GSIS v CA
Facts: This is a petition for review on certiorari
to set aside the Decision of the 10th Division of
the Court of Appeals ordering the petitioner
GSIS to execute a Final Deed of Sale in favor of
the spouses Raul and Esperanza Leuterio
involving a house and lot in the GSIS Village,
Project 8-C, Quezon City
That on December 18, 1963, the petitioner
GSIS conducted a lottery draw for the allocation
of lots and housing units in Project 8-C of GSIS
Village. Private respondent Esperanza Leuterio
won and was issued a Certificate of
Acknowledgment to purchase the subject house
and lot. On December 27, 1963. In 1965, the
parties entered into a Deed of Conditional Sale
evidencing the conveyance of the subject
property and all improvements thereon to the
Leuterio spouses for the purchase price of
P19,740.00, payable over a fifteen-year period,
in 180 equal monthly installments of P168.53
each.
Three years elapsed before the Deed was
notarized, and a copy of the same was given to
the private respondents.
Deeds of Conditional Sale covering houses and
lots therein. The new price was based on the
alleged final cost of construction of the GSIS
Village. It is noted that, on the face of the
Leuterio's Conditional Deed of Sale is the
marginal notation "subject to adjustment
pending approval of the Board of Trustees." The
Leuterio spouses alleged that this notation was
not in the Deed when they signed the same in
1965. Resolving this factual issue, the trial court
found that the appended words were inserted
into the document without the knowledge or
consent of the Leuterio spouses. This finding of
fact went undisturbed on appeal to the
respondent court.
Meanwhile, after years of diligently paying the
monthly amortizations 6 and real estate taxes on
the subject property, the private respondents
spouses informed 7 petitioner that the payments
8 for the property had been completed, and
hence, the execution of an absolute deed of sale
in their favor was in order. No action on the
matter was taken by petitioner
The instant case was initiated on May 20, 1984
in the RTC of Manila, Br. 11, with the filing of a
Complaint for Specific Performance With
Damages to compel petitioner to execute in
private respondent's favor, the final Deed of Sale
over the subject property. 9 The trial court found
for the Leuterios.
On January 24, 1992, the Court of Appeals 10 ,
in its impugned Decision, upheld the trial court
solely on the basis of estoppel. It held that
petitioner cannot increase the price of the
subject house and lot after it failed, through the
years, to protest against private respondents'
P200.00-amortization or to require the payment
by them of bigger monthly installments.
Issue:
Whether or not the spouses Leuterio agreed to
the notation "subject to adjustment pending
approval of the Board of Trustees" appearing on
the margin of the parties' Conditional Deed of
Sale.
Ruling: The petition is not granted
If there was no agreement, the Leuterio spouses
are only obligated to pay the purchase price of
P19,740.00 as stipulated in the main body of the
Conditional Deed of Sale.
The pleadings before us do not demonstrate that
the trial court grossly erred when it found that
the purchase price agreed upon by the parties
was P19,740.00 and this agreement was not
made subject to any posterior event or condition.
This finding of fact was based on the explicit
testimony of private respondent Raul Leuterio
that when he and his wife signed the Deed of
Conditional Sale in 1965, the notation "subject
to adjustment pending approval of the Board of
Trustees" was not in the Deed. 14 Likewise, the
Answer of petitioner to the Complaint of the
private respondents admitted the non-existence
of this notation at the time the Deed of
Conditional Sale was signed, albeit, it called the
omission an honest mistake
Quite clearly, therefore, the purchase price
mutually agreed upon by the parties was
P19,740.00. The spouses Leuterio did not give
their consent for petitioner to make a unilateral
upward adjustment of this purchase price
depending on the final cost of construction of
the subject house and lot. It is illegal for
petitioner to claim this prerogative, for Article
1473 of the Civil Code provides that "the fixing
of the price can never be left to the discretion of
one of the contracting parties . . . ."
We also reject petitioner's contention that the
spouses Leuterio are bound by the
recommendation of the ad hoc committee as this
was set aside by then President Ferdinand E.
Marcos. 16 The rejection was communicated by
then Presidential Assistant Jacobo Clave to
petitioner in a Memorandum dated May 30,
1973. 17 Petitioner moved for its
reconsideration but the motion was denied by
the former President thru Presidential Assistant
Joaquin Venus, in a letter dated December 18,
1990.
Professional Academic Plans Inc (PAPI) v
Crisostomo
Facts: Respondent Dinnah L. Crisostomo was
the PAPI District Manager for Metro Manila. As
such officer, she did not receive any salary but
was entitled to a franchise commission
equivalent to 10% of the payments on
remittances of clients whose contracts or
agreements had been negotiated by her, for and
in behalf of PAPI. She was later promoted as
Regional Manager
Noel Rueda, a sales consultant of petitioner
PAPI, initiated negotiations for the sale of pre-
need educational plans under the said program
with the AFPSLAI
On November 9, 1988, the AFPSLAI and PAPI
executed a Memorandum of Agreement (MOA)
3 in connection with scholarship funding
agreements to be entered into by PAPI and the
AFPSLAI members. These agreements shall
then embody the provisions of the Professional
Academic Program Agreement. The parties
agreed that all support services would be
provided by PAPI and that any amendments
and/or modifications to the MOA would be
effective only upon approval of the parties
thereto.
By then, Rueda was no longer connected with
the petitioner corporation, hence, was
disqualified to receive the franchise commission.
Thus, the said commission was offered to
Macariola who, however, declined and waived
his right thereto in favor of respondent
Crisostomo, Rueda's immediate supervisor. The
Executive Committee of petitioner PAPI agreed
to give the franchise commission to respondent
Crisostomo
Initially, respondent Crisostomo received the
10% franchise commission from December 1988
until April 1989. Later, upon the instance of
petitioner Benjamin Dino, then Assistant Vice-
President for Marketing, respondent
Crisostomo's franchise commission was reduced
to 5% to support the operational expenses of
PAPI. After a few months, the said commission
was again reduced to 4%. Two months later,
petitioner PAPI asked for another .25%
reduction; hence, respondent Crisostomo's
franchise commission was further reduced to
3.75%. Finally, in January 1991, petitioner PAPI
again asked for a final reduction of the
commission to 2% to which respondent
Crisostomo agreed, on the condition that it be
reduced into writing
Crisostomo received her 2% commission until
October 1991. 7 In the meantime, Col. Victor M.
Punzalan succeeded Col. Noe S. Andaya as
President of the AFPSLAI. 8 In a Letter dated
December 16, 1991, Col. Punzalan informed
PAPI of the AFPSLAI's decision to review the
1988 MOA.
The AFPSLAI resumed its remittances of the
installment payments of its members to
petitioner PAPI in June 1992. This time,
however, Crisostomo was not paid her
commission. In an Inter-Office Memorandum 11
dated June 1, 1992, respondent Crisostomo's
franchise commission on sales transacted with
the AFPSLAI was terminated,
Nonetheless, respondent Crisostomo insisted on
the release of her 2% franchise commission. 12
She first approached her immediate supervisor,
Mrs. Editha Bayoneta, the Senior Assistant Vice-
President, but to no avail. She then went to
petitioner Dino, who allegedly threatened her
with termination if she persisted with her
demand. Unfazed, she sought a dialogue with
the President himself, petitioner Francisco
Colayco. They, however, failed to arrive at a
settlement. 13 On July 6, 1992, respondent
Crisostomo sent a demand letter to petitioner
PAPI. The latter informed her that it could not
accede to her demand for the reasons stated in
the Inter-Office Memorandum dated June 1,
1992.
Thereafter, Crisostomo again approached
Colayco who advised her to make a formal
proposal. She complied and submitted a letter
However, in a Letter 16 dated August 17, 1992,
petitioner Colayco informed the respondent that
her settlement proposal was totally unacceptable
and that she was being placed under preventive
suspension in order to abort any untoward
reaction resulting from the denial of her request,
which may be detrimental to the company's
interest. Worse, she was advised not to come
back after the suspension. Thus, her services in
the company were terminated.
On January 21, 1993, respondent Crisostomo
filed a complaint for sum of money and damages
against petitioners PAPI, Colayco and Dino. She
alleged therein that as of October 2, 1992,
petitioner PAPI's sales of pre-need plans to the
AFPSLAI amounted to P9,193,367.20; that she
was entitled to 2% of such amount or the sum of
P183,867.34 as franchise commission; and that
notwithstanding the said franchise, petitioner
PAPI refused to give her the said commissions.
She, likewise, prayed for the grant of moral and
exemplary damages, plus attorney's fees. 17
The petitioners averred in their answer to the
complaint that Crisostomo was not entitled to
the franchise commission because she did not
participate in the execution of the 1988 MOA.
They pointed out that under the December 1989
company guidelines, a franchise holder shall be
maintained only when 100 new paid plans are
completed on a month-to-month basis. They
argued that since respondent Crisostomo was
unable to meet this requirement for the period of
November 1991 to May 1992, her franchise was
terminated. The petitioners also claimed that the
AFPSLAI did not resume payments in 1992 but
entered into a new MOA after it undertook new
negotiations. They maintained that under the
new MOA, no one is entitled to a franchise,
much less respondent Crisostomo.
Issue:
A) WHETHER OR NOT THE OLD
MEMORANDUM OF AGREEMENT HAD
BEEN CANCELLED AND RESCINDED BY
AFPSLAI;
B) WHETHER OR NOT RESPONDENT IS
ENTITLED TO THE FRANCHISE FEE OR
COMMISSION UNDER THE NEW
MEMORANDUM OF AGREEMENT UNDER
WHICH SHE HAD NO PARTICIPATION
WHATSOEVER IN THE NEGOTIATION AND
EXECUTION;
C) WHETHER OR NOT PETITIONERS, IN
DENYING RESPONDENT'S CLAIM, HAVE
COMMITTED ACTS THAT RENDER THEM
LEGALLY LIABLE FOR MORAL AND
EXEMPLARY DAMAGES AND
ATTORNEY'S FEES AND COST OF SUIT.
Ruling: The petition is granted.
A. Even after a review of the factual issues
raised by the petitioners, we find and so rule that
the CA was correct in declaring that the first
MOA had not been cancelled, but was merely
modified by the second MOA.
A reading of the letter of Col. Punzalan to the
petitioner corporation indicates that it merely
signified the suspension of the acceptance of
new applications under the first MOA, until such
time that a thorough study was undertaken, and
a new agreement mutually beneficial to both
parties was entered into. By his letter, Col.
Punzalan did not unilaterally cancel or rescind
the first MOA. Indeed, the petitioners failed to
adduce a morsel of evidence to prove that
AFPSLAI had agreed to such cancellation or
rescission of the first MOA. It bears stressing
that abandonment of contract rights requires
proof of actual intent to abandon
Once a contract is entered into, no party can
renounce it unilaterally or without the consent of
the other. 36 This is the essence of the principle
of mutuality of contracts entombed in Article
1308 37 of the Civil Code. To effectuate
abandonment of a contract, mutual assent is
always required. 38 The mere fact that one has
made a poor bargain may not be a ground for
setting aside the agreement.
As can be gleaned from the second MOA, the
parties merely made substantial modifications to
the first MOA, and agreed that only those
provisions inconsistent with those of the second
were considered rescinded, modified and/or
superseded
B. The fact that the respondent did not
participate in the negotiations of the new MOA
is of no moment. As culled from the petitioners'
testimonial evidence, the franchise commission
was awarded as an incentive to the one who
initiated and successfully negotiated the
AFPSLAI account within a certain period. 41
The franchise commission was granted subject
to two conditions only: (1) that the respondent
must remain connected with the company, and
(2) that it is not transferable. At the time the new
MOA was executed, the respondent was still
connected with the petitioner corporation; hence,
she was still entitled to her commission. Even
with the modification of the first MOA by the
second one, the respondent had the right to
continue receiving her franchise commission
from the petitioner corporation.
We agree with the respondent that the petitioners
are now in estoppel to question her entitlement
to the franchise commission under the old MOA.
It must be noted that from December 1988 until
October 1991 the respondent was continuously
receiving her franchise commission from the
petitioner corporation. It was only when the
remittances for AFPSLAI were suspended that
the respondent stopped receiving her
commission.
C. On the issue of damages, we rule for the
petitioners. Moral damages are recoverable for
breach of contract where the breach was wanton,
reckless, malicious or in bad faith, oppressive or
abusive. 42 However, moral damages are
improperly awarded, absent a specific finding
and pronouncement from the trial court that
petitioners acted in such manner. 43 In the
instant case, despite the trial court's award of
moral damages, it did not make any
pronouncement as to the basis of such award.
Therefore, the award of moral damages must be
deleted.
DKC Holdings Corp. v Court of Appeals:
Facts: On March 16, 1988, petitioner entered
into a Contract of Lease with Option to Buy
with Encarnacion Bartolome, which option must
be exercised within a period of two years from
the signing thereof. Petitioner undertook to pay
P3,000.00 a month as consideration for the
reservation of its option. The contract also
provided that in case petitioner chose to lease
the property, it may take actual possession of the
premises. In such an event, the lease shall be for
a period of six years, renewable for another six
years. Petitioner regularly paid the reservation
fee to Encarnacion until her death in January
1990. Thereafter, petitioner paid the reservation
fees to private respondent, being the sole heir of
Encarnacion. Private respondent, however,
refused to accept these payments. On March 14,
1990, petitioner served upon private respondent
a notice that it was exercising its option to lease
the property, and tendered the rental fee for the
month of March. Again, Victor refused to accept
the tendered rental fee and to surrender
possession of the property to petitioner.
Petitioner thus opened a savings account with
the China Banking Corporation in the name of
private respondent and deposited therein the
rental and reservation fees. When petitioner tried
to register and annotate the contract on the title
of the subject property, the respondent Register
of Deeds refused to register or annotate the
same. Hence, petitioner filed a complaint for
specific performance and damages against
private respondent and the Register of Deeds,
before the Regional Trial Court of Valenzuela.
After trial on the merits, the trial court dismissed
the complaint. On appeal, the Court of Appeals
affirmed in toto the decision of the trial court.
Hence, this petition.
Issue: Whether or not the Contract of Lease
with Option to Buy entered into by the late
Encarnacion Bartolome with petitioner was
terminated upon her death or whether it binds
her sole heir, Victor, even after her demise.
Both the lower court and the Court of Appeals
held that the said contract was terminated upon
the death of Encarnacion Bartolome and did not
bind Victor because he was not a party thereto
Ruling: The petition is granted.
Where the service or act is of such a character
that it may as well be performed by another, or
where the contract by its terms, shows that the
performance by others was contemplated, death
does not terminate the contract or excuse non-
performance. In the case at bar, there was no
personal act required from the late Encarnacion
Bartolome. Rather, the obligation of
Encarnacion in the contract to deliver possession
of the subject property to petitioner upon the
exercise by the latter of its option to lease the
same may very well be performed by her heir
Victor. It is futile for private respondent to insist
that he is not a party to the contract because of
the clear provision of Article 1311 of the Civil
Code. Being an heir of Encarnacion, there is
privity of interest between him and his deceased
mother. He only succeeds to what rights his
mother had and what are valid and binding
against her is also valid and binding as against
him. Moreover, the subject matter of the contract
is a lease, which is a property right.
CIVIL LAW; CONTRACTS; HEIRS ARE
BOUND BY CONTRACTS ENTERED INTO
BY THEIR PREDECESSOR-IN-INTEREST;
EXCEPTIONS. The general rule is that heirs
are bound by contracts entered into by their
predecessors-in-interest except when the rights
and obligations arising therefrom are not
transmissible by (1) their nature, (2) stipulation
or (3) provision of law. In the case at bar, there
is neither contractual stipulation nor legal
provision making the rights and obligations
under the contract intransmissible. More
importantly, the nature of the rights and
obligations therein are, by their nature,
transmissible.
INTRANSMISSIBLE RIGHTS; EXPLAINED.
The nature of intransmissible rights as
explained by Arturo Tolentino, an eminent
civilist, is as follows: "Among contracts which
are intransmissible are those which are purely
personal, either by provision of law, such as in
cases of partnerships and agency, or by the very
nature of the obligations arising therefrom, such
as those requiring special personal qualifications
of the obligor. It may also be stated that
contracts for the payment of money debts are
not transmitted to the heirs of a party, but
constitute a charge against his estate. Thus,
where the client in a contract for professional
services of a lawyer died, leaving minor heirs,
and the lawyer, instead of presenting his claim
for professional services under the contract to
the probate court, substituted the minors as
parties for his client, it was held that the contact
could not be enforced against the minors; the
lawyer was limited to a recovery on the basis of
quantum meruit." In American jurisprudence,
"(W)here acts stipulated in a contract require the
exercise of special knowledge, genius, skill,
taste, ability, experience, judgment, discretion,
integrity, or other personal qualification of one
or both parties, the agreement is of a personal
nature, and terminates on the death of the party
who is required to render such service."
Cui v Arellano University
Facts: Cui enrolled himself from first year to
fourth year 1st semester but during the 2nd sem
of his 4th year his uncle who was then the dean
of Arellano accepted the offer of another
university as a dean and so Cui followed his
uncle and enrolled himself to that other
university then graduated. When he applied for
the bar one of the requirements is his TOR and
so he went to Arellano get his TOR from 1st
year to 4th year 1st sem. But the school refused
unless Cui reimbursed the cash equevalent of his
scholarship. So he did in order for him to take
the bar. When Cui became a lawyer he filed a
case in court, he sued the school to collect the
amount he reimbursed. The school contended
that while Cui was a scholar in the school he
executed a waiver, stating that he shall waive his
right to transfer to other school unless he
reimburse the school of the cash equivalent of
the scholarship grant.
Issue: WON the waiver was valid
Ruling: The petition is granted.
Held: SC ruled in favor of Cui and declared that
the waiver is not valid as it is contrary to public
policy. The essence of scholarship grant is to
recognize the talents of the receipients and
deserving students. It is never a tool for
advertising business to attract more enrollees.
Remember the principle that if a waiver is
against public policy it cannot be valid.
Florentino v Encarnacion
Facts: On May 22, 1964, the petitioners-
appellants Miguel Florentino, Rosario
Encarnacion de Florentino, Manuel Arce, Jose
Florentino, Victorino Florentino, Antonio
Florentino, Remedios Encarnacion and Severina
Encarnacion, and the petitioners-appellees
Salvador Encarnacion, Sr., Salvador
Encarnacion, Jr. and Angel Encarnacion filed
with the Court of First Instance of Ilocos Sur an
application for the registration under Act 496 of
a parcel of agricultural land located at Barrio
Lubong, Dacquel, Cabugao, Ilocos Sur.
The application alleged among other things that
the applicants are the common and pro-indiviso
owners in fee simple of the said land with the
improvements existing thereon; that to the best
of their knowledge and belief, there is no
mortgage, lien or encumbrance of any kind
whatsoever affecting said land, nor any other
person having any estate or interest thereon,
legal or equitable, remainder, reservation or in
expectancy; that said applicants had acquired the
aforesaid land thru and by inheritance from their
predecessors in interest, lately from their aunt,
Doa Encarnacion Florentino who died in
Vigan, Ilocos Sur in 1941, and for which the said
land was adjudicated to them by virtue of the
deed of extrajudicial partition dated August 24,
1947; that applicants Salvador Encarnacion, Jr.
and Angel Encarnacion acquired their respective
shares of the land thru purchase from the
original heirs, Jesus, Caridad, Lourdes and
Dolores, all surnamed Singson, on one hand and
from Asuncion Florentino on the other.
The crucial point in controversy in this
registration case is centered in the stipulation
marked Exhibit O-1 embodied in the deed of
extrajudicial partition (Exhibit O) dated August
24, 1947
In his testimony during the trial, applicant
Miguel Florentino asked the court to include the
said stipulation (Exhibit O-1) as an encumbrance
on the land sought to be registered, and cause
the entry of the same on the face of the title that
will finally be issued. Opposing its entry on the
title as an encumbrance, petitioners-appellees
Salvador Encarnacion, Sr., Salvador
Encarnacion, Jr. and Angel Encarnacion filed on
October 3, 1966 a manifestation seeking to
withdraw their application on their respective
shares of the land sought to be registered. The
withdrawal was opposed by the petitioners-
appellants.
The court denied the petitioners-appellees'
motion to withdraw for lack of merit, and
rendered a decision under date of November 29,
1966 confirming the title of the property in favor
of the following applicants with their respective
shares including:
Salvador Encarnacion, Jr., of legal age, Filipino,
married to Angelita Nagar, and resident of
Vigan, Ilocos Sur, consisting of an undivided
66/297;.
Angel Encarnacion, of legal age, Filipino, single
and resident of 1514 Milagros St., Sta. Cruz,
Manila, consisting of an undivided 33/297
portion;
Salvador Encarnacion, Sr., of legal age, Filipino,
married to Dolores Singson, consisting of an
undivided 8.25/297;
The court, after ruling "that the contention of the
proponents of the encumbrance is without merit
because, taking the self-imposed arrangement in
favor of the Church as a pure and simple
donation, the same is void for the reason that the
done here has not accepted the donation (Art.
745, Civil Code) and for the further reason that,
in the case of Salvador Encarnacion, Jr. and
Angel Encarnacion, they had made no oral or
written grant at all (Art. 748) as in fact they are
even opposed to it,"
After Motions for Reconsideration were denied
by the court, the petitioners-appellants appealed
directly to this Court pursuant to Rule 41, Rules
of Court, raising the following assignment of
errors:
Issue:
I. The lower court erred in concluding that the
stipulation embodied in Exhibit O on religious
expenses is just an arrangement, stipulation, or
grant revocable at the unilateral option of the co-
owners.
II. The lower court erred in finding and
concluding that the encumbrance or religious
expenses embodied in Exhibit O, the
extrajudicial partition between the co-heirs, is
binding only on the applicants Miguel
Florentino, Rosario Encarnacion de Florentino,
Manuel Arce, Jose Florentino, Antonio
Florentino, Victorino Florentino, Remedios
Encarnacion and Severina Encarnacion.
III. The lower court as a registration court erred
in passing upon the merits of the encumbrance
(Exhibit O-1) as the same was never put to issue
and as the question involved is an adjudication
of rights of the parties.
Ruling: The petition is granted
We find the first and second assignments of
error impressed with merit and, therefore,
tenable
The stipulation embodied in Exhibit O-1 on
religious expenses is not revocable at the
unilateral option of the co-owners and neither is
it binding only on the petitioners-appellants
Miguel Florentino, Rosario Encarnacion de
Florentino, Manuel Arce, Jose Florentino,
Victorino Florentino, Antonio Florentino,
Remedios Encarnacion and Severina
Encarnacion. It is also binding on the
oppositors-appellees Angel Encarnacion,
Salvador Encarnacion, Sr. and Salvador
Encarnacion, Jr.
The stipulation (Exhibit O-1) is part of an
extrajudicial partition (Exh. O) duly agreed and
signed by the parties, hence the same must bind
the contracting parties thereto and its validity or
compliance cannot be left to the will of one of
them (Art. 1308, N.C.C.). Under Art. 1311 of the
New Civil Code, this stipulation takes effect
between the parties, their assigns and heirs. This
article provides:
Art. 1311. Contracts take effect only between
the parties, their assigns and heirs, except in
cases where the rights and obligations arising
from the contract are not transmissible by their
nature, or by stipulation or by provision of law.
The heir is not liable beyond the value of the
property he received from the decedent.
If a contract should contain a stipulation in
favor of a third person, he may demand its
fulfillment provided he communicated his
acceptance to the obligor before its revocation.
A mere incidental benefit or interest of a person
is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor
upon a third person.
The second paragraph of Article 1311 above-
quoted states the law on stipulations pour autrui.
Considering the nature and purpose of the
stipulation (Exh. O-1), We hold that said
stipulation is a stipulation pour autrui. A
stipulation pour autrui is a stipulation in favor of
a third person conferring a clear and deliberate
favor upon him, and which stipulation is merely
a 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
fulfillment provided that he communicates his
acceptance to the obligor before it is revoked. 3
The requisites are: (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 should not be conditioned or
compensated by any kind of obligation
whatever; and (3) neither of the contracting
parties bears the legal representation or
authorization of third party.
To constitute a valid stipulation pour autrui, it
must be the purpose and intent of the stipulating
parties to benefit the third person, and it is not
sufficient that the third person may be
incidentally benefited by the stipulation. The
fairest test to determine whether the interest of
third person in a contract is a stipulation pour
autrui or merely an incidental interest, is to rely
upon the intention of the parties as disclosed by
their contract. In applying this test, it matters not
whether the stipulation is in the nature of a gift
or whether there is an obligation owing from the
promises to the third person. That no such
obligation exists may in some degree assist in
determining whether the parties intended to
benefit a third person
In the case at bar, the determining point is
whether the co-owners intended to benefit the
Church when in their extrajudicial partition of
several parcels of land inherited by them from
Doa Encarnacion Florentino they agreed that
with respect to the land situated in Barrio
Lubong, Dacquel, Cabugao, Ilocos Sur, the fruits
thereof shall serve to defray the religious
expenses specified in Exhibit O-1. The evidence
on record shows that the true intent of the parties
is to confer a direct and material benefit upon
the Church. The fruits of the aforesaid land were
used thenceforth to defray the expenses of the
Church in the preparation and celebration of the
Holy Week, an annual Church function. Suffice
it to say that were it not for Exhibit O-1, the
Church would have necessarily expended for
this religious occasion, the annual religious
procession during the Holy Week and also for
the repair and preservation of all the statutes,
tables, carriages and all other things necessary
for the celebration of the Seven Last Words.
We find that the trial court erred in holding that
the stipulation, arrangement or grant (Exhibit O-
1) is revocable at the option of the co-owners.
While a stipulation in favor of a third person has
no binding effect in itself before its acceptance
by the party favored, the law does not provide
when the third person must make his acceptance.
As a rule, there is no time limit; such third
Person has all the time until the stipulation is
revoked. Here, We find that the Church accepted
the stipulation in its favor before it is sought to
be revoked by some of the co-owners, namely
the petitioners-appellees herein. It is not
disputed that from the time of the death of Doa
Encarnacion Florentino in 1941, as had always
been the case since time immemorial, up to a
year before the filing of their application in May
1964, the Church had been enjoying the benefits
of the stipulation. The enjoyment of benefits
flowing therefrom for almost seventeen years
without question from any quarters can only be
construed as an implied acceptance by the
Church of the stipulation pour autrui before its
revocation
Hence, the stipulation (Exhibit O-1) cannot now
be revoked by any of the stipulators at their own
option. This must be so because of Article 1257,
Civil Code and the cardinal rule of contracts that
it has the force of law between the parties. 8
Thus, this Court ruled in Garcia v. Rita Legarda,
Inc., 9 "Article 1309 is a virtual reproduction of
Article 1256 of the Civil Code, so phrased to
emphasize that the contract must bind both
parties, based on the principles (1) that
obligation arising from contracts have the
force of law between the contracting parties;
and (2) that there must be mutuality between
the parties based on their essential equality,
to which is repugnant to have one party
bound by the contract leaving the other free
therefrom."
Consequently, Salvador Encarnacion, Sr. must
bear with Exhibit O-1, being a signatory to the
Deed of Extrajudicial Partition embodying such
beneficial stipulation. Likewise, with regards to
Salvador, Jr. and Angel Encarnacion, they too
are bound to the agreement. Being subsequent
purchasers, they are privies or successors in
interest; it is axiomatic that contracts are
enforceable against the parties and their privies.
10 Furthermore, they are shown to have given
their conformity to such agreement when they
kept their peace in 1962 and 1963, having
already bought their respective shares of the
subject land but did not question the
enforcement of the agreement as against them.
They are also shown to have knowledge of
Exhibit O-1 as they had admitted in a Deed of
Real Mortgage executed by them on March 8,
1962 involving their shares of the subject land
The annotation of Exhibit O-1 on the face of the
title to be issued in this case is merely a
guarantee of the continued enforcement and
fulfillment of the beneficial stipulation. It is
error for the lower court to rule that the
petitioners-appellants are not the real parties in
interest, but the Church. That one of the parties
to a contract pour autrui is entitled to bring an
action for its enforcement or to prevent its
breach is too clear to need any extensive
discussion. Upon the other hand, that the
contract involved contained a stipulation pour
autrui amplifies this settled rule only in the sense
that the third person for whose benefit the
contract was entered into may also demand its
fulfillment provided he had communicated his
acceptance thereof to the obligor before the
stipulation in his favor is revoked
Petitioners-appellants' third assignment of
error is not well-taken
Firstly, the otherwise rigid rule that the
jurisdiction of the Land Registration Court,
being special and limited in character and
proceedings thereon summary in nature, does
not extend to cases involving issues properly
litigable in other independent suits or ordinary
civil actions, has time and again been relaxed in
special and exceptional circumstances. (See
Government of the Phil. Islands v. Serafica, 61
Phil. 93 (1934); Caoibes v. Sison, 102 Phil. 19
(1957); Luna v. Santos, 102 Phil. 588 (1957);
Cruz v. Tan, 93 Phil. 348 (1953); Gurbax Singh
Pabla & Co. v. Reyes, 92 Phil. 177 (1952). From
these cases, it may be gleaned and gathered that
the peculiarity of the exceptions is based not
alone on the fact that Land Registration Courts
are likewise the same Courts of First Instance,
but also the following premises: (1) Mutual
consent of the parties or their acquiescence in
submitting the aforesaid issues for determination
by the court in the registration proceedings; (2)
Full opportunity given to the parties in the
presentation of their respective sides of the
issues and of the evidence in support thereto; (3)
Consideration by the court that the evidence
already of record is sufficient and adequate for
rendering a decision upon these issues.
In the case at bar, the records clearly show that
the second and third premises enumerated above
are fully met. With regards to the first premise,
the petitioners-appellants cannot claim that the
issues anent Exhibit O-1 were not put in issue
because this is contradictory to their stand
before the lower court where they took the initial
step in praying for the court's determination of
the merits of Exhibit O-1 as an encumbrance to
be annotated on the title to be issued by such
court. On the other hand, the petitioners-
appellees who had the right to invoke the limited
jurisdiction of the registration court failed to do
so but met the issues head on
So Ping Bun vs CA
Facts: In 1963, Tek Hua Trading Co., through its
managing partner, So Pek Giok, entered into
lease agreements with lessor Dee C. Chuan &
Sons Inc. (DCCSI). Subjects of four (4) lease
contracts were premises located at Nos. 930,
930-Int., 924-B and 924-C, Soler Street,
Binondo, Manila. Tek Hua used the areas to
store its textiles. The contracts each had a one-
year term. They provided that should the lessee
continue to occupy the premises after the term,
the lease shall be on a month-to-month basis.
When the contracts expired, the parties did not
renew the contracts, but Tek Hua continued to
occupy the premises. In 1976, Tek Hua Trading
Co. was dissolved. Later, the original members
of Tek Hua Trading Co. including Manuel C.
Tiong, formed Tek Hua Enterprising Corp.,
herein respondent corporation.
So Pek Giok, managing partner of Tek Hua
Trading, died in 1986. So Pek Giok's grandson,
petitioner So Ping Bun, occupied the warehouse
for his own textile business, Trendsetter
Marketing.
On August 1, 1989, lessor DCCSI sent letters
addressed to Tek Hua Enterprises, informing the
latter of the 25% increase in rent effective
September 1, 1989. The rent increase was later
on reduced to 20% effective January 1, 1990,
upon other lessees' demand. Again on December
1, 1990, the lessor implemented a 30% rent
increase. Enclosed in these letters were new
lease contracts for signing. DCCSI warned that
failure of the lessee to accomplish the contracts
shall be deemed as lack of interest on the
lessee's part, and agreement to the termination of
the lease. Private respondents did not answer
any of these letters. Still, the lease contracts
were not rescinded
Petitioner refused to vacate. On March 4, 1992,
petitioner requested formal contracts of lease
with DCCSI in favor of Trendsetter Marketing.
So Ping Bun claimed that after the death of his
grandfather, So Pek Giok, he had been
occupying the premises for his textile business
and religiously paid rent. DCCSI acceded to
petitioner's request. The lease contracts in favor
of Trendsetter were executed.
Issue:
I. WHETHER THE APPELLATE COURT
ERRED IN AFFIRMING THE TRIAL
COURT'S DECISION FINDING SO PING
BUN GUILTY OF TORTUOUS
INTERFERENCE OF CONTRACT?
II. WHETHER THE APPELLATE COURT
ERRED IN AWARDING ATTORNEY'S FEES
OF P200,000.00 IN FAVOR OF PRIVATE
RESPONDENTS.
Ruling: The petition is denied.
CIVIL LAW; DAMAGES;
NONTRESPASSORY INVASION OF
ANOTHER'S INTEREST IN THE PRIVATE
USE AND ENJOYMENT OF ASSET; WHEN
PRESENT. Damage is the loss, hurt, or harm
which results from injury, and damages are the
recompense or compensation awarded for the
damage suffered. One becomes liable in an
action for damages for a nontrespassory invasion
of another's interest in the private use and
enjoyment of asset if (a) the other has property
rights and privileges with respect to the use or
enjoyment interfered with, (b) the invasion is
substantial, (c) the defendant's conduct is a legal
cause of the invasion, and (d) the invasion is
either intentional and unreasonable or
unintentional and actionable under general
negligence rules.
OBLIGATIONS AND CONTRACTS; TORT
INTERFERENCE; ELEMENTS; PRESENT.
The elements of tort interference are: (1)
existence of a valid contract; (2) knowledge on
the part of the third person of the existence of
contract; and (3) interference of the third person
is without legal justification or excuse. A duty
which the law of torts is concerned with its
respect for the property of others, and a cause of
action ex delicto may be predicated upon an
unlawful interference by one person of the
enjoyment by the other of his private property.
This may pertain to a situation where a third
person induces a party to renege on or violate
his undertaking under a contract. In the case
before us, petitioner's Trendsetter Marketing
asked DCCSI to execute lease contracts in its
favor, and as a result petitioner deprived
respondent corporation of the latter's property
right. Clearly, and as correctly viewed by the
appellate court, the three elements of tort
interference above-mentioned are present in the
instant case.
JUSTIFICATION WHERE THE DEFENDANT
ACTS FOR THE SOLE PURPOSE OF
FURTHERING HIS OWN FINANCIAL
INTEREST; DISCUSSED. Authorities
debate on whether interference may be justified
where the defendant acts for the sole purpose of
furthering his own financial or economic
interest. One view is that, as a general rule,
justification for interfering with the business
relations of another exists where the actor's
motive is to benefit himself. Such justification
does not exists where his sole motive is to cause
harm to the other. Added to this, some
authorities believe that it is not necessary that
the interferer's interest outweigh that of the party
whose rights are invaded, and that an individual
acts under an economic interest that is
substantial, not merely de minimis, such that
wrongful and malicious motives are negatived,
for he acts in self-protection. Moreover,
justification for protecting one's financial
position should not be made to depend on a
comparison of his economic interest in the
subject matter with that of others. It is sufficient
if the impetus of his conduct lies in a proper
business interest rather than in wrongful
motives. As early as Gilchrist vs. Cuddy, we
held that where there was no malice in the
interference of a contract, and the impulse
behind one's conduct lies in a proper business
interest rather than in wrongful motives, a party
cannot be a malicious interferer. Where the
alleged interferer is financially interested, and
such interest motivates his conduct, it cannot be
said that he is an officious or malicious
intermeddler. In the instant case, it is clear that
petitioner So Ping Bun prevailed upon DCCSI to
lease the warehouse to his enterprise at the
expense of respondent corporation. Though
petitioner took interest in the property of
respondent corporation and benefited from it,
nothing on record imputes deliberate wrongful
motives or malice on him.
WHERE LIABILITY NOT QUANTIFIABLE.
Section 1314 of the Civil Code categorically
provides that, "Any third person who induces
another to violate his contract shall be liable for
damages to the other contracting party." Here
however, the lower courts did not award
damages because the extent of damages was not
quantifiable. We had a similar situation in
Gilchrist, where it was difficult or impossible to
determine the extent of damage and there was
nothing on record to serve as basis thereof. In
that case we refrained from awarding damages.
We believe the same conclusion applies in this
case. While we do not encourage tort interferers
seeking their economic interest to intrude into
existing contracts at the expense of others,
however, we find that the conduct herein
complained of did not transcend the limits
forbidding an obligatory award for damages in
the absence of any malice. The business desire is
there to make some gain to the detriment of the
contracting parties. Lack of malice, however,
precludes damages. But it does not relieve
petitioner of the legal liability for entering into
contracts and causing breach of existing ones.
The respondent appellate court correctly
confirmed the permanent injunction and
nullification of the lease contracts between
DCCSI and Trendsetter Marketing, without
awarding damages. The injunction saved the
respondents from further damage or injury
caused by petitioner's interference.
ACTUAL DAMAGES; ATTORNEY'S FEES;
WHERE PLAINTIFF COMPELLED TO
LITIGATE TO PROTECT HIS INTEREST;
BASES OF AWARD THEREOF. The
recovery of attorney's fees in the concept of
actual or compensatory damages, is allowed
under the circumstances provided for in Article
2208 of the Civil Code. One such occasion is
when the defendant's act or omission has
compelled the plaintiff to litigate with third
persons or to incur expenses to protect his
interest. But we consistently held that the award
of considerable damages should have clear
factual and legal bases. In connection with
attorney's fees, the award should be
commensurate to the benefits that would have
been derived from a favorable judgment. Settled
is the rule that fairness of the award of damages
by the trial court calls for appellate review such
that the award
Lagon v CA
Facts: Petitioner Jose Lagon purchased from the
estate of Bai Tonina Sepi, through an intestate
court, 1 two parcels of land located at Tacurong,
Sultan Kudarat. A few months after the sale,
private respondent Menandro Lapuz filed a
complaint for torts and damages against
petitioner before the Regional Trial Court (RTC)
of Sultan Kudarat.
In the complaint, private respondent, as then
plaintiff, claimed that he entered into a contract
of lease with the late Bai Tonina Sepi Mengelen
Guiabar over three parcels of land (the
"property") in Sultan Kudarat, Maguindanao
beginning 1964. One of the provisions agreed
upon was for private respondent to put up
commercial buildings which would, in turn, be
leased to new tenants. The rentals to be paid by
those tenants would answer for the rent private
respondent was obligated to pay Bai Tonina Sepi
for the lease of the land. In 1974, the lease
contract ended but since the construction of the
commercial buildings had yet to be completed,
the lease contract was allegedly renewed.
When Bai Tonina Sepi died, private respondent
started remitting his rent to the court-appointed
administrator of her estate. But when the
administrator advised him to stop collecting
rentals from the tenants of the buildings he
constructed, he discovered that petitioner,
representing himself as the new owner of the
property, had been collecting rentals from the
tenants. He thus filed a complaint against the
latter, accusing petitioner of inducing the heirs
of Bai Tonina Sepi to sell the property to him,
thereby violating his leasehold rights over it.
Petitioner claimed that before he bought the
property, he went to Atty. Benjamin Fajardo, the
lawyer who allegedly notarized the lease
contract between private respondent and Bai
Tonina Sepi, to verify if the parties indeed
renewed the lease contract after it expired in
1974. Petitioner averred that Atty. Fajardo
showed him four copies of the lease renewal but
these were all unsigned. To refute the existence
of a lease contract, petitioner presented in court
a certification from the Office of the Clerk of
Court confirming that no record of any lease
contract notarized by Atty. Fajardo had been
entered into their files. Petitioner added that he
only learned of the alleged lease contract when
he was informed that private respondent was
collecting rent from the tenants of the building.
Before the appellate court, petitioner disclaimed
knowledge of any lease contract between the late
Bai Tonina Sepi and private respondent. On the
other hand, private respondent insisted that it
was impossible for petitioner not to know about
the contract since the latter was aware that he
was collecting rentals from the tenants of the
building. While the appellate court disbelieved
the contentions of both parties, it nevertheless
held that, for petitioner to become liable for
damages, he must have known of the lease
contract and must have also acted with malice or
bad faith when he bought the subject parcels of
land.
Issue: Whether the purchase by petitioner of the
subject property, during the supposed existence
of private respondent's lease contract with the
late Bai Tonina Sepi, constituted tortuous
interference for which petitioner should be held
liable for damages.
Ruling:
Article 1314 of the Civil Code provides that any
third person who induces another to violate his
contract shall be liable for damages to the other
contracting party. The tort recognized in that
provision is known as interference with
contractual relations. 7 The interference is
penalized because it violates the property rights
of a party in a contract to reap the benefits that
should result therefrom.
The Court, in the case of So Ping Bun v. Court
of Appeals, laid down the elements of tortuous
interference with contractual relations: (a)
existence of a valid contract; (b) knowledge on
the part of the third person of the existence of
the contract and (c) interference of the third
person without legal justification or excuse. In
that case, petitioner So Ping Bun occupied the
premises which the corporation of his
grandfather was leasing from private respondent,
without the knowledge and permission of the
corporation. The corporation, prevented from
using the premises for its business, sued So Ping
Bun for tortuous interference.
As regards the first element, the existence of a
valid contract must be duly established. To prove
this, private respondent presented in court a
notarized copy of the purported lease renewal.
10 While the contract appeared as duly
notarized, the notarization thereof, however,
only proved its due execution and delivery but
not the veracity of its contents. Nonetheless,
after undergoing the rigid scrutiny of petitioner's
counsel and after the trial court declared it to be
valid and subsisting, the notarized copy of the
lease contract presented in court appeared to be
incontestable proof that private respondent and
the late Bai Tonina Sepi actually renewed their
lease contract. Settled is the rule that until
overcome by clear, strong and convincing
evidence, a notarized document continues to be
prima facie evidence of the facts that gave rise to
its execution and delivery.
The second element, on the other hand, requires
that there be knowledge on the part of the
interferer that the contract exists. Knowledge of
the subsistence of the contract is an essential
element to state a cause of action for tortuous
interference. 12 A defendant in such a case
cannot be made liable for interfering with a
contract he is unaware of. While it is not
necessary to prove actual knowledge, he must
nonetheless be aware 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. In this case, petitioner claims that he
had no knowledge of the lease contract. His
sellers (the heirs of Bai Tonina Sepi) likewise
allegedly did not inform him of any existing
lease contract.
After a careful perusal of the records, we find
the contention of petitioner meritorious. He
conducted his own personal investigation and
inquiry, and unearthed no suspicious
circumstance that would have made a cautious
man probe deeper and watch out for any
conflicting claim over the property. An
examination of the entire property's title bore no
indication of the leasehold interest of private
respondent. Even the registry of property had no
record of the same
On the third element According to our ruling in
So Ping Bun, petitioner may be held liable only
when there was no legal justification or excuse
for his action 16 or when his conduct was stirred
by a wrongful motive. To sustain a case for
tortuous interference, the defendant must have
acted with malice 17 or must have been driven
by purely impious reasons to injure the plaintiff.
In other words, his act of interference cannot be
justified
Furthermore, the records do not support the
allegation of private respondent that petitioner
induced the heirs of Bai Tonina Sepi to sell the
property to him. The word "induce" refers to
situations where a person causes another to
choose one course of conduct by persuasion or
intimidation. 19 The records show that the
decision of the heirs of the late Bai Tonina Sepi
to sell the property was completely of their own
volition and that petitioner did absolutely
nothing to influence their judgment. Private
respondent himself did not proffer any evidence
to support his claim. In short, even assuming
that private respondent was able to prove the
renewal of his lease contract with Bai Tonina
Sepi, the fact was that he was unable to prove
malice or bad faith on the part of petitioner in
purchasing the property. Therefore, the claim of
tortuous interference was never established.
In So Ping Bun, the Court discussed whether
interference can be justified at all if the
interferer acts for the sole purpose of furthering
a personal financial interest, but without malice
or bad faith.
The foregoing disquisition applies squarely to
the case at bar. In our view, petitioner's purchase
of the subject property was merely an
advancement of his financial or economic
interests, absent any proof that he was enthused
by improper motives. In the very early case of
Gilchrist v. Cuddy, 21 the Court declared that a
person is not a malicious interferer if his
conduct is impelled by a proper business
interest. In other words, a financial or profit
motivation will not necessarily make a person
an officious interferer liable for damages as
long as there is no malice or bad faith involved
In sum, we rule that, inasmuch as not all three
elements to hold petitioner liable for tortuous
interference are present, petitioner cannot be
made to answer for private respondent's losses
This case is one of damnun absque injuria or
damage without injury. "Injury" is the legal
invasion of a legal right while "damage" is the
hurt, loss or harm which results from the injury.
22 In BPI Express Card Corporation v. Court of
Appeals, 23 the Court turned down the claim for
damages of a cardholder whose credit card had
been cancelled by petitioner corporation after
several defaults in payment. We held there that
there can be damage without injury where the
loss or harm is not the result of a violation of a
legal duty. In that instance, the consequences
must be borne by the injured person alone since
the law affords no remedy for damages resulting
from an act which does not amount to legal
injury or wrong. 24 Indeed, lack of malice in the
conduct complained of precludes recovery of
damages.
Pakistan International Airlines v Ople
Facts: On 2 December 1978, petitioner Pakistan
International Airlines Corporation ("PIA"), a
foreign corporation licensed to do business in
the Philippines, executed in Manila two (2)
separate contracts of employment, one with
private respondent Ethelynne B. Farrales and the
other with private respondent Ma. M.C.
Mamasig.
On 9 September 1980, private respondents
Farrales and Mamasig jointly instituted a
complaint, docketed as NCR-STF-9-5151-80,
for illegal dismissal and non-payment of
company benefits and bonuses, against PIA with
the then Ministry of Labor and Employment
("MOLE"). After several unfruitful attempts at
conciliation, the MOLE hearing officer Atty.
Jose M. Pascual ordered the parties to submit
their position papers and evidence supporting
their respective positions. The PIA submitted its
position paper, 3 out no evidence, and there
claimed that both private respondents were
habitual absentees; that both were in the habit of
bringing in from abroad sizeable quantities of
"personal effects"; and that PIA personnel at the
Manila International Airport had been discreetly
warned by customs officials to advise private
respondents to discontinue that practice. PIA
further claimed that the services of both private
respondents were terminated pursuant to the
provisions of the employment contract.
In his Order dated 22 January 1981, Regional
Director Francisco L. Estrella ordered the
reinstatement of private respondents with full
backwages or, in the alternative, the payment to
them of the amounts equivalent to their salaries
for the remainder of the fixed three-year period
of their employment contracts; the payment to
private respondent Mamasig of an amount
equivalent to the value of a round trip ticket
Manila-USA-Manila; and payment of a bonus to
each of the private respondents equivalent to
their one-month salary. 4 The Order stated that
private respondents had attained the status of
regular employees after they had rendered more
than a year of continued service; that the
stipulation limiting the period of the
employment contract to three (3) years was null
and void as violative of the provisions of the
Labor Code and its implementing rules and
regulations on regular and casual employment;
and that the dismissal, having been carried out
without the requisite clearance from the MOLE,
was illegal and entitled private respondents to
reinstatement with full backwages.
On appeal, in an Order dated 12 August 1982,
Hon. Vicente Leogardo, Jr., Deputy Minister,
MOLE, adopted the findings of fact and
conclusions of the Regional Director and
affirmed the latter's award save for the portion
thereof giving PIA the option, in lieu of
reinstatement, "to pay each of the complainants
[private respondents] their salaries
corresponding to the unexpired portion of the
contract[s] [of employment
Ruling: The petition is denied.
In its third contention, petitioner PIA invokes
paragraphs 5 and 6 of its contract of
employment with private respondents Farrales
and Mamasig, arguing that its relationship with
them was governed by the provisions of its
contract rather than by the general provisions of
the Labor Code
Paragraph 5 of that contract set a term of three
(3) years for that relationship, extendible by
agreement between the parties; while paragraph
6 provided that, notwithstanding any other
provision in the contract, PIA had the right to
terminate the employment agreement at any time
by giving one-month's notice to the employee or,
in lieu of such notice, one-month's salary.
A contract freely entered into should, of course,
be respected, as PIA argues, since a contract is
the law between the parties. 10 The principle of
party autonomy in contracts is not, however, an
absolute principle. The rule in Article 1306, of
our Civil Code is that the contracting parties
may establish such stipulations as they may
deem convenient, "provided they are not
contrary to law, morals, good customs, public
order or public policy." Thus, counter-balancing
the principle of autonomy of contracting parties
is the equally general rule that provisions of
applicable law, especially provisions relating to
matters affected with public policy, are deemed
written into the contract. 11 Put a little
differently, the governing principle is that parties
may not contract away applicable provisions of
law especially peremptory provisions dealing
with matters heavily impressed with public
interest. The law relating to labor and
employment is clearly such an area and parties
are not at liberty to insulate themselves and their
relationships from the impact of labor laws and
regulations by simply contracting with each
other. It is thus necessary to appraise the
contractual provisions invoked by petitioner PIA
in terms of their consistency with applicable
Philippine law and regulations
As noted earlier, both the Labor Arbiter and the
Deputy Minister, MOLE, in effect held that
paragraph 5 of that employment contract was
inconsistent with Articles 280 and 281 of the
Labor Code as they existed at the time the
contract of employment was entered into, and
hence refused to give effect to said paragraph 5
Examining the provisions of paragraphs 5 and 6
of the employment agreement between petitioner
PIA and private respondents, we consider that
those provisions must be read together and when
so read, the fixed period of three (3) years
specified in paragraph 5 will be seen to have
been effectively neutralized by the provisions of
paragraph 6 of that agreement. Paragraph 6 in
effect took back from the employee the fixed
three (3)-year period ostensibly granted by
paragraph 5 by rendering such period in effect a
facultative one at the option of the employer
PIA. For petitioner PIA claims to be authorized
to shorten that term, at any time and for any
cause satisfactory to itself, to a one-month
period, or even less by simply paying the
employee a month's salary. Because the net
effect of paragraphs 5 and 6 of the agreement
here involved is to render the employment of
private respondents Farrales and Mamasig
basically employment at the pleasure of
petitioner PIA, the Court considers that
paragraphs 5 and 6 were intended to prevent any
security of tenure from accruing in favor of
private respondents even during the limited
period of three (3) years, 13 and thus to escape
completely the thrust of Articles 280 and 281 of
the Labor Code.
Petitioner PIA cannot take refuge in paragraph
10 of its employment agreement which
specifies, firstly, the law of Pakistan as the
applicable law of the agreement and, secondly,
lays the venue for settlement of any dispute
arising out of or in connection with the
agreement "only [in] courts of Karachi,
Pakistan". The first clause of paragraph 10
cannot be invoked to prevent the application of
Philippine labor laws and regulations to the
subject matter of this case, i.e., the employer-
employee relationship between petitioner PIA
and private respondents. Neither may petitioner
invoke the second clause of paragraph 10,
specifying the Karachi courts as the sole venue
for the settlement of disputes between the
contracting parties. Even a cursory scrutiny of
the relevant circumstances of this case will show
the multiple and substantive contacts between
Philippine law and Philippine courts, on the one
hand, and the relationship between the parties,
upon the other: the contract was not only
executed in the Philippines, it was also
performed here, at least partially; private
respondents are Philippine citizens and
residents, while petitioner, although a foreign
corporation, is licensed to do business (and
actually doing business) and hence resident in
the Philippines; lastly, private respondents were
based in the Philippines in between their
assigned flights to the Middle East and Europe.
Under these circumstances, paragraph 10 of the
employment agreement cannot be given effect
so as to oust Philippine agencies and courts of
the jurisdiction vested upon them by Philippine
law. Finally, and in any event, the petitioner PIA
did not undertake to plead and prove the
contents of Pakistan law on the matter; it must
therefore be presumed that the applicable
provisions of the law of Pakistan are the same as
the applicable provisions of Philippine law.

Malbarossa v Court of Appeals
Facts: Philtectic Corporation and
Commonwealth Insurance Co., Inc. were only
two of the group of companies wholly-owned
and controlled by respondent S.E.A.
Development Corporation (SEADC). The
petitioner Salvador P. Malbarosa was the
president and general manager of Philtectic
Corporation, and an officer of other corporations
belonging to the SEADC group of companies
Sometime in the first week of January 1990, the
petitioner intimated to Senen Valero his desire to
retire from the SEADC group of companies and
requested that his 1989 incentive compensation
as president of Philtectic Corporation be paid to
him. On January 8, 1990, the petitioner sent a
letter to Senen Valero tendering his resignation,
effective February 28, 1990 from all his
positions in the SEADC group of companies,
and reiterating therein his request for the
payment of his incentive compensation for 1989
On March 14, 1990, the respondent, through
Senen Valero, signed a letter-offer addressed to
the petitioner 3 stating therein that petitioner's
resignation from all the positions in the SEADC
group of companies had been accepted by the
respondent, and that he was entitled to an
incentive compensation in the amount of
P251,057.67, and proposing that the amount be
satisfied, thus:
- The 1982 Mitsubishi Super saloon car assigned
to you by the company shall be transferred to
you at a value of P220,000.00. (Although you
have indicated a value of P180,000.00, our
survey in the market indicates that P220,000.00
is a reasonable reflection of the value of the car.)
- The membership share of our subsidiary,
Tradestar International, Inc. in the Architectural
Center, Inc. will be transferred to you. (Although
we do not as yet have full information as to the
value of these shares, we have been informed
that the shares have traded recently in the
vicinity of P60,000.00.) 4
The respondent required that if the petitioner
agreed to the offer, he had to affix his
conformity on the space provided therefor and
the date thereof on the right bottom portion of
the letter
On March 16, 1990, Da Costa met with the
petitioner and handed to him the original copy of
the March 14, 1990 Letter-offer for his
consideration and conformity. The petitioner
was dismayed when he read the letter and
learned that he was being offered an incentive
compensation of only P251,057.67. He told Da
Costa that he was entitled to no less than
P395,000 as incentive compensation. The
petitioner refused to sign the letter-offer on the
space provided therefor
The respondent decided to withdraw its March
14, 1990 Offer. On April 3, 1996, the Board of
Directors of the respondent approved a
resolution authorizing the Philtectic Corporation
and/or Senen Valero to demand from the
petitioner for the return of the car and to take
such action against the petitioner, including the
institution of an action in court against the
petitioner for the recovery of the motor vehicle
The trial court ruled that there existed no
perfected contract between the petitioner and the
respondent for failure of the petitioner to
effectively notify the respondent of his
acceptance of the letter-offer before the
respondent withdrew the same. The Court of
Appeals (CA) affirmed the decision of the trial
court. Hence, this petition for review on
certiorari
Ruling: The petition is denied.
In affirming the decision of the CA, the Supreme
Court ruled that the acceptance of an offer must
be made known to the offeror. Unless the offeror
knows of the acceptance, there is no meeting of
the minds of the parties, no real concurrence of
offer and acceptance. The offeror may withdraw
its offer and revoke the same before acceptance
thereof by the offeree. The contract is perfected
only from the time an acceptance of an offer is
made known to the offeror. The contract is not
perfected if the offeror revokes or withdraws its
offer and the revocation or withdrawal of the
offeror is the first to reach the offeree. The
acceptance of the offeree of the offer after
knowledge of the revocation or withdrawal of
the offer is inefficacious.
CIVIL LAW; OBLIGATIONS AND
CONTRACTS; CONTRACTS; REQUISITES
OF; CONSENT; MANIFESTED BY MEETING
OF THE OFFER AND ACCEPTANCE UPON
THE THING AND CAUSE WHICH ARE TO
CONSTITUTE THE CONTRACT. Under
Article 1319 of the New Civil Code, the consent
by a party is manifested by the meeting of the
offer and the acceptance upon the thing and the
cause which are to constitute the contract. An
offer may be reached at any time until it is
accepted. An offer that is not accepted does not
give rise to a consent. The contract does not
come into existence. To produce a contract, there
must be acceptance of the offer which may be
express or implied but must not qualify the
terms of the offer. The acceptance must be
absolute, unconditional and without variance of
any sort from the offer.
PERFECTED ONLY FROM THE TIME AN
ACCEPTANCE OF AN OFFER IS MADE
KNOWN TO THE OFFEROR. The
acceptance of an offer must be made known to
the offeror. Unless the offeror knows of the
acceptance, there is no meeting of the minds of
the parties, no real concurrence of offer and
acceptance. The offeror may withdraw its offer
and revoke the same before acceptance thereof
by the offeree. The contract is perfected only
from the time an acceptance of an offer is made
known to the offeror.
ACCEPTANCE NOT MADE IN THE
MANNER PRESCRIBED BY OFFEROR IS
NOT EFFECTIVE BUT CONSTITUTES A
COUNTER-OFFER WHICH THE OFFEROR
MAY ACCEPT OR REJECT. If an offeror
prescribes the exclusive manner in which
acceptance of his offer shall be indicated by the
offeree, an acceptance of the offer in the manner
prescribed will bind the offeror. On the other
hand, an attempt on the part of the offeree to
accept the offer in a different manner does not
bind the offeror as the absence of the meeting of
the minds on the altered type of acceptance. An
-offer made inter praesentes must be accepted
immediately. If the parties intended that there
should be an express acceptance, the contract
will be perfected only upon knowledge by the
offeror of the express acceptance by the offeree
of the offer. An acceptance which is not made in
the manner prescribed by the offeror is not
effective but constitutes a counter-offer which
the offeror may accept or reject. TIEHSA
NOT PERFECTED IF OFFEROR REVOKES
ITS OFFER AND THE REVOCATION IS THE.
FIRST TO REACH THE OFFEREE. The
contract is not perfected if the offeror revokes or
withdraws its offer and the revocation or
withdrawal of the offeror is the first to reach the
offeree. The acceptance by the offeree of the
offer after knowledge of the revocation or
withdrawal of the offer is inefficacious.
WHEN OFFEROR HAS NOT FIXED A
PERIOD FOR OFFEREE TO ACCEPT THE
OFFER AND THE OFFER IS MADE TO A
PERSON PRESENT, ACCEPTANCE MUST
BE MADE IMMEDIATELY; CASE AT BAR.
When the offeror has not fixed a period for
the offeree to accept the offer, and the offer is
made to a person present, the acceptance must
be made immediately. In this case, the
respondent made its offer to the petitioner when
Da Costa handed over on March 16, 1990 to the
petitioner its March 14, 1990 Letter-offer but
that the petitioner did not accept the offer. The
respondent, thus, had the option to withdraw or
revoke the offer, which the respondent did on
April 4, 1990.
Rosenstock v Burke
Facts: Defendant Edwin Burke owned a motor
yacht, known as Bronzewing, which he acquired
in Australia in 1920. He wanted to sell the yacht
and after several months plaintiff H. W. Elser, at
the beginning of the year 1922, began
negotiations with the defendant for the purchase
of it. The plan of the plaintiff was to organize a
yacht club and sell it afterwards the yacht for
P120,000, of which P20,000 was to be retained
by him as commission and the remaining
P100,000 to be paid to the defendant. To be able
to sell the yacht, he wanted to make a voyage on
board the yacht with business men so that he
could make a sale to them. But the yacht needed
some repairs which in turn, plaintiff paid for
because defendant had no budget for that. It has
been stipulated that the plaintiff was not to pay
anything for the use of the yacht. Because of the
said repairs, plaintiff loaned money from the
Asia Banking Corporation. Since it amounted to
its maximum amount already, the bank could no
longer give loans to plaintiff. Defendant now
gave plaintiff the option of sale to plaintiff
amounting to P80,000; P5,000 each month
during the first six months and P10,000
thereafter until full payment of the price.
Plaintiff in turn agreed by letter. Defendant
demanded the plaintiff for performance after he
accepted the offer of plaintiff for the purchase of
the yacht. However, plaintiff now brings action
to recover the sum of money he used for repairs
of the yacht.
Issue: Whether or not there was a valid contract
of sale which is binding against plaintiff as used
in the letter of offer which was accepted by the
defendant.
Ruling: The petition is denied.
The Supreme Court held that it was not a valid
contract of sale. The words used by plaintiff
could not be interpreted as a definite offer to
purchase the yacht, but simply a position to
deliberate whether or not he would purchase the
yacht. It was but a mere invitation to a proposal
being made to him, which might be accepted by
him or not. He used such words as, I am in
position and am willing to entertain the purchase
of the yacht. not I want to buy the yacht.
Furthermore, the plaintiff wanted to organize a
yacht club and the only thing he wanted from
defendant was he sells it so that he could profit
from it if he re-sells it. The letter of the plaintiff
not containing a definite offer but a mere
invitation to an offer being made to him.
Plaintiff is bound to pay the amount of the
repairs of the yacht in exchange for the use
thereof.
CONTRACTS; PURCHASE AND SALE;
OFFER TO PURCHASE; INTERPRETATION.
The expression "I am in position to entertain
the purchase of the vessel upon the following
terms . . ." does not mean a definite offer to
purchase, but merely the idea that a proposition
be made to him which he would accept or reject
according to the result of his deliberation.
INTENTION. The question whether or not an
expression is a definite offer to purchase or
merely an invitation to a proposition being made
to him, is one of intention of the person using
said expression, which is to be determined by
the circumstances surrounding the case.
Southwestern Sugar and Molasses Co
plaintiff-appellee, v Atlantic Gulf and Pacific
Co defendant-appellant
Facts: This is an action for specific
performance.
On March 24, 1953, the Atlantic Gulf & Pacific
Company of Manila, hereafter called Atlantic
Gulf for short, granted an option to
Southwestern Sugar & Molasses Co. (Far East)
Inc., hereafter called Southwestern Company, to
buy its barge No. 10 for the sum of P30,000 to
be exercised within a period of ninety days
On May 11, 1953, the Southwestern Company
wrote to Atlantic Gulf advising the latter that it
wanted "to exercise our option at your earliest
convenience" and requested that it be notified as
soon as the barge was available
On May 12, 1953, the Atlantic Gulf replied
stating that their understanding was that the
"offer of option" is to be a cash transaction and
to be effected "at the time the lighter is
available", and, on June 25, 1953, reiterating the
unavailability of the barge, it further advised the
Southwestern Company that since there is still
further work for it, and as this situation still
applies" the barge could not be turned over to
the latter company.
On June 27, 1953, in view if such vacillating
attitude, the Southwestern Company instituted
the present action to compel the Atlantic Gulf to
sell the barge in line with the option, depositing
with the court a check covering the sum of
P30,000. This check however was later
withdrawn with the approval of the court
On June 29, 1953, the Atlantic Gulf withdraw its
"offer of option" with due notices to the
Southwestern Company stating as reason
therefor that the option was granted merely as a
favor. The Atlantic Gulf set up as a defense the
option to sell made by it to the Southwestern
Company is null and void because it is not
supported by any consideration
After due trial, the lower court rendered
judgment granting plaintiff's prayer for specific
performance. It further ordered the defendant to
pay damages in an amount equivalent to 6 per
centum per annum on the sum of P30,000 from
the date of the filing of the complaint, and to pay
the sum of P600 as attorney's fees, plus the costs
of action
The main contention of appellant is that the
option granted to appellee to sell to it barge No.
10 for the sum of P30,000 under the terms stated
above has no legal effect because it is not
supported by any consideration and in support
thereof it invokes article 1479 of the new Civil
Code. This article provides:
ART. 1479. A promise to buy and sell a
determinate thing for a price certain is
reciprocally demandable.
"An accepted unilateral promise to buy or to sell
a determinate thing for a price certain is
binding upon the promisor if the promise is
supported by a consideration distinct from the
price."
Appellee ( Southwestern Company) contends
that, even granting that the "offer of option" is
not supported by any consideration, that option
became binding on appellant(Atlantic Gulf)
when the appellee gave notice to it its
acceptance, and that having accepted it within
the period of option, the offer can no longer be
withdrawn and in any event such withdrawal is
ineffective. In support of this contention,
appellee invokes article 1324 of the Civil Code
which provides:
"ART. 1324. When the offerer has allowed the
offeree a certain period to accept, the offer may
be withdrawn at any time before acceptance by
communicating such withdrawal, except when
the option is founded upon consideration, as
something paid or promised."
Ruling: The petition is granted.
There is no question that under article 1479 of
the new Civil Code "an option to sell", or "a
promise to buy or to sell", as used in said article,
to be valid must be "supported by a
consideration distinct from the price." This is
clearly inferred from the context of said article
that a unilateral promise to buy or to sell, even if
accepted, is only binding if supported by a
consideration. In other words, "an accepted
unilateral promise" can only have a binding
effect if supported by a consideration, which
means that the option can still be withdrawn,
even if accepted, if the same is not supported by
any consideration. Here it is not disputed that
the option is without consideration. It can
therefore be withdrawn notwithstanding the
acceptance made of it by appellee.
CONTRACTS; OFFER AND ACCEPTANCE;
RULE ON WITHDRAWAL OF OFFER.
While it is true that under article 1324 of the
new Civil Code, the general rule regarding offer
and acceptance is that, when the offer or gives to
the offeree a certain period to accept, "the offer
may be withdrawn at any time before
acceptance" except when the option is founded
upon consideration this general rule must be
interpreted as modified by the provision of
article 1479 which applies to "a promise to buy
and sell" specifically. This rule requires that a
promise to sell to be valid must be supported by
a consideration distinct from the price, which
means that the option can still be withdrawn,
even if accepted, if the same is not supported
by any consideration.
We are not oblivious of the existence of
American authorities which hold that an offer,
once accepted, cannot be withdrawn, regardless
of whether it is supported or not by a
consideration (12 Am. Jur. 528). These
authorities, we note, uphold the general rule
applicable to offer and acceptance as contained
in our new Civil Code. But we are prevented
from applying them in view of the specific
provision embodied in article 1479. While under
the "offer of option" in question
appellant(Atlantic Gulf) has assumed a clear
obligation to sell its barge to appellee
(Southwestern Company) and the option has
been exercised in accordance with its terms, and
there appears to be no valid or justifiable reason
for appellant to withdraw its offer, this Court
cannot adopt a different attitude because the law
on the matter is clear. Our imperative duty is to
apply it unless modified by Congress.
Atkins, Kroll , and Co. v B. Cua Hian Tek
Facts: For its failure to deliver one thousand
cartons of sardines, which it had sold to B. Cua
Hian Tek, petitioner was sued, and after trial was
ordered by the Manila court of first instance to
pay damages, which on appeal was reduced by
the Court of Appeals to P3,240.15 representing
unrealized profits.
The court of first instance and the Court of
Appeals 1 found that B. Cua Hian Tek accepted
the offer unconditionally and delivered his letter
of acceptance Exh. B on September 21, 1951.
However, due to shortage of catch of sardines by
the packers in California, Atkins, Kroll & Co.,
Inc., failed to deliver the commodities it had
offered for sale. There are other details to which
reference shall not be made, as they touch the
question whether the acceptance had been
handed on time; and on that issue the Court of
Appeals definitely found for plaintiff.
Ruling: The petition is denied.
Petitioner, however, insists the offer was a mere
offer of option, because the "firm offer" Exh. A
was a continuing offer to sell until September
23, and "an option is nothing more than a
continuing offer" for a specified time
ART. 1324. When the offerer has allowed the
offeree a certain period to accept, the offer may
be withdrawn at any time before acceptance by
communicating such withdrawal, except when
the option is founded upon a consideration, as
something paid or promised." (n) (New Civil
Code.)
"Ordinarily an offer to buy or sell may be
withdrawn or countermanded before
acceptance, even though the offer provides that
it will not be withdrawn or countermanded, or
allows the offeree a certain time within which to
accept it, unless such provision or agreement in
supported by an independent consideration. . . ."
In our opinion, an option implies more than
that: it implies the legal obligation to keep the
offer open for the time specified. Yet the letter
Exh. A did not by itself produce the legal
obligation of keeping the offer open up to
September 23. It could be withdrawn before
acceptance, because it is admitted, there was no
consideration for it.
Furthermore an option is unilateral: a promise to
sell 3 at the price fixed whenever the offeree
should decide to exercise his option within the
specified time. After accepting the promise and
before he exercises his option, the holder of the
option is not bound to buy. He is free either to
buy or not to buy later. In this case, however,
upon accepting herein petitioner's offer a
bilateral promise to sell and to buy ensued, and
the respondent ipso facto assumed the
obligations of a purchaser. He did not just get
the right subsequently to buy or not to buy. It
was not a mere option then; it was bilateral
contract of sale.
OBLIGATION AND CONTRACTS; SALES;
OFFER TO SELL A DETERMINATE THING
FOR A PRICE CERTAIN; ACCEPTANCE OF
OFFER; EFFECT OF; LIABILITY OF THE
OFFEROR AND OFFEREE. The acceptance
of an offer to sell a determinate thing for a price
certain creates a bilateral contract to sell and to
but. The offeree, upon acceptance, ipso facto
assumes the obligations of a purchaser. On the
other hand, the offeror would be liable for
damages if he fails to deliver the thing he had
offered for sale.
OPTION WITHOUT CONSIDERATION. If
an option is given without, it is mere offer of
contract of sale, which is not binding until
accepted. If, however, acceptance is made before
a withdrawal, it constitute a binding contract of
sale, even though the option was not supported
by a sufficient consideration.
PLEADING AND PRACTICE; APPEAL;
CHANGE OF THEORY ON APPEAL NOT
PERMITTED. Where. a deliberately adopts a
certain theory, and the case is tried and decided
upon that theory in the court below, he will not
be permitted to change his theory on appeal.
We must therefore hold, as the lower courts have
held that there was a contract of sale between the
parties. And as no legal excuse has been proven,
the seller's failure to comply therewith gave
ground to an award for damages, which has been
fixed by the Court of Appeals at P3,240.15
amount which petitioner does not dispute in this
final instance
Sanchez v Rigos
Facts: In an instrument entitled "Option to
Purchase," executed on April 3, 1961,
defendant-appellant Severina Rigos "agreed,
promised and committed ... to sell" to plaintiff-
appellee Nicolas Sanchez for the sum of
P1,510.00 within two (2) years from said date, a
parcel of land situated in the barrios of Abar and
Sibot, San Jose, Nueva Ecija. It was agreed that
said option shall be deemed "terminated and
elapsed," if Sanchez shall fail to exercise his
right to buy the property" within the stipulated
period. On March 12, 1963, Sanchez deposited
the sum of Pl,510.00 with the CFI of Nueva
Ecija and filed an action for specific
performance and damages against Rigos for the
latters refusal to accept several tenders of
payment that Sanchez made to purchase the
subject land.
Defendant Rigos contended that the contract
between them was only a unilateral promise to
sell, and the same being unsupported by any
valuable consideration, by force of the New
Civil Code, is null and void." Plaintiff Sanchez,
on the other hand, alleged in his compliant that,
by virtue of the option under consideration,
"defendant agreed and committed to sell" and
"the plaintiff agreed and committed to buy" the
land described in the option. The lower court
rendered judgment in favor of Sanchez and
ordered Rigos to accept the sum Sanchez
judicially consigned, and to execute in his favor
the requisite deed of conveyance. The Court of
Appeals certified the case at bar to the Supreme
Court for it involves a question purely of law.
Ruling: The petition is granted
The Supreme Court affirmed the lower courts
decision. The instrument executed in 1961 is not
a "contract to buy and sell," but merely granted
plaintiff an "option" to buy, as indicated by its
own title "Option to Purchase." The option did
not impose upon plaintiff Sanchez the obligation
to purchase defendant Rigos' property. Rigos
"agreed, promised and committed" herself to sell
the land to Sanchez for P1,510.00, but there is
nothing in the contract to indicate that her
aforementioned agreement, promise and
undertaking is supported by a consideration
"distinct from the price" stipulated for the sale of
the land. The lower court relied upon Article
1354 of the Civil Code when it presumed the
existence of said consideration, but the said
Article only applies to contracts in general.
However, it is not Article 1354 but the Article
1479 of the same Code which is controlling in
the case at bar because the latters 2nd paragraph
refers to "sales" in particular, and, more
specifically, to "an accepted unilateral promise
to buy or to sell." Since there may be no valid
contract without a cause or consideration, the
promisor is not bound by his promise and may,
accordingly, withdraw it. Pending notice of its
withdrawal, his accepted promise partakes,
however, of the nature of an offer to sell which,
if accepted, results in a perfected contract of
sale. Upon mature deliberation, the Court
reiterates the doctrine laid down in the Atkins
case and deemed abandoned or modified the
view adhered to in the Southwestern Company
case.
CIVIL LAW; CONTRACTS; CONTRACT TO
BUY AND SELL; OPTION WITHOUT
CONSIDERATION; CASE AT BAR. Where
both parties indicated in the instrument in the
caption, as an "Option to Purchase," and under
the provisions thereof, the defendant "agreed,
promised and committed" herself to sell the land
therein described to the plaintiff for P1,510.00,
but there is nothing in the contract to indicate
that her aforementioned agreement, promise and
undertaking is supported by a consideration
"distinct from the price" stipulated for the sale of
the land, it is not a "contract to buy and sell." It
merely granted plaintiff an "option" to buy.
ARTICLES 1354 AND 1479, NEW CIVIL
CODE; APPLICABILITY. It should be noted
that: Article 1354 applies to contracts in general,
whereas the second paragraph of Article 1479
refers to "sales" in particular, and, more
specifically, to "an accepted unilateral promise
to buy or to sell."
REQUISITE OF A UNILATERAL PROMISE
IN ORDER TO BIND PROMISOR; BURDEN
OF PROOF REST UPON PROMISEE. In
order that a unilateral promise may be "binding"
upon the promisor, Article 1479 requires the
concurrence of a condition namely, that the
promise be "supported by a consideration
distinct from the price." Accordingly, the
promisee can not compel the promisor to
comply with the promise, unless the former
establishes the existence of said distinct
consideration. In other words, the promisee has
the burden of proving such consideration.
WHERE A UNILATERAL PROMISE TO SELL
GENERATED TO A BILATERAL CONTRACT
OF PURCHASE AND SALE; ARTICLES 1324
AND 1479, NCC., NO DISTINCTION. This
Court itself, in the case of Atkins, Kroll & Co.,
Inc. vs. Cua Hian Tek (102 Phil., 948), decided
later than Southwestern Sugar & Molasses Co.
vs. Atlantic & Pacific Co., 97 Phil., 249, saw no
distinction between Articles 1324 and 1479 of
the Civil Code and applied the former where a
unilateral promise to sell similar to the one sued
upon was involved, treating such promise as an
option which, although not binding as a contract
in itself for lack of a separate consideration,
nevertheless generated a bilateral contract of
purchase and sale upon acceptance. In other
words, since there may be no valid contract
without a cause or consideration promisor is not
bound by his promise and may, accordingly
withdraw it. Pending notice of its withdrawal,
his accepted promise partakes, however, of the
nature of an offer to sell which, if accepted,
results in a perfected contract of sale.
Equatorial Realty Dev. Inc v Mayfair Theater
Inc.
Facts: Mayfair Theater, Inc. was a lessee of
portions of a building owned by Carmelo &
Bauermann, Inc. Their lease contracts of 20
years (1. which covered a portion of the second
floor and mezzanine of a two-storey building
with about 1,610 square meters of floor area,
which respondent used as a movie house known
as Maxim Theater 2. two store spaces on the
ground floor and the mezzanine, with a
combined floor area of about 300 square meters
also used as a movie house Miramar Theater)
Lease contracts contained a provision granting
Mayfair a right of first refusal to purchase the
subject properties.
However, before the contracts ended, the subject
properties were sold for P11,300 by Carmelo to
Equatorial Realty Development, Inc.
This prompted Mayfair to file a case for the
annulment of the Deed of Absolute Sale between
Carmelo and Equatorial, specific performance
and damages.
In 1996, the Court ruled in favor of Mayfair.
Barely five months after Mayfair had submitted
its Motion for Execution, Equatorial filed an
action for collection of sum of money against
Mayfair claiming payment of rentals or
reasonable compensation for the defendants use
of the subject premises after its lease contracts
had expired.
Maxim Theater contract expired on May 31,
1987, while the Lease Contract covering the
premises occupied by Miramar Theater lapsed
on March 31, 1989.
The lower court debunked the claim of
Equatorial for unpaid back rentals, holding that
the rescission of the Deed of Absolute Sale in
the mother case did not confer on Equatorial any
vested or residual propriety rights, even in
expectancy.
It further ruled that the Court categorically
stated that the Deed of Absolute Sale had been
rescinded subjecting the present complaint to res
judicata.
Hence, Equatorial filed the present petition.
leases of real estate nowadays. The Court of
Issue: Whether Equatorial was the owner of the
subject property and could thus enjoy the fruits
or rentals therefrom
Ruling: The petition is denied.
CIVIL LAW; OBLIGATIONS AND
CONTRACTS; OPTION CONTRACT;
PARAGRAPH 8 OF THE LEASE CONTRACT
GRANTS TO MAYFAIR THE RIGHT OF
FIRST REFUSAL, NOT AN OPTION. We
agree with the respondent Court of Appeals that
the aforecited contractual stipulation provides
for a right of first refusal in favor of Mayfair. It
is not an option clause or an option contract. It is
a contract of a right of first refusal. Respondent
Court of Appeals correctly ruled that the said
paragraph 8 grants the right of first refusal to
Mayfair and is not an option contract. It also
correctly reasoned that as such, the requirement
of a separate consideration for the option, has no
applicability in the instant case. There is nothing
in the identical paragraphs "8" of the June 1,
1967 and March 31, 1969 contracts which would
bring them into the ambit of the usual offer or
option requiring an independent consideration.
An option is a contract granting a privilege to
buy or sell within an agreed time and at a
determined price. It is a separate and distinct
contract from that which the parties may enter
into upon the consummation of the option. It
must be supported by consideration. In the
instant case, the right of first refusal is an
integral part of the contracts of lease. The
consideration is built into the reciprocal
obligations of the parties. To rule that a
contractual stipulation such as that found in
paragraph 8 of the contracts is governed by
Article 1324 on withdrawal of the offer or
Article 1479 on promise to buy and sell would
render ineffectual or "inutile" the provisions on
right of first refusal so commonly inserted in
Appeals is correct in stating that Paragraph 8
was incorporated into the contracts of lease for
the benefit of Mayfair which wanted to be
assured that it shall be given the first crack or
the first option to buy the property at the price
which Carmelo is willing to accept. It is not
also correct to say that there is no
consideration in an agreement of right of first
refusal. The stipulation is part and parcel of
the entire contract of lease. The consideration
for the lease includes the consideration for the
right of first refusal. Thus, Mayfair is in effect
stating that it consents to lease the premises and
to pay the price agreed upon provided the lessor
also consents that, should it sell the leased
property, then, Mayfair shall be given the right
to match the offered purchase price and to buy
the property at that price. As stated in Vda. De
Quirino vs. Palarca, in reciprocal contract, the
obligation or promise of each party is the
consideration for that of the other.
SINCE PETITIONER IS A BUYER IN BAD
FAITH, THE SALE TO IT OF THE
PROPERTY IN QUESTION IS RESCISSIBLE.
Since Equatorial is a buyer in bad faith, this
finding renders the sale to it of the property in
question rescissible. We agree with respondent
Appellate Court that the records bear out the fact
that Equatorial was aware of the lease contracts
because its lawyers had, prior to the sale, studied
the said contracts. As such Equatorial cannot
tenably claim to be a purchaser in good faith,
and, therefore, rescission lies. Petitioners assert
the alleged impossibility of performance
because the entire property is indivisible
property. It was petitioner Carmelo which fixed
the limits of the property it was leasing out.
Common sense and fairness dictate that instead
of nullifying the agreement on that basis, the
stipulation should be given effect by including
the indivisible appurtenances in the sale of the
dominant portion under the right of first refusal.
A valid and legal contract where the ascendant
or the more important of the two parties is the
landowner should be given effect, if possible,
instead of being nullified on a selfish pretext
posited by the owner. Following the arguments
of petitioners and the participation of the owner
in the attempt to strip Mayfair of its rights, the
right of first refusal should include not only the
property specified in the contracts but also the
appurtenant portions sold to Equatorial which
are claimed by petitioners to be indivisible.
Carmelo acted in bad faith when it sold the
entire property to Equatorial without informing
Mayfair, a clear violation of Mayfair's rights.
While there was a series of exchanges of letters
evidencing the offer and counter-offers between
the parties, Carmelo abandoned the negotiations
without giving Mayfair full opportunity to
negotiate within the 30-day period.
THE RIGHT OF FIRST REFUSAL SHOULD
BE ENFORCED ACCORDING TO THE LAW
ON CONTRACTS INSTEAD OF THE CODAL
PROVISIONS ON HUMAN RELATIONS.
Under the Ang Yu Asuncion vs. Court of
Appeals decision, the Court stated that there was
nothing to execute because a contract over the
right of first refusal belongs to a class of
preparatory juridical relations governed not by
the law on contracts but by the codal provisions
on human relations. This may apply here if the
contract is limited to the buying and selling of
the real property. However, the obligation of
Carmelo to first offer the property to Mayfair is
embodied in a contract. It is Paragraph 8 on the
right of first refusal which created the
obligation. It should be enforced according to
the law on contracts instead of the panoramic
and indefinite rule on human relations. The latter
remedy encourages multiplicity of suits. There is
something to execute and that is for Carmelo to
comply with its obligation to the property under
the right of the first refusal according to the
terms at which they should have been offered
then to Mayfair, at the price when that offer
should have been made. Also, Mayfair has to
accept the offer. This juridical relation is not
amorphous nor is it merely preparatory.
Paragraph 8 of the two leases can be executed
according to their terms.
Asiasin vs Jalandoni
Facts: The parties agreed upon the sale of the
land there in question, they had in mind chiefly
the area and quality of the land, the subject of
the contract, as will be seen from the letter of
Asiain dated May 6, 1920, in which, among
other things, Purchase of land of Mr. Luis Asiain
and his wife Maria Cadenas, by B. Jalandoni,
containing 25 hectares more or less of land
bounded by property of the purchaser, with its
corresponding crop, estimated at 2,000 piculs,
the total value of which is 55 thousand. The
price is to be paid by paying 30 thousand at the
signing of the document, and 25 thousand within
one year with interest at the rate of 10 per cent.
In accordance with the foregoing memorandum
the deed of sale was executed in the City of
Iloilo, the parties stipulating among other things,
the following:
(1) That Luis Asiain does hereby promise and
bind himself to sell to Benjamin Jalandoni a
parcel of land of the hacienda Maria of the
aforesaid Luis Asiain, situated in the
municipality of La Carlota, Province of
Occidental Negros, P.I.
(2) That Benjamin Jalandoni does hereby
promise and bind himself to purchase the
aforesaid parcel of land in the sum of P55,000
upon certain conditions specified in a
memorandum signed by the parties which is in
the hands of Attorneys Padilla & Treas.
Jalandoni then took possession of the land,
milled the cane at La Carlota Central, from
which he realized 800 piculs and 23 cates of the
centrifugal sugar. And after he had secured from
Asiain the certificate of title, he had a surveyor
measure the land, which was found to contain
only 18 hectares, 54 centares, and 22 centares.
Jalandoni had paid P30,000 leaving an unpaid
balance of P25,000 of the purchase price of
P55,000 stipulated in the contract. Asiain sued to
recover the balance from Jalandoni.
The competent court declared the deed of sale
void, absolved the defendant from paying
P25,000 and ordered the parties to return what
they had received under the contract.Upon
appeal to the Supreme Court, the judgment was
affirmed on the ground that both parties had
acted by a mutual mistake.
ISSUE/S : Whether or not the seller and buyer
misrepresented each other or committed an
error?
LAWS: Article 1343 Misrepresentation made in
good faith is not fraudulent but may constitute
error
HOLDINGS
1. The judgment was affirmed on the ground
that both parties had acted by a mutual mistake.
2. The vendor undertook to deliver to the vendee
a parcel of land some 25 hectares in area and of
such a quality as to be able to produce 2,000
piculs of centrifugal sugar. The vendee, in turn,
agreed to buy said parcel of land with the
understanding that it contained that area and was
of the quality guaranteed by the vendor.
Inasmuch as the land had neither the area nor the
quality the vendor had assured the vendee it had,
it is clear the latter was entitled to rescind the
contract, upon the strength of the authorities
cited in the opinion of the court. We believe that
Jalandoni was entitled to rescind that contract,
inasmuch as the vendor did not deliver a parcel
of land of the area and quality stipulated in the
contract.
3. the judgment appealed from is reversed, and it
is held that the contract between the parties is
valid and binding upon them. Wherefore, the
defendants are absolved from the complaint
Ruling: The petition is denied.
CONTRACTS; VENDOR AND VENDEES;
RESCISSION OF CONTRACTS FOR ERROR
OR MISTAKE; ARTICLE 1471 OF THE CIVIL
CODE CONSTRUED. J thought he was
buying, and A thought he was selling, a tract of
land containing between 25 and 30 hectares,
with a standing crop capable of producing 2,000
piculs of sugar. As a matter of fact the tract of
land contained slightly more than 18 hectares
and produced 800 piculs of sugar. Held: Not a
contract of hazard but a contract for the sale of
land in gross which will be avoided for mutual
error or mistake.
If land is sold within boundaries with an
expression of the area and if the area is grossly
deficient, the vendee has option, either to have
the price reduced proportionately or to ask for
the rescission of the contract.
Mutual mistake of the contracting parties to a
sale in regard to the subject-matter of the sale
which is so material as to go the to go the
essence of the contract, is a ground for relief and
rescission. It has been held that, when the parties
saw the premises and knew the boundaries, it
cannot prevent relief when there was mutual
gross mistake as to quantity.
Equity will rescind a contract for the sale of
land which the boundaries given in the contract
contained, where the deficiency is material.
Sales in gross for the purpose of equitable
relief may be divided into four subordinate
classifications. One class concerns sales in
which it is evident from extraneous of the parties
that they did not contemplate or intend to risk
more than the usual rates of excess or deficiency
in similar cases, or than such as might
reasonably be calculated, or as within the range
of ordinary contingency. In sales of this class an
unreasonable surplus or deficiency may entitle
the injured party to equitable relief, unless he
has, by his conduct, waived or forfeited his
equity.
The phrase "more or less" or others of like
import, added to a statement of the quantity, can
only be considered as covering inconsiderable or
small differences one way or other. The use of
such phrases in designating the quantity covers
only a reasonable excess or deficiency.
Irureta Goyena vs. Tambunting ([1902], 1
Phil., 490), distinguished.
Heirs of William Sevilla vs Leopoldo Sevilla
Facts: Felisa Almirol co-owned Lot No. 653
with her sisters Filomena Almirol de Sevilla,
deceased, and Honorata Almirol. Her 1/3
undivided share in said lot was increased by 1/2
when she and Filomena inherited the 1/3 share
of their sister Honorata after the latter's death.
Felisa died single and without issue on August 8,
1986. On June 21, 1990, petitioners, heirs of
Filomena, sought the annulment of the two
deeds executed by Felisa during her lifetime.
The first deed executed on August 8, 1986 was
denominated as "Donation Inter Vivos" whereby
Felisa ceded to her nephew respondent Leopoldo
Sevilla, son of Filomena, her 1/2 undivided
share in Lot 653, which was accepted by
Leopoldo in the same document. The second
document was executed on September 3, 1986
denominated as the Deed of Extra-Judicial
Partition dividing the share of Honorata to Felisa
and to the heirs of Filomena. Petitioners alleged
that the Deed of Donation was tainted with fraud
because Felisa Almirol, who was then 81 years
of age, was seriously ill and of unsound mind at
the time of execution thereof; and that the Deed
of Extra-judicial Partition was void because it
was executed without their knowledge and
consent. Respondents, however, denied
petitioners' allegations. The trial court upheld the
validity of the Deed of Donation, but declared
the Deed of Extra-judicial Partition
unenforceable. On appeal, the Court of Appeals
affirmed in toto the assailed decision of the trial
court. Hence, this petition.
Ruling: The petition is denied.
The Supreme Court sustained the validity of the
Deed of Donation. According to the Court, the
self-serving testimonies of the petitioners were
vague on what acts of Leopoldo Sevilla
constituted fraud and undue influence and on
how these acts vitiated the consent of Felisa
Almirol. It held that fraud and undue influence
that vitiated a party's consent must be
established by full, clear and convincing
evidence, otherwise, the latter's presumed
consent to the contract prevails. Moreover,
petitioners failed to show proof why Felisa
should be held incapable of exercising sufficient
judgment in ceding her share to respondent
Leopoldo. The Court consistently applied the
ancient rule that if the plaintiff, upon whom rests
the burden of proving his cause of action, fails to
show in a satisfactory manner facts on which he
bases his claim, the defendant is under no
obligation to prove his exception or defense.
The Court further ruled that the Deed of Extra-
judicial Partition was void ab initio and not
merely unenforceable. According to the Court,
there was no consent given to the execution of
the deed, and therefore, there is no contract to
speak of since Felisa had no legal capacity to
give consent to the Deed of Partition at the time
of its execution inasmuch as she was neither the
owner nor the authorized representative of
respondent Leopoldo to whom she previously
transmitted ownership of her undivided share in
Lot No. 653.
CIVIL LAW; MODES OF ACQUIRING
OWNERSHIP; DONATION; CAPACITY OF
DONOR SHALL BE DETERMINED AT TIME
OF THE MAKING OF THE DONATION;
ATTENDANCE OF A VICE OF CONSENT
RENDERS THE DONATION VOIDABLE.
Donation is an act of liberality whereby a person
disposes gratuitously of a thing or right in favor
of another who accepts it. Under Article 737 of
the Civil Code, the donor's capacity shall be
determined as of the time of the making of the
donation. Like any other contract, an agreement
of the parties is essential, and the attendance of a
vice of consent renders the donation voidable.
COMPREHENDS ALL THE PRESENT
PROPERTY OF THE DONOR. In the case at
bar, there is no question that at the time Felisa
Almirol executed the deed of donation she was
already the owner of 1/2 undivided portion of
Lot No. 653. Her 1/3 undivided share therein
was increased by 1/2 when she and Filomena
inherited the 1/3 share of their sister Honorata
after the latter's death. Hence, the 1/2 undivided
share of Felisa in Lot No. 653 is considered a
present property which she can validly dispose
of at the time of the execution of the deed of
donation.
DEED OF DONATION INTER VIVOS;
FRAUD AND UNDUE INFLUENCE THAT
VITIATED A PARTY'S CONSENT MUST BE
ESTABLISHED BY FULL, CLEAR AND
CONVINCING EVIDENCE, OTHERWISE,
THE LATTER'S PRESUMED CONSENT TO
THE CONTRACT PREVAILS; CASE AT BAR.
Ei incumbit probatio qui dicit, non qui negat.
He who asserts, not he who denies, must prove.
We have consistently applied the ancient rule
that if the plaintiff, upon whom rests the burden
of proving his cause of action, fails to show in a
satisfactory manner facts on which he bases his
claim, the defendant is under no obligation to
prove his exception or defense. In the instant
case, the self-serving testimony of the
petitioners are vague on what acts of Leopoldo
Sevilla constituted fraud and undue influence
and on how these acts vitiated the consent of
Felisa Almirol. Fraud and undue influence that
vitiated a party's consent must be established by
full, clear and convincing evidence, otherwise,
the latter's presumed consent to the contract
prevails. Neither does the fact that the donation
preceded the partition constitute fraud. It is not
necessary that partition should first be had
because what was donated to Leopoldo was the
1/2 undivided share of Felisa in Lot No. 653.
Moreover, petitioners failed to show proof why
Felisa should be held incapable of exercising
sufficient judgment in ceding her share to
respondent Leopoldo. As testified by the notary
public who notarized the Deed of Donation,
Felisa confirmed to him her intention to donate
her share in Lot No. 653 to Leopoldo. He
stressed that though the donor was old, she was
of sound mind and could talk sensibly.
Significantly, there is nothing in the record that
discloses even an attempt by petitioners to rebut
said declaration of the notary public. Clearly,
therefore, the courts below did not err in
sustaining the validity of the deed of donation.
DONATION INTER VIVOS; IMMEDIATELY
OPERATIVE AND FINAL. In the case at
bar, at the time Felisa executed the deed of
extra-judicial partition dividing the share of her
deceased sister Honarata between her and the
heirs of Filomena Almirol de Sevilla; she was no
longer the owner of the 1/2 undivided portion of
Lot No. 653, having previously donated the
same to respondent Leopoldo Sevilla who
accepted the donation in the same deed. A
donation inter vivos, as in the instant case, is
immediately operative and final. As a mode of
acquiring ownership, it results in an effective
transfer of title over the property from the donor
to the donee and the donation is perfected from
the moment the donor knows of the acceptance
by the donee. And once a donation is accepted,
the donee becomes the absolute owner of the
property donated.
SUCCESSION; PARTITION; DEED OF
EXTRAJUDICIAL PARTITION; NO
CONSENT, AND CONSEQUENTLY, NO
CONTRACT, WHERE THE AGREEMENT IS
ENTERED INTO BY ONE IN BEHALF OF
ANOTHER WHO HAS NEVER GIVEN HIM
AUTHORIZATION THEREFOR UNLESS HE
HAS BY LAW A RIGHT TO REPRESENT
THE LATTER. Anent the Deed of Extra-
judicial Partition, we find that the same is void
ab initio and not merely unenforceable. In Delos
Reyes v. Court of Appeals, which is a case
involving the sale of a lot by a person who is
neither the owner nor the legal representative,
we declared the contract void ab initio. It was
held that one of the requisites of a valid contract
under Article 1318 of the Civil Code is the
consent and the capacity to give consent of the
parties to the contract. The legal capacity of the
parties is an essential element for the existence
of the contract because it is an indispensable
condition for the existence of consent. There is
no effective consent in law without the capacity
to give such consent. In other words, legal
consent presupposes capacity. Thus, there is said
to be no consent, and consequently, no contract
when the agreement is entered into by one in
behalf of another who has never given him
authorization therefor unless he has by law a
right to represent the latter.
CONSIDERED VOID AB INITIO ABSENT
CONSENT TO THE EXECUTION THEREOF.
Evidently, Felisa did not possess the
capacity to give consent to or execute the deed
of partition inasmuch as she was neither the
owner nor the authorized representative of
respondent Leopoldo to whom she previously
transmitted ownership of her undivided share
in Lot No. 653. Considering that she had no
legal capacity to give consent to the deed of
partition, it follows that there is no consent
given to the execution of the deed, and
therefore, there is no contract to speak of. As
such, the deed of partition is void ab initio,
hence, not susceptible of ratification.
REMEDIAL LAW; EVIDENCE; FACTUAL
FINDINGS OF THE TRIAL COURT, IF
AFFIRMED BY THE COURT OF APPEALS,
ARE ENTITLED TO GREAT RESPECT.
Petitioners, however, insist that respondent
Leopoldo Sevilla employed fraud and undue
influence on the person of the donor. This
argument involves appreciation of the evidence.
The settled rule is that factual findings of the
trial court, if affirmed by the Court of Appeals,
are entitled to great respect. There are
exceptional circumstances when findings of fact
of lower courts may be set aside but none is
present in the case at bar.
Spouses Theis v Court of Appeals
Facts: Private respondent Calsons Development
Corporation is the owner of three (3) adjacent
parcels of land covered by Transfer Certificate
of Title (TCT) Nos. 15515 (parcel no. 1 in the
location map), 15516 (parcel no. 2) and 15684
(parcel no. 3), with the area of 1,000 square
meters, 226 square meters and 1,000 square
meters, respectively. All three parcels of land are
situated along Ligaya Drive, Barangay
Francisco, Tagaytay City. Adjacent to parcel no.
3, which is the lot covered by TCT No. 15684 is
a vacant lot denominated as parcel no. 4.
In 1985, private respondent constructed a two-
storey house on parcel no. 3. The lots covered by
TCT No. 15515 and TCT No. 15516, which are
parcel no. 1 and parcel no. 2, respectively,
remained idle
However, in a survey conducted in 1985, parcel
no. 3, where the two-storey house stands, was
erroneously indicated to be covered not by TCT
No. 15684 but by TCT No. 15515, while the two
idle lands (parcel nos. 1 and 2) were mistakenly
surveyed to be located on parcel no. 4 instead
(which was not owned by private respondent)
and covered by TCT Nos. 15516 and 15684
On October 26, 1987, unaware of the mistake by
which private respondent appeared to be the
owner of parcel no. 4 as indicated in the
erroneous survey, and based on the erroneous
information given by the surveyor that parcel no.
4 is covered by TCT No. 15516 and 15684,
private respondent, through its authorized
representative, one Atty. Tarcisio S. Calilung,
sold said parcel no. 4 to petitioners.

In the early part of 1990, petitioners returned to
the Philippines. When they went to Tagaytay to
look over the vacant lots and to plan the
construction of their house thereon, they
discovered that parcel no. 4 was owned by
another person. They also discovered that the
lots actually sold to them were parcel nos. 2 and
3 covered by TCT Nos. 15516 and 15684.
respectively. Parcel no. 3, however, could not
have been sold to the petitioners by the private
respondents as a two-storey house, the
construction cost of which far exceeded the price
paid by the petitioners, had already been built
thereon even prior to the execution of the
contract between the disputing parties.
To remedy the mistake, private respondent
offered parcel nos. 1 and 2 covered by TCT Nos.
15515 and 15516, respectively, as these two
were precisely the two vacant lots which private
respondent owned and intended to sell when it
entered into the transaction with petitioners.
Petitioners adamantly rejected the good faith
offer. They refused to yield to reason and
insisted on taking parcel no. 3, covered by TCT
No. 155864 and upon which a two-storey house
stands, in addition to parcel no. 2, covered by
TCT No. 15516, on the ground that these TCTs
have already been cancelled and new ones
issued in their name
Such refusal of petitioners prompted private
respondent to make another offer, this time, the
return of an amount double the price paid by
petitioners. Petitioners still refused and
stubbornly insisted in their stand.
Private respondent was then compelled to file an
action for annulment of deed of sale and
reconveyance of the properties subject thereof 1
in the Regional Trial Court.
The trial court rendered judgment in favor of
private respondent. Identifying the core issue in
the instant controversy to be the voidability of
the contract of sale between petitioners and
private respondent on the ground of mistake, the
trial court annulled said contract of sale after
finding that there was indeed a mistake in the
identification of the parcels of land intended to
be the subject matter of said sale
Aggrieved by the decision of the trial court,
petitioners sought its reversal 4 from respondent
Court of Appeals. 5 Respondent court, however,
did not find the appeal meritorious and
accordingly affirmed 6 the trial court decision
Ruling: The petition is denied.
Art. 1390 of the New Civil Code provides:
"Art. 1390. The following contracts are voidable
or annullable, even though there may have been
no damage to the contracting parties:
(1) . . . (2) Those where the consent is
vitiated by mistake, violence,
intimidation, undue influence, or fraud.
In the case at bar, the private respondent
obviously committed an honest mistake in
selling parcel no. 4. As correctly noted by the
Court of Appeals, it is quite impossible for said
private respondent to sell the lot in question as
the same is not owned by it. The good faith of
the private respondent is evident in the fact that
when the mistake was discovered, it
immediately offered two other vacant lots to the
petitioners or to reimburse them with twice the
amount paid. That petitioners refused either
option left the private respondent with no other
choice but to file an action for the annulment of
the deed of sale on the ground of mistake. As
enunciated in the case of Mariano vs. Court of
Appeals: "A contract may be annulled where the
consent of one of the contracting parties was
procured by mistake, fraud, intimidation,
violence, or undue influence."
Art. 1331 of the New Civil Code provides for
the situations whereby mistake may invalidate
consent. It states:
"Art. 1331. In order that mistake may invalidate
consent, it should refer to the substance of the
thing which is the object of the contract, or to
those conditions which have principally moved
one or both parties to enter into the contract."
The petitioners cannot be justified in their
insistence that parcel no. 3, upon which private
respondent constructed a two-storey house, be
given to them in lieu of parcel no. 4. The cost of
construction in 1985 for the said house
(P1,500,000.00) far exceeds the amount paid by
the petitioners to the private respondent
(P486,000.00). Moreover, the trial court, in
questioning private respondent's witness, Atty.
Tarciso Calilung (who is also its authorized
representative) clarified that parcel no. 4, the lot
mistakenly sold, was a vacant lot:
Thus, to allow the petitioners to take parcel no. 3
would be to countenance unjust enrichment.
Considering that petitioners intended at the
outset to purchase a vacant lot, their refusal to
accept the offer of the private respondent to give
them two (2) other vacant lots in exchange, as
well as their insistence on parcel no. 3, which is
a house and lot, is manifestly unreasonable. As
held by this Court in the case of Security Bank
and Trust Company v. Court of Appeals:
"Hence, to allow petitioner bank to acquire the
constructed building at a price far below its
actual construction cost would undoubtedly
constitute unjust enrichment for the bank to the
prejudice of the private respondent. Such unjust
enrichment, as previously discussed, is not
allowed by law."
Alcasid v CA and RUFINA L.
LIM,respondents
Facts: Petitioner is one of the co-owners of two
parcels of land located in Calamba, Laguna.
Private respondent offered to purchase from
petitioner and her co-owners the above-
mentioned property. Petitioner was willing to
sell her share for P4,500,000.00 and only if all
her co-owners would sell their respective shares
of the said land
Petitioner engaged the services of Atty. Antonio
A. Fernandez for the purpose of negotiating the
sale, without knowing that he was also
representing private respondent.
On March 4, 1990, petitioner signed a Deed of
Sale drafted by Atty. Fernandez. Subsequently,
petitioner learned that the other co-owners did
not agree to sell their shares over the subject
property
On November 4, 1990, petitioner filed a
complaint in the Regional Trial Court, Branch
34, Calamba, Laguna, for annulment of the
contract of sale and damages with a prayer for
temporary restraining order or writ of
preliminary injunction against private
respondent.
Private respondent filed a motion to dismiss on
the grounds that the complaint stated no cause of
action. The trial court denied the motion to
dismiss.
On August 20, 1991, a motion to declare private
respondent in default was filed by petitioner.
This was granted by the trial court.
Private respondent appealed the said orders of
the trial court to the Court of Appeals, which
reversed the decision of the trial court and held
that the complaint stated no cause of action.
Hence, this petition.
Petitioner alleges that her complaint for
annulment of contract is based upon fraud,
mistake and undue influence which vitiated her
consent. According to her, were it not for the
misrepresentation of private respondent and
Atty. Fernandez that her co-owners had agreed
to sell their share to private respondent,
petitioner would not have agreed to sell her
share.
Private respondent, on the other hand, claims the
complaint is in the nature of a malpractice suit
against Atty. Fernandez and not against her
Ruling: The petition is denied.
On the matter of fraud, Article 1338 of the Civil
Code of the Philippines provides:
"There is fraud when, through insidious words
or machinations 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. 1338, Civil Code)
In order that fraud may vitiate consent and be a
cause for annulment of contract, the following
must concur:
1.) It must have been employed by one
contracting party upon the other (Art. 1342 and
134);
2.) It must have induced the other party to enter
into the contract (Art. 1338);
3.) It must have been serious (Art. 1344);
4.) It must have resulted in damage and injury to
the party seeking annulment (Tolentino, IV
Commentaries on the Civil Code of the
Philippines, 507 [1991 ed])
As to the alleged mistake, Article 1331 of the
Civil Code of the Philippines provides:
"In order that mistake may invalidate consent, it
should refer to the substance of the thing which
is the object of the contract, or to those
conditions which have principally moved one or
both parties to enter into the contract."
To invalidate consent, the error must be real and
not one that could have been avoided by the
party alleging it. The error must arise from facts
unknown to him. He cannot allege an error
which refers to a fact known to him or which he
should have known by ordinary diligent
examination of the facts. An error so patent and
obvious that nobody could have made it, or one
which could have been avoided by ordinary
prudence, cannot be invoked by the one who
made it in order to annul his contract (Tolentino,
supra at pp. 486-487).
Petitioner could have avoided the alleged
mistake had she exerted efforts to verify from
her co-owners if they really consented to sell
their respective shares.
As to undue influence, Article 1337 of the Civil
Code of the Philippines provides:
"There is undue influence when a person takes
improper advantage of his power over the will
of another, depriving the latter of a reasonable
freedom of choice. The following circumstances
shall be considered: the confidential, family,
spiritual and other relations between the
parties, or the fact that the person alleged to
have been unduly influenced was suffering from
mental weakness, or was ignorant or in
financial distress."
Undue influence, therefore, is any means
employed upon a party which, under the
circumstances, he could not well resist and
which controlled his volition and induced him to
give his consent to the contract, which otherwise
he would not have entered into. It must in some
measure destroy the free agency of a party and
interfere with the exercise of that independent
discretion which is necessary for determining
the advantages or disadvantages of a proposed
contract (Tolentino,supra at p. 501). If a
competent person has once assented to a contract
freely and fairly, he is bound thereby.
The finding of the Court of Appeals that
petitioner executed the contract of her own free
will and choice and not from duress is fully
supported by the evidence. Such finding should
not be disturbed (Martinez v. Hongkong &
Shanghai Bank, 15 Phil. 252 [1910]). LLjur
Private respondent did not commit any wrongful
act or omission which violated the primary right
of petitioner. Hence, petitioner did not have a
cause of action (State Investment House, Inc. v.
Court of Appeals, 206 SCRA 348 [1992]).
DBP v CA , PHILIPPINE UNITED
FOUNDRY AND MACHINERY CORP. and
PHILIPPINE IRON MANUFACTURING
CO., INC., respondents.
Facts: Sometime in March 1968, the
Development Bank of the Philippines (DBP)
granted to respondents Philippine United
Foundry and Machineries Corporation and
Philippine Iron Manufacturing Company, Inc. an
industrial loan in the amount of P2,500,000
consisting of P500,000 in cash and P2,000,000
in DBP Progress Bonds. The loan was evidenced
by a promissory note 2 dated June 26, 1968 and
secured by a mortgage 3 executed by
respondents over their present and future
properties such as buildings, permanent
improvements, various machineries and
equipment for manufacture.
Subsequently, DBP granted to respondents
another loan in the form of a five-year revolving
guarantee amounting to P1,700,000 which was
reflected in the amended mortgage contract 4
dated November 20, 1968. According to
respondents, the loan guarantee was extended to
them when they encountered difficulty in
negotiating the DBP Progress Bonds.
Respondents were only able to sell the bonds in
1972 or about five years from its issuance for an
amount that was 25% less than its face value
On September 10, 1975, the outstanding
accounts of respondents with DBP were
restructured in view of their failure to pay
The restructured loan was evidenced by a new
promissory note 6 dated November 12, 1975
payable within seven years, with partial
payments on the principal to be made beginning
on the third year plus a 12% interest per annum
payable every month
On the other hand, all accrued interest and
charges due amounting to P3,074,672.21 were
denominated as "Notes Taken for Interests" and
evidenced by a separate promissory note 8 dated
November 12, 1975.
Notwithstanding the restructuring, respondents
were still unable to comply with the terms and
conditions of the new promissory notes. As a
result, respondents requested DBP to refinance
the matured obligation. The request was granted
by DBP, pursuant to which three foreign
currency denominated loans sourced from DBP's
own foreign borrowings were extended to
respondents on various dates between 1980 and
1981. 13 These loans were secured by
mortgages 14 on the properties of respondents
and were evidenced by the following promissory
notes.
Under the two notes, respondents also bound
themselves to pay bank advances for insurance
premiums, taxes, litigation and acquired assets
expenses and other out-of-pocket expenses not
covered by inspection and processing fees as
follows
Apart from the interest, the promissory notes
imposed additional charges and penalties if
respondents defaulted on their payments. The
notes dated December 11, 1980 and June 5, 1981
specifically provided for a 2% annual service fee
computed on the outstanding principal balance
of the loans as well as the following additional
interest and penalty charges on the loan
amortizations or portions in arrears
The note dated December 16, 1981, on the other
hand, provided for the interest and penalty
charges on loan amortizations or portions of it in
arrears
However, the foreclosure proceedings were
suspended on twelve separate occasions from
October 1985 to December 1986 upon the
representations of respondents that a financial
rehabilitation fund arising from a contract with
the military was forthcoming. On December 23,
1986, before DBP could proceed with the
foreclosure proceedings, respondents instituted
the present suit for injunction
On January 6, 1987, the complaint was amended
to include the annulment of mortgage. On
December 15, 1987, the complaint was amended
a second time to implead the Asset Privatization
Trust (APT) (now the Privatization and
Management Office [PMO]) 25 as a party
defendant
Respondents' cause of action arose from their
claim that DBP was collecting from them an
unconscionable if not unlawful or usurious
obligation of P62,954,473.68 as of September
30, 1985, out of a mere P6,200,000 loan.
Primarily, respondents contended that the
amount claimed by DBP is erroneous since they
have remitted to DBP approximately P5,300,000
to repay their original debt. Additionally,
respondents assert that since the loans were
procured for the Self-Reliant Defense Posture
Program of the Armed Forces of the Philippines
(AFP), the latter's breach of its commitment to
purchase military armaments and equipment
from respondents amounts to a failure of
consideration that would justify the annulment
of the mortgage on respondents' properties.
Both DBP and PMO appealed the decision to the
CA. The CA, however, affirmed the decision of
the RTC. Aggrieved, DBP filed with the CA a
motion for a reconsideration 28dated May 26,
1999, which motion has not been resolved by
the CA to date. PMO, on the other hand, sought
relief directly with the Court by filing this
present petition
Issue:
I. THE CA DISREGARDED THE BINDING
AND OBLIGATORY FORCE OF
CONTRACTS WHICH IS THE LAW
BETWEEN THE PARTIES.
xxx xxx xxx
II. THE CA VIOLATED THE PRINCIPLE OF
LAW THAT CONTRACTS TAKE EFFECT
ONLY BETWEEN THE PARTIES AS IT
LINKED RESPONDENTS' CONTRACTS
WITH THE AFP WITH RESPONDENTS'
LOANS WITH DBP.
xxx xxx xxx
III. THE CA ERRED IN PERMANENTLY
ENJOINING THE DBP AND APT FROM
FORECLOSING THE MORTGAGES ON
RESPONDENTS' PROPERTIES THEREBY
VIOLATING THE PROVISIONS OF
P[RESIDENTIAL] D[ECREE NO.] 385 AND
PROCLAMATION NO. 50.
On the first issue, PMO asserts that the CA erred
in declaring that the interest rate on the loans
had been unilaterally increased by DBP despite
the evidence on record (consisting of promissory
notes and testimonies of witnesses for DBP)
showing otherwise. PMO also claims that the
CA failed to take into account the effect of the
restructuring and refinancing of the loans
granted by DBP upon the request of respondents
Anent the second issue, PMO argues that the
failure of the AFP to honor its commitment to
respondents should have had no bearing on
respondents' loan obligations to DBP as DBP
was not a party to their contract. Hence, PMO
contends that the CA ran afoul of the principle
of relativity of contracts when it ruled that no
further interest could be imposed on the loans.
Finally, PMO claims that DBP, being a
government financial institution, could not be
enjoined by any restraining order or injunction,
whether permanent or temporary, from
proceeding with the foreclosure proceedings
mandated under Section 1 of Presidential Decree
No. 385.
Ruling: The petition is granted.
As mentioned, the RTC ultimately sustained
respondents and made permanent the writ of
preliminary injunction it issued to enjoin the
foreclosure proceedings. Respondents were
directed to pay only the amount of the original
loans, that is, P6.2 Million, with the P5.3
Million which they previously paid to be applied
as interest and penalties. The RTC did not find
respondents culpable for defaulting on their loan
obligations and passed the blame to the AFP for
not fulfilling its contractual obligations to
respondents.
The CA affirmed the RTC decision and agreed
that DBP cannot be allowed to foreclose on the
mortgage securing respondents' loan. The CA
surmised that since DBP failed to adequately
explain how it arrived at P62.9 Million, the
original loan amount of P6.2 Million could only
have been "blatantly enlarged or erroneously
computed" by DBP through the imposition of an
"unconscionable rate of interest and charges."
The CA also agreed with the trial court that there
was no consideration for the mortgage contracts
executed by respondents considering the
proceeds from the alleged foreign currency loans
were never actually received by the latter. This
view is untenable and lacks foundation.
As correctly pointed out by PMO, the original
loans alluded to by respondents had been
refinanced and restructured in order to extend
their maturity dates. Refinancing is an exchange
of an old debt for a new debt, as by negotiating a
different interest rate or term or by repaying the
existing loan with money acquired from a new
loan. 36 On the other hand, restructuring, as
applied to a debt, implies not only a
postponement of the maturity 37 but also a
modification of the essential terms of the debt
(e.g., conversion of debt into bonds or into
equity, 38 or a change in or amendment of
collateral security) in order to make the account
of the debtor current

The reason respondents seek to be excused from
fulfilling their obligation under the second batch
of promissory notes is that first, they allegedly
had "no choice" but to sign the documents in
order to have the loan restructured and thus avert
the foreclosure of their properties, and second,
they never received any proceeds from the same.
This reasoning cannot be sustained.
Respondents' allegation that they had no
"choice" but to sign is tantamount to saying that
DBP exerted undue influence upon them. The
Court is mindful that the law grants an
aggrieved party the right to obtain the
annulment of a contract on account of factors
such as mistake, violence, intimidation, undue
influence and fraud which vitiate consent.
However, the fact that the representatives were
"forced" to sign the promissory notes and
mortgage contracts in order to have respondents'
original loans restructured and to prevent the
foreclosure of their properties does not amount
to vitiated consent
The financial condition of respondents may have
motivated them to contract with DBP, but undue
influence cannot be attributed to DBP simply
because the latter had lent money. The concept
of undue influence is defined as follows:
There is undue influence when a person takes
improper advantage of his power over the will
of another, depriving the latter of a reasonable
freedom of choice. The following circumstances
shall be considered: the confidential, family,
spiritual and other relations between the parties
or the fact that the person alleged to have been
unduly influenced was suffering from mental
weakness, or was ignorant or in financial
distress.
For undue influence to be present, the influence
exerted must have so overpowered or subjugated
the mind of a contracting party as to destroy the
latter's free agency, making such party express
the will of another rather than its own. The
alleged lingering financial woes of a debtor
per se cannot be equated with the presence of
undue influence.
Corollarily, the threat to foreclose the mortgage
would not in itself vitiate consent as it is a threat
to enforce a just or legal claim through
competent authority. It bears emphasis that the
foreclosure of mortgaged properties in case of
default in payment of a debtor is a legal remedy
given by law to a creditor. 46 In the event of
default by the mortgage debtor in the
performance of the principal obligation, the
mortgagee undeniably has the right to cause the
sale at public auction of the mortgaged property
for payment of the proceeds to the mortgagee
It also bears emphasis that the second set of
promissory notes executed by respondents must
govern the contractual relation of the parties for
they unequivocally express the terms and
conditions of the parties' loan agreement, which
are binding and conclusive between them.
Parties are free to enter into stipulations, clauses,
terms and conditions they may deem convenient;
that is, as long as these are not contrary to law,
morals, good customs, public order or public
policy. 48 With the signatures of their duly
authorized representatives on the subject notes
and mortgage contracts, the genuineness and due
execution of which having been admitted, 49
respondents in effect freely and voluntarily
affirmed all the concurrent rights and obligations
flowing therefrom. Accordingly, respondents are
barred from claiming the contrary without
transgressing the principle of estoppel and
mutuality of contracts. Contracts must bind both
contracting parties; their validity or compliance
cannot be left to the will of one of them.
At this juncture, it must be emphasized that a
party to a contract cannot deny its validity after
enjoying its benefits without outrage to one's
sense of justice and fairness. Where parties have
entered into a well-defined contractual
relationship, it is imperative that they should
honor and adhere to their rights and obligations
as stated in their contracts because obligations
arising from it have the force of law between the
contracting parties and should be complied with
in good faith
Thus, respondents cannot be absolved from their
loan obligations on the basis of the failure of the
AFP to fulfill its commitment under the
manufacturing agreement 53entered by them
allegedly upon the prompting of certain AFP and
DBP officials. While it is true that the DBP
representatives appear to have been aware that
the proceeds from the sale to the AFP were
supposed to be applied to the loan, the records
are bereft of any proof that would show that
DBP was a party to the contract itself or that
DBP would condone respondents' credit if the
contract did not materialize. Even assuming that
the AFP defaulted in its obligations under the
manufacturing agreement, respondents' cause of
action lies with the AFP, and not with DBP or
PMO. The loan contract of respondents is
separate and distinct from their manufacturing
agreement with the AFP.
Incidentally, the CA sustained the validity of a
loan obligation but annulled the mortgage
securing it on the ground of failure of
consideration. This is erroneous. A mortgage is a
mere accessory contract and its validity would
depend on the validity of the loan secured by it.
54 Hence, the consideration of the mortgage
contract is the same as that of the principal
contract from which it receives life, and without
which it cannot exist as an independent contract.
55 The debtor cannot escape the consequences
of the mortgage contract once the validity of the
loan is upheld
Again, as a rule, courts cannot intervene to save
parties from disadvantageous provisions of their
contracts if they consented to the same freely
and voluntarily. 56 Thus, respondents cannot
now protest against the fact that the loans were
denominated in foreign currency and were to be
paid in its peso equivalent after they had already
given their consent to such terms. 57 There is no
legal impediment to having obligations or
transactions paid in a foreign currency as long as
the parties agree to such an arrangement
Due to the variable factors mentioned above, it
cannot be determined whether DBP did in fact
apply an interest rate higher than what is
prescribed under the law. It appears on the
records, however, that DBP attempted to explain
how it arrived at the amount stated in the
Statement of Account 63 it submitted in support
of its claim but was not allowed by the trial
court to do so citing the rule that the best
evidence of the same is the document itself. 64
DBP should have been given the opportunity to
explain its entries in the Statement of Account in
order to place the figures that were cited in the
proper context. Assuming the interest applied to
the principal obligation did, in fact, exceed 12%,
in addition to the other penalties stipulated in the
note, this should be stricken out for being
usurious.
In usurious loans, the entire obligation does not
become void because of an agreement for
usurious interest; the unpaid principal debt still
stands and remains valid but the stipulation as to
the interest is void. The debt is then considered
to be without stipulation as to the interest. In the
absence of an express stipulation as to the rate of
interest, the legal rate of 12% per annum shall be
imposed.
Lee v CA
Facts: This is a petition for review on certiorari
to set aside the decision of the Court of Appeals
dated June 29, 1989 which reversed the decision
of the Regional Trial Court (RTC), National
Capital Judicial Region, Branch 129 at Caloocan
City, Metro Manila, and reinstated as well as
affirmed in toto the decision of the Metropolitan
Trial Court (MTC), Branch 2, same city. The
RTC decision found the petitioner guilty of the
crime of light coercion,
The complainant Mana Pelagia Paulino de Chin,
23 years old was fetched from her house at 112
BLISS Site, 8th Avenue, Caloocan City by
Atanacio Lumba, a bank employee, upon the
instruction of the petitioner
Petitioner Branch Manager Francis Lee of
Pacific Banking Corporation (hereinafter
referred to as bank). Upon arriving at the office
of Pacific Banking Corporation located at
Caloocan City, petitioner Francis Lee did not
attend to her immediately. After an hour later,
the petitioner confronted the complainant about
a forged Midland National Bank Cashier Check
No. 3528794, which the latter allegedly
deposited in the account of Honorio Carpio.
During the said confrontation, the petitioner
Francis Lee was shouting at her with piercing
looks and threatened to file charges against her
unless and until she returned all the money
equivalent of the subject cashier check.
Accordingly, the complainant was caused to sign
a prepared withdrawal slip, and later, an affidavit
prepared by the bank's lawyer, where she was
made to admit that she had swindled the bank
and had return the money equivalent of the
spurious check. During her stay at the said bank,
the complainant, who was five (5) months in the
family way, was watched by the bank's
employees and security guards. It was about six
o'clock in the afternoon of the same day when
the complainant was able to leave the bank
premises
Issue: Whether or not the acts of petitioner in
simply "shouting at the complainant with
piercing looks" and "threats to file charges
against her" are sufficient to convict him of the
crime of grave coercion
Ruling: The petition is granted.
Considering that the present case does not
involve violence but intimidation, the provisions
of Article 1335 of the New Civil Code on
intimidation are relevant. It states:
"Art. 1335. . . .
"There is intimidation when one of the
contracting parties is compelled by a reasonable
and well-grounded fear of an imminent and
grave evil upon his person or property, or upon
the person or property of his spouse,
descendants or ascendants, to give his consent.
"To determine the degree of the intimidation, the
age, sex and condition of the person shall be
borne in mind.
"A threat to enforce once's claim through
competent authority, if the claim is just or legal,
does not vitiate consent."
The records show that complainant is a highly
educated person who is familiar with banking
procedures. She is a graduate of Business
Administration major in Banking and Finance
from NCBA. She also finished one semester of
MA in graduate school. In 1983, complainant
worked with the Insular Bank of Asia and
America as a bank teller (TSN, November 20,
1984, pp. 5-7; Records, pp. 96-98).
In the light of the foregoing circumstances,
petitioner's demand that the private respondent
return the proceeds of the check accompanied by
a threat to file criminal charges was not
improper. There is nothing unlawful on the
threat to sue. In the case of Berg v. National City
Bank of New York (102 Phil. 309, 316), We
ruled that:
". . . it is a practice followed not only by banks
but even by individuals to demand payment of
their accounts with the threat that upon failure
to do so an action would be instituted in court.
Such a threat is proper within the realm of the
law as a means to enforce collection. Such a
threat cannot constitute duress even if the claim
proves to be unfounded so long as the creditor
believes that it was his right to do so."
The Solicitor General argues that the
complainant was intimidated and compelled into
disclosing her time deposit, signing the
typewritten withdrawal slip and the affidavit by
the petitioner's threat to detain her at the bank.
At this point, there is a need to make a
distinction between a case where a person gives
his consent reluctantly and against his good
sense and judgment and where he gives no
consent at all, as where he acts against his will
under a pressure he cannot resist. Thus, in Vales
v. Villa (35 Phil. 769, 789), We ruled:
". . . It is clear that one acts as voluntarily and
independently in the eye of the law when he acts
reluctantly and with hesitation as when he acts
spontaneously and joyously. Legally speaking
he acts as voluntarily and freely when he acts
wholly against his better sense and judgment as
when he acts in conformity with them. Between
the two acts there is no difference in law. But
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 such an extent that he becomes a mere
automaton and acts mechanically only, a new
element enters, namely, a disappearance of the
personality of the actor. He 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. While his hand signs, the will
which moves it is another's. While a contract is
made, it has, in reality and in law, only one party
to it; and, there being only one party, the one
using the force or the intimidation, it is
unenforceable for lack of a second party.
"From these considerations it is clear that every
case of alleged intimidation must be examined to
determine within which class it falls. If it is
within the first class it is not duress in law, if it
falls in the second, it is."
The circumstances of this case reveal that the
complainant, despite her protestations, indeed
voluntarily, albeit reluctantly, consented to do all
the aforesaid acts
Bearing in mind her involvement in the deposit
and encashment of the check, the complainant
admitted to being nervous upon being informed
that the check was spurious (TSN, November
20, 1984, p. 15; Record, p. 106).
We find that complainant's lengthy stay at the
bank was not due to the petitioner's threat. It was
rather due to her desire to prove her innocence.
Her testimony on this point is a revelation
In her insistence to clear up her name, it is not
farfetched for Us to think that the complainant
voluntarily but grudgingly returned the money to
show good faith. Thus, it was she who informed
the petitioner about the existence of the RCBC
Time Deposit Certificate (Exh. "A", pp. 4-5,
Records). The allegation that she did so because
of petitioner's threats came from the complainant
herself. She has not been able to present any
other witness to buttress her claim.
Further, We find that contrary to complainant's
allegations in her affidavit (ibid, p. 5) it was not
the petitioner who suggested the encashment of
the BCBC Time Deposit Certificate but her
sister; and that again, it was not the petitioner
who agreed to the sister's suggestion but Cruz,
the PRO Manager, Foreign Department of the
bank (TSN, January 8, 1985, pp. 40-41,
Records, pp. 131-132).
Moreover, while complainant claimed that her
freedom of movement was restrained, she,
however, was able to move about freely
unguarded from the office of the petitioner
situated at the ground floor to the office of Cruz
at the mezzanine floor where her sister found her
The bank security guards then were at their
posts. Complainant herself admitted that they
manifested no overt acts to prevent her from
leaving despite the alleged loud threats of the
petitioner (ibid, p. 20-21, Records, pp. 111-112)
which could be heard considering that the door
to petitioner's office was kept open (TSN,
October 8, 1985, p. 184, Records, p. 276). Given
such atmosphere, the complainant still did not
leave the bank
The respondent court cited the prepared
typewritten withdrawal slip and the non-
presentation of the complainant's passbook as
indicators of her involuntary acts.
We disagree. The petitioner testified that the
general rule was that the bank requires the
presentation of the passbook whenever
withdrawals are made. However, there was an
exception to this rule, i.e. when the depositor is a
regular customer in depositing or withdrawing
money in the bank (TSN, October 8, 1985, pp.
189-190, Records, pp. 281-282). The
prosecution failed to submit evidence to rebut
his contentions. Besides, the trial court's
conclusion that the withdrawal slip was
typewritten was without basis considering that
the complainant merely averred that the
withdrawal slip was already prepared when she
signed it
The most telling proof of the absence of
intimidation was the fact that the complainant
refused to sign the promissory note in spite of
the alleged threats of the petitioner (TSN,
January 8, 1985, p. 48; Records, p. 139).
American authorities have declared that "(t)he
force which is claimed to have compelled
criminal conduct against the will of the actor
must be immediate and continuous and threaten
grave danger to his person during all of the time
the act is being committed. That is, it must be a
dangerous force threatened 'in praesenti.' It
must be a force threatening great bodily harm
that remains constant in controlling the will of
the unwilling participant while the act is being
performed and from which he cannot then
withdraw in safety." (State v. Hood, 165 NE 2d,
28, 31-32, Emphasis ours).
Complainant was willing to return the sum of
P48,000.00 she took since it was only up to this
amount where her involvement lies. However, as
soon as she realized that she would have the
enormous task of reimbursing the bank the
balance of the proceeds of the forged check
allegedly taken by Carpio, she refused to
cooperate any further. Notwithstanding the
alleged threats of petitioner, she did not budge.
Thus, We find it as a logical consequence that
she merely asked for the receipt of the
P18,000.00 she deposited rather than the
cancellation of her earlier withdrawal. On this
point, complainant claimed that after her refusal
to sign the document, she no longer insisted on
the return of the money because she felt that it
was the only way she could leave the bank
premises (TSN, November 20, 1984, p. 31,
Records, p. 120). This pretense, however, was
belied by her subsequent actuations. We find that
she and her sister left the bank unescorted to eat
their snack; that they were required by the
petitioner to come back; and that they decided
not to eat but instead went home (TSN,
November 20, 1984, pp. 31-32, Records, pp.
122-123 and January 8, 1965, pp. 49-50,
Records, pp. 140-141). With such behavior, We
are at a loss to understand how coercion could
attach in this case. Obviously, the complainant
has not been cowed into submission.
LYDIA L. GERALDEZ, petitioner, vs. HON.
COURT OF APPEALS and KENSTAR
TRAVEL CORPORATION, respondents.
Facts: An action for damages by reason of
contractual breach was filed by petitioner Lydia
L. Geraldez against private respondent Kenstar
Travel Corporation, failed to arrive at an
amicable settlement, trial on the merits ensued.
Petitioner claimed that, during the tour, she was
very uneasy and disappointed when it turned out
that, contrary to what was stated in the brochure,
there was no European tour manager for their
group of tourists, the hotels in which she and the
group were billeted were not first-class, the
UGC Leather Factory which was specifically
added as a highlight of the tour was not visited,
and the Filipino lady tour guide by private
respondent was a first timer, that is, she was
performing her duties and responsibilities as
such for the first time.
Issue:
Whether or not private respondent acted in bad
faith or with gross negligence in discharging its
obligations under the contract
Ruling: The petition is granted.
After thorough and painstaking scrutiny of the
case records of both the trial and appellate
courts, we are satisfactorily convinced, and so
hold, that private respondent did commit
fraudulent misrepresentations amounting to bad
faith, to the prejudice of petitioner and the
members of the tour group
The fact that the tourists were to pay a
supposedly lower amount, such that private
respondent allegedly retained hardly enough as
reasonable profit, 59 does not justify a
substandard form of service in return. It was
private respondent, in the first place, which
fixed the charges for the package tour and
determined the services that could be availed of
corresponding to such price. Hence, it cannot
now be heard to complain that it only made a
putative marginal profit out of the transaction. If
it could not provide the tour participants with
first-class lodgings on the basis of the amount
that they paid, it could and should have instead
increased the price to enable it to arrange for the
promised first-class accommodations.
On the foregoing considerations, respondent
court erred in deleting the award for moral and
exemplary damages. Moral damages may be
awarded in breaches of contract where the
obligor acted fraudulently or in bad faith. 60
From the facts earlier narrated, private
respondent can be faulted with fraud in the
inducement, which is employed by a party to a
contract in securing the consent of the other.
This fraud or dolo which is present or employed
at the time of birth or perfection of a contract
may either be dolo causante or dolo incidente.
The first, or causal fraud referred to in Article
1338, are those deceptions or misrepresentations
of a serious character employed by one party
and without which the other party would not
have entered into the contract. Dolo incidente, or
incidental fraud which is referred to in Article
1344, are those which are not serious in
character and without which the other party
would still have entered into the contract. 61
Dolo causante determines or is the essential
cause of the consent, while dolo incidente refers
only to some particular or accident of the
obligations. The effects of dolo causante are the
nullity of the contract and the indemnification of
damages, and dolo incidente also obliges the
person employing it to pay damages.
In either case, whether private respondent has
committed dolo causante or dolo incidente by
making misrepresentations in its contracts with
petitioner and other members of the tour group,
which deceptions became patent in the light of
after-events when, contrary to its
representations, it employed an inexperienced
tour guide, housed the tourist group in
substandard hotels, and reneged on its promise
of a European tour manager and the visit to the
leather factory, it is indubitably liable for
damages to petitioner.
When moral damages are awarded, especially
for fraudulent conduct, exemplary damages may
also be decreed. Exemplary damages are
imposed by way of example or correction for the
public good, in addition to moral, temperate,
liquidated or compensatory damages. According
to the Code Commission, exemplary damages
are required by public policy, for wanton acts
must be suppressed. An award, therefore, of
P50,000.00 is called for to deter travel agencies
from resorting to advertisements and
enticements with the intention of realizing
considerable profit at the expense of the public,
without ensuring compliance with their express
commitments. While, under the present state of
the law, extraordinary diligence is not required
in travel or tour contracts, such as that in the
case at bar, the travel agency acting as tour
operator must nevertheless be held to strict
accounting for contracted services, considering
the public interest in tourism, whether in the
local or in the international scene. Consequently,
we have to likewise reject the theory of private
respondent that the promise it made in the tour
brochure may be regarded only as
"commendatory trade talk."
Sierra v CA
Facts: On November 2, 1984, the petitioner
filed a complaint against the private respondents
in the Regional Trial Court of Dumaguete City.
He sought recovery of a sum of money he
allegedly lent them under the following
promissory note
At the trial, the petitioner testified that he had
lent the private respondents the sum of
P85,000.00 which they said they needed "to pay
some cattle for fattening to be inspected by the
inspector of the Land Bank that day" in
connection with their application for a loan of
P400,000.00 from the said bank to finance their
logging and cattle business. The application was
apparently not approved. When the note fell due,
he made demands for their payment, which were
ignored. He thereupon filed his complaint.
On July 21, 1988, the trial court rendered a
decision holding that the promissory note for
P85,000.00 was invalid and that the private
respondents were liable to the petitioner only for
the loan of P20,000.00. 1 On appeal, this
decision was affirmed by the respondent court. 2
The petitioner then came to this Court to seek
reversal of the courts below on factual and legal
grounds.
Ruling:The petition is granted
REMEDIAL LAW; EVIDENCE; PAROL
EVIDENCE; RULE; EXCEPTION;
EVIDENCE REQUIRED TO OVERTURN
WRITTEN AGREEMENT. The Rules of
Court provide that "when the terms of an
agreement have been reduced to writing, it is to
be considered as containing all such terms, 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
the writing." It is true that parol evidence may be
admitted to challenge the contents of such
agreement "where a mistake or imperfection of
the writing, or its failure to express the true
intent and agreement of the parties, or the
validity of the agreement is put in issue by the
pleadings." However, such evidence must be
clear and convincing and of such sufficient
credibility as to overturn the written agreement.
AUTHENTICATION AND PROOF OF
DOCUMENTS; EVIDENTIARY NATURE OF
PUBLIC DOCUMENTS SUSTAINED IN
ABSENCE OF STRONG, CONVINCING AND
CONCLUSIVE PROOF OF NULLITY; CASE
AT BAR. The non-presentation at the trial of
the notary public who attested the promissory
notes did not have the effect of invalidating
them. It is well settled that the evidentiary nature
of public documents must be sustained in the
absence of strong, complete, and conclusive
proof of its nullity. A notarial 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
present strong, complete, and conclusive proof
of its falsity or nullity on accounts of some flaw
or defect provided against by law. A mere denial
of the receipt of the loan, which is stated in a
clear and unequivocal manner in a public
instrument, is not sufficient. To overthrow the
recitals of a mortgage deed, clear, convincing
and more than merely preponderant evidence is
necessary. A contrary rule would throw wide
open doors to fraud. The mere assertion of the
private respondents that the notes were not
notarized in their presence does not meet this
standard of proof. In any event, a promissory
note does not have to be notarized to be binding.
The private respondents have admitted signing
the two notes and they have not succeeded in
proving that they did so "under duress, fear and
undue influence."
CIVIL LAW; OBLIGATIONS AND
CONTRACTS; UNDUE INFLUENCE;
DEFINED; AMPLIFIED. Art. 1337. There is
undue influence when a person takes improper
advantage of his power over the will of another,
depriving the latter of a reasonable freedom of
choice. The following circumstances shall be
considered: the confidential, family, spiritual and
other relations between the parties, or the fact
that the person alleged to have been unduly
influenced was suffering from mental weakness,
or was ignorant or in financial distress. This
definition is amplified by Tolentino, who says
that "undue influence is any means employed
upon a party which, under the circumstances, he
could not well resist, and which controlled his
volition and induced him to give his consent to
the contract, which otherwise he would not have
entered into. It must, in some measure, 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 contract. In every
such case, there is a moral coercion. The moral
coercion may be effected through threats,
expressed or implied, or through harassing
tactics."
FRAUD; DEFINED; DEGREE OF FRAUD
THAT RENDERS CONTRACT VOIDABLE;
PROOF REQUIRED. Art. 1338. There is
fraud when, through insidious words or
machinations 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. 1344. In order that fraud may make a
contract voidable, it should be serious and
should not have been employed by both
contracting parties. To quote Tolentino again, the
"misrepresentation constituting the fraud must
be established by full, clear, and convincing
evidence, and not merely by a preponderance
thereof. The deceit must be serious. The fraud is
serious when it is sufficient to impress, or to
lead an ordinarily prudent person into error; that
which cannot deceive a prudent person cannot
be a ground for nullity. The circumstances of
each case should be considered, taking into
account the personal conditions of the victim."
LOAN; PROMISSORY NOTE; NATURE
THEREOF; LIABILITY OF MAKER. A
promissory note is a solemn acknowledgment 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. If he reneges on his
promise without cause, he forfeits the sympathy
and assistance of this Court and deserves instead
its sharp repudiation. So must it be in the case at
bar.
LAURETA TRINIDAD, petitioner,
vs. INTERMEDIATE APPELLATE COURT
and VICENTE J. FRANCISCO, respondent.
Facts: The house looked beautiful in summer
but not when the waters came. Then it was
flooded five feet deep and leas than
prepossessing, let alone livable. Disenchanted,
the buyer sued the seller for the annulment of
the sale and damages, alleging fraud.
The house was Bungalow No. 17, situated at
Commonwealth Village in Quezon City, and
belonged to the late Vicente J. Francisco.
Sometime in early 1969, Laureta Trinidad, the
petitioner herein, approached him and offered to
buy the property. Francisco was willing to sell.
Trinidad inspected the house and lot and
examined a vicinity map which indicated
drainage canals along the property. The purchase
price was P70,000.00 with a down payment of
P17,500.00. The balance was to be paid in five
equal annual installments not later than July 1 of
each year at 12% interest per annum.
On March 29, 1969, Trinidad paid Francisco
P5,000.00 as earnest money and entered into the
possession of the house. However, as she relates
it, she subsequently heard from her new
neighbors that two buyers had previously
vacated the property because it was subject to
flooding. She says she talked to Francisco about
this matter and that he told her everything had
been fixed and the house would never be
flooded again. Thus assured, she gave him
P12,500.00 to complete the down payment.
They signed the Contract of Conditional Sale on
August 8, 1969.
Upon her return from the United States on
October 11, 1972, she wrote the City Engineer's
office of Quezon City and requested an
inspection of the subject premises to determine
the cause of the flooding. The finding of City
Engineer Pantaleon P. Tabora was that "the lot is
low and is a narrowed portion of the creek."
On January 10, 1973, the petitioner filed her
complaint against Francisco alleging that she
was induced to enter into the contract of sale
because of his misrepresentations. She asked
that the agreement be annulled and her payments
refunded to her, together with the actual
expenses she had incurred for the "annexes and
decorations" she had made on the house. She
also demanded the actual cost of the losses she
had suffered as a result of the floods, moral and
exemplary damages in the sum of P200,000.00,
and P10,000.00 attomey's
In his answer and amended answer, the
defendant denied the charge of
misrepresentation and stressed that the plaintiff
had thoroughly inspected the property before she
decided to buy it. The claimed creek was a
drainage lot, and the floods complained of were
not uncommon in the village and indeed even in
the Greater Manila area if not the entire Luzon.
In any event, the floods were fortuitous events
not imputable to him. He asked for the
rescission of the contract and the forfeiture of
payments made by the plaintiff plus monthly
rentals with interest of P700.00 for the property
from July 2, 1972, until the actual vacation of
the property by the plaintiff. He also claimed
litigation expenses, including attorney's fees.
Issue: Whether or not, under the established
facts, there was misrepresentation on the part of
Francisco to justify the rescission of the sale and
the award damages to the petitioner.
Ruling: The petition is denied.
The pertinent provisions of the Civil Code on
fraud are the following:
Art. 1338. There is fraud when, through
insidious words or machinations 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 exaggerations in trade,
when the other party had an opportunity to
know the facts, are not in themselves fraudulent.
Fraud is never lightly inferred; it is good faith
that is. Under the Rules of Court, it is presumed
that "a person is innocent of crime or wrong" 7
and that "private transactions have been fair and
regular." 8 While disputable, these presumptions
can be overcome only by clear and preponderant
evidence.
Our finding is that the fraud alleged by the
petitioner has not been satisfactorily established
to call for the annulment of the contract. This
finding is based on the following considerations.
First, it was the petitioner who admittedly
approached the private respondent, who never
advertised the property nor offered it for sale to
her.
Second, the petitioner had full opportunity to
inspect the premises, including the drainage
canals indicated in the vicinity map that was
furnished her, before she entered into the
contract of conditional sale.
Third, it is assumed that she made her appraisal
of 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 that she was. 9 If she
minimized the presence of the drainage canals,
she has only her own negligence to blame.
Fourth, seeing that the lot was depressed and
there was a drainage lot abutting it, she cannot
say she was not forewarned of the possibility
that the place might be flooded. Notwithstanding
the obvious condition of the property, she still
decided to buy it.
Fifth, there is no evidence except her own
testimony that two previous owners of the
property had vacated it because of the floods and
that Francisco assured her that the house would
not be flooded again. The supposed previous
owners were not presented as witnesses and
neither were the neighbors. Francisco himself
denied having made the alleged assurance.
Sixth, the petitioner paid the 1970 and 1971
amortizations even if, according to her
Complaint, "since 1969 said lot had been under
floods of about one (1) foot deep," 10 and
despite the floods of September and November
1970.
Seventh, it is also curious that notwithstanding
the said floods, the petitioner still "made
annexes and decorations on the house," 11 all of
a permanent nature, for which she now claims
reimbursement from the private respondent.

Assuming that he did make such representations,
as the petitioner contends, she is deemed to have
accepted them at her own risk and must
therefore be responsible for the consequences of
her careless credulousness. In the case of
Songco v. Sellne
The law allows considerable latitude to seller's
statements, or dealer's talk, and experience
teaches that it is exceedingly risky to accept it at
it at face value. . . .
Assertions concerning the property which is the
subject of a contract of sale, or in regard to its
qualities and characteristics, are the usual and
ordinary means used by sellers to obtain a high
price and are always understood as affording to
buyers no ground for omitting to make inquiries.
A man who relies upon such an affirmation
made by a person whose interest might so
readily prompt him to exaggerate the value of
his property does so at his peril, and must take
the consequences of his own imprudence
We have also held that "one who contracts for
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 examined it for himself and has had the
means and opportunity of verifying such
statements, cannot avoid the contract on the
ground that they were false and exaggerated." 13
''The Court must also reject the petitioner's
contention that the lot on which the house stands
is a portion of a creek and therefore outside the
commerce of man as part of the public domain.
The said property is covered by TCT No.
102167 of the Registry of Deeds of Quezon City.
Under the Land Registration Act, title to the
property covered by a Torrens certificate
becomes indefeasible after the expiration of one
year from the entry of the decree of registration.
Such decree of registration is incontrovertible
and is binding on all persons whether or not they
were notified of or participated in the
registration proceedings.
If such title is to be challenged, it may not be
done collaterally as in the present case, because
the judicial action required is a direct attack.
Section 48 of the Property Registration Decree
expressly provides that a certificate of title
cannot be subject collateral attack and can be
altered, modified or cancelled only in a direct
proceeding in accordance with law. This was the
same rule under Act 496. 14 Moreover, the right
of reversion belongs to the State and may be
invoked on its behalf only by the Solicitor
General.
Nevertheless, we cannot say that the petitioner
was, strictly speaking, in default in the payment
of the remaining amortizations in the sense
contemplated in that stipulation. She was not
simply unable to make the required payments.
The fact is she refused to make such payments.
If she suspended her payments, it was because
she felt she was justified in doing so in view of
the defects she found in the property. It is
noteworthy that it was she who sued the private
respondent, not the other way round, and that it
was she who argued that the seller was not
entitled to the additional installments because of
his violation of the contract. If she asked for the
annulment of the contract and the refund to her
of the payments she had already made, plus
damages, it was because she felt she had the
right to do so.
Given such circumstances, the Court feels and
so holds that the above-quoted stipulation should
not be strictly enforced, to justify the rescission
of the contract. To make her forfeit the payments
already made by her and at the same time return
the property to the private respondents for
standing up to what she considered her right
would, in our view, be unfair and unconsionable.
Justice demands that we moderate the harsh
effects of the stipulation. Accordingly, in the
exercise of our equity jurisdiction, we hereby
rule that the Contract of Conditional Sale shall
be maintained between the parties except that
the petitioner shall not return the house to the
private respondents. However, she will have to
pay them the balance of the purchase price in the
sum of P52,500.00, ** with 12% annual interest
from July 1, 1972, until full payment
Manila Banking Corp v Silverio
Facts: Purificacion Ver was the registered owner
of two parcels of land located at La Huerta,
On 16 April 1979, Purificacion Ver sold the
properties to Ricardo C. Silverio, Sr. (Ricardo,
Sr.) for P1,036,475.00. 4 The absolute deed of
sale evidencing the transaction was not
registered; hence, title remained with the seller,
Purificacion Ver.
The Manila Banking Corporation (TMBC), filed
a complaint with the RTC of Makati City for the
collection of a sum of money with application
for the issuance of a writ of preliminary
attachment against Ricardo, Sr. and the
Delta Motors Corporation
On 29 March 1993, the trial court rendered its
Decision in favor of TMBC and against Ricardo,
Sr. and the Delta Motors Corporation. 7 The
Decision was brought up to the Court of Appeals
for review.
In the meantime, on 22 July 1993, herein private
respondent, Edmundo S. Silverio (Edmundo),
the nephew 9 of judgment debtor Ricardo, Sr.,
requested TMBC to have the annotations on the
subject properties cancelled as the properties
were no longer owned by Ricardo, Sr. 10 This
letter was referred to the Bangko Sentral Ng
Pilipinas, TMBC's statutory receiver. 11 No
steps were taken to have the annotations
cancelled. 12 Thus, on 17 December 1993,
Edmundo filed in the RTC of Makati City a case
for "Cancellation of Notice of Levy on
Attachment and Writ of Attachment on Transfer
Certificates of Title Nos. 452448 and 452452 of
the Office of the Registrar of Land Titles and
Deeds of Paraaque, Metro Manila." In his
petition, Edmundo alleged that as early as 11
September 1989, the properties, subject matter
of the case, were already sold to him by Ricardo,
Sr. As such, these properties could not be levied
upon on 02 July 1990 to answer for the debt of
Ricardo, Sr. who was no longer the owner
thereof. In its Answer with Compulsory
Counterclaim, TMBC alleged, among other
things, that the sale in favor of Edmundo was
void, therefore, the properties levied upon were
still owned by Ricardo, Sr., the debtor in
Civil Case No. 90-513
On 02 May 1995, after trial on the merits, the
lower court rendered its Decision dismissing
Edmundo's petition. TMBC's counterclaim was
likewise dismissed for lack of sufficient merit
The Court of Appeals, upon reviewing the case
at the instance of Edmundo, reversed and set
aside the trial court's ruling.
The motion for reconsideration filed by TMBC
was denied for lack of merit in a Resolution
dated 25 February 1998. Hence, the present
petition, TMBC imputing upon the Court of
Appeals grave error
Issue:
I.
. . . HOLDING THAT PETITIONER TMBC
CANNOT QUESTION THE VALIDITY OF
THE SALE OF THE PROPERTIES COVERED
BY TCT NO. 31444 (452448) AND
45926 (452452); UNDER ARTICLE 1421 OF
THE CIVIL CODE, THE DEFENSE OF
NULLITY OF A CONTRACT IS AVAILABLE
TO THIRD PERSONS WHOSE
INTERESTS ARE DIRECTLY AFFECTED.
II.
. . . ORDERING THE CANCELLATION OF
THE NOTICE OF LEVY ON ATTACHMENT
AND THE WRIT OF ATTACHMENT MADE
ON TCT NO. 452448 AND 452452
SINCE AS AGAINST TWO (2)
TRANSACTIONS CONCERNING THE SAME
LAND,
THE REGISTERED TRANSACTION
PREVAILS OVER THE ALLEGED EARLIER
UNREGISTERED RIGHT.
III.
. . . FINDING THAT PETITIONER TMBC IS
GUILTY OF BAD FAITH IN FAILING TO
MAKE INQUIRIES ON THE RIGHTS OF
RICARDO SILVERIO, SR. OVER THE
SUBJECT PROPERTIES.
Ruling: The petition is granted
REMEDIAL LAW; PROVISIONAL
REMEDIES; ATTACHMENT; ONLY
PROPERTIES BELONGING TO THE
DEBTOR CAN BE ATTACHED. Basic is the
rule that only properties belonging to the debtor
can be attached, and an attachment and sale of
properties belonging to a third party are void. At
the pith of the controversy, therefore, is the issue
of ownership of the subject properties at the time
of the levy thereof as the right of petitioner
TMBC, as creditor, depends on whether such
properties were still owned by its debtor,
Ricardo, Sr., and not by Edmundo, who is
concededly not a debtor of TMBC. If the
properties were validly transferred to Edmundo
before the levy thereof then cancellation of the
annotation is in order. If, however, the sale was
absolutely simulated and was entered into
between uncle and nephew for the lone reason of
removing the properties from the reach of
TMBC, then the annotation should stay.
CIVIL PROCEDURE; APPEAL; FACTUAL
ISSUES, NOT PROPER; EXCEPTIONS;
WHERE THERE IS CONFLICT BETWEEN
TRIAL COURT AND APPELLATE COURT.
The issue of whether the contract is simulated or
real is factual in nature, and the Court eschews
factual examination in a petition for review
under Rule 45 of the Rules of Court.
This rule, however, is not without exceptions,
one of which is when there exists a conflict
between the factual findings of the trial court
and of the appellate court, as in the case at bar.
CIVIL LAW; SPECIAL CONTRACTS; SALES;
PRESUMPTIONS; PROPRIETY OF
CONTRACT. The validity of the contract of
sale being the focal point in the two court's
decision, we begin our analysis into the matter
with two veritable presumptions: first, that there
was sufficient consideration of the contract and,
second, that it was the result of a fair and regular
private transaction. As we held in Suntay v.
Court of Appeals, if shown to hold, these
presumptions infer prima facie the transaction's
validity, except that it must yield to the evidence
adduced.
REQUISITES; CONSENT; ABSOLUTELY
SIMULATED CONTRACTS; ELUCIDATED.
An absolutely simulated contract, under
Article 1346 of the Civil Code, is void. It takes
place when the parties do not intend to be bound
at all. The characteristic of simulation is the fact
that the apparent contract is not really desired or
intended to produce legal effects or in any way
alter the juridical situation of the parties. Thus,
where a person, in order to place his property
beyond the reach of his creditors, simulates a
transfer of it to another, he does not really intend
to divest himself of his title and control of the
property; hence, the deed of transfer is but a
sham. Lacking, therefore, in a fictitious and
simulated contract is consent which is essential
to a valid and enforceable contract.
REMEDIAL LAW; EVIDENCE; RULES OF
ADMISSIBILITY; DOCUMENTARY
EVIDENCE; USE OF NOTARIZED DEED
NOT REPORTED TO THE RTC. In Tala
Realty Services Corporation v. Banco Filipino
Savings and Mortgage Bank, as reiterated in two
other Tala cases, the Court rejected a notarized
deed that was not reported to the Clerk of Court
of the RTC by the notary public who notarized
it. The Court held that this fact militates the use
of the document as basis to uphold the
petitioner's claim.
CIVIL LAW; CONTRACTS; REQUISITES;
CAUSE OF CONTRACTS; ABSENCE
THEREOF RENDERS THE CONTRACT
VOID AB INITIO. A deed of sale in which
the stated consideration has not in fact been paid
is a false contract that is void ab initio.
Likewise, "a contract of purchase and sale is null
and void and produces no effect whatsoever
where it appears that [the] same is without cause
or consideration which should have been the
motive thereof, or the purchase price appears
thereon as paid but which in fact has never been
paid by the purchaser to the vendor."
SALES; WHERE THERE WAS FAILURE TO
EXERCISE ACTS OF DOMINIUM
OVER PROPERTIES SUBJECT OF SALE
CONTRACT, SUCH FAILURE IS A CLEAR
BADGE OF SIMULATION THAT RENDERS
WHOLE TRANSACTION VOID. Taken
together with the other circumstances
surrounding the sale, Edmundo's failure to
exercise acts of dominium over the subject
properties buttresses TMBC's position that the
former did not at all intend to be bound by the
contract of sale. In Suntay, as reiterated in such
cases as Santiago v. Court of Appeals, Cruz v.
Bancom Finance Corporation and Ramos v.
Heirs of Ramos, Sr., we held that "the most
proturberant index of simulation is the complete
absence of an attempt in any manner on the part
of the [ostensible buyer] to assert his rights of
ownership over the [properties] in question."
The supposed buyer's failure to take exclusive
possession of the property allegedly sold or, in
the alternative, to collect rentals, is contrary to
the principle of ownership. Such failure is a
clear badge of simulation that renders the whole
transaction void pursuant to Article 1409 of the
Civil Code.
VOID AND INEXISTENT CONTRACTS;
RIGHT TO SET-UP ITS NULLITY,
AVAILABLE TO THIRD PERSONS WHOSE
INTERESTS ARE DIRECTLY AFFECTED
THEREBY. When a contract is void, the
right to set-up its nullity or non-existence is
available to third persons whose interests are
directly affected thereby. The material interest of
TMBC need not be belabored. Suffice it to say
that as judgment creditor of Ricardo, Sr., it has
the right to protect its lien acquired through a
writ of preliminary attachment as security for
the satisfaction of any judgment in its favor.
DIFFERENT FROM RESCISSIBLE
CONTRACTS; ACCION PAULIANA;
AVAILABLE WHEN SUBJECT MATTER IS A
CONVEYANCE, OTHERWISE VALID,
UNDERTAKEN IN FRAUD OF CREDITORS.
The remedy of accion pauliana is available
when the subject matter is a conveyance,
otherwise valid, undertaken in fraud of creditors.
Such a contract is governed by the rules on
rescission which prescribe, under Art. 1383 of
the Civil Code, that such action can be instituted
only when the party suffering damage has no
other legal means to obtain reparation for the
same. The contract of sale before us, albeit
undertaken as well in fraud of creditors, is not
merely rescissible but is void ab initio for lack
of consent of the parties to be bound thereby. A
void or inexistent contract is one which has no
force and effect from the very beginning, as if it
had never been entered into; it produces no
effect whatsoever either against or in favor of
anyone. Rescissible contracts, on the other hand,
are not void ab initio, and the principle, "quod
nullum est nullum producit effectum," in void
and inexistent contracts is inapplicable. Until set
aside in an appropriate action, rescissible
contracts are respected as being legally valid,
binding and in force. Tolentino, a noted civilist,
distinguished between these two types of
contracts entered into in fraud of creditors, thus:
Absolute simulation implies that there is no
existing contract, no real act executed; while
fraudulent alienation means that there is a true
and existing transfer or contract. The former can
be attacked by any creditor, including one
subsequent to the contract; while the latter can
be assailed only by the creditors before the
alienation. In absolute simulation, the
insolvency of the debtor making the simulated
transfer is not a prerequisite to the nullity of the
contract; while in fraudulent alienation, the
action to rescind, or accion pauliana, requires
that the creditor cannot recover in any other
manner what is due him. Finally, the action to
declare a contract absolutely simulated does not
prescribe (Articles 1409 and 1410); while the
accion pauliana to rescind a fraudulent
alienation prescribes in four years (Article
1389).
Suntay v Court of Appeals
Facts: Respondent Federico Suntay was the
registered 4 owner of a parcel of land with an
area of 5,118 square meters, more or less,
situated in Sto. Nino, Hagonoy, Bulacan. On the
land may be found: a rice mill, a warehouse, and
other improvements. A rice miller, Federico, in a
letter, dated September 30, 1960, applied as a
miller-contractor of the then National Rice and
Corn Corporation (NARIC). He informed the
NARIC that he had a daily rice mill output of
400 cavans of palay and warehouse storage
capacity of 150,000 cavans of palay. 5 His
application, although prepared by his nephew-
lawyer, petitioner Rafael Suntay, 6 was
disapproved, obviously because at that time he
was tied up with several unpaid loans. For
purposes of circumvention, he had thought of
allowing Rafael to make the application for him.
Rafael prepared 8 an absolute deed of sale 9
whereby Federico, for and in consideration of
P20,000.00 conveyed to Rafael said parcel of
land with all its existing structures. Said deed
was notarized as Document No. 57 and recorded
on Page 13 of Book 1, Series of 1962, of the
Notarial Register of Atty. Herminio V. Flores. 10
Less than three months after this conveyance, a
counter sale 11 was prepared 12 and signed 13
by Rafael who also caused its delivery 14 to
Federico. Through this counter conveyance, the
same parcel of land with all its existing
structures was sold by Rafael back to Federico
for the same consideration of P20,000.00. 15
Although on its face, this second deed appears to
have been notarized as Document No. 56 and
recorded on Page 15 of Book 1, Series of 1962,
16 of the notarial register of Atty. Herminio V.
Flores, an examination thereof will show that,
recorded as Document No. 56 on Page 13, is not
the said deed of sale but a certain "real estate
mortgage of a parcel of land with TCT No.
16157 to secure a loan of P3,500.00 in favor of
the Hagonoy Rural Bank." Nowhere on page 13
of the same notarial register could be found any
entry pertaining to Rafael's deed of sale. 17
Testifying on this irregularity, Atty. Flores
admitted that he failed to submit to the Clerk of
Court a copy of the second deed. Neither was he
able to enter the same in his notarial register. 18
Even Federico himself alleged in his Complaint
that, when Rafael delivered the second deed to
him, it was neither dated nor notarized. 19
Upon the execution and registration of the first
deed, Certificate of Title No. 0-2015 in the name
of Federico was cancelled and in lieu thereof,
TCT No. T-36714 was issued in the name of
Rafael. Even after the execution of the deed,
Federico remained in possession of the property
sold in concept of owner. Significantly,
notwithstanding the fact that Rafael became the
titled owner of said land and rice mill, he never
made any attempt to take possession thereof at
any time, 20 while Federico continued to
exercise rights of absolute ownership over the
property.
In a letter, 22 dated August 14, 1969, Federico,
through his new counsel, Agrava & Agrava,
requested that Rafael deliver his copy of TCT
No. T-36714 so that Federico could have the
counter deed of sale in his favor registered in his
name. The request having been obviously turned
down, Agrava & Agrava filed a petition 23 with
the Court of First Instance of Bulacan 24 asking
Rafael to surrender his owner's duplicate
certificate of TCT No. T-36714. In opposition
thereto, Rafael chronicled the discrepancy in the
notarization of the second deed of sale upon
which said petition was premised and ultimately
concluded that said deed was a counterfeit or "at
least not a public document which is sufficient
to transfer real rights according to law." 25 On
September 8, 1969, Agrava & Agrava filed a
motion 26 to withdraw said petition, and, on
September 13, 1969, the Court granted the same.
27
On July 8, 1970, Federico filed a complaint 28
for reconveyance and damages against Rafael
In his answer, Rafael scoffed at the attack
against the validity and genuineness of the sale
to him of Federico's land and rice mill. Rafael
insisted that said property was "absolutely sold
and conveyed . . . for a consideration of
P20,000.00, Philippine currency, and for other
valuable consideration."
At the initial hearing on April 7, 1971, Federico
took the stand and, when asked why title to the
property was no longer in his name, Rafael's
counsel objected thereto upon the ground that
Federico, in the petition wherein he asked Rafael
to surrender his owner's duplicate of TCT No. T-
36714, had alleged that he sold the land to
Rafael, which allegation, Rafael contends,
constitutes as a judicial admission which may
not be subject to contradiction, unless previously
shown to have been made through palpable
mistake. Rafael's counsel, in effect, was
assailing the admissibility of Federico's
anticipated answer which would most likely tend
to establish the simulated nature of the sale
executed by Federico in favor of Rafael. Judge
Emmanuel Muoz overruled the objection and
reset the case for hearing on June 9, 1971.
On June 7, 1971, Rafael, obviously for the
purpose of delay on account of its pettiness,
instituted certiorari proceedings in the Court of
Appeals in order to have the aforecited ruling
nullified and set aside. Rafael was naturally
rebuffed by the Appellate Court. Considering
that the petition for Rafael to surrender his
owner's duplicate of TCT No. T-36714 had been
withdrawn upon motion of Federico, the alleged
admission of Federico as to the questioned
deed's validity in effect disappeared from the
record and had ceased to have any standing as a
judicial admission. 33 Dissatisfied with the
ruling, Rafael elevated the matter to the
Supreme Court via a petition for review on
certiorari. This was summarily denied by us for
lack of merit.
Whereupon, Rafael's counsel moved, as he often
did previously, for continuation of trial of the
main case. 35 After a thirteen-year trial with
no less than six different Presiding Judges; 36
numerous changes of lawyers; countless
incidents; and a mountain-pile of pleadings a
decision in the case was finally rendered on
April 30, 1984
Issue: Whether or not the deed of sale executed
by Federico in favor of Rafael was simulated
and without consideration,
Ruling: The petition is denied.
From decision of the trial court, both Federico
and Rafael appealed. Before the Court of
Appeals both pleaded invariably the same
arguments which they had raised before the trial
court. On January 27, 1993, the Court of
Appeals rendered judgment in affirmance of the
trial court's decision, with a modification.
Federico was ordered to surrender the
possession of the disputed property to Rafael.
REMEDIAL LAW; EVIDENCE; FACTUAL
FINDINGS OF THE COURT OF APPEALS;
WHEN NOT BINDING UPON THE
SUPREME COURT. While the rule is that
factual findings of the Court of Appeals are
binding upon the Supreme Court, this Court
endeavored, however, to scrutinize the case
records and read and examined the pleadings
and transcripts submitted before the trial court
because the factual findings of the Court of
Appeals and that of the trial court are contrary to
each other.
LEGAL PRESUMPTIONS ON THE
VALIDITY OF THE DEED OF SALE. The
validity and integrity of the deed of sale
necessarily concerns two veritable legal
presumptions: first, that there was sufficient
consideration for the contract and, second, that it
was the result of a fair and regular private
transaction. These presumptions if shown to
hold, infer prima facie the transaction's validity,
except that it must yield to the evidence
adduced.
CIVIL LAW; SIMULATION OF
CONTRACTS; ILLUSTRATION IN CASE AT
BAR. The history and relationship of trust,
interdependence and intimacy between the late
Rafael and Federico is an unmistakable token of
simulation. It has been observed that fraud is
generally accompanied by trust. Hardly is it
inconsistent with practical experience, especially
in the context of the Filipino family's way of
life, that Federico, the uncle, would almost
naively lend his land title to his nephew and
agree to its cancellation in his nephew's favor
because Federico, in the first place, trusted his
nephew; was well aware of his power over him
as uncle, client, and patron; and was actually in
possession of the land and rice mill. No one
could even conceive of the possibility of
ejecting Federico therefrom on the basis of the
sham transaction. The late Rafael never
attempted to physically dispossess his uncle or
actually take over the rice mill during his
lifetime. Indeed the most protuberant index of
simulation is the complete absence of an attempt
in any manner on the part of the late Rafael to
assert his rights of ownership over the land and
rice mill in question. After the sale, he should
have entered the land and occupied the premises
thereof. He did not even attempt to. If he stood
as owner, he would have collected rentals from
Federico for the use and occupation of the land
and its improvements. All that the late Rafael
had was a title in his name. The failure of the
late Rafael to take exclusive possession of the
property allegedly sold to him is a clear badge of
fraud. The fact that, notwithstanding the title
transfer, Federico remained in actual possession,
cultivation and occupation of the disputed lot
from the time the deed of sale was executed until
the present, is a circumstance which is
unmistakably added proof of the fictitiousness of
the said transfer, the same being contrary to the
principle of ownership. The cumulative effect of
the evidence on record as chronicled aforesaid
identified badges of simulation proving that the
sale by Federico to his deceased nephew of his
land and rice mill, was not intended to have any
legal effect between them.
NATURE OF CONTRACTS; THE PRIMARY
CONSIDERATION SHOULD BE THE
INTENTION OF THE PARTIES. Though the
notarization of the deed of sale in question vests
in its favor the presumption of regularity, it is
not the intention nor the function of the notary
public to validate and make binding an
instrument never, in the first place, intended to
have any binding legal effect upon the parties
thereto. The intention of the parties still and
always is the primary consideration in
determining the true nature of a contract.
Umali v CA
Facts: Plaintiff Santiago Rivera is the nephew of
plaintiff Mauricia Meer Vda. de Castillo.
2. The Castillo family are the owners of a
parcel of lands which was given as security for a
loan from the DBP.
3. For their failure to pay the amortization,
foreclosure of the said property was about to be
initiated.
4. This problem was made known to Rivera,
who proposed to them the conversion into
subdivision of the four parcels of land adjacent
to the mortgaged property to raise the necessary
fund.
5. The Idea was accepted by the Castillo
family and to carry out the project, a
Memorandum of Agreement was executed by
and between Slobec Realty and Development,
Inc., represented by its President Rivera and the
Castillo family.
6. Rivera, armed with the agreement,
approached Mr. Modesto Cervantes, President of
defendant Bormaheco, and proposed to purchase
from Bormaheco two tractors.
7. Slobec, through Rivera, executed in favor
of Bormaheco a Chattel Mortgage over the said
equipment as security
8. As further security of the aforementioned
unpaid balance, Slobec obtained from Insurance
Corporation of the Phil. a Surety Bond, with ICP
(Insurance Corporation of the Phil.) as surety
and Slobec as principal, in favor of Bormaheco.
9. The aforesaid surety bond was in turn
secured by an Agreement of Counter-Guaranty
with Real Estate Mortgage executed by Rivera
as president of Slobec and Castillo family, as
mortgagors and ICP as mortgagee.
10. In giving the bond, ICP required that the
Castillos mortgage to them the four parcels of
land.
11. For violation of the terms and conditions of
the Counter-Guaranty Agreement, the properties
of the Castillos were foreclosed by ICP - the
highest bidder.
12. The mortgagors had one year to redeem the
property, but they failed to do so.
13. Consequently, ICP consolidated its
ownership.
14. ICP sold to PM Parts the four parcels of
land.
15. Thereafter, PM Parts, through its President,
Mr. Modesto Cervantes, sent a letter addressed
to plaintiff Mrs. Mauricia Meer Castillo
requesting her and her children to vacate the
subject property.
16. The heirs of the late Felipe Castillo filed an
action for annulment of title.
17. Judgment of the trial court is hereby
rendered in favor of the plaintiffs agreements
etc - null and void for being fictitious, spurious
and without consideration.
18. Respondent court reversed the decision of
the trial court and rendered the judgment subject
of this petition
Issue:
Whether or not there is necessity to pierce the
veil of corporate entity of Bormaheco, ICP and
PM Parts, to determine whether they employed
fraud in causing the foreclosure and subsequent
sale of the real properties belonging to
petitioners
Ruling:The petition is granted.
Under the doctrine of piercing the veil of
corporate entity, when valid grounds therefore
exist, the legal fiction that a corporation is an
entity with a juridical personality separate and
distinct from its members or stockholders may
be disregarded. In such cases, the corporation
will be considered as a mere association of
persons. The members or stockholders of the
corporation will be considered as the
corporation, that is, liability will attach directly
to the officers and stockholders. 12 The doctrine
applies when the corporate fiction is used to
defeat public convenience, justify wrong, protect
fraud, or defend crime, 13 or when it is made as
a shield to confuse the legitimate issues, 14 or
where a corporation is the mere alter ego or
business conduit of a person, or where the
corporation is so organized and controlled and
its affairs are so conducted as to make it merely
an instrumentality, agency, conduit or adjunct of
another corporation.
Respondent Court of Appeals made several
findings to the effect that the questioned
documents are valid and binding upon the
parties, that there was no fraud employed by
private respondents in the execution thereof, and
that, contrary to petitioners' allegation, the
evidence on record reveals that petitioners had
every intention to be bound by their
undertakings in the various transactions had with
private respondents. It is a general rule in this
jurisdiction that findings of fact of said appellate
court are final and conclusive and, thus, binding
on this Court in the absence of sufficient and
convincing proof, inter alia, that the former
acted with grave abuse of discretion. Under the
circumstances, we find no compelling reason to
deviate from this long-standing jurisprudential
pronouncement.
In addition, the alleged failure of Rivera to pay
the consideration agreed upon in the Sales
Agreement, which clearly constitutes a breach of
the contract, cannot be availed of by the guilty
party to justify and support an action for the
declaration of nullity of the contract. Equity and
fair play dictates that one who commits a breach
of his contract may not seek refuge under the
protective mantle of the law.
There is absolute simulation, which renders the
contract null and void, when the parties do not
intend to be bound at all by the same. 9 The
basic characteristic of this type of simulation of
contract is the fact that the apparent contract is
not really desired or intended to either produce
legal effects or in any way alter the juridical
situation of the parties. The subsequent act of
Rivera in receiving and making use of the tractor
subject matter of the Sales Agreement and
Chattel Mortgage, and the simultaneous issuance
of a surety bond in favor of Bormaheco,
concomitant with the execution of the
Agreement of Counter-Guaranty with
Chattel/Real Estate Mortgage, conduce to the
conclusion that petitioners had every intention to
be bound by these contracts. The occurrence of
these series of transactions between petitioners
and private respondents is a strong indication
that the parties actually intended, or at least
expected, to exact fulfillment of their respective
obligations from one another
Neither will an allegation of fraud prosper in this
case where petitioners failed to show that they
were induced to enter into a contract through the
insidious words and machinations of private
respondents without which the former would not
have executed such contract. To set aside a
document solemnly executed and voluntarily
delivered, the proof of fraud must be clear and
convincing. 10 We are not persuaded that such
quantum of proof exists in the case at bar
The fact that it was Bormaheco which paid the
premium for the surety bond issued by ICP does
not per se affect the validity of the bond.
Petitioners themselves admit in their present
petition that Rivera executed a Deed of Sale
with Right of Repurchase of his car in favor of
Bormaheco and agreed that a part of the
proceeds thereof shall be used to pay the
premium for the bond. In effect, Bormaheco
accepted the payment of the premium as an
agent of ICP. The execution of the deed of sale
with a right of repurchase in favor of Bormaheco
under such circumstances sufficiently
establishes the fact that Rivera recognized
Bormaheco as an agent of ICP. Such payment to
the agent of ICP is, therefore, binding on Rivera.
He is now estopped from questioning the
validity of the suretyship contract
In the first place, the legal corporate entity is
disregarded only if it is sought to hold the
officers and stockholders directly liable for a
corporate debt or obligation. In the instant case,
petitioners do not seek to impose a claim against
the individual members of the three corporations
involved; on the contrary, it is these corporations
which desire to enforce an alleged right against
petitioners. Assuming that petitioners were
indeed defrauded by private respondents in the
foreclosure of the mortgaged properties, this fact
alone is not, under the circumstances, sufficient
to justify the piercing of the corporate fiction,
since petitioners do not intend to hold the
officers and/or members of respondent
corporations personally liable therefor.
Petitioners are merely seeking the declaration of
the nullity of the foreclosure sale, which relief
may be obtained without having to disregard the
aforesaid corporate fiction attaching to
respondent corporations. Secondly, petitioners
failed to establish by clear and convincing
evidence that private respondents were
purposely formed and operated, and thereafter
transacted with petitioners, with the sole
intention of defrauding the latter.
The main issue for resolution is whether there
was a valid foreclosure of the mortgaged
properties by ICP. Petitioners argue that the
foreclosure proceedings should be declared null
and void for two reasons, viz.: (1) no written
notice was furnished by Bormaheco to ICP anent
the failure of Slobec in paying its obligation
with the former, plus the fact that no receipt was
presented to show the amount allegedly paid by
ICP to Bormaheco; and
(b) at the time of the foreclosure of the
mortgage, the liability of ICP under the surety
bond had already expired.
A. Fundamental likewise is the rule that, except
where required by the provisions of the contract,
a demand or notice of default is not required to
fix the surety's liability. Hence, where the
contract of suretyship stipulates that notice of
the principal's default be given to the surety,
generally the failure to comply with the
condition will prevent recovery from the surety.
There are certain instances, however, when
failure to comply with the condition will not
extinguish the surety's liability, such as a failure
to give notice of slight defaults, which are
waived by the obligee; or on mere suspicion of
possible default; or where, if a default exists,
there is excuse or provision in the suretyship
contract exempting the surety or liability
therefor, or where the surety already has
knowledge or is chargeable with knowledge of
the default.
There is nothing in the records of the
proceedings to show that ICP indemnified
Bormaheco for the failure of the plaintiffs to pay
their obligation." 25 The failure, therefore, of
Bormaheco to notify ICP in writing about
Slobec's supposed default released ICP from
liability under its surety bond. Consequently,
ICP could not validly foreclose that real estate
mortgage executed by petitioners in its favor
since it never incurred any liability under the
surety bond. It cannot claim exemption from the
required written notice since its case does not
fall under any of the exceptions herein before
enumerated.
Furthermore, the allegation of ICP that it has
paid Bormaheco is not supported by any
documentary evidence. Section 1, Rule 131 of
the Rules of Court provides that the burden on
evidence lies with the party who asserts an
affirmative allegation. Since ICP failed to duly
prove the fact of payment, the disputable
presumption that private transactions have been
fair and regular, as erroneously relied upon by
respondent Court of Appeals, finds no
application to the case at ba
B. While ordinarily the termination of a surety's
liability is governed by the provisions of the
contract of suretyship, where the obligation of a
surety is, under the terms of the bond, to
terminate at a specified time, his obligation
cannot be enlarged by an unauthorized extension
thereof. 27 This is an exception to the general
rule that the obligation of the surety continues
for the same period as that of the principal
debtor.
It is possible that the period of suretyship may
be shorter than that of the principal obligation,
as where the principal debtor is required to make
payment by installments. 29 In the case at bar,
the surety bond issued by ICP was to expire on
January 22, 1972, twelve (12) months from its
effectivity date whereas Slobec's installment
payment was to end on July 23, 1972. Therefore,
while ICP guaranteed the payment by Slobec of
the balance of P180,000 00, such guaranty was
valid only for and within twelve (12) months
from the date of effectivity of the surety bond, or
until January 22, 1972. Thereafter, from January
23, 1972 up to July 23, 1972, the liability of
Slobec became an unsecured obligation. The
default of Slobec during this period cannot be a
valid basis for the exercise of the right to
foreclose by ICP since its surety contract had
already been terminated. Besides, the liability of
ICP was extinguished when Bormaheco failed to
file a written claim against it within thirty (30)
days from the expiration of the surety bond.
Consequently, the foreclosure of the mortgage,
after the expiration of the surety bond under
which ICP as surety has not incurred any
liability, should be declared null and void
IV. Private respondent PM Parts posits that it is
a buyer in good faith and, therefore, it acquired a
valid title over the subject properties. The
submission is without merit and the conclusion
is specious
We have stated earlier that the doctrine of
piercing the veil of corporate fiction is not
applicable in this case. However, its
inapplicability has no bearing on the good faith
or bad faith of private respondent PM Parts. It
must be noted that Modesto N. Cervantes served
as Vice-President of Bormaheco and, later, as
President of PM Parts. On this fact alone, it
cannot be said that PM Parts had no knowledge
of the aforesaid several transactions executed
between Bormaheco and petitioners. In addition,
Atty. Martin de Guzman, who is the Executive
Vice-President of Bormaheco, was also the legal
counsel of ICP and PM Parts. These facts were
admitted without qualification in the stipulation
of facts submitted by the parties before the trial
court. Hence, the defense of good faith may not
be resorted to by private respondent PM Parts
which is charged with knowledge of the true
relations existing between Bormaheco, ICP and
herein petitioners. Accordingly, the transfer
certificates of title issued in its name, as well as
the certificate of sale, must be declared null and
void since they cannot be considered altogether
free of the taint of bad faith
JLT Agro Inc. v Balansag
Facts: Don Julian Teves contracted two
marriages, first with Antonia Baena and had two
kids namely Josefa and Emilio. After her death,
he married Milagros Teves and they had four
children namely: Maria Teves, Jose Teves,
Milagros Teves and Pedro Teves. Thereafter, the
parties to the case entered into a Compromise
Agreement.
When Antonia died an action for partition was
instituted where the parties entered into a
Compromise Agreement which embodied the
partition of all the properties of Don Julian. On
the basis of the compromise agreement, the CFI
declared a tract of land known as Hacienda
Medalla Milagrosa as property owned in
common by Don Julian and his two children of
the first marriage. The property was to remain
undivided during the lifetime of Don Julian.
Josefa and Emilio likewise were given other
properties at Bais, including the electric plant,
the movie property, the commercial areas, and
the house where Don Julian was living. The
remainder of the properties was retained by Don
Julian.
On 16 November 1972, Don Julian, Emilio and
Josefa executed a Deed of Assignment of Assets
with Assumption of Liabilities in favor of J.L.T.
Agro, Inc. (petitioner). Later, Don Julian, Josefa
and Emilio also executed an instrument entitled
Supplemental to the Deed of Assignment of
Assets with the Assumption of Liabilities
(Supplemental Deed) dated 31 July 1973. This
instrument transferred ownership over Lot No.
63, among other properties, in favor of
petitioner. The appellate court ruled that the
supplemental deed, conveying ownership to JLT
agro is not valid because the Compromise
Agreement reserved the properties to Don
Julians two sets of heirs their future legitimes.
The two sets of heirs acquired full ownership
and possession of the properties respectively
adjudicated to them and Don Julian himself
could no longer dispose of the same. The
appellate court in holding that the Supplemental
Deed is not valid, added that it contained a
prohibited preterition of Don Julians heirs from
the second marriage.
The appellate court likewise emphasized that
nobody in his right judgment would preterit his
legal heirs by simply executing a document like
the Supplemental Deed which practically covers
all properties which Don Julian had reserved in
favor of his heirs from the second marriage. It
also found out that the blanks reserved for the
Book No. and Page No. at the upper right corner
of TCT No. T-375, "to identify the exact location
where the said title was registered or
transferred," were not filled up, thereby
indicating that the TCT is "spurious and of
dubious origin."
Issue: A.) Was there preterition (the omission in
testators will of one, some or all of the
compulsory heirs in the direct line, whether
living at the time of execution of the will or born
after the death of the testator.) in the case?
B) Whether or not the future legitime can be
determined, adjudicated and reserved prior to the
death of Don Julian
Ruling: The petition is denied.
A) None. Manresa defines preterition as the
omission of the heir in the will.
In the case at bar, Don Julian did not execute a
will since what he resorted to was a
partition inter vivos of his properties, as
evidenced by the court approved Compromise
Agreement. Thus, it is premature if not
irrelevant to speak of preterition prior to the
death of Don Julian in the absence of a will
depriving a legal heir of his
legitime. Besides, there are other properties
which the heirs from the second marriage
could inherit from Don Julian upon his death.
(B) As a general rule, No. Well-entrenched is the
rule that all things, even future ones, which are
not outside the commerce of man may be the
object of a contract. The exception is that no
contract may be entered into with respect to
future inheritance, and the exception to the
exception is partition inter vivos referred to in
Article 1080.
Article 1056 of the old Civil Code (now
Article 1080) authorizes a testator to partition
inter vivos his property, and distribute them
among his heirs, and this partition is neither a
donation nor a testament, but an instrument of a
special character, sui generis, which is revocable
at any time by the causante during his lifetime,
and does not operate as a conveyance of title
until his death. It derives its binding force on the
heirs from the respect due to the will of the
owner of the property, limited only by his
creditors and the intangibility of the legitime of
the forced heirs
The partition inter vivos of the properties of Don
Julian is undoubtedly valid pursuant to Article
1347. However, considering that it would
become legally operative only upon the death of
Don Julian, the right of his heirs from the second
marriage to the properties adjudicated to him
under the compromise agreement was but a mere
expectancy. It was a bare hope of succession to
the property of their father. Being the prospect
of a future acquisition, the interest by its nature
was inchoate. Evidently, at the time of the
execution of the supplemental deed in favor of
petitioner, Don Julian remained the owner of the
property since ownership over the subject lot
would only pass to his heirs from the second
marriage at the time of his death.
The rule that a certificate of title serves as
evidence of an indefeasible title to the property
in favor of the person whose name appears
therein. A certificate of title accumulates in one
document a precise and correct statement of the
exact status of the fee held by its owner. The
certificate, in the absence of fraud, is the
evidence of title and shows exactly the real
interest of its owner.
Thus, contrary to the appellate court's ruling, the
appearance of a mere thumbmark of Don Julian
instead of his signature in the Supplemental
Deed would not affect the validity of petitioner's
title for this Court has ruled that a thumbmark
is a recognized mode of signature.
However as petitioner bases its right to the
subject lot on the Supplemental Deed, it should
have presented it to the Register of Deeds to
secure the transfer of the title in its name.
Apparently, it had not done so. There is
nothing on OCT No. 5203 or on the succeeding
TCT No. T-375 either which shows that it had
presented the Supplemental Deed. In fact, there
is absolutely no mention of a reference to said
document in the original and transfer certificates
of title. It is in this regard that the finding of the
Court of Appeals concerning the absence of
entries on the blanks intended for the Book No.
and Page No. gains significant relevance.
Indeed, this aspect fortifies the conclusion that
the cancellation of OCT No. 5203 and the
consequent issuance of TCT No. T-375 in its
place are not predicated on a valid transaction.
Going by the legal, accepted and normal
process, the reconstitution court may order the
reconstitution and replacement of the lost title
only, nothing else. Since what was lost is the
owner's copy of OCT No. 5203, only that
owner's copy could be ordered replaced. Thus,
the Register of Deeds exceeded his authority in
issuing not just a reconstituted owner's copy of
the original certificate of title but a new transfer
certificate of title in place of the original
certificate of title. But if the court order, as the
entry intimates, directed the issuance of a new
transfer certificate of title even designating
the very number of the new transfer certificate
of title itself the order would be patently
unlawful. A court cannot legally order the
cancellation and replacement of the original of
the O.C.T. which has not been lost, 53 as the
petition for reconstitution is premised on the loss
merely of the owner's duplicate of the OCT.
Apparently, petitioner had resorted to the court
order as a convenient contrivance to effect the
transfer of title to the subject lot in its name,
instead of the Supplemental Deedwhich should
be its proper course of action. It was so
constrained to do because the Supplemental
Deed does not constitute a deed of conveyance
of the "registered land in fee simple" "in a form
sufficient in law," as required by Section 57 of
P.D. No. 1529.
A plain reading of the pertinent provisions of the
Supplemental Deed discloses that the
assignment is not supported by any
consideration
The amount of P84,000.00 adverted to in the
dispositive portion of the instrument does not
represent the consideration for the assignment
made by Don Julian. Rather, it is a mere
statement of the fair market value of all the
nineteen (19) properties enumerated in the
instrument, of which Lot No. 63 is just one, that
were transferred by Don Julian in favor of
petitioner. Consequently, the testimony 55 of
petitioner's accountant that the assignment is
supported by consideration cannot prevail over
the clear provision to the contrary in the
Supplemental Deed.
The Court of Appeals, on the other hand,
apparently considered the 1948 mortgage which
is annotated on the back of the TCT No. T-375
as the consideration for the assignment. 56
However, the said annotation 57 shows that the
mortgage was actually executed in favor of
Rehabilitation Finance Corporation, not of
petitioner. 58 Clearly, said mortgage, executed
as it was in favor of the Rehabilitation Finance
Corporation and there being no showing that
petitioner itself paid off the mortgage obligation,
could not have been the consideration for the
assignment to petitioner.
Article 1318 of the New Civil Code enumerates
the requisites of a valid contract, namely: (1)
consent of the contracting parties; (2) object
certain which is the subject matter of the
contract; and (3) Cause of the obligation which
is established.
Thus, Article 1352 declares that contracts
without cause or with unlawful cause produce
no effect whatsoever. Those contracts lack an
essential element and they are not only voidable
but void or inexistent pursuant to Article 1409,
paragraph (2). 59 The absence of the usual
recital of consideration in a transaction which
normally should be supported by a consideration
such as the assignment made by Don Julian of
all nineteen (19) lots he still had at the time,
coupled with the fact that the assignee is a
corporation of which Don Julian himself was
also the President and Director, forecloses the
application of the presumption of existence of
consideration established by law.
Liguez v CA
Facts: CA erred in applying to the present case
the pari delicto rule. First, because it can not be
said that both parties here had equal guilt when
we consider that as against the deceased
Salvador P. Lopez, who was a man advanced in
years and mature experience, the appellant was a
mere minor, 16 yrs of age, when the donation
was made; that there is no finding made by CA
that she was fully aware of the terms of the
bargain entered into by and Lopez and her
parents; that, her acceptance in the deed of
donation (Art. 741) did not necessarily imply
knowledge of conditions and terms not set forth
therein; and that the substance of the testimony
of the instrumental witnesses is that it was the
appellant's parents who insisted on the donation
before allowing her to live with Lopez. These
facts are more suggestive of seduction than of
immoral bargaining on the part of appellant. It
must not be forgotten that illegality is not
presumed, but must be duly and adequately
proved. Second, the rule that parties to an illegal
contract, if equally guilty, will not be aided by
the law but will both be left where it finds them,
has been interpreted by this Court as barring the
party from pleading the illegality of the bargain
either as a cause of action or as a defense.
CA correctly held that Lopez could not donate
the entirety of the property in litigation, to the
prejudice of his wife Maria Ngo, because said
property was conjugal in character and the right
of the husband to donate community property is
strictly limited by law
Ruling: The petition is denied.
Appellant vigorously contends that the Court of
First Instance as well as the Court of Appeals
erred in holding the donation void for having an
illicit causa or consideration. It is argued that
under Article 1274 of the Civil Code of 1889
(which was the governing law in 1943, when the
donation was executed), "in contracts of pure
beneficence the consideration is the liberality of
the donor", and that liberality per se can never
be illegal, since it is neither against law or
morals or public policy.
The flaw in this argument lies in ignoring that
under Article 1274, liberality of the donor is
deemed causa only in those contracts that are of
"pure" beneficence; that is to say, contracts
designed solely and exclusively to procure the
welfare of the beneficiary, without any intent of
producing any satisfaction for the donor;
contracts, in other words, in which the idea of
self-interest is totally absent on the part of the
transferor. For this very reason, the same Article
1274 provides that in remuneratory contracts,
the consideration is the service or benefit for
which the remuneration is given; causa is not
liberality in these cases because the contract or
conveyance is not made out of pure beneficence,
but "solvendi animo." In consonance with this
view, this Supreme Court in Philippine Long
Distance Co. vs. Jeturian* G. R. L-7756, July
30, 1955, like the Supreme Court of Spain in its
decision of 16 Feb. 1899, has ruled that bonuses
granted to employees to excite their zeal and
efficiency, with consequent benefit for the
employer, do not constitute donation having
liberality for a consideration.
Here the facts as found by the Court of Appeals
(and which we can not vary) demonstrate that in
making the donation in question, the late
Salvador P. Lopez was 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 impulses. This is
clear from the confession of Lopez to the
witnesses Rodriguez and Ragay, that he was in
love with appellant, but her parents would not
agree unless he donated the land in question to
her. Actually, therefore, the donation was but
one part of an onerous transaction (at least with
appellant's parents) that must be viewed in its
totality. Thus considered, the conveyance was
clearly predicated upon an illicit causa.
Appellant seeks to differentiate between the
alleged liberality of Lopez, as causa for the
donation in her favor, and his desire for
cohabiting with appellant, as motivesthat
impelled him to make the donation, and quotes
from Manresa and the jurisprudence of this
Court on the distinction that must be maintained
between causa and motives (De Jesus vs. Urrutia
and Co., 33 Phil. 171). It is well to note,
however, that Manresa himself (Vol. 8, pp. 641-
642), while maintaining the distinction and
upholding the inoperativeness of the motives of
the parties to determine the validity of the
contract, expressly excepts from the rule those
contracts that are conditioned upon the
attainment of the motives of either party
The same view is held by the Supreme Court of
Spain, in its decisions of February 4, 1941, and
December 4, 1946, holding that the motive may
be regarded as causa when it predetermines the
purpose of the contract.
In the present case, it is scarsely disputable that
Lopez would not have conveyed the property in
question had he known that appellant would
refuse to cohabit with him; so that the
cohabitation was an implied condition to the
donation, and being unlawful, necessarily
tainted the donation itself.
DONATION; CAUSE OR CONSIDERATION;
LIBERALITY OF DONOR WHEN DEEMED
"CAUSA". Under Article 1274, of the Civil
Code of 1889, liberality of the donor is deemed
causa only in those contracts that are of "pure"
beneficience that is to say, contracts designed
solely and exclusively to procure the welfare of
the beneficiary, without any intent of producing
any satisfaction for the donor; contacts, in other
words, in which the idea of self-interest is totally
absent on the part of the transferor. For this very
reason, the same Article 1274 provides that in
remuneratory contracts, the consideration is the
service or benefit for which the remuneration is
given; causa is not liberality in these cases
because the contract or conveyance is not made
out of pure beneficience, but "solvendi animo".
MOTIVE REGARDED AS "CAUSA.". The
motive of the parties may be regarded as causa
when it predetermines the purpose of the
contract.
DONATION OF CONJUGAL PROPERTY BY
THE HUSBAND, EFFECT OF. The right of
the husband to donate community property is
strictly limited by law (Article 1409, 1413,
1415, Civil Code of 1889; Baello vs. Villanueva,
54 Phil. 213). However, the donation made in
contravention of the law is not void in its
entirely, but only in so far as it prejudices the
interest of the wife. The rule applies whether the
donation is gratuitous or for a consideration.
LEGITIMATE OF FORCED HEIRS
UNAFFECTED; LEGITIMATE, HOW
COMPUTED. The forced heirs are entitled to
have the donation set aside in so far
asinofficious; i.e., in excess of the portion of free
disposal (Civil Code of 1889, Arts. 636, 654),
computed as provided in Article 818 and 819,
and bearing in mind that "collationable gifts"
under Article 818 should include gifts made not
only in favor of the forced heirs, but even those
made in favor of strangers. (Decision of the
Supreme Court Spain, May 4, 1889 and June 16,
1902.)
"PARI DELICTO" PARTIES TO ILLEGAL
CONTRACT BARRED FROM PLEADING
ILLEGALITY OF BARGAIN. The rule that
the parties to an illegal contract, if equally
guilty, will not be aided by the law but will both
be left where it finds them, has been interpreted
by this Court as barring the party from pleading
the illegality of the bargain either as a cause of
action or as a defense.
ACCESSION; RULES GOVERNING
IMPROVEMENTS MADE IN GOOD FAITH.
Improvements made in good faith are
governed by the rules of accession and
possession in good faith.
Olegario v CA
Facts:
Spouses Marciliano Olegario and Aurelia
Rivera-Olegario owned a parcel of land
The Olegario couples were childless but reared
and educated private respondents Manuel
Rivera, Paz Olegario, and Socorro Olegario-
Teves. Petitioner Bonifacio Olegario is the
brother of Marciliano while petitioner Adelaida
Victorino is the niece of Aurelia.
On March 19, 1986, Aurelia Rivera-Olegario
died at the age of eighty-three (83). To preclude
her heirs from inheriting and to avoid payment
of taxes, Marciliano, then eighty (80) years old,
executed on April 15, 1986 a Deed of Absolute
Sale of the subject property in favor of private
respondents. 2 The purported consideration was
FIFTY THOUSAND PESOS (P50,000.00). The
contract of sale was not registered.
Petitioners Bonifacio Olegario and Adelaida
Victorino were the sole heirs of spouses
Olegario. On May 23, 1989, they executed a
Deed of Extra-judicial Settlement of Estate 3
covering the subject lot which was published in
the Metropolitan Newsweek for three (3)
consecutive weeks. On July 13, 1989, the said
Extra-judicial Settlement was recorded in the
Register of Deeds of Caloocan City. TCT No. C-
124222 was then cancelled and TCT No. 190363
was issued in their names. 4
On August 1, 1989, petitioners sold the subject
lot for TWO HUNDRED THOUSAND PESOS
(P200,000.00) to Elena Adaon and Nestor Tejon.
5 TCT No. 190132 was then issued in vendees'
names
Private respondents alleged that the Extra-
judicial Settlement came to their knowledge
only on August 21, 1989. On that same day, they
tried to register their contract of sale three (3)
years from its execution. The registration was
denied as the subject property has been
transferred to Elena Adaon and Nestor Tejon
The fight for ownership of the subject lot
ensued. Private respondents filed Civil Case No.
C-13973 for Annulment of Extra-judicial
Settlement of Estate and Damages against
petitioners. 6 As special and affirmative defense,
petitioners assailed the Deed of Absolute Sale
between Marciliano Olegario and private
respondents. On the other hand, cross-claimants
Elena Adaon and Nestor Tejon maintained they
were buyers in good faith and for value.
In due course, the trial court ruled in favor of
private respondents. It annulled the Extra-
judicial Settlement of the subject lot and its sale
to Adaon and Tejon
Ruling: The petition is granted
There is no question that petitioners are the
lawful heirs of spouses Olegario. Under Article
160 of the New Civil Code, the subject lot is
presumed to be conjugal property. The death of
Aurelia Rivera-Olegario on March 19, 1986
dissolved the conjugal partnership. By virtue of
such dissolution, 1/2 of the property should
appertain to Marciliano as his share from the
conjugal estate plus another 1/4 representing his
share as surviving spouse of Aurelia. 9 Petitioner
Adelaida Victorino, as the sole surviving niece
of Aurelia, is entitled to the other 1/4 of the lot.
10 When Marciliano died intestate on March 10,
1986, petitioner Bonifacio Olegario, the only
surviving brother of Marciliano, stepped into his
shoe.
We shall now determine whether the inheritance
right of petitioners can be prejudiced by the sale
of the subject lot by the deceased Marciliano to
private respondents. In a contract of sale,
consideration is, as a rule, different from the
motive of the parties. Consideration is defined
as some right, interest, benefit, or advantage
conferred upon the promissor, to which he is
otherwise not lawfully entitled, or any detriment,
prejudice, loss, or disadvantage suffered or
undertaken by the promisee other than to such as
he is at the time of consent bound to suffer. 11
As contradistinguished, motive is the condition
of mind which incites to action, but includes
also the inference as to the existence of such
condition, from an external fact of a nature to
produce such a condition. Under certain
circumstances, however, the motive of the
parties may be regarded as the consideration
when it predetermines the purpose of the
contract. When they blend to that degree, and
the motive is unlawful, then the contract
entered into is null and void.
In the case at bench, the primary motive of
Marciliano is selling the controverted 91-square
meter lot to private respondents was to illegally
frustrate petitioners' right of inheritance and to
avoid payment of estate tax. This was
unabashedly admitted by witness Susan Rivera,
wife of private respondent Manuel Rivera, on
cross-examination
The trial court and respondent court failed to
consider the lack of cause in the alleged deed of
sale of 1886. 18 The evidence does not show
that private respondents had FIFTY
THOUSAND PESOS (P50,000.00) and paid the
same to Marciliano. Private respondents
allegedly borrowed THIRTY THOUSAND
PESOS (P30,000.00) from the cooperative of
Mary Help of Christian Parish to prove their
financial capacity. However, they floundered in
their cross-examinations
Applying Articles 1352 and 1409 of the Civil
Code in relation to the indispensable requisite of
a valid cause, we hold that the alleged deed of
sale is void.
Ong v Ong
Facts:
Records show that on February 25, 1976 Imelda
Ong, for and in consideration of One (P1.00)
Peso and other valuable considerations, executed
in favor of private respondent Sandra Maruzzo,
then a minor, a Quitclaim Deed whereby she
transferred, released, assigned and forever
quitclaimed to Sandra Maruzzo, her heirs and
assigns, all her rights, title, interest and
participation in the ONE-HALF (1/2) undivided
portion of the parcel of land
On November 19, 1980, Imelda Ong revoked the
aforesaid Deed of Quitclaim and, thereafter, on
January 20, 1982 donated the whole property
described above to her son, Rex Ong Jimenez.
On June 20, 1983, Sandra Maruzzo, through her
guardian ad litem Alfredo Ong, filed with the
Regional Trial Court of Makati, Metro Manila
an action against petitioners, for the recovery of
ownership/possession and nullification of the
Deed of Donation over the portion belonging to
her and for Accounting.
In their responsive pleading, petitioners claimed
that the Quitclaim Deed is null and void
inasmuch as it is equivalent to a Deed of
Donation, acceptance of which by the donee is
necessary to give it validity. Further, it is averred
that the donee, Sandra Maruzzo, being a minor,
had no legal personality and therefore incapable
of accepting the donation
The trial court rendered judgment in favor of
respondent Maruzzo and held that the Quitclaim
Deed is equivalent to a Deed of Sale and, hence,
there was a valid conveyance in favor of the
latter
Respondent Intermediate Appellate Court
promulgated its Decision affirming the appealed
judgment and held that the Quitclaim Deed is a
conveyance of property with a valid cause or
consideration; that the consideration is the One
(P1.00) Peso which is clearly stated in the deed
itself; that the apparent inadequacy is of no
moment since it is the usual practice in deeds of
conveyance to place a nominal amount although
there is a more valuable consideration given.
Hence this Petition
Ruling: The petition is granted.
A careful perusal of the subject deed reveals that
the conveyance of the one-half (1/2) undivided
portion of the above-described property was for
and in consideration of the One (P1.00) Peso
and the other valuable considerations (italics
supplied) paid by private respondent Sandra
Maruzzo, through her representative, Alfredo
Ong, to petitioner Imelda Ong. Stated
differently, the cause or consideration is not the
One (P1.00) Peso alone but also the other
valuable considerations
Although the cause is not stated in the contract it
is presumed that it is existing unless the debtor
proves the contrary (Article 1354 of the Civil
Code). One of the disputable presumptions is
that there is a sufficient cause of the contract
(Section 5, (r), Rule 131, Rules of Court). It is a
legal presumption of sufficient cause or
consideration supporting a contract even if such
cause is not stated therein (Article 1354, New
Civil Code of the Philippines.) This presumption
cannot be overcome by a simple assertion of
lack of consideration especially when the
contract itself states that consideration was
given, and the same has been reduced into a
public instrument with all due formalities and
solemnities.To overcome the presumption of
consideration the alleged lack ofconsideration
must be shown by preponderance of evidence
in a proper action. (Samanilla vs. Cajucom, et
al., 107 Phil. 432)
Moreover, even granting that the Quitclaim deed
in question is a donation, Article 741 of the Civil
Code provides that the requirement of the
acceptance of the donation in favor of minor by
parents of legal representatives applies only to
onerous and conditional donations where the
donation may have to assume certain charges or
burdens (Article 726, Civil Code). The
acceptance by a legal guardian of a simple or
pure donation does not seem to be necessary
(Perez vs. Calingo, CA-40 O.G. 53). Thus,
Supreme Court ruled in Kapunan vs. Casilan and
Court of Appeals, 109 Phil. 889) that the
donation to an incapacitated donee does not need
the acceptance by the lawful representative if
said donation does not contain any condition. In
simple and pure donation, the formal acceptance
is not important for the donor requires no right
to be protected and the donee neither undertakes
to do anything nor assumes any obligation. The
Quitclaim now in question does not impose any
condition."
The above pronouncement of respondent
Appellate Court finds support in the ruling of
this Court in Morales Development Co., Inc. vs.
CA, 27 SCRA 484, which states that "the major
premise thereof is based upon the fact that the
consideration stated in the deeds of sale in favor
of Reyes and the Abellas is P1.00. It is not
unusual, however, in deeds of conveyance
adhering to the Anglo-Saxon practice of stating
that the consideration given is the sum of P1.00,
although the actual consideration may have been
much more. Moreover, assuming that said
consideration of P1.00 is suspicious, this
circumstance, alone, does not necessarily justify
the inference that Reyes and the Abellas were
not purchasers in good faith and for value.
Neither does this inference warrant the
conclusion that the sales were null and void ab
initio. Indeed, bad faith and inadequacy of the
monetary consideration do not render a
conveyance inexistent, for the assignor's
liberality may be sufficient cause for a valid
contract (Article 1350, Civil Code), whereas
fraud or bad faith may render either rescissible
or voidable, although valid until annulled, a
contract concerning an object certain entered
into with a cause and with the consent of the
contracting parties, as in the case at bar."
Spouses Buenaventura v CA
Facts: Petitioners sought to declare as null and
void ab initio certain deeds of sale of real
property executed by their parents, respondents
Leonardo Joaquin and Feliciana Landrito, in
favor of their co-respondents-children and the
corresponding certificates of title issued in their
names. They alleged that the sale of the subject
properties impaired their legitime and that there
was no actual valid consideration for the deeds
of sale, and even assuming that there was indeed
consideration, the price was grossly inadequate.
The trial court ruled in favor of the respondents
and dismissed the complaint. The trial court
ruled that petitioners had no valid cause of
action against respondents since there can be no
legitime to speak of prior to the death of their
parents. On appeal, the Court of Appeals
affirmed the decision of the trial court. The
appellate court ruled that petitioners have no
legal capacity to challenge the validity of the
subject deeds since they are not parties thereto
and are not principally or subsidiarily bound
thereby.
Ruling: The petition is denied.
The Supreme Court affirmed the ruling of the
Court of Appeals. According to the Court,
petitioners do not have any legal interest over
the properties subject of the Deeds of Sale.
Petitioners' right to their parents' properties is
merely inchoate and vests only upon their
parents' death. While still living, the parents of
petitioners are free to dispose of their properties
and the sale of the lots to their siblings does not
affect the value of their parents' estate because
while the sale of the lots reduced the estate, the
cash of equivalent value replaced the lots taken
from the estate. The Court also ruled that
payment of the price has nothing to do with the
perfection of the contract. Failure to pay the
consideration is different from lack of
consideration. The former results in a right to
demand the fulfillment or cancellation of the
obligation under an existing valid contract,
while the latter prevents the existence of a valid
contract. In the case at bar, petitioners failed to
show that the prices in the Deeds of Sale were
absolutely simulated. On the issue of inadequacy
of the price or consideration, the Court did not
disturb the ruling of the trial court that the lots
were sold for a valid consideration, and that the
respondents-children actually paid the purchase
price stipulated in their respective Deeds of Sale.
Said factual finding by the trial court is binding
on the Court
REMEDIAL LAW; CIVIL PROCEDURE;
PARTIES TO CIVIL ACTIONS; PARTIES IN
INTEREST; PETITIONERS DO NOT HAVE
LEGAL INTEREST OVER THE PROPERTIES
SUBJECT OF THE DEEDS OF SALE; RIGHT
TO THEIR PARENTS' PROPERTIES IS
MERELY INCHOATE AND VESTS ONLY
UPON THEIR PARENTS' DEATH. It is
evident from the records that petitioners are
interested in the properties subject of the Deeds
of Sale, but they have failed to show any legal
right to the properties: The trial and appellate
courts should have dismissed the action for this
reason alone. An action must be prosecuted in
the name of the real party-in-interest. Petitioners
do not have any legal interest over the properties
subject of the Deeds of Sale. As the appellate
court stated, petitioners' right to their parents'
properties is merely inchoate and vests only
upon their parents' death. While still living, the
parents of petitioners are free to dispose of their
properties. In their overzealousness to safeguard
their future legitime, petitioners forget that
theoretically, the sale of the lots to their siblings
does not affect the value of their parents' estate.
While the sale of the lots reduced the estate,
cash of equivalent value replaced the lots taken
from the estate.
CIVIL LAW; SPECIAL CONTRACTS; SALE;
A CONSENSUAL CONTRACT; PAYMENT
OF THE PRICE HAS NOTHING TO DO
WITH THE PERFECTION OF CONTRACT.
A contract of sale is not a real contract, but
a consensual contract. As a consensual
contract, a contract of sale becomes a binding
and valid contract upon the meeting of the minds
as to price. If there is a meeting of the minds of
the parties as to the price, the contract of sale is
valid, despite the manner of payment, or even
the breach of that manner of payment. If the real
price is not stated in the contract, then the
contract of sale is valid but subject to
reformation. If there is no meeting of the
minds of the parties as to the price, because
the price stipulated in the contract is
simulated, then the contract is void. Article
1471 of the Civil Code states that if the price in
a contract of sale is simulated, the sale is void. It
is not the act of payment of price that determines
the validity of a contract of sale. Payment of the
price has nothing to do with the perfection of the
contract. Payment of the price goes into the
performance of the contract. Failure to pay the
consideration is different from lack of
consideration. The former results in a right to
demand the fulfillment or cancellation of the
obligation under an existing valid contract
while the latter prevents the existence of a
valid contract.
PETITIONERS FAILED TO SHOW THAT
THE PRICES IN THE DEEDS OF SALE
WERE ABSOLUTELY SIMULATED.
Petitioners failed to show that the prices in the
Deeds of Sale were absolutely simulated. To
prove simulation, petitioners presented Emma
Joaquin Valdoz's testimony stating that their
father, respondent Leonardo Joaquin, told her
that he would transfer a lot to her through a deed
of sale without need for her payment of the
purchase price. The trial court did not find the
allegation of absolute simulation of price
credible. Petitioners' failure to prove absolute
simulation of price is magnified by their lack of
knowledge of their respondent siblings' financial
capacity to buy the questioned lots. On the other
hand, the Deeds of Sale which petitioners
presented as evidence plainly showed the cost of
each lot sold. Not only did respondents' minds
meet as to the purchase price, but the real price
was also stated in the Deeds of Sale. As of the
filing of the complaint, respondent siblings have
also fully paid the price to their respondent
father.
NO REQUIREMENT THAT THE PRICE BE
EQUAL TO THE EXACT VALUE OF
THE SUBJECT MATTER OF THE SALE.
Petitioners failed to prove any of the instances
mentioned in Articles 1355 and 1470 of the Civil
Code which would invalidate, or even affect, the
Deeds of Sale. Indeed, there is no requirement
that the price be equal to the exact value of the
subject matter of sale. All the respondents
believed that they received the commutative
value of what they gave. Moreover, the factual
findings of the appellate court are conclusive on
the parties and carry greater weight when they
coincide with the factual findings of the trial
court. This Court will not weigh the evidence all
over again unless there has been a showing that
the findings of the lower court are totally devoid
of support or are clearly erroneous so as to
constitute serious abuse of discretion. In the
instant case, the trial court found that the lots
were sold for a valid consideration, and that the
defendant children actually paid the purchase
price stipulated in their respective Deeds of Sale.
Actual payment of the purchase price by the
buyer to the seller is a factual finding that is now
conclusive upon us.