KATIPUNAN VS. KATIPUNAN, JR.

G.R. No. 132415, January 30, 2002

Facts:
Respondent Braulio Katipunan Jr. is the registered owner of a lot and a fivedoor apartment constructed thereon, which were occupied by lessees. Respondent
assisted by his brother petitioner Miguel entered into a Deed of Absolute Sale with
brothers Edardo Balguma and Leopoldo Balguma, Jr. ( co-petitioners), represented
by their lawyer-father involving the subject property for a consideration of
P187,000.00. So, the title was registered in the names of the Balguma brothers and
they started collecting rentals thereon.
Later, Braulio filed a complaint for annulment of the Deed of Absolute Sale,
contending that his brother Miguel, Atty. Balguma and Inocencio Valdez (one of the
petitioners) convinced him to work abroad. Through insidious words and
machinations, they made him sign a document purportedly a contract of
employment, which document turned out to be a Deed of Absolute Sale. He further
alleged that he did not receive the consideration stated in the contract. He claimed
that there was evident bad faith and conspiracy in taking advantage of his
ignorance, he being only a third grader.
The RTC dismissed the complaint because Braulio failed to prove his cause
of action since he admitted that he obtained loans from the Balgumas, he signed
the Deed of Absolute Sale, and he acknowledged selling the property and stopped
collecting the rentals. But when the case was elevated, the decision of RTC was
reversed and it was held that Braulio was incompetent, has very low I.Q., illiterate
and has a slow comprehension. The CA based its decision on Arts.1332 and 1390 of
NCC and Sec. 2, Rule 92 of the Rules of Court, concerning the incompetence of a
party in contract.
Issue:
Whether there was a valid contract of sale between the parties.
Held:
The Supreme Court found the petition devoid of merit. There was a vitiated consent
on the part of the respondent as he signed the Deed of Absolute Sale without the
remotest idea of what it was and received no consideration thereof. The contract
entered into by the parties being voidable contract, was correctly annulled on
appeal.
A contract of sale is born from the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price. This meeting of
minds speaks of the intent of the parties in entering the contract respecting the
subject matter and the consideration thereof. Thus, the elements of a contract of a
sale are consent, object, and price in money or its equivalent. Under Art. 1330 of
NCC, consent may be vitiated by any of the following: mistake, violence,
intimidation, undue influence, and fraud. The presence of any of these vices renders
the contract voidable.
A contract where one of the parties is incapable of giving consent or where consent
is vitiated by mistake, fraud, or intimidation is not void ab initio but only voidable
and is binding upon the parties unless annulled proper court action. The effect of
annulment is to restore the parties to the status quo ante insofar as legally and

equitably possible---this much is dictated by Art. 1398 provides that when the
defect of the contract consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any restitution, except when he has
been benefited by the things or price received by him.
Thus, since the Deed of
Absolute Sale between respondent and Balguma brothers is voidable and hereby
annulled, then the restitution of the property and its fruits to respondent is just and
proper.
DANDAN VS. ARFEL REALTY & MANAGEMENT CORP.
Facts: On 7 March 1992, Arfel Realty, represented by its president and general
manager Rafael Felix, sold to Dandan a parcel of land covered by Transfer
Certificate of Title No. T-10527 and designated as Lot 3 Block 16 situated in Barrio
Pamplona, Las Pias, Metro Manila for the price of P320,000.00. The sale is
evidenced by a Deed of Absolute Sale.
The lot was previously the subject of a Contract to Sell executed between Arfel
Realty and the spouses Emerita and Carlito Sauro (the Sauros). Under this contract,
the Sauros undertook to pay the purchase price of P690,000.00, with a 50% down
payment of P345,000.00 and the balance payable in sixty (60) equal installments of
P9,528.52 including interest of 22% per annum. While the Sauros claimed to have
fully paid for the subject lot in the total amount of P799,601.59 and demanded the
delivery of title, Arfel Realty asserted that the several checks drawn by the Sauros
to effect payment were either dishonored by the bank due to insufficiency of funds
or were drawn against a closed account. Thus, the Sauros allegedly still had an
unpaid balance of P299,614.23.
According to Arfel Realty, Dandan was made aware of its previous transaction with
the Sauros. On 10 April 1992, a Memorandum of Agreement (the Agreement) was
executed between Arfel Realty and Dandan with the consideration representing the
balance due to Arfel Realty from the previous sale to the Sauros. The Agreement,
bound Dandan to assume all liabilities arising from the Deed of Absolute Sale and
held Arfel Realty free from any suit or judgment by reason of said sale.
On 2 June 1992, the Sauros filed a complaint for specific performance against Arfel
Realty before the Housing and Land Use Regulatory Board (HLURB). Arfel Realty
filed its answer with a counterclaim for moral damages and attorneys fees. Arfel
Realty followed this on 23 September 1992 with a third-party complaint against
Dandan, praying indemnification from Dandan for whatever is adjudged against it in
favor of the Sauros.

Dandan filed his Position Paper, contending that the HLURB had no jurisdiction
over the third-party complaint as the case did not involve the sale of a house and
lot but rather a personal action for indemnification and payment of attorneys fees.
He also questioned the validity of the Agreement in that it was not supported by
any valuable consideration. He argued that he affixed his signature to the
Agreement unaware of its legal import and without any intention to be bound by it.

Issue: Will mistake of law vitiate the consent in contracts?

Held: NO. The naked claim that Dandan signed the Agreement without
understanding its legal import will not exculpate him from its legal ramifications.
Mistake may invalidate consent when it refers 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. Mistake of law as a rule will not vitiate
consent.
Without doubt, Dandan is bound by the terms of the Agreement, as well as by all
the necessary consequences thereof. Courts are not authorized to extricate parties
from the necessary consequences of their acts, and the fact that the contractual
stipulations may turn out to be financially disadvantageous will not relieve parties
thereto of their obligations.
Further, the Agreement was duly acknowledged before a notary public. As a
notarized document, it has in its favor the presumption of regularity and carries the
evidentiary weight conferred upon it with respect to its due execution. It is
admissible in evidence without further proof of its authenticity and is entitled to full
faith and credit upon its face.

Songco vs. NLRC [G.R. No. L-50999 March 23, 1990]

Facts: Zuellig (M) Inc. filed with the Department of Labor (Regional Office No. 4) a
clearance to terminate the services of petitioners Jose Songco, Romeo Cipres and
Amancio Manuel due to alleged financial losses. However, the petitioners argued
that the company is not suffering any losses and the real reason for their
termination was their membership in the union. At the last hearing of the case, the
petitioner manifested that they no longer contesting their dismissal, however, they
argued that they should be granted a separation pay. Each of the petitioners was
receiving a monthly salary of P40, 000.00 plus commissions for every sale they
made. Under the CBA entered by the Zuellig Inc. and the petitioners, in Article XIV,
Section 1(a), Any employee, who is separated from employment due to old age,
sickness, death or permanent lay-off not due to the fault of said employee shall
receive from the company a retirement gratuity in an amount equivalent to one
months salary per year of service. One month of salary as used in this paragraph
shall be deemed equivalent to the salary at date of retirement; years of service
shall be deemed equivalent to total service credits, a fraction of at least six months
being considered one year, including probationary employment. Other basis for
petitioners contention are Article 284 of the Labor Code with regards to reduction
of personnel and Sections 9(b) and 10 of Rule 1, Book VI of the Rules Implementing
the Labor Code. The Labor Arbiter rendered his decision directing the company to
pay the complainants separation pay equivalent to their one month salary
(exclusive of commissions, allowances, etc.) for every year of service that they have
worked with the company. The petitioners appealed to the NLRC but it was denied.
Petitioner Romeo Cipres filed a Notice of Voluntary Abandonment and Withdrawal of
petition contending that he had received, to his full and complete satisfaction, his
separation pay. Hence, this petition.
Issue: Whether or not earned sales commissions and allowances should be included
in the monthly salary of petitioners for the purpose of computation of their
separation pay.
Held: The petition is granted. Petitioners contention that in arriving at the correct
and legal amount of separation pay due to them, whether under the Labor Code or
the CBA, their basic salary, earned sales commissions and allowances should be

added together. Insofar as whether the allowances should be included in the

monthly salary of petitioners for the purpose of computation of their separation pay
is concerned, this has been settled in the case of Santos vs. NLRC, 76721, in the
computation of backwages and separation pay, account must be taken not only of
the basic salary of petitioner but also of her transportation and emergency living
allowances. In the issue of whether commission should be included in the
computation of their separation pay, it is proper to define first commission. Blacks
Law Dictionary defined commission as the recompensed, compensation or reward of
an agent, salesman, executor, trustees, receiver, factor, broker or bailee, when the
same is calculated as a percentage on the amount of his transactions or on the
profit to the principal. The nature of the work of a salesman and the reason for such
type of remuneration for services rendered demonstrate clearly that the
commission are part of petitioners wage and salary. Some salesmen do not receive
any basic salary but depend on commission and allowances or commissions alone,
are part of petitioners wage and salary. Some salesman do not received any basic
salary but depend on commission and allowances or commissions alone, although
an employer-employee relationship exist. In Soriano v. NLRC, it is ruled then that,
the commissions also claimed by petitioner (override commission plus net deposit
incentive) are not properly includible in such base figure since such commissions
must be earned by actual market transactions attributable to petitioner. Applying
this by analogy, since the commissions in the present case were earned by actual
market transactions attributable to petitioners, these should be included in their
separation pay. In the computation thereof, what should be taken into account is the
average commissions earned during their last year of employment.
MARTINEZ VS. HONGKONG AND SHANGHAI BANK
Facts: Alejandro S. Macleod was for many years the managing partner of the house
of Aldecoa & Co. in the city of Manila. He withdrew from the management on the
31st day of December, 1906, when Aldecoa & Co. went into liquidation. At the time
that Aldecoa & Co. ceased active business the Hongkong & Shanghai banking
Corporation was a creditor of that firm to the extent of several hundred thousand
pesos and claimed to have a creditor's lien in the nature of a pledge over certain
properties of the debtor. In April, 1907, the bank began a civil action against
Alejandro S. Macleod, his wife, Mercedes Martinez, Aldecoa & Co., and the firm
known as Viuda e Hijos de Escao. In the bank's complaint it was alleged that a
certain undertaking in favor of Aldecoa & Co. had been hypothecated to the bank to
secure the indebtedness of Aldecoa & Co., but that this obligation had been
wrongfully transferred by Alejandro S. Macleod into an obligation in favor in his wife,
Mercedes Martinez, to the prejudice of the bank. In May, 1907, Aldecoa & Co. began
a civil action against Alejandro S. Macleod and others for the recovery of certain
shares of stock of the par value of P161.000 and for damages in the sum of
P150,000, basing its right to recover upon alleged criminal misconduct of Mr.
Macleod in his management of the firm's affairs.
When the two causes of action above referred to were discovered and the suits
there mentioned commenced, Alejandro S. Macleod and Mercedes Martinez, his
wife, engaged the services of Messrs. Del-Pan, Ortigas and Fisher, attorneys at law,
to represent and defend them in the matter. Soon thereafter these attorneys made
overtures to the liquidation of Aldecoa & Co, for the settlement of the latter's
claims. While these negotiations were pending Aldecoa & Co. claimed that they had

made discoveries of many frauds which Macleod had perpetrated against the
company during the period of his management, whereby the company had been
defrauded of many thousands of pesos.
Issue: Did the intimidation amounted to vitiation of consent?
Held: The courts will not set aside contracts merely because solicitation,
importunity, argument, persuasion, or appeal to affection was used to obtain the
consent of the other party. Influence obtained by persuasion or argument or by
appeal to affection is not prohibited either in law or morals and is not obnoxious
even in courts of equity

AZARRAGA VS. GAY

Facts: By a public document Exhibit A, dated January 17, 1921, the plaintiff sold two
parcels of land to the defendant for the lump sum of P47,000, payable in
installments.
The conditions of the payment were: P5,000 at the time of signing the contract
Exhibit A; P20,000 upon delivery by the vendor to the purchaser of the Torrens title
to the first parcel described in the deed of sale, P10,000 upon delivery by the
vendor to the purchaser of Torrens title to the second parcel; and lastly the sum of
P12,000 one year after the delivery of the Torrens title to the second parcel.
The vendee paid P5,000 to the vendor when the contract was signed. The vendor
delivered the Torrens title to the first parcel to the vendee who, pursuant to the
agreement, paid him P20,000. In the month of March 1921, Torrens title to the
second parcel was issued and forthwith delivered by the vendor to the vendee who,
however, failed to pay the P10,000 is agreed, neither did she pay the remaining
P12,000 one year after having received the Torrens title to the second parcel.

The plaintiff here claims the sum of P22,000, with legal interest from the month of
April 1921 on the sum of P10,000, and from April 1922 on the sum of P12,000, until
full payment of the amounts claimed.
The defendant admits that she purchased the two parcels of land referred to by the
plaintiff, by virtue of the deed of sale Exhibit A, but alleges in defense: (a) That the
plaintiff knowing that the second parcel of land he sold had an area of 60 hectares,
by misrepresentation lead the defendant to believe that said second parcel
contained 98 hectares, and thus made it appear in the deed of sale and induced the
vendee to bind herself to pay the price of P47,000 for the two parcels of land, which
he represented contained an area of no less than 200 hectares, to which price the
defendant would not have bound herself had she known that the real area of the
second parcel was 60 hectares, and, consequently, she is entitled to a reduction in
the price of the two parcels in proportion to the area lacking, that is, that the price
be reduced to P38,000; (b) that the defendant, in addition to the amounts
acknowledged by the plaintiff, had paid other sums amounting to P4,000; and (c)
that the defendant never refused to pay the justly reduced price, but the plaintiff
refused to receive the just amount of the debt.
Issue: Is fraud present in this case to vitiate consent?
Held:
1. REAL, PROPERTY; PURCHASE AND SALE; VENDORS ALLEGED FALSE
REPRESENTATIONS. When the purchaser proceeds to make investigations by
himself, and the vendor does nothing to prevent such investigation from being as
complete as the former might wish, the purchaser cannot later allege that the
vendor made false representations to him. (National Cash Register Co. v. Townsend,
137 N. C., 662; 70 L. R. A., 349; Williamson v. Holt, 147 N. C., 515.)
2. ID.; ID.; ID. 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 or exaggerated. (Brown v. Smith, 109 Fed., 26.)
LAURETA TRINIDAD VS. IAC
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.
1
Trinidad paid the installment for 1970 and 1971 on time but asked Francisco for an
extension of 60 days to pay the installment due on July 1, 1972. However, she says
she eventually decided not to continue paying the amortizations because the house
was flooded again on July 18, 21, and 30, 1972, the waters rising to as high as five
feet on July 21. 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
fees.
Issues: Whether or not there is misrepresentation of facts
Held: 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.
What we see here is a bad bargain, not an illegal transaction vitiated by fraud. While
we may commiserate with the petitioner for a purchase that has proved unwise, we
can only echo what Mr. Justice Moreland observed in Vales v. Villa, 16 thus:
. . . Courts cannot follow one every step of his life and extricate him from bad
bargains, protect him from unwise investments, relieve him from one-sided
contracts, or annul the effects of foolish acts. Courts cannot constitute themselves
guardians of persons who are not legally incompetent. Courts operate not because
one person has been defeated or overcome by another, but because he has been
defeated or overcome illegally. Men may do foolish things, make ridiculous
contracts, use miserable judgment, and lose money by them indeed, all they
have in the world; but not for that alone can the law intervene and restore. There
must be, in addition, a violation of law, the commission of what the law knows as an
actionable wrong, before the courts are authorized to lay hold of the situation and
remedy it.
WHEREFORE, the appealed decision is AFFIRMED as above modified, with no
pronouncement as to costs. It is so ordered.