ARTICLES 1370-1371

ENRIQUE C. ABAD, et al. vs. GOLDLOOP PROPERTIES, INC.

G.R. No. 168108
13 April 2007.
FACTS:
Petitioners were the owners of 13 parcels of land covering a total of 53,562sq.m.
Respondent Goldloop Properties Inc. entered into a Deed of Conditional Sale with petitioners
for the entire land area. The agreement are as follows:
o Earnest money of P1M was given to the sellers
o P6M+ was given as first payment
o In case of the deal will not push through Par. 8 will be followed (In the event that the
BUYER cannot fulfill his obligation: he shall forward a formal request for extension
one week before Dec. 31, 1997, extension is only for 30 days, and this extension can
only be used once otherwise the P1M will be forfeited to the SELLER and the first
payment will be given back to the SELLER with no additional costs.
The sale did not push through because of an economic downturn.
Respondents were asking for the first payment of P6M but the petitioners said that it was
already forfeited to them. Respondent then filed a Complaint for Collection with Prayer for
Writ of Attachment. Petitioners insisted that a close reading of the provision revealed that
respondent as buyer had to comply with three conditions precedent before the first payment
could be returned to it.
RTC ruled in favor of respondent. CA affirmed the decision.
ISSUE: Whether the first payment P6M was forfeited to the petitioners per their contract.
HELD:

NO. Where the written terms of the contract are not ambiguous and can only be read one
way, the court will interpret the contract as a matter of law. The cardinal rule in the interpretation of
contracts is embodied in the first paragraph of Article 1370 of the Civil Code: [i]f the terms of a
contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control.
This provision is akin to the plain meaning rule applied by Pennsylvania courts, which
assumes that the intent of the parties to an instrument is embodied in the writing itself, and when
the words are clear and unambiguous the intent is to be discovered only from the express language
of the agreement. It also resembles the four corners rule, a principle which allows courts in some
cases to search beneath the semantic surface for clues to meaning. A courts purpose in examining
a contract is to interpret the intent of the contracting parties, as objectively manifested by them.
The process of interpreting a contract requires the court to make a preliminary inquiry as to
whether the contract before it is ambiguous. A contract provision is ambiguous if it is susceptible of
two reasonable alternative interpretations. Where the written terms of the contract are not
ambiguous and can only be read one way, the court will interpret the contract as a matter of law. If
the contract is determined to be ambiguous, then the interpretation of the contract is left to the
court, to resolve the ambiguity in the light of the intrinsic evidence.

ARTICLES 1370-1371
BENGUET CORPORATION, et al. vs. CESAR CABILDO
G.R. No. 151402; 22 August 2008.
FACTS:

Petitioner Benguet Co. is a mining company. Cabildo used to work for Benguet Co. and at the
time of his retirement Cabildo became a service contractor of painting jobs.
Cabildo submitted his quotation and bid for the painting of Benguet Co.s Mill Buildings and
Bunkhouses located at Balatoc mining site. Reyes and Cabildo discussed the price schedule,
and the parties eventually agreed that Benguet Corporation would provide the needed
materials for the project.
On March 7, 1983, even without a written contract, Cabildo began painting the Mill Buildings
at Balatoc. Subsequently, on March 23, 1983, Cabildo and Benguet Corporation formally
signed the Contract of Work; including the necessary repair works thereon. All the
stipulations were incorporated therein by Benguet Corporation which solely drafted the
contract.
Velasco was Cabildos foreman on the said project. On May 30, 1983, Velasco left as the
latters general foreman and went on his own as contractor, offering his services for painting
jobs.
Later on Velasco entered into a Contract of Work with Benguet Co. to paint the said sites
interior. Cabildo complained that Velascos Contract of Work is in breach of his own contract.
Benguet Co.s answer was that there was no breach contract since he only has to paint the
exterior while the interior will be done by Velasco. Benguet Co. also prevented Cabildo to do
more than the exterior paintings.
Cabildo filed a complaint for damages against the petitioners and Velasco before the RTC.
RTC decided in favor of Cabildo. CA affirmed the decision.

ISSUE: Whether there is ambiguity with the contract of Cabildo.

HELD:
NO. The petitioners insist that the parties intention was different, and that Cabildo knew of, and
acquiesced to, the actual agreement. We remain unconvinced. Even if we were to patronize the
petitioners stretched logic, the supposed intention of the parties is not borne out by the records.
Article 1371 of the same code states: Art. 1371. In order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be principally considered.
The Contract of Work with Cabildo did not distinguish between the exterior and interior painting of
the Mill Buildings. It simply stated that Cabildo shall paint the Mill Buildings at Balatoc Mill and all
the Bunkhouses at Balatoc, Itogon, Benguet. There is nothing in the contract which will serve as a
basis for the petitioners insistence that Cabildos scope of work was merely confined to the
painting of the exterior part of the Mill Buildings.

ARTICLE 1372
VICENTE ONG LIM SING, JR. vs FEB LEASING & FINANCE CORPORATION
G.R. No. 168115
8 June 2007
FACTS:
FEB entered into a lease of equipment and motor vehicles with JVL Food Products (JVL). On
the same date Ong Lim Sing, Jr. (Lim) executed an Individual Guaranty Agreement with FEB
to guarantee the prompt and faithful performance of the terms and conditions of the

aforesaid lease agreement. Under the contract, JVL was obliged to pay FEB an aggregate
gross monthly rental of P170,494.00.
JVL defaulted in the payment of the monthly rentals. FEB sent a letter demanding payment
but JVL still failed to pay.
FEB then filed a Complaint with the RTC.
In the Amended Answer, JVL and Lim admitted the existence of the lease agreement but
asserted that it is in reality a sale of equipment on installment basis, with FEB acting as the
financier. JVL and Lim claimed that this intention was apparent from the fact that they were
made to believe that when full payment was effected, a Deed of Sale will be executed by
FEB as vendor in favor of JVL and Lim as vendees. FEB purportedly assured them that
documenting the transaction as a lease agreement is just an industry practice and that the
proper documentation would be effected as soon as full payment for every item was made.
RTC ruled in favor of the petitioners because it found discrepancies on the said contract. CA
reversed and set aside the decision of the RTC; it declared that the transaction between the
parties as a financial lease agreement under Republic Act (R.A.) No. 8556.

ISSUE: Whether the CA failed to take into consideration that the contract of lease, a contract of
adhesion, concealed the true intention of the parties, which is a contract of sale.
RATIO:
NO. While we affirm that the subject lease agreement is a contract of adhesion, such a contract is
not void per se. It is as binding as any ordinary contract. A party who enters into an adhesion
contract is free to reject the stipulations entirely. If the terms thereof are accepted without
objection, then the contract serves as the law between the parties. In Section 23 of the lease
contract, it was expressly stated that:
SECTION 23. ENTIRE AGREEMENT; SEVERABILITY CLAUSE
23.1. The LESSOR and the LESSEE agree this instrument constitute the entire agreement
between them, and that no representations have been made other than as set forth herein.
This Agreement shall not be amended or altered in any manner, unless such amendment be
made in writing and signed by the parties hereto.

ARTICLE 1373
SM LAND, INC., vs. BASES CONVERSION AND DEVELOPMENT AUTHORITY and ARNEL
PACIANO D. CASANOVA, ESQ., in his official capacity as President and CEO of BCDA
G.R. No. 203655 13
August 2014
FACTS:
Pursuant to Republic Act No. (RA) 7227 or the "Bases Conversion and Development Act of
1992," the BCDA opened for disposition and development its Bonifacio South Property, a
33.1-hectare expanse located at Taguig City that was once used as the command center for
the country's military forces.
SM Land, Inc (SMLI) submitted an unsolicited proposal, which guaranteed the BCDA secured
payments amounting to P15,985/sq.m or a total of P8.1B.

Less than 3mos. later, another proposal was submitted with a guarantee of secured
payments of P31,139/sq.m or a total of P20B.
A third unsolicited proposal was submitted with guaranteed secured payments of
P32,501/sq.m or a total of P22.6B.
The Joint Venture Selection Committee (JVSC), created by BCDA, recommended the
acceptance of the unsolicited proposal, which was acted upon by the BCDA.
Despite its acceptance, BCDA clarified that its act should not be construed to bind the
agency to enter into a joint venture agreement with SMLI, but only constitutes an
authorization granted to the JVSC to conduct detailed negotiations and to iron out the terms
and conditions of the agreement with petitioner.
Pursuant to the authorization, JVSC and SMLI embarked on a series of detailed negotiations.
With SMLI submitting its final revised proposal with guaranteed secured payments totaling
P25.9B, a 'Certification of Successful Negotiations' was issued by the BCDA and signed by
both parties.
Through the Certification, BCDA undertook to 'subject SMLI's Original Proposal to
Competitive Challenge' and committed itself to 'commence the activities for the solicitation
for comparative proposals.'
In complying with its obligations, BCDA required SMLI to post a proposal security of P187M,
as prescribed in the Terms of Reference.
BCDA published invitations for eligibility and submission for comparative proposals, and
other companies participated in the Pre-eligibility Conference.
Upon requests and issues concerning the relocation and replication of facilities in the subject
property, BCDA issued various Supplemental Notices rescheduling/postponing the deadline
for submission of Eligibility Documents. Thus, 2 years elapsed from the signing of the
Certification without the Competitive Challenge being completed.
BCDA informed SMLI that it will welcome any "voluntary and unconditional proposal" to
improve the original offer, with the assurance that the BCDA will respect any right which
may have accrued in favor of SMLI. SMLI responded by increasing the total secured
payments to P22.436B in over 15 years with an upfront payment of P3B, and proposed to
increase the net present value of the property to P38,500/sq.m; clarifying that its improved
offer is tendered on reliance of the BCDA's previous commitment to respect SMLI as Original
Proponent.
Without responding, BCDA sent a memorandum to the Office of the President,
recommending the termination of teh Competitive Challenge and proceed with the bidding.
SMLI opposed this and wrote BCDA to proceed with Competitive Challenge, but BCDA
terminated the Competitive Challenge invoking the Terms of Reference which reserves BCDA
the right to call off the disposition prior to acceptance of proposals and call for a new
disposition process without any liability to any or all the PSEs, except the obligation to return
the Proposal Security.
BCDA issued a check to SMLI for their submitted proposal security plus interest and
published an Invitation to Bid in the Philippine Star, which impelled SMLI to file an Urgent
Manifestation with Reiterative Motion to Resolve SMLI's Application for TRO and Preliminary
Injunction, which was granted by the Court.

ISSUE: Whether BCDA committed grave abuse of discretion in issuing Supplemental Notice No. 5,
unilaterally aborting the Competitive Challenge, and in subjecting the development of the project to
public bidding.
HELD: Yes. The SC held that the Reservation Clause only covers the Third Stage and cannot
prejudice SMLI's rights stemming from the first two stages.
BCDA's claim that the reservation clause refers to the entire Swiss Challenge and not merely Stage
Three thereof regarding the Competitive Challenge, deviates from its true meaning.
Art. 1373 provides that "if some stipulation of any contract should admit of several meanings, it
shall be understood as bearing that import which is most adequate to render it effectual. It is a

cardinal rule in statutory construction that no word, clause, sentence, provision or part of statute
shall be considered surplusage or superfluous, meaningless, void and insignificant.
We find that the reservation clause cannot justify the cancellation of the entire procurement
process. Respondent cannot merely harp on the lone provision adverted to without first explaining
the context surrounding the reservation clause. The said provision cannot be interpreted in a
vacuum and should instead be read in congruence with the other provisions in the TOR.

ARTICLE 1374
CIRIACA CAETE vs. SAN ANTONIO AGRO-INDUSTRIAL DEVELOPMENT CORPORATION
G.R. No. 51152
27 April 1982
FACTS:
Ciriaca Canete (Canete) filed a complaint for declaratory relief and damages to the RTC
against San Antonio Agro-Industrial Development Corporation (San Antonio) alleging that
she was in a Lease Contract with San Antonio:

PAR. 3: shall begin in crop year 1968-69 until crop year 1973-74 with the option on the
part of the LESSEE to extend for another 5 years
PAR. 7: the LESSEE is given the option to purchase in case the LESSOR is willing and
desirous of the same; also the LESSEE has the option to lease the premises (to others) as
long as the LESSOR is willing of the same.

On 8 Nov. 1973, Canete informed San Antonio that she will be terminating the Lease Conract
effective crop year 1974-75, advising them to vacate the leased premises. But defendant
refused to vacate the leased premises.

RTC ruled in favor of Canete. Hence, this appeal.

ISSUE:

Whether there is a conflict between the 2 stipulations in the Lease Contract.

HELD: No. The SC held that par. 7 is open to two possible interpretations, defeating the option
granted to the LESSEE in par. (i.e. option is unilateral or belonging to the LESSEE alone).
Art. 1374 provides that all the terms of a contract must be interpreted together to give effect to the
whole agreement, the Court held that the best reconciliation between paragraph 3 and paragraph 7
is to give effect to the latter only after the option in the former has already been exercised, thereby
avoiding conflict, contradiction and inconsistency within the four corners of the same

ARTICLE 1374
NATALIA S. MENDOZA VS. COURT OF APPEALS, ET.AL
FACTS:
Natalia Mendoza and her husband signed a promissory note for US$35,000 in favor of
Thomas and Nena Asuncion. The promissory note states that the Mendozas:
Promise to pay respondents 456$ / month starting on April 1978 and 120 consecutive
months after that.
In April 1988, the entire balance of principal and accrued interest remaining unpaid shall be
due and payable.
Should default be made in the payment of interest and principal when due, the entire
balance of principal and interest then remaining unpaid shall become immediately due at
the option of the holder of this note.
Mendozas paid $22,500 from April 1978 to December 1981 and kept paying installments
until Oct.1982. They paid again after Oct. 19, 1982 until January 1984. Mendozas have not
made any other payments after that.
RTC dismissed the case filed by the spouses Asuncion against spouses Mendoza since
payment shall commence in April 1978 and is thus due and payable in April 1988.
CA reversed decision, saying that the acceleration clause gave private respondents the right
to collect the full amount of the promissory note.
ISSUE: Whether spouses Mendoza were given the option to pay the balance of the principal and
accrued interest in April 1988 in the event that they would default in their obligation
HELD:
No. Article 1374: the various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken jointly
The third statement under the promissory note (see 3rd statement in the facts) is solely for
the benefit of the private respondents; to either wait for April 1988 before collecting the

unpaid installments or to invoke the acceleration clause and collect the entire balance
immediately without waiting for April 1988.
The second statement of the promissory note only grants respondents a right to waive
collection of the monthly payments when they become due; it cannot be construed as
conferring on the debtor the right to default on the monthly payments.

ARTICLE 1374
HOME DEVELOPMENT MUTUAL FUND (HDMF) AND MARILOU ADEA-PROTOR VS. COURT OF
APPEALS AND DR. CORA J. VIRATA (CONVIR) AND ASSOCIATES, INC.
FACTS:
CONVIR and Associates, Inc. and petitioner HDMF entered into a consultancy agreement by
virtue of which the former obligated itself to render medical services to the employees of
HDMF, taking effect on Jan. 1, 1985 to Dec. 31, 1985 provided, however, that either party
who desires to terminate the contract may serve the other party a written notice at least 30
days in advance.

On Dec. 16, 1985, Dra. Cora wrote petitioner Marilou, then Deputy Chief Executive Officer of
HDMF to inform that the former was assuming from petitioners silence that subject
Agreement was renewed for the succeeding period, from Jan 1 1986 to Dec 31 1986.

Petitioner notified Dra. Cora of the termination of contract since her services would not be
needed anymore.

Respondents filed a complaint for the sudden termination which required a written notice 30
days advance.

RTC rendered judgment in favor of CONVIR. CA affirmed decision.

ISSUE: Whether the second clause (the 30 days notice) of the consultancy agreement may be
ignored.
RATIO:
No. Petition denied. Article 1374: "the various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result from all of them taken
jointly. The entirety of consultancy agreement must be considered.

The letter-reply was only sent 5 days prior to the expiration of the contract, not following the
30 day rule as stipulated in the contract by the parties.

ARTICLE 1376
TOMAS CHUA vs. CA and ENCARNACION VALDES-CHOY
GR No. 119255
9 April 2003
FACTS:
Choy advertised for sale her house and lot.
Chua wanted to buy and they agreed for the price of P10.8M cash.
30 June 1989: Chua gave P100K and Choy issued a receipt stating that the balance is
payable on or before 15 July1989 and seller will pay Capital Gains Tax (CGT). Failure to pay
forfeits the earnest money (100K).
13 July 1989: Chua secured a managers check (MC) for P485K from PBCom but shortly after
gave a verbal stop payment order claiming that check was lost.
Later in the afternoon, Chua and Choy signed 2 Deed of Absolute Sale (DOAS). The first
covered the house and lot for P8M while the second covered the furnishing, fixtures and
movable properties for P2.8M. The CGT amounted to P485K.
Next day they met again and Chua gave the MC for Choy to pay CGT as Choy did not have
sufficient funds. Choy issued a receipt showing a balance of P10.215M after deducting the
managers check of P485K.
On the same day Choy and Chua deposited the MC to her account with Traders Royal Bank.
She then got an MC from the said bank, payable to BIR for CGT. The MC was handed to
Choys counsel to pay the CGT.
Chua also showed an MC for P10.215M but did not give it because he required that the title
be transferred to his name. This angered Choy who tore the DOAS claiming that it was not
part of their agreement.
Chua then confirmed his stop payment order by submitting an affidavit of loss but the MC
was still honored due to Chuas subsequent verbal advised to lift the order due to his special
arrangement w/ PBCom.

15 July 1989: The deadline for the payment of the balance. Choy suggested that Chua
should deposit in escrow the balance in order for her to transfer the title. Choys counsel
promised to relay it to Chua but nothing came out of it.
Chua filed for specific performance which the RTC granted ordering Choy to surrender the
title and Chua to deposit w/ the clerk of court the balance. CA reversed RTC decision.
ISSUES:
1) Whether there was a perfected contract of sale.
2) Whether Chua can compel Choy to transfer the title before full payment.
3) Whether Chuas obligation to put all papers in proper order includes payment of CGT.
HELD:
1) No. The agreement was only a contract to sell and not a contract of sale. In a contract of sale,
the title passes to the vendee upon the delivery of the thing sold. This delivery does not mean

the transfer of the title to the vendees name because ownership is transferred when the DOAS
is signed and notarized.
While in a contract to sell, ownership is reserved in the vendor and is not transferred until full
payment. The seller is not obligated to transfer ownership nor cause the issuance of a new title
in the buyers name. However, seller must put all his papers in proper order to the point that he
is in a position to transfer ownership upon signing of the contract of sale.
First: The payment of the P100K earnest money was subject to forfeiture if Chua was not able to
pay the balance. If it is a contract of sale the P100K should form part of the purchase price and
Choy would have the right to compel Chua to pay the balance. But, in this case Chua has the
right not to continue although he would forfeit the P100K.
Second: Their agreement was embodied in a receipt rather than in a DOAS. The DOAS came
later when Choy was under the impression that Chua was about to pay the balance.
Third: Choy retained possession of the title and other documents which are needed to transfer
ownership.
2) No. Since the agreement is a Contract to Sell, the full payment partakes of a suspensive
condition. The non-fulfillment of the condition prevents the obligation to sell from arising and
ownership is retained by seller w/o further remedies by the buyer.
3) No. The computation and payment of CGT has no bearing insofar as the validity and
effectiveness of the DOAS are concerned. The executed and notarized DOAS are the basis for
the BIR to compute the CGT. Therefore, without the DOAS there would be no CGT.
Customarily, in the absence of a contrary agreement, the following are need to complete a sale
of real estate: owners duplicate title, signed DOAS, tax declaration, and latest realty tax
receipt.

ARTICLE 1377
MARTHA HORRIGAN vs. TROIKA COMMERCIAL, INC.
GR No. 148411
29 November 2005
FACTS:
Troika is the lessee of the entire ground floor of a 2 story building.
Troika sub-let a portion to Martha for her restaurant Tia Maria.
The contract of sub-lease dated 20 April 1983 was prepared by Marthas husband.
The contract stipulated the rent to be at P12,500/month starting 15 March 183 and in
addition P4,500/month starting 1 August 1983. It also stipulated guaranteed yearly
increase equivalent to 10% thereof.
Troika construed the 10% yearly increase to apply to both P12,500 and P4,500. While Martha
claims that it is only applicable to the P4,500.
Martha ignored the explanation and billing statements sent by Troika until a final demand
letter asking her to pay P318,489 of rental adjustments.
Martha refused to pay. She claimed that she has been paying the 10% increase on P4,500
and that the P1,200/month she has been giving Troika was only in appreciation of its efforts
to improve her business and not rental payments.
Martha stopped paying the yearly increase since August 1986 because of Troikas demand
that she pay the 10% increase of P12,500.
ISSUE: Whether the 10% yearly increase applies to both the original monthly rental of P12,500 and
the additional monthly rental of P4,500.
HELD:
Yes. It was Marthas husband who prepared the contract therefore the ambiguity must be construed
against her as she is presumed to have confirmed the same. The 10% yearly increase is for the
benefit of Troika being the sub-lessor as such any doubt must be interpreted in its favor. It is also
provided in Sec. 17 of the Revised Rules of Court that when different constructions of a provision
are otherwise equally proper, that is to be taken which is the most favorable to the party in whose
favor the provision was made. In this case it is the sub-lessor Troika. Therefore, the 10% yearly
increase is to be applied to both amounts.

ARTICLE 1380
GUZMAN, BOCALING & CO., v RAOUL S.V. BONNEVIE
GR. No. 86150
2 March 1992

FACTS:
The subject of the controversy is a 600 sqm parcel of land with two buildings constructed
thereon, belonging to the Intestate Estate of Jose L. Reynoso. The property was leased to
Raoul Bonnevie and Christopher Bonnevie by the administratrix, Africa Valdez de Reynoso
for 1 year at P4000/mo.
4 months after, Reynoso notified private respondents by registered mail that she was selling
the leased premises and giving them 30 days from receipt of letter to exercise their right of
first priority, if not, they shall vacate the property. Private respondents informed Reynoso
that neither of them received the letter and refused to vacate the premises.
Reynoso filed a complaint for ejectment against them. The parties then entered a
Compromise Agreement that the defendant Bonnevie shall vacate the premises subject of
the Lease of Contract, voluntarily and peacefully. Bonnevie failed to comply with the
agreement. The city court ordered against the private respondents and ordered them to
leave.
Respondent filed a motion to set aside the Compromise Agreement and for annulment of
sale between Reynoso and the petitioner. The court rendered judgment against Reynoso and
petitioner declaring the deed of sale with mortgage null and void, and for Reynoso to
execute in favor of Bonnevie a deed of sale with mortgage.
Reynoso and petitioner filed a petition for review of the decision, however the CA ruled in
favor of respondents.
Hence the petition.
ISSUES:
1. Whether or not the court erred in ruling that the grant of first priority to purchase the subject
properties by judicial administratrix needed no authority from the probate court
2. Whether or not the Contract of Sale was not voidable but rescissible
3. Whether or not the court erred in considering the petitioner as a buyer in bad faith
HELD:
1. No. The Court held that it was not necessary to secure the approval of the probate court of
the Contract of Lease because it did not involve an alienation of real property of the estate
nor did the term of the lease exceed one eyar so as to make it fall under Art 1878(8) of the
CC.
Only if Par 20 of the Contract of Lease, which specifically stated that the private respondents
could exercise the right of first priority, all things and conditions being equal, was
activated and the said property was intended to be sold would it be required of the
administratrix to secure the approval of the probate court pursuant to Rule 89 of the Rules of
Court.
2. Yes. Under Art 1380 to 1381(3) of the Civil Code, a contract otherwise valid may nonetheless
be subsequently rescinded by reason of injury to third persons, like creditors.
The status of creditors could be validly accorded the Bonnevies for they had substantial
interests that were prejudiced by the sale of the subject property to petitioner without
recognizing their right of first priority under the Contract of Lease.
Rescission is a remedy granted by law to the contracting parties and even to third persons,
to secure reparation for damages caused to them by a contract, even if this should be valid,
by means of the restoration of things to their condition at the moment prior to the
celebration of contract. It is a relief allowed for the protection of one of the contracting
parties and even third persons from all injury and damage the contract may cause or to
protect some incompatible and preferent right by the contract. (TOLENTINO)
The order authorizing the sale in favor of petitioner was duly issued by the probate court,
which approved the Contract of sale. The order was valid insofar as it recognized all

essential elements of a valid contract of sale, but without regard to the special provision in
the Contract of Lease giving another party the right of first priority.
Even if the order of the probate court was valid, the private respondents still had a right to
rescind the Contract of Sale because of Reynosos failure to comply with the duty to give
them first opportunity to purchase subject property.
3. Yes. A purchaser in good faith and for value is one who buys the property of another without
notice that some other person has a right to or interest in such property and pays a full and
fair price for the same at the time of such purchase before he has notice of the claim or
interest of some other person in the property.
The petitioner was the vendee in the Contract of Sale. The petitioner cannot be deemed a
purchaser in good faith for the record shows that it categorically admitted it was aware of
the lease in favor of the Bonnevies.
Good faith connotes an honest intention to abstain from taking unconscientious advantage
of another. Tested by these principles, the petitioner cannot tenably claim to be a buyer in
good faith as it had notice of the lease of the property and such knowledge should have
cautioned it to look deeper into the agreement.
The set aside Compromise Agreement resulted in restoration of the original rights of the
private respondents under the Contract of Lease. Hence, petitioners cannot invoke the
compromise agreement.

ARTICLE 1381
CONGREGATION OF THE RELIGIOUS OF THE VIRGIN MARY vs. EMILIO Q. OROLA, et., al.
G.R. No. 169790
30 April 2008
FACTS:
Religious of the Virgin Mary (RVM) and respondent met to discuss the sale of the latters
property adjacent to St. Marys Academy. The said property is denominated and was still
registered in the name of respondent.
Josephine Orola went to Manila to see the Mother Superior General of the RVM regarding the
sale of the property subject of this instant case.
A contract to sell made out in the names of petitioner and respondents as parties to the
agreement was presented in evidence pegging the total consideration payable upon the
execution of the contract.

On payment of the said property, Reverend Balleque did not meet with the respondents to
schedule an appointment. RVM denied respondents; demand for payment because the
contract to sell was merely signed by Sr. Enhenco as witness and not by Reverend and RVM
will only be in a financial position to pay the balance price in two years time. Respondent
filed with the RTC which was granted but CA reversed.

ISSUE: Whether the CA was unable to determine from the records if the balance of the purchase
price was due in 2 years or upon transfer of title to the property in the names of respondents as
they averred.
HELD:
No. Petition denied.
Although the CA upheld the RTCs finding of a perfected contract of sale between the
parties, the former disagreed with the latter that fraud and bad faith were attendant in the
sale transaction. The appellate court, after failing to ascertain the parties actual intention
on the terms of payment for the sale, proceeded to apply Articles 1383 and 1384 of the Civil
Code declaring rescission as a subsidiary remedy that may be availed of only when the
injured party has no other legal means to obtain reparation for the damage caused.
The Court likewise find that there was a perfected contract of sale between the parties. A
contract of sale carries the correlative duty of the seller to deliver the property and the
obligation of the buyer to pay the agreed price.
As there was already a binding contract of sale between the parties, RVM had the
corresponding obligation to pay the remaining balance of the purchase price upon the
issuance of the title in the name of respondents. The supposed 2-year period within which to
pay the balance did not affect the nature of the agreement as a perfected contract of sale.
However, the CA mistakenly applied Articles 1383 and 1384 of the Civil Code to this case
because respondents cause of action against RVM is predicated on Article 1191 of the same
code for breach of the reciprocal obligation.
Moreover, contrary to the CAs finding that the evidence did not preponderate for either
party, the records reveal, as embodied in the trial courts exhaustive disquisition, that RVM
committed a breach of the obligation when it suddenly refused to execute and sign the
agreement and pay the balance of the purchase price.
Thus, when RVM refused to pay the balance and thereby breached the contract, respondents
rightfully availed of the alternative remedies provided in Article 1191.
The absence of fraud and bad faith by RVM notwithstanding, it is liable to respondents for
interest. In ruling out fraud and bad faith, the CA correspondingly ordered the fulfillment of
the obligation and deleted the RTCs order of forfeiture of the downpayment along with
payment of exemplary damages, attorneys fees and costs of suit.
The clear language of Article 1191 mandates that damages shall be awarded in. In this
regard, Article 2210 of the Civil Code is explicit that interest may, in the discretion of the
court, be allowed upon damages awarded for breach of contract The ineluctable conclusion
is that the CA correctly imposed interest on the remaining balance of the purchase price to
cover the damages caused the respondents by RVMs breach.

ARTICLE 1381
VICELET LALICON AND VICELEN LALICON vs. NATIONAL HOUSING AUTHORITY
GR No. 185440
13 July 2011
FACTS:
NHA executed a deed of sale with mortgage over a lot in favor of spouses Alfaros. The deed
of sale provided that the Alfaros could sell the land within 5 years from the date of its
release from mortgage without NHAs prior written consent. 9 years later, while the
mortgage on the land still subsisted, spouses Alfaros sold the same to their son, Victor.
After full payment of the loan, the NHA released the mortgage and 6 days after, Victor
transferred ownership of the land to his illegitimate daughters, herein petitioners Vicelet and
Vicelen. 4.5 years after the release of the mortgage, Victor registered the sale of the land in
his favor. On the same year, he mortgaged the land. Subsequently, he sold the property to
one of the mortgagees (Chua).
A year later, the NHA instituted a case for the annulment of the NHAs sale of the property to
the Alfaros, the Alfaros sale of the property to Victor and Victors sale of the property to
Chua with the claim that there was a violation of NHA rules and regulations.
RTC ruled that the right to rescind had already prescribed under Art 1389 of the Civil Code.
CA reversed and declared the titles and deeds of sale null and void.
ISSUES:
1. WON the CA erred in holding that the Alfaros violated their contract with the NHA
2. WON the NHAs right to rescind has prescribed
3. WON the subsequent buyers of the land acted in good faith and their rights, therefore,
cannot be affected by the rescission
HELD:

1. Yes. The Alfaros clearly violated the five-year restriction in the contract thus entitling the
NHA to rescind the same. The resale without the NHAs consent is substantial breach.
2. No. The violation comes under Art 1191 where the applicable prescriptive period is that
provided in Art 1144 which is 10 years from the time the right of action accrues. An action
for rescission can proceed from either Art 1191 (speaks of rescission in reciprocal obligations
which uses the term resolution grants the injured party the option to pursue, as principal
actions, either a rescission or specific performance of the obligation with payment of
damages in either case) or Art 1381 (subsidiary action, not based on the parties breach of
the obligation).
3. No. The 5-year prohibition was annotated on the propertys sale. The buyers knew of the
restriction and cannot claim lack of awareness of the illegality of the acquisition.
Note: Since mutual restitution is required inn cases involving rescission under Art 1191, the NHA
must return the full amount of the amortizations it received for the property plus the value of the
improvements introduced to the same with 6% interest per annum from the time of the finality of
the judgment.
CA decision affirmed.

ARTICLE 1381 (3)

MARIA ANTONIO SIGUAN vs. ROSA LIM, ET.AL
GR No. 134685
19 November 1999.
FACTS:
- On 2 July 1991, a Deed of Donation conveying parcels of land and executed by Lim in favor of her
children was registered. New transfer certificates of title were thereafter issued in the names of
the donees. Petitioner then filed an accion pauliana against Lim and her children and claimed
that Lim fraudulently transferred all her real property to her children in bad faith and in fraud of
creditors (including Siguan) and that Lim left no sufficient properties to pay her obligations.
- RTC ordered the rescission of the deed of donation and declared null and void the transfer
certificates of title. CA reversed decision. Hence, this petition.
ISSUE: WON the Deed of Donation was made in fraud of petitioner and therefore rescissible.
HELD:
- No. Petition dismissed; Decision of CA affirmed. Art. 1381: rescissible contracts are those
undertaken in fraud of creditors when the latter cannot in any manner collect the claims due
them. The action to rescind contracts in fraud of creditors is known as accion pauliana. For this
action to prosper, requisites: 1) plaintiff asking for rescission has a credit prior to alienation,
although demandable later; 2) debtor has made a subsequent contract conveying a patrimonial
benefit to a third person; 3) creditor has no other legal remedy to satisfy his claim; 4) act being
impugned is fraudulent; 5) third person who received the property conveyed, if it is by onerous
title, has been an accomplice in the fraud.
- The requisites are absent. The deed was a public document, having been acknowledged before a
notary public. It is evidence of the fact which gave rise to its execution and of its date. The fact
that the deed was registered only on 2 July 1991 is not enough to overcome the presumption as
to truthfulness of the statement of the date in the deed, which is 10 August 1989. Petitioner's
alleged credit existed only a year after the deed of donation was executed. She can't have been
defrauded by such alienation. Petitioner also did not prove that she exhausted all other legal
means to obtain satisfaction of her claim. Siguan also did not present evidence that would
indicate the actual market value of Lim's properties. It wasn't established therefore that the

properties Lim left behind were not sufficient to cover her debts existing before the donation was
made.

ARTICLE 1381 (3)

CALTEX (PHILIPPINES), INC. vs. PNOC SHIPPING AND TRANSPORT CORPORATION (PSTC)
G.R. No. 150711
10 August 2006
FACTS:
PSTC and Luzon Stevedoring Corporation (LUSTEVECO) entered into an Agreement of
Assumption of Obligations.
Said Agreement provides that PSTC, as the attorney-in-fact, shall assume all obligations of
LUSTEVECO to demand and receive any claim in out of the countersuits and counterclaims
from Annex A and B of the Agreement.
Among the actions mentioned is
RTC issued a writ of execution was issued in favor of Caltex, but was not satisfied because of
the prior foreclosure of LUSTEVECOs properties.
Upon learning of the Agreement, Caltex filed a complaint with the RTC for payment of sum of
money
CA reversed the RTC decision. CA ruled that Caltex has no personality to sue PSTC, and noncompliance with
o CA considered fatal the omission of LUSTEVECO, as real party in interest, as party
defendant in the case.
o Caltex is not a beneficiary of a
ISSUE: Whether PSTC is bound by the Agreement when it assumed all obligations of LUSTEVECO
HELD:
YES. Caltex may recover from PSTC not because of a stipulation in their favor but because
the Agreement provides that PSTC shall assume all the obligations of LUSTEVECO. The latter
transferred, conveyed and assigned to PSTC all its business, properties and assets
pertaining to its tanker and bulk business together with all the obligations relating to the
said business, properties and assets.
Refusing to accept its commitment to assume the obligations under the Agreement will
amount to defrauding the creditors of LUSTEVECO. The Agreement transferred the
unencumbered assets of LUSTEVECO to PSTC, making any money judgment in favor of
Caltex unenforceable against LUSTEVECO. To allow PSTC to renege on its obligation under
the Agreement will allow PSTC to defraud Caltex. This militates against the statutory policy
of protecting creditors from fraudulent contracts.
Further, Article 1381 of the Civil Code provides that contracts entered into in fraud of
creditors may be rescinded when the creditors cannot in any manner collect the claims due
them. Article 1381 applies to contracts where the creditors are not parties, for
such contracts are usually made without their knowledge. Thus, a creditor who is not

a party to a contract can sue to rescind the contract to prevent fraud upon him. Or, the
same creditor can instead choose to enforce the contract if a specific provision in the
contract allows him to collect his claim, and thus protect him from fraud.
CA Decision REVERSED and SET ASIDE.

ARTICLE 1381 (3)

HOLCIM PHILIPPINES, INC. vs JOSEPH F. LOSLOSO & ELIZABETH LOSLOSO
GR No. 203871
15 January 2014
FACTS:
Petitioner sued spouses Losloso, spouses Dela Cruz, spouses Sevillana and two other
individuals in RTC Nueva Vizcaya for collection of money and rescission of contracts.
Holcim sought payment from spouses Dela Cruz of P13,178,725 constituting unpaid
purchases of cement. Holcim also prayed for the rescission of contracts executed by Dela
Cruz and Sevillana sps in favor of their co-respondents, relatives of the former, conveying
parcels of land to vendees. Holcim theorized that the contracts were executed to deplete
assets of Dela Cruz sps, obviating satisfaction of its credit.
Defendants sought dismissal of the complaint for failure to state cause of action. The move
called attention to the absence of any allegation in Holcims complaint, that it had
exhausted principal remedies against Dela Cruz sps before resorting to subsidiary remedy of
rescission.
RTC refused dismissal, holding that there is need to thresh out factual issues. On appeal by
the Losloso sps, the CA set aside the trial courts ruling and dismissed Holcims complaint for
rescission.
ISSUE: Whether or not the CA erred in dismissing the rescission for failure to state a cause of
action.
HELD:
No. The cause of action under Art 1381(3) of the Civil Code (accion pauliana) arises when
creditors cannot in any manner collect the claims due them. For a contract executed by a
debtor with a third party to be rescinded, the creditor must allege and prove that it has
exhausted all the remedies against the debtor and that its efforts proved unavailing.
The remedies are: (1) execution of a judgment credit against the properties of the debtor,
and (2) initiation of actions in subrogation of the debtor (accion subrogatoria). If these
remedies subsists, accion pauliana will not lie.
Failure to state a cause of action is the ground to dismiss a prematurely filed action for
rescission. For accion pauliana to lie, the following must be alleged in the complaint:
(1) The plaintiff asking for rescission has credit prior to the alienation, although demandable
later; (2) the debtor has made a subsequent contract conveying a patrimonial benefit to a
third person; (3) the creditor has no other legal remedy to satisfy its claim, but would benefit
by rescission of the conveyance to the third person; (4) the act being impugned is
fraudulent; and (5) the third person who received the property conveyed, if by onerous title,
has been an accomplice in the fraud.
In the case at bar, Holcim, has yet to obtain a judgment against the latter to collect on its
credit. Its collection suit was still pending when this appeal was filed. For Holcim to include in
a suit the cause of action for rescission is to bypass the execution of judgment credit and
accion subrogatoria. Being successive remedies they can only be availed one at a time.
Holcims complaint for rescission is fatally defective for lack of the third allegation.
Petition Denied.

ARTICLE 1387
CHINA BANKING CORPORATION vs. HON. COURT OF APPEALS, PAULINO ROXAS CHUA and
KI- ANG MING CHU CHUA
G.R. No. 129644
March 7, 2000.
FACTS:
Alfonso Roxas Chua and wife Kiang were the owners of a residential land.
A notice of levy affecting the property was issued because of, Metropolitan Bank and Trust
Company vs Pacific Multi Commercial Corporation (PMAIC) and Alfonso Roxas Chua.
Subsequently, Kiang filed a complaint questioning the levy since it should not be enforced
because it was a conjugal property. The parties then entered into a compromise agreement
that the levy was valid and enforceable only to the conjugal share ( of the land) of Alfonso.
Meanwhile, petitioner China Bank filed with the RTC an action for collection of sum of money
against PMAIC and Alfonso. The complaint was because of 3 promissory notes. RTC ruled in
favor of China Bank.
An alias notice of levy on execution on Alfonsos share of the land was issued regarding the
first case. The notice was inscribed and annotated and a certificate of sale was executed in
favor of Metropolitan Bank and Trust Company.
Alfonso executed an Assignment of Rights to Redeem, to his son Paulino. Paulino then
redeemed said one-half share on the very same day.
Another notice of levy on execution was issued by the Deputy Sheriff against
the right and interest of Alfonsos share of the land. Thereafter, a certificate of sale on
execution was issued by the Sheriff in favor of China Bank and was also inscribed on the
title.
Paulino and Kiang instituted before the RTC against China Bank, averring that Paulino has a
prior and better right over the rights, title, interest and participation of China Bank; that
Alfonso sold his right to redeem of the aforesaid conjugal property in his favor before
China Bank acquired its right from the notice of levy.
RTC decided in favor of Private Respondent. CA affirmed the decision of the RTC.
ISSUE: Whether the assignment of the right of redemption made by Alfonso in favor of Paulino was
done to defraud his creditors and may be rescinded under Article 1387 of the Civil Code.
HELD:
YES. Under Article 1381(3) of the Civil Code, contracts which are undertaken in fraud of creditors
when the latter cannot in any manner collect the claims due them, are rescissible. The existence of
fraud or intent to defraud creditors may either be presumed in accordance with Article 1387 of the
Civil Code or duly proved in accordance with the ordinary rules of evidence.
Hence, the law presumes that there is fraud of creditors when:
a) There is alienation of property by gratuitous title by the debtor who has not reserved sufficient
property to pay his debts contracted before such alienation; or
b) There is alienation of property by onerous title made by a debtor against whom some judgment
has been rendered in any instance or some writ of attachment has been issued. The decision or
attachment need not refer to the property alienated and need not have been obtained by the party
seeking rescission.
It should be noted that the presumption of fraud or intention to defraud creditors is not just limited
to the two instances set forth in the first and second paragraphs of Article 1387 of the Civil Code.
Under the third paragraph of the same article, the design to defraud creditors may be proved in any
other manner recognized by the law of evidence. In the early case of Oria vs. Mcmicking, the
Supreme Court considered the following instances as badges of fraud:

1.
2.
3.
4.
5.

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

A transfer made by a debtor after suit has begun and while it is pending against him.
A sale upon credit by an insolvent debtor.
Evidence of large indebtedness or complete insolvency.
The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or
greatly embarrassed financially.
6. The fact that the transfer is made between father and son, when there are present other of
the above circumstances.
7. The failure of the vendee to take exclusive possession of all the property. (Italics provided)
NOTE
Fraudulent
o (1) valuable consideration
o (2) bona fide intent
g

ARTICLE 1387
PROVINCIAL SHERIFF OF PAMPANGA, CABRAL & PEREZ vs. CA & AGUSTIN
GR No. L-25152
26 February 1968
FACTS:
4 June 1960: Cabral and Perez filed an action for recovery of sum of money against Elpidio
Agustin and Flores.

Elpidio was a furniture dealer under the business name Modern Furniture Store. However,
the store burned down and on 12 January 1961 he surrendered his license to operate.
Marciano Agustin, Elpidios brother put up a new store using the same name. Elpidio
approved of the use of the name verbally.
Subsequently, the court decided against Elpidio and Flores who also admitted to his debt.
The CA affirmed the decisions and a writ of execution was issued.
The Provincial Sheriff levied on the furniture in Modern Furniture Store.
Marciano filed a 3rd party claim stating that said furniture do not belong to Elpidio.
But the creditors posted an indemnity bond and the public auction was set.
The day before the public auction Marciano filed against creditors Cabral and Perez and the
Sheriff an action to be declared owner of the furniture being levied.
A writ of preliminary injunction for the auction was issued.
CFI dismissed Marcianos complaint but the CA declared Marciano as the owner.

ISSUE: Whether the transfer of the Modern Furniture Store by Elpidio to Marciano was done in fraud
of creditors.
HELD:
No. The verbal transfer by Elpidio only pertained to the use of the business name and style not to
the store or its contents as these were completely new, coming from the capital of Maricano
whereas Elpidios store and its contents were destroyed by the fire. The transfer merely of the name
and style has no effect on Marcianos ownership of the furniture being levied. The new store and its
contents were never owned by Elpidio and thus cannot be the subject of the levy.

ARTICLE 1381 (4)

LILIA ADA, LUZ ADANZA, FLORA BAYLON, et., al. vs. FLORANTE BAYLON
FACTS:
This case involves the estate of spouses Florentino Baylon and Maximina Baylon who both
were dead. They have 6 legitimate children namely, Rita, Victoria, Dolores, Panfila, Ramon,
and Lilia.
Dolores died intestate and without issue. Victoria died and was survived by her daughter Luz
(petitioner). Ramon died and was survived by Florante (respondent).
Petitioners filed with the RTC a complaint for partition, accounting and damages against
Florante, Rita, and Panfila. They alleged that Spouses Baylon, during their lifetime, owned 43
parcels of land.
During the pendency of the case, Rita, through a Deed of Donation and thereafter, learning
of the said donation inter vivos in favor of Florante, the petitioners filed a Supplemental

Pleading praying that the said donation in favor of the respondent be rescinded in
accordance with Article 1381 of the Civil Code.
They further alleged that Rita was already sick and very weak when the said Deed of
Donation was supposedly executed and, thus, could not have validly given her consent
thereto.
Florante and Panfila opposed the rescission of the said donation, asserting that Article
1381(4) of the Civil Code applies only when there is already a prior judicial decree on who
between the contending parties actually owned the properties under litigation.

ISSUE:
Whether the CA erred in ruling that the donation inter vivos of Lot No. 4709 and half
of Lot No. 4706 in favor of Florante may only be rescinded if there is already a judicial
determination that the same actually belonged to the estate of Spouses Baylon.
HELD:
Petition is partly meritorious.
The petitioners assert that the CA erred in remanding the case to the RTC for the
determination of ownership of Lot No. 4709 and half of Lot No. 4706. They maintain that the
RTC aptly rescinded the said donation inter vivos of Lot No. 4709 and half of Lot No. 4706
pursuant to Article 1381(4) of the Civil Code.
The resolution of the instant dispute is fundamentally contingent upon a determination of
whether the donation inter vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante
may be rescinded pursuant to Article 1381(4) of the Civil Code on the ground that the same
was made during the pendency of the action for partition with the RTC.
Rescission is a remedy granted by law to the contracting parties and even to third persons,
to secure the reparation of damages caused to them by a contract, even if it should be valid,
by means of the restoration of things to their condition at the moment prior to the
celebration of said contract.
It is a remedy to make ineffective a contract, validly entered into and therefore obligatory
under normal conditions, by reason of external causes resulting in a pecuniary prejudice to
one of the contracting parties or their creditors.
Contracts which are rescissible are valid contracts having all the essential requisites of a
contract, but by reason of injury or damage caused to either of the parties therein or to third
persons are considered defective and, thus, may be rescinded.
The kinds of rescissible contracts, according to the reason for their susceptibility to
rescission, are the following: first, those which are rescissible because of lesion or prejudice;
second, those which are rescissible on account of fraud or bad faith; and third, those which,
by special provisions of law, are susceptible to rescission.
Contracts which are rescissible due to fraud or bad faith include those which involve things
under litigation, if they have been entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority.
The rescission of a contract under Article 1381(4) of the Civil Code only requires the
concurrence of the following: first, the defendant, during the pendency of the case, enters
into a contract which refers to the thing subject of litigation; and second, the said contract
was entered into without the knowledge and approval of the litigants or of a competent
judicial authority. As long as the foregoing requisites concur, it becomes the duty of the
court to order the rescission of the said contract.
Article 1381(4) seeks to remedy the presence of bad faith among the parties to a case
and/or any fraudulent act which they may commit with respect to the thing subject of
litigation.
Article 1381(4) of the Civil Code requires that any contract entered into by a defendant in a
case which refers to things under litigation should be with the knowledge and approval of
the litigants or of a competent judicial authority.
Rescission under Article 1381(4)of the Civil Code is not precondi-tioned upon the judicial
deter-mination as to the ownership ofthe thing subject of litigation.
Even if the donation inter vivos is validly rescinded, a determi- nation as to the ownership of
the subject parcels of land is still necessary.

In this regard, if Lot No. 4709 and half of Lot No. 4706, as unwaveringly claimed by Florante,
are indeed exclusively owned by Rita, then the said parcels of land may not be partitioned
simultaneously with the other properties subject of the partition case before the RTC. In such
case, although the parties in the case before the RTC are still co-owners of the said parcels
of land, the RTC would not have the authority to direct the partition of the said parcels of
land as the proceedings before it is only concerned with the estate of Spouses Baylon.

ARTICLE 1381 (5)

Albertoe Malicsi vs. Rosalia Carpizo (administratix of the estate of Tan Cuan)
G.R. No. L-17493; 30 June 1962
FACTS:
Malicsi filed a complain against Capizo alleging that he and the deceased Tan Cuan entered
into a Contract of Lease for a period of 17 years, at a monthly rental of P200.
After the death of the Tan Cuan defendant Carpizo continued making irregular payments,
and despite repeated demands, failed to pay and refused to pay for Jan.Feb. 1958.
Malicsi prays for the cancellation (rescission) of the Contract of Lease.
RTC ruled in favor of petitioner. Defendant appealed directly to SC.
ISSUE:
1) Whether the said Contract of Lease is one of those declared rescissible under Art. 1381 NCC.
2) Whether petitioner may claim for unpaid rentals from the administratrixs property
HELD:
1) NO.
o
o

Par. 5 of Art. 1381 expressly includes all other contracts specially declared by law to
be subject to rescission.
Art. 1659 expressly provides, among others, that if the lessee should not comply with
his obligation of paying the price (rental of the lease according to the terms

o
o
2) YES.
o

stipulated), the aggrieved party may ask for the rescission of the contract and
indemnification for damages, or only the latter, allowing the contract to remain in
force.
In the present case, appellant Carpizo failed and refused to pay the monthly
stipulated rental of the property.
Malicsi had the right under said provision of CC to file for the rescission of the
Contract of Lease.
Sec. 1 Rule 88 of the Rules of Court provides No action upon a claim for the recovery
of money or debt or interest thereon shall be commenced against the executor or
administrator; but actions to recover real or personal property from the estate, or to
enforce a lien thereon, and actions to recover damages for an injury to person or
property, real or personal, may be commenced against him.
The present action, which falls within the purview of the last clause of the said
provision, can be commenced against Carpizo

PETITION DENIED. RTC DECISION AFFIRMED.

ARTICLE 1383
UNIVERSAL FOOD CORP. VS COURT OF APPEALS, ET.AL
GR No. L-29155. 13 May 1970
FACTS:
- On 31 May 1960, Private respondents Magdalo V. Francisco, Sr. And Victoriano Francisco entered
into contract with Universal Food Corp., where it stipulated that inasmuch as Magdalo is the
owner and author of the formula of Mafran Sauce, he will be appointed as Second Vice President
and Chief Chemist of Universal Food Corp.
- This appointment is permanent in character, and as such, the Chief shall have and shall exercise
absolute control and supervision over the laboratory assistants and personnel.
- Due to these privileges, Magdalo in return assigned to the corporation his rights over the
trademark and formula to use it for the manufacture of the Mafran Sauce and its trade name for
the marketing.
- The corporation violated the terms and conditions by dismissing all their assistants and laborers
in the lab where the Mafran Sauce is prepared for no justifiable cause with the intention to
discover the secret of the formula, and when they were not able to do so, also dismissed Magdalo
as Chief Chemist.
- The Franciscos filed an action for rescission of a contract entitled "Bill of Assignment". CFI
dismissed the complaint, CA reversed decision, entitling private respondents to rescind Bill of
Assignment.
ISSUE: Whether the Bill of Assignment may be rescinded
HELD:
- Yes. CA decision affirmed and modified. 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 rescission of obligation, with the
payment of damages in either case. He may also seek rescission even after he has chosen
fulfillment, if the latter should become impossible." Bill of Assignment is reciprocal in nature.
Universal Corp violated the BoA, by terminating the services of Magdalo without lawful and
justifiable cause.
- Art. 1383. "The action for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same." The dismissal of
Magdalo as permanent chief chemist is a fundamental and substantial breach. He was dismissed
without fault or negligence on his part. Thus respondents had no alternative but to file the
present action for rescission and damages.

ARTICLE 1384
MARIA ANTONIA SIGUAN vs. ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM
G.R. No. 134685. November 19, 1999.
FACTS:
Lim has a case of B.P. 22 in Cebu (charged but pending review from S.C.) and estafa filed by
a certain Victoria Suarez in Quezon City (acquitted but civilly liable).
Rosa Lim then executed a Deed of Donation regarding four parcel of lands in favor of her
children, (private respondents).
petitioner filed an accion pauliana against LIM and her children before the RTC to rescind the
questioned Deed of Donation and to declare as null and void the new transfer certificates of
title issued for the lots covered by the questioned Deed.
Petitioner claimed therein that, LIM, fraudulently transferred all her real property to her
children in bad faith and in fraud of creditors, including her; that LIM conspired and
confederated with her children in antedating the questioned Deed of Donation, to
petitioners and other creditors prejudice; and that LIM, at the time of the fraudulent
conveyance, left no sufficient properties to pay her obligations.
On the other hand, LIM denied any liability to petitioner.
RTC ordered the rescission of the Deed of Donation. C.A. reversed and set aside the decision
of the RTC.
Petitioner also brought up the decision regarding the complaint of Suarez to support her
claim.
ISSUE: Whether Siguan can invoke the the credit of Suarez to justify rescission of the subject deed
of donation.
HELD: NO. It should be noted that the complainant in that case, Victoria Suarez, albeit a creditor
prior to the questioned alienation, is not a party to this accion pauliana. Article 1384 of the Civil
Code provides that rescission shall only be to the extent necessary to cover the damages caused.
Under this Article, only the creditor who brought the action for rescission can benefit from the

rescission; those who are strangers to the action cannot benefit from its effects. And the revocation
is only to the extent of the plaintiff creditors unsatisfied credit; as to the excess, the alienation is
maintained. Thus, petitioner cannot invoke the credit of Suarez to justify rescission of the subject
deed of donation.

ARTICLE 1390
SPOUSES ANTONIO AND LUZVIMINDA GUIANG V. CA AND GILDA CORPUZ
GR NO 125172, 26 June 1998
FACTS:
Over the objection of respondent Gilda Corpuz and while she was in Manila seeking
employment, her husband sold to the petitioner spouses one half of their conjugal property
consisting of their residence and the lot on which it stood. He executed a Deed of Transfer of
Rights in favor of petitioners.
When Gilda Cruz returned home, she found her children staying with other households and
she was informed that her husband had a wife already. She also found spouses Guiang
occupying their house. This prompted her to file a case for trespassing with the barangay
authorities who secured an amicable settlement between the parties.
She also filed a complaint against her husband and petitioner spouses seeking to declare the
deed of sale null and void.
RTC ruled in favor of Gilda Cruz and declared the Deed of Transfer of Rights as well as the
amicable settlement null and void. On appeal, the CA affirmed this decision.
Petitioner spouses contend that the contract was merely voidable and not void.
ISSUE: Whether the contract of sale was voidable
HELD: No. Petition denied.
Art 1390 par 2 refers to contracts visited by vices of consent mistake, violence,
intimidation, undue influence or fraud. In this instance, private respondents consent to the
contract of sale was totally inexistent or absent.

The nullity of the contract of sale is premised on the absence of Gilda Cruz consent. To
constitute a valid contract, there must be a cause, object and consent; the last element
being indubitably absent in the case at bar.

As to the contention that the amicable settlement entered into ratified the contract, the SC
ruled that doctrinally and clearly, a void contract cannot be ratified.

ARTICLE 1390
HEIRS OF POLICRONIO URETA, SR. & HEIRS OF POLICRONIO URETA, JR. vs. HEIRS OF
LIBERATO URETA & HEIRS OF PRUDENCIA URETA PARADERO
GR No. 165748; 14 September 2011
FACTS:
Alfonso Ureta had 14 children namely: Policronio, Liberato, Narciso, Prudencia, Vicente,
Francisco, Inocensio, Roque, Adela, Wenefreda, Merlinda, Benedicto, Jorge, Andres.
Policronios children are opposed to the rest of Alfonsos children and their descendants.
Francisco, suggested that to reduce inheritance tax, their father should make it appear that
he sold some of his lands to his children.
Alfonso executed 4 deeds of sale in favor of Policronio, Liberato, Prudencia, and Valeriana.
The deed of sale covered 6 lots in favor of Policronio are the properties in dispute in this
case.
Since the sales did not have monetary consideration Alfonso continued to own, possess and
use the transferred lands.
When Alfonso died, Liberato acted as administrator of the estate. Prudencia later succeeded
him and later by her daughter Carmencita.
Almost the whole of the lands transferred to Policronio were tenanted by the Fernandezs.
They turned over the produce only to Alfonso and later to the administrator, never to
Policronio.
Until Policrionios death, neither he nor his heirs ever took possession of the lands except for
a portion of lot 5.
Alfonsos heirs then executed a deed of extra-judicial partition including the lands in dispute.
Conrado, Policronios eldest son, signed the partition in behalf of his co-heirs.
The heirs of Policronio later found tax declarations in Policronios name covering 6 lots and
they obtained a copy of the deed of sale executed earlier by Alfonso in favor of Policronio.
The heirs of Policronio learned about the deed of extra-judicial partition and claimed that the
6 lots should not be included as it belongs to their father Policronio.
The RTC ruled in favor of Petitioners declaring the deed of sale in favor of Policronio void
because it was only made for tax purposes and the deed of extra-judicial partition valid.
The CA declared the deed of sale in favor of Policronio void for being absolutely simulated
and annulled the deed of extra-judicial partition because Conrado did not have a special
power of attorney from his co-heirs rendering it voidable.
ISSUE:
Whether the Deed of Sale is valid.
Whether the Deed of Extra-judicial Partition is voidable.
HELD:
No. The primary consideration in determining the true nature of a contract is the intention of the
parties which can be determined not only from the express terms but also from contemporaneous

and subsequent acts. The witness, a niece of Policronio, testified that she saw and heard them
agree to execute the deed of sale to reduce the inheritance tax and that no money involved the
sale. Alfonso also continued to exercise all the rights of an owner when he remained in possession
and enjoyed the produce of the properties. Even after Alfonsos death neither Policronio nor his
heirs ever took possession. Neither was their demand for the tenants to deliver the produce to
Policronio or his heirs. Policronio never paid real estate taxes while his heirs only paid twice which
was then already 10 years after Policronios death. He also never disclosed the sale to his children.
It is clear that the parties did not intend to be bound at all. The Deed of Sale produced no legal
effects and is therefore void for being absolutely simulated.
No. First, a special power of attorney is not necessary in an extra-judicial partition because it is not
a transfer of property but merely a designation of that part which belongs to each heir.
Second, Conrados claims of undue influence which would have made the contract voidable
was contradicted when he testified that he was happy to sign because his grandfathers estate
would be partitioned. Also, he did not inform his siblings despite the contract being brought to him
on 3 different occasions wherein he stated that he would inform them.
However, what is involved is Conrados lack of authority to give consent not his incapacity to
do so. Lack of authority would make the contract unenforceable under Art. 1403. However,
circumstances contradict the claim of his co-heirs that they have not authorized him.
1) His co-heirs claim that they only found out about the partition 6 years later. It is difficult
to believe that Conrado never mentioned anything about it despite testifying that he had
intended to do so when he was shown the contract.
2) Before they supposedly discovered the existence of the partition they executed a special
power of attorney authorizing their sister to obtain a loan and mortgage one of the lots
adjudicated to them in the partition.
3) The heirs of Policronio in their letter to the heirs of Alfonso requesting for amicable
settlement did not indicate that Conrados consent was vitiated nor that they never
authorized him.
Therefore, the deed of extra-judicial partition is valid and no heirs were left out.

ARTICLE 1397
ANGELINA MALABANAN vs. GAW CHING & IAC
GR Nos. 74938-39, 17 January 1990
FACTS:
Gaw Ching has been leasing the house and lot located in Asuncion St, Binondo. When Mr.
Jabit died, his daughter, Malabanan continued to lease the premises to Gaw Ching but an at
an increased rental rate of P1k per month.
In 1980, Malabanan told respondent that she was selling the house and lot for P5k per sqm,
if he is not agreeable, she will sell it to another person at P4k per sqm. Ching testified he
was willing to buy the property at P4k per sqm.
Ching received a letter from Malabanan informing him that the subject house and lot has
been already sold to Senolos. The lawyer of Ching requested that documents of the sale be
sent to then, which was however, not sent to them.
Ching then filed a civil case against Malabanan and Senolos. He presented the receipt of
rentals he paid, deposited rentals which Malabanan refused to accept, and that he had to
move out the premises when it was demolished by Malabanan. Trial court upheld the validity
of contract of sale between Malabanan and Selonos. The trial court declared that Petitioner
had not violated preemptive right on the part of a lessee over leased property.
Gaw Ching went on appeal to Intermediate Appellate Court which reversed the decision and
nullified the contract of sale. It was held that transaction between petitioners was vitiated by
fraud, deceit and bad faith allegedly causing damage to respondent.
ISSUE: Whether or not the Intermediate Appellate Court erred in (1) nullifying the deed of sale and
(2) granting P350k of moral, exemplary and actual damages.
HELD: YES
(1) The settled rule is that strangers to a contract cannot sue either or both of the
contracting parties to annul and set aside that contract as embodied in Art 1387.
Art 1397 follows form Art 1311, which established the fundamental rule that contracts take
effect only between the parties, their assigns and heirs except in case where the rights and
obligations arising from the contract are not transmissible by their nature or by stipulation or by
provision of law. Their heir is not liable beyond the value of the property received from the
decedent.
In Ibanez v Hongkong and Shanghai Bank, the Court pointed out that it is the existence
of an interest in a particular contract that is the basis of ones 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.
Justice Torres however indicate a possible qualification to the general principle, that he
who is not the party obligated principally or subsidiarily in a contract may perhaps be entitled to
exercise an action for nullity if he is prejudiced in his rights with respect of the contracting parties;
but in order that such be the case, it is indispensable to show the detriment which positively would
result to him from the contract in which he had no intervention.
The limitation upon the right of a person who is in fact injured by the very operation of a
contract between 2 third parties to sue to nullify the contract is that, the contract may be nullified
only to the extent that such nullification is absolutely necessary to protect the plaintiffs lawful
rights.
In Santos v CA, the Court held that where both land and building belong to the lessor, the
preemptive or redemptive right was simply not available under the law.
In the case, what is important is that respondent does not fall within the possible exception
recognized. Ching had no legal right of preemption in respect of the house and lot, and that it was
located outside the Urban Land Reform Zones declared pursuant to PD 1517.
Malabanan offered 3x the land to Gaw Ching but the latter consistently refused to buy. Since
Ching refused to accept offer, he suffered no prejudice and could not have suffered any prejudice

by sale of petitioner to Senolos. No fraud was worked upon him. The fact that Ching had been a
lessee of the house and lot was not enough basis for a right to bring action to set aside the contract
between petitioners. A lessee cannot attack the title of his lessor over the subject matter of the
lease.
(2) The Court finds that appellate court lasped into reversible error in granting the claim
for damages. The order of demolition had been issued by proper authorities which
was valid and subsiting at the time of the demolition was actually carried out. Under
the Abandonment/demolition of Building of the Ruels and Regulations Implementing
the national Building Code of the Ph, an order for demolition may be appealed by the
owner of the building to the Secretary of Public Works and Highways.
In the case at bar, Ching was merely a lessee of the building. His lawyer only obtained a
letter form the Office of the City Engineer and Building Official , which the office testified as not a
normal practice of receiving such letter.
Gaw Ching had ample notice of the demolition order and had adequate time to remove his
belongings form the premises. He chose not to obey that order.
Petition Granted. Order reversed and set aside.

ARTICLE 1397
Aurea Banez and Ramon Banez v. Court of Appeals and Pio Arcilla
G.R. No. L-30351. 11 September 1974
FACTS:
- Pio Arcilla occupied a parcel of land owned by the Peoples Homesite and Housing
Corporation
- He fenced the lot with wire and erected a house and made some plantings thereon. His
move to apply for the acquisition of the lot from the PHHC when he applied was denied. Still,
his occupancy was made a matter of record with the PHHC in connection with a census of
occupants and squatters some time later.

The lot was awarded to Cristeta Laquihon despite the respondents occupancy, pursuant to a
conditional contract to sell by PHHC. Respondent had no notice of this award and neither did
the grantee nor the PHHC take any step to oust him from the premises.
Cristeta died, survived by her father Basilio Laquihon who acquired the rights and interests
and acknowledged an indebtedness of Cristeta to Aurea Banez and agreed to assign the
rights by way of payment of the debt.
Respondent did not know of the foregoing developments until sometime in 1963 when he
was given notice to vacate the lot occupied by him. he claimed that Aurea Banez acquired
no rights to the aforesaid lot and that the transferee was disqualified from acquiring lots of
the PHHC

ISSUE: WON the CA erred in holding that the respondent has the personality to seek the annulment
of the award and sale to Cristeta Laquihon by PHHC and the transfer of her rights by her father to
Aurea Banez
HELD: Yes
- Art. 1397 of the CC provides that the action for annulment of contracts may be instituted by
all who are thereby obliged principally or subsidiarily.
- Hence strangers to the contract who are not bound thereby have neither the right nor the
personality to bring an action to annul such contract. It cannot be gainsaid that respondent
Pio Arcilla was a stranger to, and not bound principally or subsidiarily by, the conditional
contract to sell executed on May 20, 1960 by the PHHC in favor of Cristeta L. Laquihon, and
the transfer of rights over the same lot from Basilio Laquihon to Aurea V. Baez.
- Hence respondent Pio Arcilla could not bring an action to annul the same.
- There is an exception: that a person who is not a partly obliged principally or subsidiarily in
a contract may exercise an action for nullity of the contract if he is prejudiced in his rights
with respect to one of the contracting parties, and can show the detriment which would
positively result to him from the contract in which he had no intervention.
- in order that respondent Pio Arcilla might bring an action for the nullity of the contracts
aforesaid, he should have been not only prejudiced in his rights with respect to one of the
contracting parties, but must have also shown the detriment which he would positively
suffer from the contracts.
- It becomes, therefore, necessary to inquire, whether respondent Pio Arcillas rights were
prejudiced by the aforesaid contracts, and as to what detriment, if any, he suffered because
of those contracts.
- Pio was a trespasser or a squatter with no bona fide claim or color of title and without
consent of the owner
- A squatter can have no possessory rights whatsoever, and his occupancy of the land is only
at the owners sufferance, his acts are merely tolerated and cannot affect the owners
possession. The squatter is necessarily bound to an implied promise, that he will vacate
upon demand.