > VOIDABLE MORTGAGE > Resulting jus
t the same from its Illegal Execution, or Deceit, Undue Influence, Fraud by PNB:
(1) Receivership (March 11, 1921), Mortgage (February 20, 1922), Receivership T
erminated (February 28, 1922), Mortgage Notarized (March 8, 1922) Registered (Ma
rch 21, 1922) > PVOC inhibited absolutely from giving a mortgage on its property
while its in custodia legis > Receiver was not a party to
98
G.R. No. L-25400 January 14, 1927 THE PHILIPPINE NATIONAL BANK v. THE PHILIPPINE
VEGETABLE OIL CO., INC. || PHIL. C. WHITAKER as intevenorappellant

the mortgage Nor had the Court authorized the receiver to consent to the executi
on of a new mortgage; (2) EVEN IF Mortgage was perfected subsequent to the lifti
ng of the receivership, Deceit, Undue Influence, Fraud by PNB > Mortgage was mad
e when PNB was a dominating influence in the affairs of PVOC in person (as large
st creditor) and by proxy (PNB Membership in Board of Directors of PVOC); (3) BU
T Fraud cannot be alleged by Whitaker because PVOC freely acted to execute the m
ortgage and only a creditor could take advantage of the fraud to intervene to av
oid the conveyance > Whitaker was neither a successor in interest nor legatee of
the assets of PVOC ~ HENCE Cannot recover from PVOC; (4) Other Security to PNB
> 3 Mortgages (April 11, 1919, November 18, 1920 for P3.5M, and January 10, 1921
for P4M); (5) Alleged Promise by PNB to Fund PVOC for its continued operation (
premise of termination of receivership) NOT PROVEN > PNBs General Manager was aut
horized by the Board of Directors (pursuant to Charter) to advance funds to PVOC
worth P500k at most where General Manager is to report and secure the approval
of the Board for necessary credits from time to time > General Manager Wilson wr
ote to Whitaker only to make a gratification of the additional mortgage by Whita
ker of his personal property but a friendly warning against it, that it was good
business for the PNB to operate PVOC as long as it had the P500k guarantee > De
spite Performance by Whitaker, there was No binding promise, tacit or express, m
ade by the PNB to continue indefinitely its backing of the PVOC >> Statute of Fr
auds applies only to agreements not to be performed ON EITHER SIDE within a year
from the making thereof > Agreement was on ONE SIDE because of lack of PNBs prom
ise to answer indefinitely for debt > of his part PURPOSE to Prevent not Further
Fraud G.R. No. L-11231 May 12, 1958 ROSARIO CARBONNEL v. JOSE PONCIO, RAMON INF
ANTE and EMMA INFANTE Facts: Jose agreed to sell his property to Rosario who pai
d part of the purchase price already, had assumed the obligations of Jose as par
t of such price, and promised to pay the balance upon the execution of a Deed of
Sale. However, Jose subsequently refused to execute such Deed and instead sold
the property to another. When Rosario sued for the annulment of the subsequent s
ale and presented the testimony of the witness to their Agreement, Jose contende
d that the Agreement and the testimony were unenforceable and inadmissible under
the Statute of Frauds. However, the partial performance by Rosario in paying pa
rt of the price by cash and by assumption of obligation, removed the Agreement f
rom the Statute pursuant to the Doctrine of Partial Performance (which protects
performing parties from being defrauded by the non-performing ones). Also, testi
mony of the Agreements witness, together with Joses Answer and Brief sufficiently
established the existence of such Agreement and the payment made by Rosario. Thu
s, oral evidence was admissible. > Verbal Agreement of Sale (January 27, 1955) b
/w Rosario Carbonnel and Jose Poncio where latter is to sell his property for P1
,852.50 (at P9.50/sq.m. x 195sq.m.) > Payment by Rosario of P247.26 and Assumpti
on of Joses Debt to Republic Savings Bank worth P1,177.48, with Balance to be Pai
d after execution of Deed of Sale > Permit from Rosario allowing Jose to remain
in the property for free for 1y, afterwhich Jose was to pay > Refusal of Jose to
Execute Deed of Sale and Sale of same property to sps. Ramon R. Infante and Emm
a L. Infante for P3,535 > SUIT by Rosario for Annulment of Sale to Infante, Decl
aration of Ownership, Execution of Deed of Sale ~ Testimony of Constancio Meonad
a (February 23, 1956) that he was Rosarios boarder, he typed The Permit in Batane
s dialect, based on data provided by Rosario (allowing Jose to stay in the lot t
hat Rosario bought for 1y without payment), he was townmate of Jose, he signed T
he Permit that Jose and Rosario also signed > CONTENTIONS of Jose, sps. Infante:
Agreement and Testimony unenforceable and inadmissible under Statute of Frauds;
Price was P20/sq.m. > Statute of Frauds NOT APPLICABLE > Applicable only to exe
cutory contracts not to contracts that are totally or partially performed > Purp
ose of Statute and Doctrine of Partial Performance: Prevention of Fraud > Hence,
WHY EXECUTORY ONLY: there is a wide field for fraud because unless they be in w
riting there is no palpable evidence of the intention of the contracting parties
; > WHY NOT PARTIALLY PERFORMED CONTRACTS: exclusion of parol evidence would pro
mote fraud or bad faith for it would enable the defendant to keep the benefits a
lready denied by him from the transaction in litigation, and, at the same time,

evade the obligations, responsibilities or liabilities assumed or contracted by

him thereby ~ Fraud upon the plaintiff if the defendant were permitted to escape
performance of his part of the oral agreement after he has permitted the plaint
iff to perform in reliance upon the agreement > Performing party not required to
establish such partial performance by documentary proof before he could have th
e opportunity to introduce oral testimony on the transaction because such oral t
estimony would usually be unnecessary if there were documents > Rejection of any
and all testimonial evidence on partial performance would lead to the very evil
s that the statute seeks to prevent > Hence, Plead of partial performance entitl
es the party to a reasonable chance to establish by parol evidence the truth of
this allegation, as well as the contract itself > Statute of Frauds applies only
if the evidence of record fails to prove clearly that there has been partial pe
rformance
99

> Proof of Partial Performance by Rosario: (a) Answer of Jose, admitting that Ro
sario had offered to purchase his land several times; (b) Uncontradicted Permit
signed by Jose, Rosario and and Constancio stating that Joseo would stay in the
land sold by him to Rosario for 1y, from January 27, 1955, free of charge, and t
hat, if he cannot find a place where to transfer his house thereon, he may remai
n in said lot under such terms as may be agreed upon > Contention of Jose that h
e signed it under the belief that it was a permit for him to remain in the premi
ses in the event that he decided to sell the property to Rosario is contradictor
y: (i) No reason to get said permit from Rosario if she were not the owner; (ii)
Rosario took the trouble to have the Permit written in Jose native dialect of Ba
tanes and would have used English if she intended to mislead Jose; (iii) Jose si
gned it, proving that he is neither illiterate nor so ignorant; (c) Joses Brief a
lleged that the deposit of P247.26 in his bank book (which was claimed to be the
payment to the Republic Savings Bank) was only the result of some usurious loan
or accommodation where bank book was in the possession of Rosario > HOWEVER, th
e same cannot be explained by Rosario herself if she is not allowed to testify G
.R. No. anuary 24, 1996 FIRST PHILIPPINE INTERNATIONAL BANK and MERCURIO RIVERA
v. COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and
JOSE JANOLO Facts: Demetria and Janolo offered to purchase the acquired properti
es of Bank for P3.5M which the Bank counter-offered with P5.5M and which Janolo
counter-offered with P4.250. After a subsequent meeting with the Banks Sr VP, Jan
olo wrote their acceptance of the P5.5M purchase price but the Bank thereafter f
ailed to response and advertised the sale of the same property even after DJs off
er to tender payment. While DJ sued to specific performance pursuant to an alleg
ed perfected contract of sale, Bank contended that no contract was perfected bec
ause Rivera had no authority to offer such price and that the contract falls und
er the Statute of Frauds and thus necessitating written evidence. However, the C
ontract is Perfected because Rivera did have authority to entertain the offer of
sale and under the Doctrine of Apparent Authority, his apparent authority that
he holds out to the public is estopped from being denied by Bank who allowed it
in relation to persons dealing with them in good faith. Moreover, the various le
tters between DJ and the Bank constitute sufficient memorandum since it containe
d the parties names, the terms and conditions of the contract, the price and a de
scription of the property as the object of the
contract. Even if the P5.5M offer was a new offer by the Bank, the oral evidence
by Demetria, Rivera and Atty. Fajardo (of the corporation who formerly owned th
e properties) proving that purchase price was P5.5M were not objected to by Bank
. > Verbal Agreement of Sale b/w Demetrio Demetria and Jose Janolo and Mercurio
Rivera, Head-Manager of the Property Management Department of First Philippine I
nternational Bank/Producer Bank of the Philippines where former offered to purch
ase Banks 6 parcels of land ~ Negotiated in Mtg (August 1987) b/w Demetria, Jose
and Rivera; Formal Letter of Offer to Purchase (August 30, 1987) by DJ for P3.5M
; Letter-Reply Couter-Offer (September 1, 1987) by Bank for P5.5M; Letter Offer
(September 17, 1987) by J for P4.250M; Mtg (September 28, 1987) b/w DJ, Luis Co
(Sr. VP, Bank); Letter (September 30, 1987) by J accepting offer of Bank to sell
at P5.5M > NonResponse by Bank but Advertisement of Sale of same property > Dem
ands by DJ for Response and Fulfillment and Tender of Payment of P5.5M (November
17, 1987) to Bank then to Conservator which they refused > SUIT (May 16, 1988)
by DJ for Specific Performance > CONTENTIONS of Bank: Lack of Authority of River
a to make a Counter-Offer of P5.5 Million; Absence of meeting of the minds as to
the price > PERFECTED CONTRACT OF SALE > Statute of Fraud does not apply becaus
e Agreement Ratified by Failure to Object to Oral Testimony and by Sufficient Me
moranda (1) Perfected Contract of Sale > Price validly determined and offered by
Rivera as Head Mgr of Banks Property Mgt Dept. who is tasked with entertaining,
accepting offer to purchase properties for sale, subject to Past Due Committees e
valuation and Conservators approval ~ P5.5M was the official and definitive price
at which Bank was selling the property after Rivera had duly presented DJs offer
for discussion by the Committee of such matters as original loan of borrower, b
id price during foreclosure, total claim of the bank, and market value > Doctrin

e of apparent Authority where apparent authority of the officer of the bank is b

orne out by similar circumstances surrounding his dealings with buyers ~ Corpora
tions estopped from denying authority of its officers whom it permits to act and
to hold oneself out to the public as one possessing power to do such acts; (2)
Non-applicability of Statute of Frauds: (i) Letters as Sufficient Memorandum of
P5.5M Offer of Bank ~ Included the names of the parties, the terms and condition
s of the contract, the price and a description of the property as the object of
the contract; (ii) EVEN IF Counter-offer on September 28, 1987 constitutes a new o
ffer which was accepted by Janolo on September 30, 1987, there was Failure to Ob
ject to Oral Testimony proving Banks (counter-)offer of P5.5M >
100

Testomony of Atty. Fajardo (BYME Investment and Devt Corporation, former owners,
mortgagors of property in favour of Bank as collateral for loans extended by la
tter to former) Demetria and Rivera that the amount offered by Bank was P5.5M >
Silence of Bank makes the evidence binding on them
101

G.R. No. L-45645 June 28, 1983 FRANCISCO A. TONGOY, for himself and as Judicial
Administrator of the Estate of the Late Luis D. Tongoy and Ma. Rosario Araneta V
da. de Tongoy v. THE HONORABLE COURT OF APPEALS, MERCEDES T. SONORA, JUAN T. SON
ORA, JESUS T. SONORA, TRINIDAD T. SONORA, RICARDO P. TONGOY, CRESENCIANO P. TONG
OY, AMADO P. TONGOY, and NORBERTO P. TONGOY Facts: In order to avoid the foreclo
sure of their mortgage property to PNB, the siblings Tongoy executed deeds of sa
le in favour of Luis, brother Franciscos son, thru which he was able to pay off t
he entire obligations to PNB. After the release of the mortgage, the siblings so
ught the reconveyance of their shares, alleging that the Deeds of Sale were simu
lated only to allow Luis to facilitate the transaction with PNB and to administe
r the property for the support of the family in the meantime. Luis alleged them
to be genuine. However, the Deeds of Sale were indeed simulated from the fact th
at the co-owners did not leave the property and continued to be supported by it,
that Luis was in no financial condition to purchase the Hacienda, and that the
consideration was meager and unpaid. Hence, no transfer of title was made, expre
ssly or tacitly. But even if there was an implied trust agreement, it hasnt presc
ribed yet (10y). BUT Relative Simulation only because of genuine intention to gi
ve Luis administrative powers and not lack of intention to be bound by Deeds. >
Mortgage of Hacienda Pulo (April 17, 1918; co-owned by siblings Francisco, Jose,
Ana, Teresa and Jovita Tongoy) to PNB as security for Loan of P11k ~ Defaulted,
Foreclosure Proceedings by PNB (June 18, 1931) > Deeds of Sale by Surviving Sib
lings and Heirs of Deceased over their rights and interests on Hacienda Pulo in
favour of Franciscos son, Luis Tongoy (March 13, 1934, October 14, 1935, October
23, 1935, November 5, 1935) ~ TCT in Luis favour (November 8, 1935) > Deed of Sal
e of Cuaycong Property (June 22, 1936) by Basilisa Cuaycong if favour of Luis fo
r P4k > Real Estate Mortgage (June 26, 29, 1936) by Luis in favour of PNB over C
uaycong,Pulo properties as security for P4,500 and P21k loan, respectively > Pay
ment of all debts to PNB (April 17, 1956) by Luis worth P34,410 ~ Release of Mor
tgage by PNB (April 22, 1958), Registered (May 5, 1958) > Demand by Heirs of Sib
lings for Return of their Shares over the Property (January 26, 1966) > Death of
Luis (February 5, 1966) > SUIT for Reconveyance (June 2, 1966) by Siblings/Heir
s against Luis, CONTENDING that Deeds of Sale were simulated pursuant to a trust
arrangement whereby Luis would return such interests after the mortgage obligat
ions to PNB had been settled > CONTENTIONS of Heirs of Luis: Sales were genuine
and for a valuable consideration, and that no trust agreement of whatever nature
existed, but if there were, they were barred by prescription, estoppel, and the
Statute of frauds
> SIMULATED Deeds of Sale > Luis was only given Administration of the Hacienda,
as new lawyer of the family, in order for him to support the family, to facilita
te and expedite the transaction with PNB who wanted to deal with only one person
for convenience, and then to reconvey the co-owners shares after the mortgage in
debtedness on Hacienda Pulo has been discharged: (1) Co-owners remained in the p
roperty after such sales where the Hacienda could have been leased to third pers
ons to acquire rentals sufficient to liquidate the obligation to PNB; (2) Contin
ued Support, Subsistence, Source of Livelihood of the Family from Hacienda funds
: (i) Unlikely that all of the co-owners should have come at the same time to on
e mind about disposing of their participation in the Hacienda when they counted
so much on the Hacienda for their subsistence and selfesteem; (ii) Medical and L
egal schooling of others financed by Luis as administrator of common property; (
3) Insufficient and Non-Payment of Consideration > P2k for 1/5 share while Joses
1/5 share sold only for P100 to pay Debt of P11k which could not have created su
ch necessity to sell at a meager price; (4) Financial Condition of Luis Not Suff
icient to purchase Hacienda as young lawyer and bachelor to pay for the purchase
price and debt ~ Studies being financed by Jose; (5) Only 2 copies of Deeds of
Sale, instead of 5; > No Implied Trust > Simulated Contract is Void and produces
No Effect > Transfers of rights were null and void ab initio and thus vested no
rights > Assuming Arguendo that there was, Not Yet Prescribed > Prescription of
Implied Trust in 10y from Date of Release of Mortgage (May 5, 1958) BECAUSE kno
wledge by Co-owners of the settlement of the mortgage obligation, the attainment

of the purpose for which the trust was constituted >> Simulation > contract is
not really desired nor intended to produce legal effects nor in any way alter th
e juridical situation of the parties >> Void or Inexistent contract > no force a
nd effect from the very beginning, as if it had never been entered into > does n
ot create, modify or extinguish the juridical relation to which it refers > cann
ot be validated either by time or by ratification or by prescription ~ WHY: Null
ity is permanent, even if the cause thereof has ceased to exist, or even when th
e parties have complied with the contract spontaneously > cannot be invoked by a
person whose interests are not directly affected
102

G.R. No. L-15127 May 30, 1961 EMETERIO CUI v. ARELLANO UNIVERSITY Facts: Contrac
t of Waiver between Emeterio, law student/scholar, and Arellano University, wher
e the former is granted scholarship but prohibited to transfer schools, is prohi
bited for being contrary to public policy, embodied in Memorandum No. 38 that de
ems scholarships as recognitions of merit and not as business schemes, and good
morals, where such practice is not generally accepted. > Emeterio Cui was a scho
lar in the College of Law of the Arellano University until the last semester of
his final school year when he left with his uncle, Francisco R. Capistrano who w
as Dean of the College of Law, to transfer to the College of Law of Abad Santos
University where his uncle became Dean and Chancellor > Arellano University subs
equently refused to release his transcripts of records which Emeterio needed to
apply for the bar exams until he has paid back the value of the scholarship whic
h the latter refunded to him per semester, which amounted to P1,033.87 (Each tui
tion that Emeterio had paid at the start of the semester was refunded to him at
the end of the semester for scholastic merit) > Memorandum No. 38 (August 16, 19
49) of the Director of Private Schools prohibited the refund of scholarship when
students transfer to other schools > Bureau of Private Schools advised Arellano
University to release Emeterios records without requiring him to pay the tuition
fee > Arellano refused > Emeterio paid under protest in order to take the bar >
SUIT by Emeterio for recovery of the amount > Contention of Arellano: Scholarsh
ip Contract of Waiver (September 10, 1951) with Emeterio provided that the latte
r, in consideration of the scholarship grant, waives any right to transfer to an
other school without having refunded to the University the equivalent of the sch
olarship cash > Contract provision is Null and Void for violating public policy
> Memorandum of the Bureau of Private Schools, considered as a practice of gover
nment officials, is a factor in determining a public policy of the state > Direc
tor submitted (1) that the policy of the Memorandum was a sound policy where sch
olarships are awarded to recognize merit and help gifted students in whom societ
y has an established interest or a first lien and not to keep outstanding studen
ts in the school to bolster its prestige; (2) that Arellano treated the scholars
hip as a business scheme designed to increase its business potential; (3) that,
thus, Arellanos contract is contrary to public policy and even good morals
> Contrary to Public Policy > if its consideration contravenes the interests of
society and in inconsistent with sound policy and good morals and tends to under
mine the security of individual rights > Contrary to Good Morals > if against go
od customs, those generally accepted principles of morality which have received
some kind of social and practical confirmation G.R. No. 130716 December 9, 1998
FRANCISCO I. CHAVEZ v. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) and MAG
TANGGOL GUNIGUNDO (in his capacity as chairman of the PCGG). GLORIA A. JOPSON, C
ELNAN A. JOPSON, SCARLET A. JOPSON, and TERESA A. JOPSON, petitionersin-interven
tion Facts: Two Agreements b/w PCGG and Marcoses provided for the division of th
e ill-gotten wealth/property of the Marcoses. In exchange for the properties to
be recovered by the Govt, PCGG granted tax exemption (on the properties kept) to
the Marcoses, as well as waived all present and future civil, criminal, administ
rative claims against Marcoses. The Agreements thus are void for being contrary
to the Constitution and law, violating provisions on tax exemptions and uniformi
ty and on judicial prerogative on cases, for being contrary to Civil Code, waivi
ng of future fraud and for being vague. > Two Agreements (December 28, 1993) b/w
PCGG Chairman Magtanggol Gunigundo and Ma. Imelda Marcos-Manotoc, Ferdinand R.
Marcos II and Irene Marcos-Araneta concerning the division of Marcos property be
tween Heirs and Govt: (1) General Agreement: Division and Disclosure of Property
in Exchange of Immunity from civil, criminal, tax or administrative cases agains
t Marcoses; (2) Supplemental Agreement: Division of $356M Swiss Deposits in 75-2
5% Sharing Ratio > SUIT by Francisco I. Chavez (taxpayer,citizen,former govt offi
cial) to enjoin PCGG from perfecting the agreement with the Marcoses and to publ
icize all negotiations and agreement, be they ongoing or perfected pursuant to C
onstitutional right to information and duty of the State to disclose publicly al
l its transactions involving the national interest > CONTENTIONS of PCGG, Marcos
: Action is premature because the Agreements have not become effective and bindi

ng > Agreements VOID (1) Contrary to Constitution and Laws > Latter not subject
to compromise
103

(a) PCGG has no authority to grant criminal immunity, tax exemption by waiving c
ivil, criminal, tax or administrative cases by Marcoses disclosure and partition
of property; (i) Pres. Fidel Ramos expressly reserved authority to appove any ag
reement with Marcoses and denied such authority to PCGG in Memo to PCGG (May 4,
1998); (ii) Sec. 5, EO14 allows PCGG to grant criminal immunity only to witnesse
s who can provide information necessary for investigation BUT NOT TO Principal R
espondents, Defendants, Accused themselves; (iii) Tax exemption only granted by
Congress, LGU > But even if Congress passes such law, it would be violative of E
qual Protection and Equitability and Uniformity of Tax; (iv) Commissioner of Int
ernal Revenue can compromise taxes only if claim against taxpayer is reasonably
doubted or if latter is not in financial position to pay; can cancel tax only if
unjustly assessed or unjustified collection; (v) Encroachment on Judicial power
s in binding to dismiss cases against Marcoses > once a case has been filed befo
re a court of competent jurisdiction, the matter of its dismissal or pursuance l
ies within the full discretion and control of the judge; (b) Waiver of Future Cl
aims, Counter-Claims against Marcoses contrary to Civil Code; (c) Terms vague (i
) No basis as to the determination of properties to be retained by Marcoses and
ceded to Govt and of 75-25% sharing ratio of Swiss Deposit; (ii) No definite or d
eterminable period within which the parties shall fulfill their respective prest
ations; (d) Agreements without authority of Pres. Ramos > Incomplete and unenfor
ceable > THEREFORE, No argument of the contractors will make such illegal and un
constitutional stipulations pass the test of validity > Void agreement will not
be rendered operative by the partiesd alleged performance (partial or full) of t
heir respective prestations > WHY: A contract that violates the Constitution and
the law is null and void ab intio and vests no rights and creates no obligation
s ~ It produces no legal effect at all > Marcoses thus have No interest to prote
ct or right to assert in this proceeding > Chavezs Right to Information on matter
s of public concern [Sec. 7, Art. III] and States Duty to Disclose Transaction in
volving public interest [Sec. 28, Art. II] > Marcoses Ill-Gotten Wealth as Publi
c Interest:
(1) Restrictions on Public Disclosure only for matters of national security, int
elligence information, trade secrets and banking transactions, criminal matters,
and other confidential information (2) Disclosure of Matters on Public Concern
> Writings coming into the hands of public officers in connection with their off
icial functions must be > WHY: Peoples opportunity to determine whether those to
whom they have entrusted the affairs of the government are honesty, faithfully a
nd competently performing their functions as public servants accessible to the p
ublic, consistent with the policy of transparency of governmental affairs > Incl
uding negotiated and consummated contracts (Minutes of ConCom, Ople); (3) Marcos
es Ill-Gotten Wealth as Public Concern and Interest > EO 1, creating PCGG for rec
overy of vast government resources allegedly amassed by former President Marcos;
EO No. 14, giving additional powers to the PCGG which, taking into account the
overriding considerations of national interest and national survival, required i
t to achieve expeditiously and effectively its vital task of recovering ill-gott
en >> Ill-Gotten Wealth > assets and properties purportedly acquired, directly o
r indirectly, by former President Marcos, his immediate family, relatives and cl
ose associates > thru or as a result of (i) their improper or illegal use of gov
ernment funds or properties; or (ii) their having taken undue advantage of their
public office; or (iii) their use of powers, influences or relationships > resu
lting in their unjust enrichment and causing grave damage and prejudice to the F
ilipino people and the Republic of the Philippines G.R. No. 125172 June 26, 1998
Spouses ANTONIO and LUZVIMINDA GUIANG v. COURT OF APPEALS and GILDA COPUZ Facts
: Gilda Corpuz and Judie Corpuz were married on December 24, 1968 and together b
ought Lot 9, Block 8 on February 14, 1983 from Manuel Callejo, payable in instal
lments. They sold of Lot 9 to sps. Antonio and Luzviminda Guiang. When Gilda lef
t for Manila on June 1989 to look for work abroad, their daughter Harriet wrote
to her upon discovery on January 1990 that her father intended to sell the remai
ning of Lot 9 and their house thereon to the Guiangs. Gilda responded that she o
bjected to it but Harriet did not inform her father but instead gave the letter

to Mrs. Luzviminda Guiang so latter would be the one to tell her father. Unfortu
nately, Luzviminda did not inform Judie about the Letter and on March 1, 1990, t
he sale took place. In addition to, Luzviminda paid Mrs. Callejo an additional a
mount on March 5 to protecet their title to the property. Unfortunately, Gilda a
rrived from Manila only on March 11, 1990 but thereafter
104

gathered their children (who had been staying in different households) and toget
her stayed at their house. (Their children informed Gilda that Judie already has
a new family.) The Guiangs consequently filed a complaint for trespassing that
led to an Amicable Settlement b/w Guiangs and Gilda that the latter and her chil
dren would voluntarily vacate the property. Nonetheless, Gilga sought the annulm
ent of the settlmenet and remained in the property. Guians sought the Execution
of the AS. RTC and CA held that the sale was void due to the lack of Gildas conse
nt; Guiangs contended that it was merely voidable and the the AS has already rat
ified the sale. Issue: WON Sale w/o Consent is Void WON Am.Set. ratifies Void Sa
le YES NO
Held: Because the sale occurred under the FC, FC 124 applies which explicitly st
ates that sale without consent/authority of other spouse is VOID. This is especi
ally apparent in the difference b/w FC 124 and NCC 166 where latter rules that i
t is merely voidable and that action against it prescribes in 10y. NCC1390 that
governs contracts with vitiated consent also does not apply because it deals wit
h contracts where there is consent but merely vitiated WHEREAS the Sale here is
one wherein consent was totally lacking. Given that the sale was VOID, the Am.Se
t. did not serve to validate it or to alter the void character of the sale becau
se under NCC 1422, consequent contract to a void one is also void. And because n
owhere in the Am.Sett. was a continuing offer mentioned, (it merely concerned Gi
lda vacating the property), it cannot be considered as a continuing offer. G.R.
No. L-27841 October 20, 1978 MARIA ENCARNACION CASTILLO, ELISEA GALVAN, and PATR
OCINIO GALVAN v. JOSEFA GALVAN, EMILIO SAMSON, and NATIVIDAD GALVAN Facts: Pauli
no was the owner of of 2 parcels of land, coowned with her daughters by 1st marr
iage. When he died, his heirs by his 2nd marriage sought to settle his estate bu
t then discovered that his share had previously been sold to the co-owner-daught
ers. They sought the declaration of nullity of the sale because it was alleged t
o have been obtained thru fraud and it lacked consideration. RTC, however, dismi
ssed the complaint because an action based on fraud prescribes in 4y. The RTC er
red in dismissing the complaint because the Action for Declaration of Nullity is
imprescriptible.
> Interest of Paulino Galvan in 2 parcels of land (with family home thereon) sha
red with daughters Josefa Galvan and Natividad S. Galvan (from first marriage) >
Deed of Absolute Sale (1953) over interest of Paulino to Josefa and Natividad f
or P500 ~ Registered (August 3/4, 1955) > Death of Paulino (February 10, 1961) >
Discovery by Plaintiffs (other heirs of Paulino with Maria Encarnacion Castillo
) of the Sale of his Interest after initiating proceedings for settlement of his
estate in Registry of Deeds > SUIT (August 1, 1961) by Plaintiffs for Declarati
on of Nullity of Deed of Absolute Sale against Josefa and Natividad > CONTENTION
S of Plaintiffs: Void Sale due to (i) misrepresentation by Josefa and Natividad
to Paulino and Maria that the certain document they signed was only for the purp
ose of enabling latter, as co-owners of the parcels of land, to have their separ
ate tax declarations for the respective portions owned by them so that they can
pay their respective real estate taxes separately; (ii) Lack of Intention of Pau
lino to sell his share because he had no other residential lot to live in and no
need to sell property because of sufficient income to sustain it; (iii) Insuffi
ciency of consideration because property was worth P22,500 while purchase price
was only P500; (iv) Non-Payment of Alleged Purchase Price > CONTENTIONS of Josef
a and Natividad: Valid Sale, known to the Plaintiffs even before the Complaint;
Prescription of Action based on Fraud in 4y from Registration (Registered August
, 1955, Suit only on August 1, 1961) > RTC Dismissed due to Prescription > Actio
n for Declaration of Nullity has No Prescription > Prayer is to Declare Void and
inexistent the Deed of Sale due to fraud and lack of consideration ~ Simulated/
Fictituous Sale (Concurring Opinion) > Action is Imprescriptible G.R. No. 153201
January 26, 2005 JOSE MENCHAVEZ, JUAN MENCHAVEZ JR., SIMEON MENCHAVEZ, RODOLFO
MENCHAVEZ, CESAR MENCHAVEZ, REYNALDO, MENCHAVEZ, ALMA MENCHAVEZ, ELMA MENCHAVEZ,
CHARITO M. MAGA, FE M. POTOT, THELMA M. REROMA, MYRNA M. YBAEZ, and SARAH M. VIL
LABER v. FLORENTINO TEVES JR. Facts: Menchavez and Teves entered into a Contract

of Lease where the former leased the fishpond covered by a lease application to
latter for 5y. When the fishpond was demolished by virtue of a Court Order in f
avour of other parties, Teves sued Menchavez for Damages. However, neither party
can claim for remedy. The Contract of Lease was void. First, Menchavez cannot a
lienate the fishpond because it was not theirs. They were still applying for a l
ease application over the fishpond from the Govt at the time of Lease with Teves
and even if such application were to be approved, the property cannot be
105

subleased as prohibited by law. Also, the parties are in pare delicto because wh
ile Menchavez knew of their lack of ownership, the same was known by Teves. Henc
e, Teves cannot claim innocence. > Contract of Lease (February 28, 1986) b/w Men
chavezs et al and Florentino Teves Jr. where former, alleged to be absolute and
lawful co-owners, leased a fishpond to the latter for 5y, P40k/y, with assurance
of Teves peaceful and adequate enjoyment of the lease > Demolition of the Fishpo
nd (June 2, 1988) by Sheriffs pursuant to Cebu RTC Order (Denying Menchavezs leas
e application and Delivery to other parties) > SUIT by Teves for Damages > CONTE
NTIONS of Teves: Violation of Contract of Lease, specifically the peaceful and a
dequate enjoyment of the property for the entire duration of the Contract; Withh
olding of Court Decision involving the fishpond where the Menchavezs were ordere
d to remove the dikes illegally constructed; Innocent Party because he was induc
ed to enter the Contract thru Serious Misrepresentation of Menchavezs ownership >
Third Party Complaint against agents of Eufracia Colongan and Paulino Pamplona
> VOID CONTRACT OF LEASE > In Pari Delicto > No Mutual Recovery (1) VOID as Cont
rary to Law > Fishpond owned by State, Not Menchaves: Constitution, Art. XII, Se
cs. 2 where fisheries and natural resources are owned by the state and 3 where a
gricultural lands are inalienable ~ Can only be leased > EVEN IF Leased to Mench
avez, latter cannot sublease the Fishpond: PD 704 that fishponds are to be least
for at least 25y and cannot be subleased to another > HENCE, Menchavez had no p
ower to lease it WHERE (i) application for lease not yet approved at the time of
Lease to Teves, and (ii) fishpond cannot be subleased anyway; (2) IN PARI DELIC
TO > (a) Menchavez knew that they could not lease what does not belong to them ~
they were even still applying for a lease of the same property under litigation
from the government at the time of the Lease to Teves; (b) Teves was aware that
Menchavezs were not the owners but were mere holders or possessors: (i) Knowled
ge of Menchavezs lease application for the fishpond from the State; (ii) Negotiat
ion in the presence of his Lawyer who is expected to know that fishponds belong
to the State and are inalienable; (iii) Contract, which stated that the area was
still covered by a fishpond lease application but which also stated Menchavez a
s owners of the fishpond, was prepared by Teves and his Lawyer ~ Ambiguity shoul
d therefore be resolved against him, being the one who primarily caused it; (iv)
Failure to prove that they misled him regarding the ownership of the fishpond ~
He who alleges must prove > Teves THUS leased the fishpond at his own risk
>> Void Contract > equivalent to nothing; produces no civil effect; does not cre
ate, modify or extinguish a juridical relation > Parties to a void agreement can
not expect the aid of the law ~ leave them as they are > WHY: They are deemed in
pari delicto or in equal fault EXCEPT IF (Art. 1412) one party is not at fault
G.R. No. 145031 January 22, 2004 SPS. RUFINO ANGEL and EMERITA ANGEL v. SIMPLICI
O ALEDO and FELIXBERTO MODALES Facts: Sps. Angel employed Modales to construct a
bldg. But because he worked in DPWH and thus prohibited from contracting withou
t authority, the Agreements named Modales father-in-law as the contractor instead
. When the bldg was completed, father-in-law Aledo sued for collection. Sps. Ang
el contended that he was not a party to the contract because he was merely a dum
my and filed a third party complaint against Modales who in turn alleged that he
was not part of the contract. All complaints were dismissed because the Constru
ction Agreements were void for being contrary to law and public policy (prohibit
ion against Modales to contract). Since all knew of Modales incapacity to contrac
t and thus allowed Aledo to stand in as dummy, they were all in pare delicto and
cannot recover anything from each other. > Construction Agreements (November 22
, 1984, February 11, 1985) b/w sps. Rufino and Emerita Angel and Simplicio Aledo
, father-in-law of Felixberto Modales who the actual contractor of the two-store
y residential building BUT was at the time an engineer under the employ of the D
epartment of Public Works and Highways > Construction finished > SUIT (September
27, 1988) by Aledo for collection of P22,850 as balance of the consideration an
d P6,713.00 as material costs > CONTENTIONS of sps. Angel: No cause of action be
cause Aledo was only a dummy of his son-in-law Modales who was the actual contrac
tor with whom they contracted for the construction; there were also defects in th

e construction; unused construction materials were still in the site > Third Par
ty Complaint (July 1989) by sps. Angel against Modales for failure to comply wit
h his obligation because building had a lot of defects > CONTENTION of Modales:
sps. Angel had no cause of action because he was not a party in the contract > D
ismissal of Complaints > VOID Construction Agreements > Contrary to Law and Publ
ic Policy:
106

(1) Employment of Modales as contractor but who was known to be prohibited from
contracting without the requisite permission from the proper government authorit
ies; (2) Father-in-law Aledo was knowingly used as Modales mere dummy, named in the
Construction Agreements G.R. No. L-11240 December 18, 1957 CONCHITA LIGUEZ v. THE
HONORABLE COURT OF APPEALS, MARIA NGO VDA. DE LOPEZ, ET AL. Facts: In order to
live with minor Conchita and have sexual relations with her, married man Salvado
r donated a parcel of land to her. Even if the donation was premised upon an ill
icit causa (sex with a minor as a married man), manifested in his motive to coha
bit with her which is considered cause because it predetermined the contract, th
e donation remains partly valid because Conchita was not a guilty party since sh
e did not participate much in the formation of the donation and/or because even
if both Salvador and Conchita were guilty, they cannot invoke the donations illeg
ality to null the same. Absent proof of illegality against a donation valid on i
ts face because it was ratified by the Justice of Peace, the donation remains va
lid. However, inasmuch as the interest of wife Maria and their children in the c
onjugal property are concerned, the donation may be invalidated according to the
prejudice against them which would still be determined by the lower court by re
mand. > Deed of Donation (May 18, 1943) by married man Salvador P. Lopez in favo
ur of 16 y/o Conchita Liguez covering a parcel of land > They thereafter lived t
ogether until the Death of Salvador (July 1, 1943) > Adjudication of the Same Pr
operty to Salvadors wife Maria Ngo and their children (1949) > Possession by Mari
a and children > SUIT for Recovery by Conchita > CONTENTIONS of Maria and Childr
en: Donation is null and void: (1) Has an illicit causa or consideration > that
the donation, although ratified by the Justice of the Peace of Davao for the cons
ideration of Salvadors love and affection for Conchita and for the good and valua
ble services rendered by her to him, was actually made in order for Salvador, a m
arried man, to live with minor (16 y/o) Conchita and have sexual relations with
her, such donation being required by Conchitas parents; (2) Involves conjugal pro
perty co-owned by Salvador with wife Maria; > CONTENTIONS of Conchita: Donation
was a contract of pure beneficence, the consideration of which is the liberality
of the donor ~ Desire of Salvador to have sex with her is his mere motive, diff
erent from the causa > HENCE, Liberality per se is not illegal since it is neith
er against law or morals or public policy
> Donation was with Illicit Causa > With Illicit Causa > Motive of Lopez to coha
bit and have sex with Conchita also served as the Causa because it predetermined
the purpose of the contract > Lopez would not have conveyed the property in que
stion had he known that Conchita would refuse to cohabit with him > Cohabitation
was an implied condition to the donation > Unlawful/Illicit because cohabitatio
n by a married man with another is unlawful ~ Necessarily tainted the donation i
tself > BUT DONATION STILL VALID (Partly) > (a) Valid on its face > Accepted by
Conchita, Signed and Ratified by Justice > Perfect and Binding UNLESS Declared n
ull > Illegality is not presumed, but must be duly and adequately proved; (b) Ar
t. 1412 (2): Donation valid because Conchita was not at fault > Conchita was onl
y a minor (16) when the donation was made while Salvador was already advanced in
years > No proof that she was fully aware of the terms of the bargain entered i
nto by and Lopez and her parents who insisted on the donation before allowing he
r to live with Lopez > illegality is not presumed, but must be duly and adequate
ly proved; (c) Even if both parties to an illegal contract are guilty, they are
barred from pleading the illegality of the bargain either as a cause of action o
r as a defense where they will not be aided by the law but will both be left wher
e it finds them > Since the defense of illegality cannot be invoked by Salvador h
imself, if living, his heirs can have no better rights than Lopez himself > BUT
DONATION VALID NOT IN ITS ENTIRETY > Donation of Conjugal Property > (a) But Pre
judicial to the interest of Wife Maria ONLY IF the value of her share in the pro
perty donated cannot be paid out of the husbands share of the community profits >
REMAND; (b) But Prejudicial to Heirs ONLY IF inofficious or in excess of the po
rtion of free disposal > REMAND >> Motive is Causa in Exceptional Cases > Genera
l Rule: Motive is inoperative and immaterial in determining the validity of the
contract > Exception: When contracts are conditioned upon the attainment of the

motives of either party ~ Motive may be regarded as causa when it predetermines

the purpose of the contract >> ART. 1412. If the act in which the unlawful or fo
rbidden cause consists does not constitute a criminal offense, the following rul
es shall be observed: (1) When the fault is on the part of both contracting part
ies, neither may recover what he has given by virtue of the contract, or demand
the performance of the other s undertaking; (2) When only one of the contracting
parties is at fault, he cannot recover, what he has given by reason of the cont
ract, or ask for fulfillment of what has been promised him. The other, who is no
t at fault, may
107

demand the return of what he has given without any obligation to comply with his
promise. G.R. No. L-1411 September 29, 1953 DIONISIO RELLOSA v. GAW CHEE HUN Fa
cts: Rellosa sold his property to Chinese Gaw Chee Hun who in turn leased it to
the former. When the application of Gaw to purchase property as an alien was not
approved by the Japanese Military Admin, Rellosa sued for the annulment of the
sale and lease and for the recovery of his title. Although the contracts are voi
d for being contrary to the Constitution, neither party can recover from each ot
her because they were both in fault for knowingly selling and buying property wi
thout capacity to do so. Hence, the title cannot be reverted to Rellosa but Gaw
Chee Hun cannot remain in possession of it as an alien. The State should thus se
ek for the propertys reversion. > Contracts of Sale and Lease (February 2, 1944)
where Dionisio Rellosa sold his parcel of land and house, for P25k, to Gaw Chee
Hun, a Chinese citizen, and where Gaw Chee Hun leased the purchased property to
the vendor until he obtains the approval of the Japanese Military Administration
for the purchase of property by him (No. 6 issued) > Non-Approval of Applicatio
n of Gaw Chee Hun to Purchase Property > SUIT by Rellosa for the Annulment of Sa
le and Lease, Return of Title: (1) Application for Purchase as Alien not granted
to Gaw Chee Hun; (2) Ownership by Gaw Chee Hun contrary to Art. XIII, Sec. 5, C
onstitution > CONTENTIONS of Gaw Chee Hun: Valid sale, not contrary to law, mora
ls and public order > VOID Contracts of Sale and Lease > BUT No Recovery of Titl
e to Rellosa ~ In Pari Delicto > Remedy not to Rellosa but to State (to enforce
prohibition of alien ownership) is not in Annulment but in Reversion: (1) VOID n
ot accdg to Seirei No. 6 requiring approval of Director General of the Japanese
Military Administration before an alien can acquire any private land BUT TO Cons
titution (September 4, 1943); (2) No Recovery > In Pari Delicto > Both parties k
new that what they were doing was in violation of the Constitution; (3) Remedy N
OT Annulment for Recovery by either party BUT Reversion or Escheat by the State
> ONLY UPON Action by State >> In Pari Delicto > Party to an illegal contract ca
nnot come into a court of law and ask to have his illegal objects carried out ~
Law will not aid either party to an illegal agreement and leaves the parties whe
re it finds them > THUS No action arises, in equity or at law, from an illegal c
ontract either (i) for its specific
performance, or (ii) to recover the property agreed to be sold or delivered, or
the money agreed to be paid, or damages for its violation > EXCEPTION ALLOWING R
ELIEF: Contracts intrinsically contrary to public policy where illegality itself
consists in their opposition to public policy > WHY: Public policy require reli
ef >> Escheat > Reversion or Forfeiture of property to the State, which takes pl
ace when the title fails > Commonwealth Act No. 141, Sec 124 provides that any v
iolation on alien ownership results to the Transfer being unlawful and null and
void from its execution and shall produce the effect of annulling and cancelling
the grant, title, patent, or permit originally issued, recognized or confirmed,
actually or presumptively, and cause the reversion of the property and its impr
ovements to the State G.R. No. L-17587 September 12, 1967 PHILIPPINE BANKING COR
PORATION, representing the estate of JUSTINA SANTOS Y CANON FAUSTINO v. LUI SHE
in her own behalf and as administratrix of the intestate estate of Wong Heng, de
ceased Facts: Due to her gratefulness to Chinese lessee Wong Heng and his family
, old maid Justina executed contracts of lease over her entire property in his f
avour that lasts until 99y and with Option to Sell good for 50y. By doing so, sh
e virtually transferred her ownership rights (right to enjoy and alienate proper
ty) to Wong which is in violation of the Constitution. Although both parties are
guilty for having entered into such an agreement freely, the rule on in pari de
licto does not apply because doing so would violate public policy on reserving r
eal property for Filipinos. Hence, contracts are void but property reverts to Ju
stinas estate even if she also is guilty because otherwise, Chinese Wong would be
in its possession which is contrary to Constitution. > Contracts of Lease b/w 9
0y/o Justina Santos and Chinese Wong Heng where former (i) leased part of her pr
operty to latter-lessee, then (ii) expanded the portion with period of 50y but w
ith right to withdraw (November 15, 1957), then (iii) covered all of her propert
y, then (iv) offered Option to Sell (December 21) upon his grant of Citizenship

(application denied due to discovery that he was not a resident of Rizal while a
doption by Justina withdrawn because of wrong assumption that such would natural
ize him), then (v) extended the lease term to 99y and fixed the Option term to 5
0y (November 18, 1958) > Wills (August 24,29, 1959) of Justina bade her legatees
to respect the contracts she had entered into with Wong > SUIT (November 18, 19
59) for Annulment of the Contracts by Justina, alleging Simulation that Wong emp
loyed fraud, misrepresentation, inequitable conduct, undue influence and abuse o
f confidence
108

and trust and took advantage of her old age (90), blindness, crippleness and inv
alidity to circumvent the constitutional provision prohibiting aliens from acqui
ring lands in the Philippines and also of the Philippine Naturalization Laws > C
ONTENTIONS of Wong: Valid contracts made by Justina as gratification of Wongs car
e for her, saving she and her sister from a fire in the property during liberati
on, and his childrens visits to her whose recitation of prayers in Tagalog were h
er consolation in life > VOID CONTRACTS > Contrary to Constitution (1) Lease Fre
ely and Voluntarily Entered into by Justina > Desire to have Wong enjoy the prop
ertyes as she had no relatives but considered Wong Heng as a son and his childre
n her grandchildren (even at the point of their adoption) ~ Testified by her Att
y. Alonzo; (2) Void as Contrary to Constitution > Intention by both parties to c
ircumvent the Constitutional prohibition against the transfer of lands to aliens
> Singly, contracts show nothing illegal ~ Lease to an alien for a reasonable p
eriod and an Option giving an alien the right to buy real property on condition
that he is granted Philippine citizenship are valid > BUT Collectively, they rev
eal an insidious pattern to subvert by indirection what the Constitution directl
y prohibits ~ Illicit purpose then becomes the illegal causa rendering the contr
act void > Wong was given not only a lease but also an option to buy, by virtue
of which Justina cannot sell or otherwise dispose of her property for 50 years >
Clear that the arrangement is a virtual transfer of ownership, comprising of th
e right to enjoy the land and right to dispose of it; (3) Despite In Pari Delict
o, Land to be returned to Justinas Estate > Public Policy to Conserve Land for Fi
lipinos would be defeated and continually violated if the General Rule of In Par
i Delicto is applied INSTEAD of setting the contracts aside and ordering the res
toration of the land to the estate of the deceased Justina > Conflict with Rello
sa v. Gaw Chee Hun G.R. No. 143958 July 11, 2003 ALFRED FRITZ FRENZEL v. EDERLIN
A P. CATITO Facts: Alfred Fritz Frenzel, Australian citizen, went to the Ph in 1
974 as a pilot, married (1976) but later separated (1981) from Teresita Santos,
Ph citizen. When he returned to Sydney in Feb. 1983, he met Ederlina Catito, Ph
citizen, who was a masseuse at Kings Cross nightclub. Although both knew that Ede
rlina was still married to German Klauss Muller and Alfred to Teresita, they fel
l in love. Alfred persuaded her to stop working at Kings Cross, to return to the
Ph to engage in a wholesome business of her own (where he even financed her trip
and business of beauty parlour) and proposed marriage and assured her that she
would divorce his wife. Ederlina opted to wait for such divorce which
she promised she would also obtain for herself. Decided to stay in Ph for good a
nd live with Ederlina, Alfredo bought 5 real properties (Ermita, QC, Davao) whic
h were all in the sole name of Ederlina because he knew that he cannot own land
as a foreigner. He also opened a joint account in HSBC, HK with Ederlina. Unfort
unately, Ederlinas husband, Klaus, opposed the divorce (after Alfred ignored his
letter to stay away from his wife) and moreover demanded of properties owned by
Ederlina in Ph before he would agree to the divorce. Klaus also threatened to fi
le a bigamy suit against Ederlina. Alfred thereafter left Ederlina who refused t
o establish a 70-30 partnership with him (by which he could also own the propert
y) and who insisted on her ownership of the properties. Alfred thus sued for the
declaration of ownership and recovery of the real properties, alleging that Ede
rlina transferred his personal funds to their joint acct without his knowledge/c
onsent and by which purchased all the properties. Ederlina contended that she pu
rchased the properties using her own funds especially where the deeds of sale, r
eceipts, certificates of title were in her name alone, that Alfred has no right
over the props and has no cause of action. Issue: WON Alfred can recover propert
ies Held: Evidence proves that Ederlina was the purchaser of the properties but
even if Alfred was the real purchaser, he cannot be declared owner and recover t
he same (even just for the purpose of having the props sold at public auction) b
ecause he is a foreigner and is prohibited by Sec. 14, Art. XIV, 1973 Consti to
acquire real props. Hence, such sales are void ab initio. He also cannot recover
his money because he acted in bad faith, knowing that Ederlina was married and
being married himself. Hence, being a party to an illegal contract, he cannot co
me into a court of law and ask it to have his illegal objective carried out. One

who losses his money/prop by knowingly engaging in a contract which involves hi

s own moral turpitude may not maintain an action for his losses. Equity, as a ru
le, will follow the law and will not permit that to be done indirectly which bec
ause of public policy cannot be done directly. G.R. No. 148376 March 31, 2005 LE
ONARDO ACABAL and RAMON NICOLAS v. VILLANER ACABAL, EDUARDO ACABAL, SOLOMON ACAB
AL, GRACE ACABAL, MELBA ACABAL, EVELYN ACABAL, ARMIN ACABAL, RAMIL ACABAL, and B
YRON ACABAL Facts: Villaner sold his property to nephew Leonardo, and Leonardo t
hen sold it to Ramon. Villaner subsequently sought for both sales annulment, alle
ging that what he signed was a mere contract of lease and not of sale. And hence
, the contracts of sale are void for being fictitious. However, Villaner, as the
one who alleged the simulation, failed to prove such allegation. He did not pre
sent
109

evidence as to how he came to sign the Deed of Sale and had not presented the al
leged women witnesses to the lease (contrary to the sps. witnesses of the Sale).
Moreover, he cannot contend that such sale was void for being contrary to CARL
that only allows 5 hectare property to be retained because the part of the prope
rty that is covered by CARL only comprises 3-4 hectares and was thus validly ret
ained and sold by Leonardo and Ramon. But assuming arguendo that such sale was i
n violation of CARL, he still cannot recover because he was also a guilty party
in selling agricultural property where the exception to the rule does not apply
because the prohibition is not meant for the benefit of the plaintiff but of the
farmers. > Deed of Absolute Sale (April 19, 1990) b/w Villaner Acabal and godso
nnephew Leonardo Acabal where former sold the parcel of land he had previously p
urchased from his parents (July 6, 1971) for P2k to latter for P10k > Deed of Sa
le (May 19, 1990) by Leonardo in favour of Ramon Nicolas over the same property
> SUIT (October 11, 1993) by Villaner for Annulment of Sales (to Leonardo and to
Ramon) > CONTENTIONS of Villaner: Simulated and Fictitious because (i) he only
intended and signed a Lease Contract in favour of Leonardo, for 3y for P1k; (ii)
he did not read the contents but just the title of Lease Contract where the Dee
ds of Sale may have been included within the pages; (iii) Witnesses to his signi
ng were women employees of Judge Villegas but witnesses to Deeds of Sale were sp
s. Carmelo (who prepared the Deed) and Lacorte Cadalin; (iv) Non-Payment by Leon
ardo of any price > CONTENTIONS of Leonardo: Valid Deeds of Sale where he alread
y paid P10k purchase price > VALID Deeds of Sale: (1) Failure by Villaner to Pro
ve Simulation > Burden of clear and convincing proof lies on the party who makes
the allegations > Did not present (i) Evidence of Simulation as to how he was m
ade to sign the Deed of Sale; (ii) Testimony of Alleged Women Witnesses; (iii) F
air Market Value of the Property to contend that P10k was inadequate ~ Nonethele
ss, must have been grossly inadequate and such that a reasonable man would neith
er directly nor indirectly be likely to consent to it > AS OPPOSED TO Testimony
of (i) Carmelo Cadalin that he prepared the Deed, that Villaner read the Deed, t
hat Villaner signed the Deed of Sale; (ii) Notary Atty. Vicente Real who cannot
remember Villaner and the notarization of the Deed of Sale ~ Became close only a
fter; (2) Sale Not Contrary to CARL (RA 6657) > Retention Limit is 5 hectares wh
ereas only 3-4 hectares of the Property were agricultural for sugarcane and the
rest were limestone (pursuant to ocular inspection of Court-appointed Victor Rag
ay);
(3) Assuming Arguendo that Sale was Contrary to CARL, Villaner has no remedy > I
n Pari Delicto for Sale of Agricultural Property > Exception not applicable beca
use Prohibition not for Plaintiff but for Farmers > Action of Villaners Spouse an
d Children for Recovery of their Share of the Property > NOT Anuulment BUT Parti
tion >> Principle of pari delicto > 2 premises: (1) Courts should not lend their
good offices to mediating disputes among wrongdoers > Not to lend its aid to a
man who founds his cause of action upon an immoral or an illegal act; (2) Denyin
g judicial relief to an admitted wrongdoer is an effective means of deterring il
legality > EXCEPT IF: (1) Contract is not illegal per se but merely prohibited;
(2) Prohibition is for the protection of the plaintiffs; (3) Public policy is en
hanced thereby > WHY: Law will not aid either party to an illegal agreement and
will leave them where it finds them ~ Not for the sake of the defendant but beca
use they will not lend their aid to such a plaintiff Who can bring the Suit? Wha
t is the impact of the in pari delicto? Void Contracts have VALUE ~ If no one ch
allenges it
110

G.R. No. L-47362 December 19, 1940 JUAN F. VILLARROEL v. BERNARDINO ESTRADA DIGE
ST BASED, TEXT IN SPANISH. Facts: The mother of Juan Villaroel contracted a P1k
debt with sps. Estrada. When his parents died, Juan executed a document acknowle
dging the P1k debt plus interest. Sps. Estrada thereafter sued for payment. Held
: Although the document was executed due to a sense of moral obligation on Juans
part (because he did not have to since the original debt had already prescribed)
, it resulted in an effective and demandable obligation voluntarily entered into
by him. Although there is a rule that only the original debtor can make a new p
romise to pay a debt beyond the prescriptive period, this is rule is not applica
ble to the case because the obligation is voluntarily assumed by Juan himself. >
Already no debt to speak of due to prescription (death, 7y), Villaroel voluntar
ily paid > PAYMENT necessary in Natural Obligation! (that Natural Obligation ari
ses only when there was payment because the obligation is to retain what had bee
n given) * Facts + Law = Resolution G.R. No. 46274 November 2, 1939 A.O. FISHER
v. JOHN C. ROBB Facts: Because the PGCI failed in business, Robb felt morally re
sponsible for the loss of Fishers 2nd installment as stockholder of the company.
He wrote him that he would try as much as possible to return such installment. N
evertheless, Fisher cannot judicially demand the fulfilment of such promise beca
use it is a mere moral obligation which has no force in law but only in conscien
ce. It did not suffice as consideration to make such promise an onerous contract
because it does not fall under the exceptions of law. > Interest by A. O. Fishe
r, manager of dog racing course in Shanghai, to invest in Philippine Greyhound C
lub, Inc. after encounter with John C. Robb of the PGCI (September 1935) who was
there to study the operation of a dog racing course > Subscription by Fisher as
Stockholder and Payment of P3k as 1st instalment > Payment by Fisher of 2nd ins
talment WHILE PGCI was already failing because Board of Directors decided to org
anize instead The Philippine Racing Club > Letters (March 16, 1936, February 21,
1936) by Robb to Fisher explaining that he felt morally responsible to the stoc
kholders who had paid their second installment and promising to answer for the s
tockholders losses out
of his own funds as much as possible > Demand by Fisher for Return of the entire
amount paid by him > Robbs Promise Not Actionable: (A) Not an Onerous Contract >
Requires Consideration > Robb to give P2k that is a burden as it deprives his p
roperty with an amount of money BUT Fisher has not given or promised anything or
service to the former which may compel him to make such payment; (B) Mere promi
se out of feeling of pity is Not Consideration > Purely moral obligation or cons
cience duty arising wholly from ethical motives or a mere conscientious duty unc
onnected with any legal obligation, perfect or imperfect, or with the receipt of
benefit by the promisor of a material or pecuniary nature is not demandable in
law but only in conscience, over which human judges have no jurisdiction > Will
not furnish a consideration for an executory promise; (C) Moral obligation as su
fficient consideration ONLY IF: (1) Cases in which the moral obligation arose wh
olly from ethical considerations, unconnected with any legal obligations, perfec
t or imperfect, and without the receipt of actual pecuniary or material benefit
by the promisor prior to the subsequent promise; (2) cases in which the moral ob
ligation arose from a legal liability already performed or still enforceable; (3
) cases in which the moral obligation arose out of, or was connected with, a pre
vious request or promise creating originally an enforceable legal liability, whi
ch, however, at the time of the subsequent express promise had become discharged
or barred by operation of a positive rule of law, so that at that time there wa
s no enforceable legal liability; (4) cases in which the moral obligation arose
from, or was connected with, a previous request or promise which, however, never
created any enforceable legal liability, because of a rule of law which rendere
d the original agreement void, or at least unenforceable; and (5) cases in which
the moral obligation arose out of, or was connected with, the receipt of actual
material or pecuniary benefit by the promisor, without, however, any previous r
equest or promise on his part, express or implied, and therefore, of course, wit
hout any original legal liability, perfect or imperfect. >> Consideration as the
explanation of the contract; the essential reason for the contract > Motives ar

e particular reasons of a contracting party which do not affect the other party
and which do not preclude the existence of a different consideration UNLESSs the
efficacy of the consideration had been subordinated to compliance with the moti
ve as conditions > BUT Consideration is not an essential element of a contract >
Is the action enforceable? NO (In my opinion) BECAUSE there is no contract (no
meeting of minds where they did not agree on the amount because Fisher wanted th
e 1st and 2nd instalment while Robb only offered 2nd instalment)
111

> BUT IT COULD HAVE BEEN AN ENFORCEABLE CONTRACT if Fisher agreed to the offer b
ecause of meeting of minds, causa (promise to pay) and object > IF there was a p
revious causa that has prescribed, causa is the new obligation G.R. No. L-27782
July 31, 1970 OCTAVIO A. KALALO v. ALFREDO J. LUZ Facts: Kalalos service for IRRI
to be paid in Philippine currency because RA 529 prohibits payment in dollars,
to be converted at the rate of exchange during execution of judgement for paymen
t. > Agreement (November 17, 1959) > Octavio A. Kalalo (licensed civil engineer;
owner of O.A. Kalalo and Associates) with Alfredo J. Luz (licensed architect; o
wner of A.J. Luz and Associates) > Former to render engineering design services;
Latter to pay > Clarification to Letter-Proposal ~ that the schedule of enginee
ring fees in the agreement does not cover D. Foundation soil exploration, testin
g and evaluation; E. Projects that are principally engineering works such as ind
ustrial plants and that O. A. Kalalo and Associates reserve the right to increas
e fees on projects, which cost less than P100k > Projects accomplished > Itemize
d Statement of Accounts (December 11, 1961) ~ total of P116,565 minus previous p
ayments worth P57k; balance of P59,565 > Resume of Fees (May 18, 1962) ~ Luz to
Kalalo that the balance was P10,861.08 instead of P59,565 > (June 14, 1962) Luz
sent a check worth P10,861.08 but Kalalo refused to accept > Complaint (August 1
0, 1962) by Kalalo ~ services rendered worth $28k and P100,204.46, excluding int
erests, of which sums only P69,323.21 had been paid > Payment for the (1) balanc
e of $28k (which was not stipulated in the Statement of Accounts) and the balanc
e of P30,881.25; (2) P17k for consequential and moral damages; (3) P55; for mora
l damages, attorney s fees and expenses of litigation; (4) P25k as actual damage
s, and also for attorney s fees and expenses of litigation > Contention of Luz:
that Kalalos services were not in accordance with the agreement; that the claims
were not justified by the services actually rendered; that the aggregate amount
actually due was only P80,336.29, of which P69,475.21 had already been paid, thu
s leaving a balance of only P10,861.08; that Kalalo was in estoppel because of c
ertain acts, representations, admissions and/or silence, which led Luz to believ
e certain facts to exist and to act upon said facts > Submission of the issues t
o a Commissioner > Report that the amount due was $28k as Kalalos fee in the Inte
rnational Research Institute Project which was 20% of the $140 that was paid to
Kalalo, and P51,539.91 for the other projects, less the sum of P69,475.46 which
was already paid by Luz > Facts not questioned by parties but questioned applica
tion of estoppels and legality of the fee due in dollars
> Kalalo Not Estopped from Claiming $28k: (1) Kalalo had no malice in preparing
the Statement of Accounts > Writted without consultation of his counsel > Writte
n thru ignorance,mistake; (2) Luz knew what services were actually rendered by K
alalo ~ Had the means of knowing the services and the fees due; (3) Luz did not
rely on Statement of Accounts, nor was he misled by its representations ~ Luz co
nsistently denied the accounts stated therein; (4) Luz did not act on the basis
of the representations of the Statement of Accounts >> Estoppel > if an act, con
duct or misrepresentation of the party sought to be estopped is due to ignorance
founded on innocent mistake, estoppel will not arise > Statements which are not
estoppels nor judicial admissions have no quality of conclusiveness > Statement
of accounts only prima facie evidence > An account stated or settled is a mere
admission that the account is correct. It is not an estoppel. The account is sti
ll open to impeachment for mistakes or errors. Its effect is to establish, prima
facie, the accuracy of the items without other proof; and the party seeking to
impeach it is bound to show affirmatively the mistake or error alleged. The forc
e of the admission and the strength of the evidence necessary to overcome it wil
l depend upon the circumstances of the case > if one of the parties carelessly m
akes a wrong interpretation of the words of his contract, or performs more than
the contract requires (as reasonably interpreted independently of his performanc
e), as happened in the instant case, he should be entitled to a restitutionary r
emedy, instead of being bound to continue to his erroneous interpretation or his
erroneous performance and the other party should not be permitted to profit by
such mistake unless he can establish an estoppel by proving a material change of
position made in good faith >> Essential elements of estoppel > In terms of the

Party to be estopped: (1) conduct amounting to false representation or concealm

ent of material facts or at least calculated to convey the impression that the f
acts are otherwise than, and inconsistent with, those which the party subsequent
ly attempts to assert; (2) intent, or at least expectation that his conduct shal
l be acted upon by, or at least influence, the other party; and (3) knowledge, a
ctual or constructive, of the real facts > In terms of Party claiming the estopp
els: (1) lack of knowledge and of the means of knowledge of the truth as the fac
ts in questions; (2) reliance, in good faith, upon the conduct or statements of
the party to be estopped; (3) action or inaction based thereon of such character
as To change the position or status of the party claiming the estoppel, to his
injury, detriment or prejudice
112

G. R. No. L-41001 September 30, 1976 MANILA LODGE NO. 761, BENEVOLENT AND PROTEC
TIVE ORDER OF THE ELKS, INC., v. THE HONORABLE COURT OF APPEALS, CITY OF MANILA,
and TARLAC DEVELOPMENT CORPORATION No. L-41012 September 30, 1976 TARLAC DEVELO
PMENT CORPORATION v. HONORABLE COURT OF APPEALS, CITY OF MANILA, LODGE NO. 761,
BENEVOLENT AND PROTECTIVE ORDER OF ELKS, INC. Facts: Manila City reclaimed part
of Manila Bay to extend Luneta, as authorized under Act 1360. It subsequently so
ld part of the southern area to BPOE and then BPOE sold the same to TDC. When Ma
nila City sought for the reannotation of its right to repurchase on the title of
TDC, TDC filed the suit for declaration of ownership. Unfortunately, the SC rul
ed in favour of Manila City that the sale is void because the reclaimed area is
public property and not part of the site allowed to be alienated. Hence, the con
tract lacked subject-matter. And even if TDC was a buyer in good faith, he canno
t claim it to estop Manila City from invoking the invalidity of the sale because
estoppel does not apply to government agencies for errors made by its agent. Ot
herwise, allowing a contract prohibited by law to subsist is tantamount to indir
ectly allowing what directly cannot be allowed. > Reclamation of part Manila Bay
, for the Extension of Luneta, by City of Manila ~ Pursuant to Act No. l360 amen
ded by Act No. 1657 (June 26, 1905; May 18, 1907; of the Philippine Commission)
which hereby authorized Manila City to reclaim land which is to belong to them, an
d to set aside a tract at the north end for a hotel site and to sell or lease th
at portion, with the approval of the Governor General, to a responsible person o
r corporation > Reclaimed 25 hectares, Registered to Manila City > Sale (January
16, 1909) of 5,543.07sq.m. at the southern end of the reclaimed land to Manila
Lodge No. 761, Benevolent and Protective Order of Elks of the U.S.A. > Title in
Manila Citys name (January 20, 1911) ~ Issuance of Respective Titles to Manila an
d BPOE (July 13,17 1911) > Sale of 5,543.07sq.m. by BPOE to Tarlac Development C
orporation (November 19, 1963) for P4.7M > Reannotation of Right to Purchase by
Manila over 5,543.07sq.m. ~ After BPOE had it cancelled on February 15, 1963 bef
ore the Sale > SUIT by TDC (April 28, 1971) against Manila and BPOE for Declarat
ion of Ownership of the Property and Right to Recover against BPOE should the Pr
operty be Declared Public > RTC (July 14, 1972) Denied, Ruling that Land is Publ
ic Park/Plaza, Sale to BPOE and TDC is null and void, TDC buyer in good faith wh
o can recover the BPOE who can recover from Manila the purchase price > CONTENTI
ONS of BPOE, TDC: (i)
Patrimonial property of the Manila and could therefore be sold,disposed of like
any other private property ~ Property is for public use ONLY IF (OCC 344) it has
already been so constructed or laid out as such WHERE property sold was neither
actually constructed as a street, park or promenade nor laid out as a street, p
ark or promenade, nor used for public purpose nor part of Luneta plan; (ii) Mani
la estopped from questioning the validity of the sale for having recognized it i
n various documents (Petition for Reannotation that is premised on validity of s
ale; Testimony of City Treasurer and Surveyor that property was not a public pla
za/park and even had fences; Cadastral Survey and Registration of Property as ow
ned by Elks Club; > Reclaimed Area (Portion Sold) is PUBLIC > Cannot be Alienate
d > Even if TDC is buyer in Good Faith, No Estoppel against State (1) Reclaimed
Area is Public Property > (i) Purpose of Act No. 1360, by which Manila is author
ized to reclaim, was to extend Luneta which is a park or plaza and hence reclaim
ed area must be of the same nature or character as the old Luneta; (ii) Manila B
ay is part of public domain; (iii) Sufficient that Property is intended for Publ
ic Use where it was to be paid by Manila City; (iv) Could have alienated the Por
tion Reserved as Hotel Site (where title would revert to City if hotel fails) BU
T Portion Sold was not Hotel Site but Other End > HENCE, Manila had no authority
/power TO SELL the area and HENCE Sale is VOID for Lack of Subject Matter; (2) M
anila City not estopped from questioning the validity of the sale > EVEN IF TDC
is Buyer in good faith, BPOE had performed its obligation (payment), and Manila
accepted the benefits of the sale > Government is never estopped by mistakes or
errors on the part of its agents > Estoppel does not apply to a municipal corpor
ation to validate a contract that is prohibited by law or its against Republic p
olicy > OTHERWISE, tantamount to enabling it to do indirectly what it could not

do directly; (3) Voidness of Sale can be used against Anyone who asserts a right
arising from it, not only against the first vendee, BPOE, but also against all
its suceessors, including the TDC G.R. No. L-23072 November 29, 1968 SIMEON B. M
IGUEL, ET AL. v. FLORENDO CATALINO Facts: Bacaquio was a non-Christian who sold
his property to Agyapao without the approval/authority of provincial governor. D
espite the sale being void, the heirs of Bacaquio cannot recover the property fr
om the son of Agyapao because their action has been barred by laches for allowin
g Catalinos to possess the property, improve it and pay for its taxes and failin
g to act for 34y despite their knowledge of its invalidity.
113

> Sale of Land (1928) by Bacaquio (non-Christian resident of Mountain Province,

Benguet) to Catalino Agyapao for P300 ~ No formal Deed of Sale > Possession of P
roperty by Catalino and son Florendo Catalino, Payment of Taxes, Improvements >
Death of Bacaquio (1943) > Sales of Same Property (i) by daughter Grace Ventura
(1st marr) to Florendo for P300 ~ Otherwise, she would cause trouble; (ii) by fa
ther Agyapao to Florendo (1961) > SUIT (January 22, 1962) by Children of Bacaqui
o (Grace Ventura from 1st Wife; Simeon, Emilia and Marcelina Miguel from 3rd Wif
e) for Recovery of Property > CONTENTION of Children: Possession by Florendo wit
hout their knowledge, consent, Gathering of Produce > DEFENSE of Florendo: Adver
se Possession for 30y > Void Sale BUT Laches HENCE Property to Florendo (1) Void
Sale > As non-Christian inhabitant, Bacaquio needed the written approval and au
thorization of the provincial governor or his representative to sell his propert
y (pursuant to Section 145b, Administrative Code of Mindanao and Sulu > Bacaquio
remained, in law, the owner of the land until his death in 1943, when his title
passed on, by the law on succession, to his heirs > Sale of Grace, even if with
out need of approval absent proof of non-Christianity Not Recognized since Title
was still in Bacaquios name; (2) Ownership to Florendo > Possession of Property
without objection for 34y (under belief of ownership) > Bacaquio and Children, w
ho knew the invalidity of the sale, remained silent and inactive, delaying and w
ithout taking any step to reivindicate the lot for more than 34y (1928-1962) > D
EFENSE of Laches >> Courts can not look with favor at parties who, by their sile
nce, delay and inaction, knowingly induce another to spend time, effort and expe
nse in cultivating the land, paying taxes and making improvements thereon for 30
long years, only to spring from ambush and claim title when the possessor s eff
orts and the rise of land values offer an opportunity to make easy profit at his
expense; >> Four elements of Laches: (a) conduct on the part of the defendant,
or of one under whom he claims, giving rise to the situation of which complaint
is made and for which the complaint seeks a remedy; (b) delay in asserting the c
omplainant s rights, the complainant having had knowledge or notice, of the defe
ndant s conduct and having been afforded an opportunity to institute a suit; (c)
lack of knowledge or notice on the part of the defendant that the complainant w
ould 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 i
s not held to be barred > Difference b/w Laches and Estoppel > there is an Estop
pel by Laches
G.R. No. L-31618 August 17, 1983 EFREN R. MENDOZA and INOCENCIA R. DE MENDOZA v.
PONCIANO S. REYES and THE COURT OF APPEALS G.R. No. L-31625 August 17, 1983 JUL
IA R. DE REYES v. PONCIANO S. REYES and COURT OF APPEALS Facts: Sps. Ponciano S.
Reyes and Julia de Reyes bought 2 lots from J.M Tuason on installment basis in
Feb. 1947. They both obtained a loan from Rehabilitation Finance Corposation to
pay for the lands and to put up a house and camarin. Upon payment, they were iss
ued Deeds of Absolute Sale but the vendee named is only Julia and Poncianos signa
ture appeared only above with my marital consent. TCTs were then issued to Julia Re
yes married to Ponciano Reyes. Julia then leased and subsequently sold the lots t
o sps. Mendoza but without the knowledge and consent of Ponciano. TCTs were then
issued in their name. Held: Properties were CP because they were acquired by on
erous title during the marriag, and hence, CP under NCC 153.1. Also, the funds u
sed to purchase them were CP because under NCC161, all debts and obligs for the
benefit of CP are liabilities of CP. Although Julia contends that (i) she bought
the lots using her personal funds with an initial payment of of P2k, receipt is
sued by JM Tuason shows that the first installments of the lots were P69.96 and
P102; and that (ii) she had the bldgs constructed thereon from personal funds an
d loan from PNB, but the mortgage contracts to QC Elementary School and to sps.
Mendoza showed that the properties were paid out of loan from RFC. Even when pro
perties were in her name alone, CP is still presumed where it was acquired durin
g marriage for CPs benefit.
> CONTENTIONS of Julia, sps. Mendoza: Ponciano estopped from denying
paraphernal character of property due to Special Defenses he made in a Previous

Case (1948, Adverse Decision of Ejectment Suit from Leased Hotel he was then ope
rating) that no conjugal property exists, that they acted independently from one
another whenever either one engaged in any business >> Estoppel > whenever a pa
rty has, by his declaration, act or omission, intentionally and deliberately led
the other to believe a particular thing true and to act, upon such belief he ca
nnot, in any litigation arising out of such declaration, act or omission, be per
mitted to falsify it > WHO CAN INVOKE: only between the person making the misrep
resentation and the person to whom
114

it was addressed > SINE QUA NON: latter relied upon the misrepresentation and ha
d been influenced and misled thereby > Ponciano NOT Estopped > No Proof that (i)
he intentionally and deliberately led sps. Mendoza to believe what was containe
d in the Pleading and to make them act upon it ~ Sps. Mendoza not even a party i
n the case, not shown or had happened to see the Pleading, not aware of its exis
tence at the time of Sale; (ii) his representation was addressed to Sps. Mendoza
and intended that they would act upon it G.R. No. L-26699 March 16, 1976 BENITA
SALAO, assisted by her husband, GREGORIO MARCELO; ALMARIO ALCURIZA, ARTURO ALCU
RIZA, OSCAR ALCURIZA and ANITA ALCURIZA, the latter two being minors are represe
nted by guardian ad litem, ARTURO ALCURIZA v. JUAN S. SALAO, later substituted b
y PABLO P. SALAO, Administrator of the Intestate of JUAN S. SALAO; now MERCEDES
P. VDA. DE SALAO, ROBERTO P. SALAO, MARIA SALAO VDA. DE SANTOS, LUCIANA P. SALAO
, ISABEL SALAO DE SANTOS, and PABLO P. SALAO, as successors-ininterest of the la
te JUAN S. SALAO, together with PABLO P. SALAO, Administrator Facts: > 4 Childre
n of sps. Manuel Salao (died 1885) and Valentina Ignacio (died May 28, 1914): Pa
tricio (died 1886, leaving son Valentin who in turn left two girls, Benita, Vict
orina); Alejandra; Juan (leaving son Juan Jr.); Ambrosia > Purchase (1911) by Ju
an and Ambrosia of Calunuran fishpond (47-hectares) and of Lewa Fishpond (9-hect
ares) > Sales and Subsequent Redemptions of Calunuran Fishpond by Ambrosia and J
uan (December 1, 1911 to Vicente Villongco for P800; June 8, 1914 to Eligio Nava
l for P3,360 > Extrajudicial Partition of Estate of Valentina (December 29, 1918
): Valentin allegedly obtained Calunuran fishpond by verbal agreement; received
fishponds and riceland worth P13,501 which exceeded the Distributive share of P8
,135.25 of each legal heir ~ Directed to pay his co-heirs P5,365.75 > Deaths of
Juan (November 3, 1931) and of Valentin (February 9, 1933) ~ Extrajudicial Parti
tion of his Estate (December 28, 1934), consisting of 2 inherited fishponds > Do
nation (September 30, 1944) by Ambrosia of share in Calunuran and Lewa Fishpond
to nephew Juan Jr. (who was already owner of other upon Juan Sr.s death) > SUIT (
January 9, 1952) by Heirs of Valentin for Reconveyance of Valentins 1/3 interest
in Calunuran and Lewa Fishponds > CONTENTIONS of Valentin: Calunuran Fishpond fo
r fishpond business among Juan, Ambrosia, Alejandra and Valentin
that was funded by the inheritance from father Manuel Salao ~ Valentins share was
held in trust by his uncle and aunt > CONTENTIONS of Juan and Ambrosia: Calunur
an Fishpond purchased by Juan and Ambrosia alone > NO TRUST > No Evidence of Exp
ress or Implied Trust: (1) No Express Trust > Purely parol evidence offered by V
alentin heirs ~ oral partition in 1919 of the two fishponds where Calunuran was
assigned to Valentin Salao > Cannot be used to prove an Express trust concerning
real property; (2) No Implied Trust > (i) No proof of Coownership over the land
s supposedly inherited from Manuel (used to purchase fishponds); (ii) No proof o
f Manuels estate allegedly consisting 145 hectares where the mere 17-hectare Esta
te of Valentina was partitioned in an elaborate Deed woth 22 pages; (iii) No pro
of of intention of Ambrosia and Juan to create any trust in Valentins favour (3)
Laches > 40y Period from Registration of Fishponds (1911) before Writtedn demand
for Reconveyance (1951) and Action was filed for Reconveyance (1952) ~ Implied
Trusts prescribe in 10y >> Trusts (fideicomosis) > right, enforceable solely in
equity, to the beneficial enjoyment of property, the legal title to which is ves
ted in another, meaning that the title of the Trustor is transferred to the Trus
tee > PARTIES: (i) trustor, person who establishes a trust; (ii) trustee, one in
whom confidence is reposed as regards property for the benefit of another perso
n; (iii) beneficiary, person for whose benefit the trust has been created > Fidu
ciary relation between the trustee and the cestui que trust > EITHER: Express, I
mplied >> Express trusts are created by the intention of the trustor or of the p
arties ~ BY Fiduciary Relations > FORM: No particular words, it being sufficient
that a trust is clearly intended > HOW CREATED: By the direct and positive acts
of the parties; By some writing or deed, or will; By words either expressly or
impliedly evincing an intention to create a trust > HOW PROVED: Not by Oral Evid
ence >> Implied trusts come into being by operation of law > FORM: Without being
expressed > HOW PROVED: From the nature of the transaction as matters of intent
; Superinduced on the transaction by operation of law as matter of equity, indep

endently of the particular intention of the parties > EITHER: Resulting, Constru
ctive > Legal Difference (Not defined in statutes): Constructive in 10y from dis
covery of fraud, trust established in the interest of justice; Resulting no pres
cription, wanted to have a trust but which was not established; >> Resulting tru
st is a trust which is raised or created by the act or construction of law > HOW
CREATED: By implication of law > HOW PROVED: Presumed to have been contemplated
by the parties, found in the nature of their transaction, but not expressed in
the deed or instrument of conveyance
115

>> Constructive trust is a trust raised by construction of law, or arising by op

eration of law > HOW CREATED: not created by any words, either expressly or impl
iedly evincing a direct intension to create a trust, BUT By the construction of
equity in order to satisfy the demands of justice >> TRUST PROVED BY PAROLE EVID
ENCE > ONLY IF testimony supporting is trustworthy, sufficiently strong and full
y convincing to prove the right of the alleged beneficiary with as much certaint
y as if a document proving the trust were shown > WHY: Oral evidence can be easi
ly fabricated > Is the beneficiary always a Third Person? Can the Trustor be the
Beneficiary because why would you establish a trust over property that you alre
ady own? No, Trustor can be a Beneficiary BUT TITLE TO THE PROPERTY GOES TO THE
TRUSTEE > Trust is established even if TRUSTEE DECLINES (implied, by operation o
f law) v. Agency, SPA > Should the Trust comply with rules on contracts Like Tru
st in benefit of a spouse Trust with illegal motive (Liguez) *Collation / Claw-b
ack Return of inofficious donations where an heir gets back what had been spent
on other heirs if such donations exceed value of share in inheritance G.R. No. L
-20449 January 29, 1968 ESPERANZA FABIAN, BENITA FABIAN and DAMASO PAPA Y FABIAN
v. SILBINA FABIAN, FELICIANO LANDRITO, TEODORA FABIAN and FRANCISCO DEL MONTE F
acts: The father of Silbina purchased Lot 164 of the Friar Lands Estate but died
before he could finish the instalments. Silbina thus made an Affidavit with her
niece Teodora, falsely claiming that she was the only heir of Pablo (at the pre
judice of her 3 siblings) but enabling her to purchase Lot 164 for her own and T
eodora. Since then, they had been in the possession of the property and were iss
ued titles to it. 32y later, Siblinas siblings sought the reconveyance of the pro
perty on the ground of the fraud S,T employed in being able to acquire title. Vo
id as the Sale had been, their action to enforce the constructive trust in their
favour (which arose when the Lot was acquired by S,T instead of real heirs due
to fraud) is already barred by laches after 32y for non-action by them when they
knew well the possession and fraud of S,T. An action based on fraud also
prescribves in 4y upon discovery and the more than 10y adverse possession of S,T
of the property had vested ownership in them. > Purchase of Lot 164 of Friar La
nds Estate (January 1, 1909) by Pablo Fabian from Ph Govt for P112 ~ Issuance of
Sale Certificate, Payment of 5 installments, Death (August 2, 1928) > Affidavit
(October 5, 1928) by daughter (1/4) Silbina and niece Teodora Fabian that Silbin
a was the only remaining heir of Pablo ~ Issuance of Sale Certificate (November
14, 1928) in favour of Silbina and Teodora over Lot 164 for P120 > Possession, C
ultivation, Production of Property, Payment of Taxes (since 1929) ~ Issuance of
TCTs each in Silbina and Teodoras name after subdivided into 2 > SUIT for Reconve
yance (July 18, 1960) by Silbinas siblings (Esperanza, Benita I Fabian, Damaso Pa
pa) aganist sps. Silbina Fabian and Feliciano Landrito and Teodora Fabian and Fr
ancisco del Monte > CONTENTIONS of Siblings: Silbina and Teodora was able to buy
Lot 164 by fraudulently misrepresenting in the Affidavit that Silbina was the o
nly daughter and heir of the deceased Pablo Fabian > DEFENSE: Valid purchase by
them because Fabian was not yet the owner (did not complete amortizations) or be
cause of acquisitive prescription or because action of siblings already barred b
y laches > VOID Sale BUT Valid Ownership BY Silbina and Teodora thru Laches, Pre
scription: (1) Ownership of Pablo DESPITE Incomplete amortizations > Issuance of
Sale Certificate and Payment of first 5 installements by Pablo > Friar Lands Ac
t provides the Transfer of ownership to Purchaser upon Payment of 1st instalment
and Issuance of Certificate of Sale WHERE Naked title is kept by Govt until full
payment ONLY TO protect State interest and prevent the purchaser from encumberi
ng or disposing of the lot purchased before the payment in full of the purchase
price; BUT Govt can no longer alienate property; (2) Null and Void Subsequent Sal
e by Govt to Silbina and Teodora > Interest of Pablo in Purchase Property upon h
is Death Transfers to His Heirs; (3) BUT Ownership now validly with Silbina and
Teodora: (i) Laches Barred the Action to Enforce Constructive Trust (arising whe
n property is acquired through fraud and resulting in the person obtaining it be
ing considered a trustee of an implied trust for the benefit of the person from
whom the property comes) ~ Assignment of Sale Certificate (Affidavit) on October
5, 1928, Actual transfer of Lot 164 on November 14, 1928 BUT ACTION ONLY ON Jul

y 8, 1960 (32 big years later) ~ Absent Proof of Concealment of Facts giving ris
e to the trust WHERE Silbina and Teodora were publicly and continuously under cl
aim of ownership of the Lot, cultivated it, harvested and appropriated the fruit
s for themselves; (ii) Prescription of Action based on Fraud (4y); (iii) Adverse
Possession of Lot by Silbina and Teodora fore more than 10y ~ Act 190 that Ten
years actual adverse possession by any person claiming to be the owner for that
116

time of any land or interest in land, uninterruptedly continued for ten years by
occupancy, descent, grants, or otherwise, in whatever way such occupancy may ha
ve commenced or continued, shall vest in every actual occupant or possessor of s
uch land a full and complete title > Even if Void, Laches is not ratification bu
t a Defense of Estoppel hence the Defense is not ratification by passage of time
but Protection from Suit due to Estoppel G.R. No. L-22587 April 28, 1969 RUFINO
BUENO, FILOMENA B. GUERRO, LUIS B. GUERRERO, BENJAMIN B. GUERRERO, VIOLETA B. R
EYES-SAMONTE, FELICIDAD B. REYES-FONACIER, MERCEDES B. REYES, HONESTA B. REYES-S
ARMIENTO, TEODORA B. REYES-DALUMPINES, MAMERTA B. REYES-MERCADO, ROSARIO B. REYE
SCONCEPCION, FEDERICO B. REYES and CONCEPCION B. REYES v. MATEO H. REYES, and JU
AN H. REYES Facts: The heirs of Jorge Bueno agreed to have Francisco (husband of
Jorges daughter) to file their answer to the cadastral proceedings in order to o
btain their title to a property which belonged to Jorge. Allegedly due to mistak
e or bad faith, Francisco did file an answer and obtain a title but this was iss
ued in his name and his brothers as owners. The Buenos discovered the title only
when the brothers filed for possession. Hence, the Buenos sued them for reconvey
ance. The trust relationship that arose from the entitlement of Francisco of Bue
nos property was however only implied as it resulted by operation of law and not
by intention. Hence, the action to enforce such trust is not imprescriptible. Re
conveyance prescribes in 10y and for their case, it is counted from the time suc
h constructive trust (which warrants reconveyance) came about and discovered. Th
e case is remanded to determine such date because their allegations contradict a
nd because the proceedings and possession cannot serve as constructive notice be
cause they are in rem and in possession of Buenos themselves. > Agreement b/w He
irs of Jorge Bueno and Francisco H. Reyes (husband of Jorges daughter, Eugenia) t
hat latter would file the formers answer in the cadastral proceedings over the ti
tle of Jorge Bueno to Lot No. 2587 and would obtain title in ther favour > Filin
g of an Answer by Francisco in cadastral proceedings (January 7, 1936) BUT decla
red the said parcel of land in his and his brothers names (Juan, Mateo) allegedly
due to bad faith or mistake ~ Issuance of Title in their names > SUIT for Recon
veyance (December 12, 1962) by Heirs of Bueno against Reyes > CONTENTIONS: Disco
very of Fraud only when Reyes brothers filed for a Writ of Possession; Express T
rust which is
Imprescriptible > DEFENSE: Imprescriptibility of Title, Laches, Prescription of
Action > Trust was Implied (Constructive) and Action Prescribes in 10y from Caus
e of Constructive Trust (Bad Faith, Mistale) > Remand! (1) Trust not Express BUT
Implied > Trust that Francisco would file an answer in the cadastral proceeding
and obtain title to the land in behalf of all the heirs of Jorge IS NOT EXPRESS
because of Allegation of Bad Faith and Mistake (where Express is created by int
ention of parties to be in such trust relationship) > IMPLIED ONLY, arising by o
peration of law to satisfy the demands of justice and equity and as a protection
against unfair dealing or downright fraud > IMPLIED, CONSTRUCTIVE FRAUD because
registration of property by one person in his name, whether by mistake or fraud
, the real owner being another person, impresses upon the title so acquired the
character of a constructive trust for the real owner, which would justify an act
ion for reconveyance; (2) Prescription of Actions for recovery of real property
is 10y (Code of Civil Procedure, Sec. 40) ~ Exception is Express not Implied Tru
st > Counted from Bad Faith or Mistake, which gave rise to the Constructive Trus
t ~ Discovery of such bad faith or mistake > Remand to Determine! Possession and
Cadastral suit not constructive notice because property was in possession of Bu
enos and proceedings were in rem G.R. No. L-25563 July 28, 1972 MARIANO TAMAYO v
. AURELIO CALLEJO and the HON. COURT OF APPEALS Facts: Tamayo sps. sold part of
their property to Domantay who sold the same to Callejo. When the Tamayo sons la
ter registered the property in their names, including the portion sold to Domant
ay-Tamayo, and sold the same to Estacio, Callejo requested his portion to be rem
oved from the title, registered his adverse claim (upon denial of request) and s
ued for reconveyance. The action of Callejo has not prescribed because it was an
express trust. Although the trust arising from the registration of Tamayo broth
ers of property that is not their own is really implied, the subsequent Public I

nstrument executed by Mariano became the basis of the express trust. In such doc
ument, the brothers acknowledged Tamayos rightful ownership of the portion by vir
tue of the sale made by their parents to him. Hence, the action was imprescripti
ble until repudiation that happened only when Mariano refused Callejos request to
exclude his portion from the title. In case of repudiation, the prescription be
gins from such time and Callejo timely filed the suit only weeks after.
117

> Sale of Land (part; February 1, 1912) by sps. Vicente Tamayo and Cirila Velasc
o-Tamayo to Fernando Domantay > Application for Title (September 29, 1913), Regi
stration of Land in Names of Children Mariano and Marcos ~ After Death of Vicent
e and Waiver of Cirila of her share in sonss favour > Issuance of Title in sons na
mes (November 15, 1915; but only part because of sons acknowledgement that part o
f the land belonged to the estate of Gregorio Flor Mata) > Sale of Purchased Lan
d (August 22, 1918) by Domantay to Aurelio Callejo ~ Possession > Issuance of Ti
tle in Marianos name (May 26, 1930) after Marcos sold him his share > Sale of Land
(part; February 24, 1940) by Mariano to Proceso Estacio, which includes the par
t sold to Domantay Callejo ~ Surveyor sent by Estacio was not allowed by Callejo
to enter > Callejos Request to Mariano to exclude his part from latters title (Ig
nored), Registration of Adverse Claim (June 16, 1952), SUIT (June 25, 1952) for
Reconveyance > CONTENTION of Callejo: Land portion is held in trust by the Tamay
os and that the action to enforce said trust does not prescribe > DEFENSE: Calle
jos part not included in Marianos title > Land Portion of Callejo Held IN TRUST by
Tamayos > Implied but became Express Trust ~ Imprescriptible until Repudiation:
(1) Implied Trust > Created by Tamayos application for registration (September 2
9, 1913) and the Portions inclusion in Tamayos Title (November 15, 1915); (2) Expr
ess Trust > Public Instrument (June 28, 1918) by Mariano on his and his brothers
behald, that they explicitly acknowledged that his deceased parents, Vicente Tam
ayo and Cirila Velasco, had sold to Fernando Domantay, for the sum of P200, the
parcel of land then held by the latter, and that Fernando Domantay is the absolu
te owner of said land, free from any lien or encumbrance thereon > Trust clearly
intended to be created by the will of the parties > Imprescriptible, continuing
and subsisting UNTIL repudiated > Prescription of 10y begins at the time of rep
udiation ; (3) Action not yet prescribed > Repudiation when Mariano Tamayo rejec
ted Aurelio Callejo s demand (June 1952) and SUIT (June 25, 1952), just weeks af
ter; > Remanded to Determine Division of Property
Facts: When Quijano and Enriquez acquired free patents and titles to Lots 374 an
d 379, respectively, Heirs of Sanjorjo sought its cancellation before DENR. Thei
r complaint was dismissed though because it was commenced 3y after the issuance
of the patents and the law allows review only if based on fraud and commence wit
hin 1y. But heirs of Sanjorjo are not left w/o remedy. The law allows the cancel
lation of titles before courts of justice even if commenced more than 1y as long
as the title has not been transferred to purchasers in good faith. Because the
property remained with Quijano and Enriquez, heirs coud validly seek reconveyanc
e in court especially when their action has not yet prescribed (10y) based on co
nstructive trust. > Issuances for Free Patents and Purchases, Issuance of Titles
of Lots 374 and 379, Cadastre 374-D by Alan P. Quijano (August 29, 1988, Septem
ber 6, 1988) and Gwendolyn Q. Enriquez (November 11, 1988, February 11, 1989) >
Suit for Cancellation of Titles (May 22, 1991) by Heirs of Guillermo Sanjorjo, a
gainst Quijano and Enriquez, before DENR Regional Executive Director > DENR Dism
issed because Action was filed more than one year from the titles issuance and he
nce only the regular courts of justice have jurisdiction on the matter of cancel
lation of title > SUIT for Cancellation of Titles and Reconveyance (September 13
, 1993) by Heirs of Guillermo Sanjorjo, against Quijano and Enriquez, before CFI
> CONTENTIONS: They had inherited Lots 374,379 from predecessor Guillermo who b
ought it from original owner Ananias Ursal; No res judicata from dismissal of DE
NR > Action to enforce Constructive Trust based on Fraud is for Conveyance of Pr
operty Which has not yet Prescribed: (1) Constructive Trust based on allegation
of absolute ownership of Sanjorjo of the lots that were fraudulently deprived by
Quijano and Enriquez when they obtained free patents and certificates of title
in their names > Art. 1456 that a person acquiring property through fraud become
s by operation of law a trustee of an implied trust for the benefit of the real
owner of the property > Alleged fraud created an implied trust > Right to seek r
econveyance; (2) No res judicata > (i) DENR proceedings was not a judgement on t
he merits of the case (lack of 3rd element); (ii) PD 1529 does not bar actions t
o reopen title registrations if commenced within 1y due to fraud, OR if commence
d after 2y from registration BUT IN CFI and ONLY WHEN that no innocent purchaser

for value has acquired the property or any interest thereon > Landowner whose p
roperty has been wrongfully or erroneously registered in anothers name where prop
erty has not passed to an innocent third party for value; (3) Reconveyance still
available to Heirs of Sanjorjo > Prescription in 10y >> Elements of res judicat
a: (1) the previous judgment has become final; (2) the prior judgment was render
ed by a court having jurisdiction over the subject
118
G.R. No. 140457 January 19, 2005 HEIRS OF MAXIMO SANJORJO, namely, VICENTE SANJO
RJO, MACARIA SANJORJO, DOMINGO SANJORJO, ALFREDO CASTRO, and SPOUSES SANTOS AND
LOLITA INOT v. HEIRS OF MANUEL Y. QUIJANO, namely, ROSA Q. LEDESMA, MILAGROS Q.
YULIONGSIU, ALAN P. QUIJANO AND GWENDOLYN P. ENRIQUEZ, and VICENTE Z. GULBE

matter and the parties; (3) the first judgment was made on the merits; and (4) t
here was substantial identity of parties, subject matter and causes of action, a
s between the prior and subsequent actions >> Judgment on the merits > rendered
after argument and investigation, and when there is determination which party is
right >> Action for reconveyance > seeks to transfer property, wrongfully regis
tered by another, to its rightful and legal owner > PROVE: (1) that the plaintif
f was the owner of the land; (2) that the defendant had illegally dispossessed h
im of the same > BASIS: Implied or constructive trust, which prescribes in ten y
ears from the date of the issuance of the Certificate of Title over the property
provided that the property has not been acquired by an innocent purchaser for v
alue ~ OTHERWISE, Remedy if Action for Damages G.R. No. 144773 May 16, 2005 AZNA
R BROTHERS REALTY COMPANY v. LAURENCIO AYING, IN HIS OWN BEHALF AND IN BEHALF OF
THE OTHER HEIRS OF EMILIANO AYING, PAULINO AYING, IN HIS OWN BEHALF AND IN BEHA
LF OF THE OTHER HEIRS OF SIMEON AYING, AND WENCESLAO SUMALINOG, IN HIS OWN BEHAL
F AND IN BEHALF OF THE OTHER HEIRS OF ROBERTA AYING Facts: An Extrajudicial Part
ition of Real Estate with Deed of Absolute Sale was executed by some heirs of Ay
ing siblings, the registered owner of the property which they got from their mot
her. Said property was sold to Aznar who years later sent notices to vacate to i
ts occupants but who had been paying its taxes since the sale. Upon such notice,
the heirs of siblings sued for the cancellation of the Partition and Sale, alle
ging it to be fraudulent because not all heirs signed it. They action, however,
that is based on constructive trust prescribes in 10y from the time such trust c
ame about. The registration of the document cannot be considered because it was
wrongfully done; hence, actual knowledge is the starting point. Some said they k
new of the document since 1967 while others only in 1991 when the notices to vac
ate were sent. Hence, action regarding 1967 heirs has prescribed but not 1991. >
Issuance of Title over Lot No. 4399 in favour of 8 children of Crisanta Maloloy
-on, due to her death (1930) before Cadastral Decree ~ Lost in war > Extra-Judic
ial Partition of Real Estate with Deed of Absolute Sale (March 3, 1964) of Lot b
y Heirs of Children in favour of Aznar Brothers Realty Company, Registered (Marc
h 6, 1964 under Act No. 3344) > Payment of Real Property Taxes by Aznar, Reconst
itution of OCT (April 12, 1988) > Notices to Vacate
(1991) by Aznar to Lots occupants, Ejectment Suit and Order in its favour (Februa
ry 1, 1994 affirmed March 7, 2000) > SUIT for Cancellation of ExtraJudicial Part
ition with Absolute Sale and Recovery of Lot (August 19, 1993) by Heirs of Crisa
nta > CONTENTIONS of Crisanta Heirs: Coowners of Lot as descendants of registere
d owners (8 children) who had been in actual, peaceful, physical, open, adverse,
continuous and uninterrupted possession in concept of owner of subject parcel o
f land since time immemorial ~ Disturbed only in 1991 upon notice to vacate; Ext
ra-judicial partition of real estate with Deed of absolute sale was a fraud, and
null and void ab initio where not all the heirs of 8 children affixed their sig
nature (those who supposedly signed said document had been dead at the time) > D
EFENSE of Aznar: Actual possession of subject land as owner by virtue of the ext
ra-judicial partition of real property and deed of absolute sale and Payment of
taxes; Prescription against Crisanta heirs where an action to recover property b
ased on an implied trust should be instituted within 4y from discovery of the fr
aud > Action of Crisanta Heirs for Reconveyance based on Implied Trust Not Impre
sciptible: (1) Action is NOT for Declaration of Nullity which is imprescriptible
> ExtraJudicial Partition of Real Estate with Deed of Absolute Sale NOT PROVEN
as forged nor simulated > Valid and binding BUT only as to the heirs who partici
pated in the execution thereof (excluding those of Emiliano, Simeon and Roberta
Aying who undisputedly did not participate); (2) Action is for Reconveyance base
d on IMPLIED TRUST > (i) Implied Trust: Art. 1456 that If property is acquired t
hrough 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 prope
rty comes > Aznar acquired the entire parcel of land with the mistaken belief th
at all the heirs have executed the subject document; (ii) Reconveyance is remedy
; (3) Action for Reconveyance Prescribes in 10y > Implied or constructive trust
is an offspring of the law thus favors the true owner > Art. 1144 that actions b

ased upon an obligation created by law on written contracts must be brought with
in 10y from the time the right of action accrues > COUNTED FROM (i) Actual Notic
e in 1967 based on testimonies of heirs of Roberta and Emiliano that they knew a
bout the document at that time; (ii) Actual Notice in 1991 based on notices to v
acate, as admitted in their amended complaint; NOT FROM Registration because Doc
ument not deemed registered because wrongfully registered under Act No. 3344 and
not under Act No. 496 (Land Registration Act), despite the fact the land in dis
pute was already titled under Act No. 496 in the names of the Aying siblings at
the time the subject document was executed > HENCE, Action of Other Heirs (whose
knowledge began only in 1991) Has not prescribed
119

>> Burden of Proof on Knowledge > Which party to an action or suit will fail if
he offers no evidence competent to show the facts averred as the basis for the r
elief he seeks to obtain > Defendant bears the burden of proof as to all affirma
tive defenses which he sets up in answer to the plaintiffs claim ~ Heirs of Crisa
nta
>> Prescription of Action to Enforce Trust > Trustee cannot acquire by prescript
ion ownership over property entrusted to him > UNLESS Repudiation for express tr
usts and resulting implied trusts But not for constructive implied trusts which
may prescribe without repudiation
120