Title II - Contracts

G.R. No. 205703 | 7 March 2016 Art.
1306: No Contrary Stipulations

Industrial Personnel v. De Vera Industrial Personnel v. De Vera
I. Recit-ready Summary 5. RESPONDENT: Arriola filed a complaint for illegal dismissal

Alberto Arriola entered into an overseas employment contract with and non-payment of overtime pay, vacation leave, and sick leave
Canadian-based company, SNC-Lavalin. He was to work for them for 19 pay, claiming that SNC-Lavalin still owed him unpaid salaries
months, however, he was terminated before the end of this period. He filed a equivalent to the 3 month unexpired portion of his contract. He
complaint for illegal dismissal, alleging that petitioners never offered any asserted that petitioners never offered any valid reason for his
valid reason for his termination and that he was not given sufficient notice. termination and that he was not given sufficient notice. He further
He further asserted that the Canadian law is not applicable to his asserted that the Canadian law is not applicable to his employment
employment contract. Petitioners stated that the 2008 Asian Financial Crises
contract.
necessitated them to cut down expenditures, and that the Canadian law is
6. PETITIONER: They were greatly affected by the 2008 Asian
what governs their contract. Canadian law does not require any ground for
dismissal, nor does it require prior notice. The issue in this case is whether financial crisis and had no choice but to minimize expenditures and
the Canadian law, or the Philippine law shall govern the contract. operational expenses by reorganizing certain branches. They
The Court ruled that Philippine law shall govern. The general rule invoked EDI-Staffbuilders International Inc. v. NLRC to point out
regarding overseas employment contracts is that Philippine law shall that the particular labor laws of a foreign country are incorporated
govern, however there are exceptions. For foreign laws to govern the in a contract freely entered into between an OFW and a foreign
contract, four requisites must be complied with. Petitioners were able to employer. They insisted that, by the principle of lex loci
comply with the second and fourth requisites ONLY, and this is not celebrationis, Canadian laws governed their employment contract.
sufficient to have foreign law govern their contract. Further, the 2008 Asian 7. Canadian Laws do not require any ground for early termination; it
Financial Crisis is not an authorized ground for dismissal. only requires the written notice of such, and separation pay. They
II. Facts of the Case (Material Facts) presented the Employment Standards Act (ESA) of Ontario, which
1. IPAMS is a local placement agency under Philippine laws. SNC- was duly authenticated and certified.
Lavalin is the principal of IPAMS and is a Canadian company. 8. The Labor Arbiter ruled in petitioners’ favor and dismissed the
Arriola is a licensed general surgeon in the Philippines. complaint, then the NLRC reversed it. The latter stated that all
2. May 1, 2008: SNC-Lavalin offered Arriola the position of Safety Filipino workers are governed by Philippine law, whether in the
Officer in its project site in Madagascar, for a period of 19 months country or abroad. Therefore, by failing to present evidence to
(from June 9, 2008-Dec. 3, 2009). Arriola claims that he signed show any just cause to terminate Arriola, the NLRC ruled that he
the contract in the Philippines. was illegally dismissed.
3. Sept, 9, 2009: Arriola received a notice of pre-termination of 9. The CA affirmed the NLRC ruling. They stated that the Canadian
employment from SNC-Lavalin, due to diminishing workload in law is contrary to the Constitution (right to due process), and thus
the are of his expertise and unavailability of alternative Philippine laws should apply.
assignments. III. Issue/s
4. Sept. 15, 2009: Arriola was repatriated, and SNC-Lavalin 1. W/N a foreign law can govern an overseas employment
deposited $2,636.80 Canadian dollars into his bank account as his contract in this instance?
pay, based on Canadian Labor Law. IV. Holding/s
Obligations and Contracts (2020) PETITIONER: Industrial Personnel & Management Services Inc. (IPAMS), 1
SNC Lavalin Engineers & Contractors Inc., and Angelito Hernandez
DIGEST AUTHOR: Maxi Asuncion RESPONDENT: Jose de Vera and Alberto Arriola
G.R. No. 205703 | 7 March 2016 Art. 1306: No Contrary Stipulations
Issue #1 the contract through the POEA. However, this is not enough.
NO, the foreign law cannot govern the employment contract in this It can be seen that the first requisite was not complied with because
instance. no foreign law was expressly stipulated in the employment contract. The
Petitioner’s Arguments Court’s Rebuttals petitioners did not cite any specific provision in the contract which indicated
• Rights and obligations of the • The Court cited many cases (see the applicability of the Canadian labor laws. They failed to show that a
parties in this case are governed additional notes) wherein it is foreign law was agreed upon by both parties. They merely stretched the
by the employment contract, and clearly seen that the general rule terms of the contract by saying that their Expatriate Policy, Ambatovy
that the terms and conditions of regarding overseas employment Project-Site, Long Term is what governed Arriola’s employment, then cited
such are embodied in the contracts is that Philippine laws provision 8.20 therein, regarding the interpretation of the contract, that said
Expatriate Policy, Ambatovy apply to them. This is rooted in the policy would be governed and construed with the laws of the country
Project-Site, Long Term, hence the Constitutional provision that where the applicable company office was located. The Court cannot
Canadian laws (ESA) apply. the State shall afford full condone this roundabout argument, because to do so would create a
Such does not require any protection to labor, whether local vulnerable environment for OFWs, because it is then not clearly stated in
ground for early termination and or overseas. Foreign laws may the labor contract itself which state laws shall apply.
does not require notice. It only only apply if four requisites are Second, the third requisite was not complied with, because, even if
requires that separation pay be fulfilled. Petitioners did not fulfill such applicability of foreign law was expressly stipulated in the contract,
given. the first and the third. some provisions of the ESA are contrary to the Constitution and the labor
• In any case, the company • No authorized cause for dismissal laws of the Philippines. the ESA states that the employer may terminate an
suffering financial losses was an was proven, and this violates the employee early, without any ground, only that there be a written notice
authorized cause to terminate employee’s right to security of given, with separation pay. Further, it states that the employer need not give
Arriola’s employment. tenure. This means that Arriola prior notice to the employee, and may effectively immediately dismiss them
was illegally dismissed. without allowing them the opportunity to be heard (denial of due process).
Overall Ruling This is against the Constitutional rights of the employee (security of tenure
In view of the general rule, all four requisites must be complied with and due process), and cannot be applicable to the contract.
before the employer can invoke the applicability of a foreign law to an Lastly, petitioners did not prove any authorized cause for dismissal.
overseas employment contract. This stringent application is in accordance Security of tenure is defined so that the employer shall not terminate the
with the State’s constitutional duty to uphold the dignity of its citizens, services of an employee except for a just cause or when authorized by law.
whether in the country or overseas, as well as RA 8042 (Migrant Worker’s Each authorized cause has specific requisites which must be proved, and
Act). This is in accordance with the doctrine that the “parties may not petitioners did not even cite a specific authorized cause to justify Arriola’s
contract away applicable provisions of law, especially peremptory dismissal. They merely presented a copy of a news item, and stated that
provisions dealing with matters heavily impressed with public interest,” Madagascar’s economy was weakened.
such as labor laws, while not leaving the foreign employer helpless. In this
case, the petitioners were only able to prove the Canadian law, and process V. Law or Doctrine Applied
G.R. No. 205703 | 7 March 2016 Art. 1306: No Contrary Stipulations
EXCEPTION: The parties may agree that a foreign law shall govern the obligation to assist the victim's family in obtaining justice for her death, and
employment contract. This is subject to the following requisites: so her family was awarded P5,000,000.00 for moral and exemplary
1. That it is expressly stipulated in the overseas employment damages.
contract that a specific foreign law shall govern; InATCI Overseas Corporation v. Echin: the private recruitment
• If this is lacking: domestic labor laws apply (lex loci agency invoked the defense that the foreign employer was immune from suit
contractus), based on Sameer Overseas and PCL Shipping and that it did not sign any document agreeing to be held jointly and
2. That the foreign law invoked must be proven before the courts solidarily liable. Such defense was rejected because R.A. No. 8042 precisely
pursuant to the Philippine rules on evidence; afforded the OFWs with recourse against the local agency and the foreign
• If law is not proven: international law doctrine of employer to assure them of an immediate and sufficient payment of what
processual presumption operates (where a foreign law is was due. The local agency failed to prove the Kuwaiti law specified in the
not pleaded or not proved, the presumption is that that law labor contract, pursuant to Sections 24 and 25 of Rule 132 of the Revised
is the same as the local law), based on EDI-Staffbuilders Rules of Court.
and ATCI Overseas. Sameer Overseas Placement Agency, Inc. v. Cabiles: it was declared
3. That the foreign law stipulated in the overseas employment that the security of tenure for labor was guaranteed by our Constitution and
contract must not be contrary to law, morals, good customs, employees were not stripped of the same when they moved to work in other
public order, or public policy of the Philippines; jurisdictions. The Court held that the principle of lex loci contractus (the
• If the foreign law is contrary: Philippine laws govern, law of the place where the contract is made) governed in this jurisdiction.
according to Art. 17 and Art. 1306 of the Civil Code As it was established therein that the overseas labor contract was executed
4. That the overseas employment contract must be processed in the Philippines, the Labor Code and the fundamental procedural rights
through the POEA. were observed. No foreign law was specified in the employment contract.
• If not processed through POEA: This violates Art. 18 of Saudi Arabian Airlines (Saudia) v. Rebesencio, the employer therein
the Labor Code which seeks to protect the rights of asserted the doctrine of forum non conveniens because the overseas
migrant workers. The POEA assesses whether the employment contracts required the application of the laws of Saudi Arabia,
countries have existing labor and social laws protecting and so, the Philippine courts could not hear the case. The Court held that
the rights of workers, including migrant workers. while a Philippine tribunal was called upon to respect the parties' choice of
VI. Disposition governing law, such respect must not be so permissive as to lose sight of
WHEREFORE, the petition is DENIED. The January 24, 2013 Decision of considerations of law, morals, good customs, public order, or public policy
the Court of Appeals in CA-G.R. SP No. 118869 is AFFIRMED in toto. that underlie the contract central to the controversy. As the dispute in that
case related to the illegal termination of the employees due to their
VII. Additional Notes pregnancy, then it involved a matter of public interest and public policy.
Becmen Service Exporter and Promotion, Inc. v. Spouses Cuaresma: It Thus, it was ruled that Philippine laws properly found application and that
involved a complaint for insurance benefits and damages arising from the Philippine tribunals could assume jurisdiction.
death of a Filipina nurse from Saudi Arabia. It was initially found therein
that there was no law in Saudi Arabia that provided for insurance arising VII. Random Facts
from labor accidents. Nevertheless, the Court concluded that the employer • Ponente: Mendoza, J.
and the recruiter in that case abandoned their legal, moral and social
G.R. No. L-65425 | November 5, 1987 Contracts (General Provisions)
Leal vs. IAC Leal vs. IAC
I. Recit-ready Summary 7. Petitioners refused.

On 21 March 1941, a document entitled “Compraventa,” involving 8. Santiago filed a complaint. The trial court dismissed the complaint
3 parcels of land, was executed by Vicente Santiago and his brother Luis on the ground that it was premature, as there was no sale yet.
Santiago, in favor of Cirilo Leal. Pursuant to the Compraventa, a title over 9. The CA (with Justice Paras) affirmed the decision.
three parcels of land was issued in the name of Cirilo Leal. The 10. The petitioners filed a motion to include an order for the
Compraventa also provides the prohibition to sell the land to other parties cancellation of the annotations at the back of the TCT. The
other than Santiago, his heirs or successors. respondent filed an MR.
When Cirilo died, the subject lands were inherited by his 6 children, 11. The CA was abolished and the Intermediate Appellate Court was
herein petitioners. Between 1960 and 1965, the properties were either established. The IAC (with Justice Sison) reversed the decision,
mortgaged or leased by the petitioners to their co-petitioners. Sometime ordering the petitioners to accept the repurchase price and to
before 1966-1967, Vicente Santiago offered to repurchase the properties. execute a Deed of Repurchase.
Petitioners refused. Santiago instituted a complaint. The trial court 12. Paragraph (b) is now the subject of conflicting interpretations.
dismissed the complaint. The CA affirmed. The IAC reversed the decision. Justice Sison sustains the validity of the prohibition, while Justice
The issue is W/N the stipulation on the prohibition to sell the lots Paras states that there is doubt as to its validity because its
to third persons is valid? No. The Court held that such stipulation is contrary unwarranted restriction amounts to subversion of public policy.
to public policy because it amounts to a perpetual restriction on the right of
ownership. As such, the stipulation is void. III. Issue/s
1. W/N the stipulation on the prohibition to sell the lots to third
II. Facts of the Case (Material Facts) persons is valid? NO.
1. On 21 March 1941, a document entitled “Compraventa,” involving 2. W/N the Compraventa provides a right to repurchase in favor of
3 parcels of land, was executed by the private respondent’s the private respondent? NO.
predecessors-in-interest, Vicente Santiago and his brother Luis
Santiago, in favor of Cirilo Leal, deceased father of some of the IV. Holding/s
petitioners. Issue #1
2. Pursuant to the Compraventa, a title over three parcels of land was NO, the condition is contrary to public policy.
issued in the name of Cirilo Leal. Respondent’s Arguments Court’s Rebuttals
3. The Compraventa also provides the prohibition to sell the land to  The Compraventa includes a  Article 1306 of the Civil Code
other parties other than Santiago, his heirs or successors. prohibition to sell the land to  Such stipulation is contrary to
4. When Cirilo died, the subject lands were inherited by his 6 children, other parties other than Santiago public policy, and thus void.
herein petitioners. or his heirs or successors.
5. Between 1960 and 1965, the properties were either mortgaged or  The Intermediate Appellate
leased by the petitioners to their co-petitioners (see notes). Court ordered the petitioners to
6. Sometime before 1966-1967, Vicente Santiago offered to accept the repurchase price and
repurchase the properties. execute a Deed of Repurchase.
Obligations and Contracts (2020) PETITIONER: Heirs of Cirilo Leal 1

DIGEST AUTHOR: Nikki RESPONDENT: Intermediate Appellate Court, Vicente Santiago
Overall Ruling paragraph, the existence of any such right. The resort to Article 1373 is
Contracts are generally binding between the parties, their assigns and heirs. erroneous. The subject phrase is unambiguous, hence, it must not be given
However, Article 1306 of the Civil Code states "That contracting parties another interpretation.
may establish such stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law, morals, good Even assuming that such a right of repurchase is granted, the same has
customs, public order, or public policy." already prescribed. Under Article 1606 of the Civil Code, the right to
redeem or repurchase, in the absence of an express agreement as to time,
The SC agrees with the Paras ponencia. In this case, the present prohibition shall last four years from the date of the contract.
to sell to third parties is contrary to public policy because it amounts to a
perpetual restriction on the right of ownership, specifically the owner's right Respondent court also contends that the right may be exercised only when
to freely dispose of his properties. Thus, the Court held that any such the buyer has money to buy. If this were so, the second paragraph of Article
prohibition, indefinite and unlimited as to time, so much so that it shall 1508 would apply — there is agreement as to the time, although it is
continue to be applicable even beyond the lifetime of the original parties to indefinite, therefore, the right should be exercised within ten years. The
the contract, is a nullity. right to repurchase was attempted 25 years from the date of the contract,
thus the said right has also expired.
The Court also notes that the petitioners have never sold, or even attempted
to sell, the properties.
Issue #2 V. Law or Doctrine Applied
NO, there is no express stipulation regarding the right to repurchase.
Respondent’s Arguments Court’s Rebuttals ARTICLE 1306 OF THE CIVIL CODE
 Paragraph (b) of the  There is no express provision Article 1306. The contracting parties may establish such stipulations,
Compraventa grants a right to granting a right to repurchase. clauses, terms and conditions as they may deem convenient, provided they
repurchase in favor of the private  Even if there was, it has already are not contrary to law, morals, good customs, public order, or public
respondent. prescribed. policy.
 Article 1373 of the Civil Code  The use of Article 1373 is
ARTICLE 1373 OF THE CIVIL CODE
erroneous.
Article 1373. If some stipulation of any contract should admit of several
Overall Ruling
meanings, it shall be understood as bearing that import which is most
The law provides that for conventional redemption to take place, the vendor
adequate to render it effectual.
should reserve, in no uncertain terms, the right to repurchase the thing sold.
The right to redeem must be expressly stipulated in the contract of sale in
order that it may have legal existence. Article 1606. The right referred to in article 1601, in the absence of an
express agreement, shall last four years from the date of the contract.
In this case, there aren’t any express or implied grant of a right to
repurchase, nor can we infer, from any word or words in the questioned Should there be an agreement, the period cannot exceed ten years.
However, the vendor may still exercise the right to repurchase within
thirty days from the time final judgment was rendered in a civil action on
the basis that the contract was a true sale with right to repurchase.
VI. Disposition
WHEREFORE, in view of the foregoing, the Resolution dated September
27, 1983, of the respondent court is SET ASIDE and the Decision
promulgated on June 28, 1978 is hereby REINSTATED. The annotations of
the prohibition to sell at the back of TCT Nos. 138837, 138838, 138839,
138840, 138841, and 138842 are hereby ordered CANCELLED. Costs
against the private respondent.
VII. Separate Opinions
VIII. Additional Notes
• Ireneo Leal, Jose Leal, Catalina Leal, Bernabela Leal, Vicente

Leal Euiogia Leal Paterno Ramos, Macario Del Rosario,
Margarita Alberto, Victoria Torres, Justina Manuel, Julia
Manuel, Melania Santos, Clemente Samario, Marikina Valley,
Inc., Miguela Mendoza, And Register Of Deeds Of Rizal,
petitioners, vs. The Honorable Intermediate Appellate Court
(4th Civil Cases Division), And Vicente Santiago (Substituted
By Salud M. Santiago), respondents
• These incidents were not resolved until the then Court of

Appeals was abolished and in lieu of which the Intermediate
Appellate Court was established.
VII. Random Facts

 Ponente: Sarmiento, J.

G.R. No. 163512 | February 28,2007 Article 1306
Tiu v Platinum Plans Tiu v Platinum Plans
I. Recit-ready Summary 3. In September 1995, Tiu stopped reporting for work. While in November
of the same year, Tiu became VP of another corporation, SPP.
In 1993, Daisy Tiu was re-hired as a Vice President and Head of
Platinum Plans Phils’ (PPP) HongKong/Asean operations with a 5-year 4. PPP then sued Tiu for damages (P100,000 as compensatory damages;
employment contract. In November 1995, Tiu became the VP of another P200,000 as moral damages; P100,000 as exemplary damages; and 25% of
corporation, Sales of Professional Plans Inc. (SPP). PPP then sued for the total amount due plus P1,000 per counsel's court appearance, as
damages since Tiu’s employment in SPP violated their employment attorney's fees) since her employment in the other company violated the
contract, specifically the non-involvement clause. Tiu averred that such non-involvement clause in her contract.
clause was against public policy since he restraint imposed was much
greater than what was necessary to afford respondent a fair and reasonable 5. Tiu avers that the clause was unenforceable for being against public order
protection, PPP did not invest in her improvement, and the strict application or public policy. Since first, the restraint imposed was much greater than
of the clause would deprive Tiu of her right to engage in the only work she what was necessary to afford respondent a fair and reasonable protection
knew. The RTC ruled the clause to be valid since there was a limitation to 2- being that a transfer to another company is an accepted practice. Second,
years after her separation. On appeal to the CA, it affirmed the RTC since PPP did not invest in Tiu’s training or improvement. Lastly, the clause’s
the contract was entered into by Tiu on her own will and volition. The issue strict application would deprive Tiu of her right to engage in the only work
to be addressed is whether or not the non-involvement clause is valid. The she knew.
Supreme Court summarized the doctrine after a brief discussion of previous 6. RTC ruled the clause to be valid since a contract in restraint of trade is
rulings in stating that a non-involvement clause is not necessarily void for valid provided that there are limitations upon time either time or place. In
being in restraint of trade as long as there are reasonable limitations as to the case of the pre-need industry, the RTC found the 2-year restriction to be
time, trade, and place. In this case, there was actually a time limit of 2-years valid.
and there is also a limitation as to trade since it only prohibits Tiu from
engaging in any pre-need business like PPP. The court also added that Tiu’s 7. The CA affirmed the RTC on appeal. It reasoned that Tiu entered into the
transfer to the other company would make PPP’s trade secrets vulnerable contract on her own will and volition, binding herself to fulfill even the
since she was a VP and Head in it. consequences that are not against good faith and the law. The 2-year
stipulation for prohibition on non-employment was also valid.
II. Facts of the Case (Material Facts)
III. Issue/s
1. Tiu was a division marketing director of PPP from 1987 to 1989.
1. W/N the non-involvement clause is valid. (YES)
2. On 1993, PPP re-hired Tiu as a VP and Head of HongKong/Asean
operations. Both parties executed a 5-year contract of employment.
IV. Holding/s
Obligations and Contracts (2020) PETITIONER: Daisy Tiu 1
DIGEST AUTHOR: Himerio Garcia RESPONDENT: Platinum Plans Philippines Inc.

Issue #1 prohibited from engaging in any similar business to that of his employer for
a year, the court ruled the restraint to be too broad.
The non-involvement clause is valid.
In the case of Del Castillo v Richmond, where an employee was restricted to
Petitioner’s Arguments Court’s Rebuttal open or own any other drugstore within a 4-mile radius from that of his
 It is void for being against  A non-involvement clause is employer, the court ruled the contact to be valid provided that there is a
public policy. not necessarily void for being limitation upon either time or place and the restraint upon one party is not
in restraint of trade as long as greater than the protection the other party requires.
there are reasonable limitations In the last case of Consulta v CA, where the complainant was banned from
Respondent’s Arguments as to time, trade, and place. engaging in activities of other companies that compete with the business of
 The inclusion of the two-year her employer, the court considered a non-involvement clause to be in
non-involvement clause in accordance with Article 1306 of the Civil Code since the restriction did not
petitioner's contract of prohibit the her from engaging in any other business as long as it did not
employment was reasonable compete with her current company.
and needed since her job gave
her access to the company's In summary, a non-involvement clause is not necessarily void for being
confidential marketing in restraint of trade as long as there are reasonable limitations as to
strategies. time, trade, and place.
Overall Ruling In this case, there is a time limit of 2-years. There is also a limitation as
to trade since it only prohibits Tiu from engaging in any pre-need
The Court first discussed their various rulings on the non-involvement business like PPP. Significantly, Tiu was a VP and therefore was a
clause. privy to confidential information. To allow her to work in a rival
business would make PPP’s secrets vulnerable. The non-involvement
In the 1916 case of Ferrazini v Gsell where an employee was prohibited clause is not contrary to public welfare and not greater than is necessary to
from engaging in any business in the Philippines for 5-years after the afford a fair and reasonable protection to respondent, and being freely
termination of his employment, the court ruled that such clause was agreed upon has the force and effect of law between them. Being that
unreasonable for being restrictive of trade and for being against public Article 1306 of the Civil Code provides that parties to a contract may
policy. In that case, the stipulation was only limited to time and space and establish such stipulations, clauses, terms and conditions as they may deem
not on trade. convenient, provided they are not contrary to law, morals, good customs,
While in the case of G. Martini v Glaiserman, where an employee was public order, or public policy.

V. Law or Doctrine Applied EMPLOYER in the amount of One Hundred Thousand Pesos (P100,000.00)
for and as liquidated damages
Article 1159.
VII. Random Facts
Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.  Ponente: Quisumbing, J.
Art. 1306.
The contracting parties may establish such stipulations, clauses, terms

and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.
VI. Disposition
WHEREFORE, the petition is DENIED for lack of merit. The Decision

dated January 20, 2004, and the Resolution dated May 4, 2004, of the
Court of Appeals in CA-G.R. CV No. 74972, are AFFIRMED. Costs
against petitioner.
SO ORDERED
VII. Additional Notes
NON INVOLVEMENT PROVISION
The EMPLOYEE further undertakes that during his/her engagement with

EMPLOYER and in case of separation from the Company, whether
voluntary or for cause, he/she shall not, for the next TWO (2) years
thereafter, engage in or be involved with any corporation, association or
entity, whether directly or indirectly, engaged in the same business or
belonging to the same pre-need industry as the EMPLOYER. Any breach of
the foregoing provision shall render the EMPLOYEE liable to the

G.R. No. 162873 | July 21, 2006 General Provisions
Caoibes v Caoibes-Pantoja Caoibes v Caoibes-Pantoja
I. Recit-ready Summary Additionally, under Section 22 of the Property Registration Decree,

Petitioners entered into an agreement over a parcel of land. The agreement
contains that the petitioners renounced, and transferred whatever rights, The law does not require that the application for registration be
interests and claims they may have over the lot in favor of the respondent in amended by substituting the "buyer" or the "person to whom the property
consideration of her payment of the therein mentioned loan amount of P19,000 has been conveyed" for the applicant. Neither does it require that the
outstanding in the name of one Guillermo C. Javier. About 14 years after the "buyer" or the "person to whom the property has been conveyed" be a
execution of the said agreement, respondent filed motion to intervene and be party to the case.”
substituted as applicant for the Land Registration Case. Petitioners opposed the
substitution and denied the authenticity and due execution of the agreement. Hence, the substitution by respondent of petitioners as applicant in the land
They argue that it was without consent and conformity of their mother, the registration case is not even necessary. All respondent has to do is to comply
usufructuary owner. LRC denied respondent’s motion. with the requirements under the above quoted section. It was unnecessary for
respondent to file the case against petitioners.
Respondent then filed a complaint for Specific Performance and Damages
against petitioners before the RTC for the enforcement of the II. Facts of the Case (Material Facts)
agreement. Petitioners opposed on the grounds of laches, prematurity of action, I. Petitioners and Respondent entered to an agreement entitled Renunciation
and prescription grounded on Art 1144 NCC which states action founded upon and Transfer of Claims, Rights, and Interest (the agreement) covering a
a written contract must be brought within 10 years from when the right to action parcel of land situated in Calaca, Batangas. The agreement contains that
accrues. the petitioners renounced, and transferred whatever rights, interests and
claims they may have over the lot in favor of the respondent in
The RTC ruled that prescription had set in and that cause of action arose consideration of her payment of the therein mentioned loan amount of
from the moment that which should have been done was not done and that the P19,000 outstanding in the name of one Guillermo C. Javier.
filing of the complaint was way past the prescriptive period. On appeal to the II. About 14 years after the execution of the said agreement, respondent filed
CA the RTC ruling was reversed. The CA held that the cause of action only motion to intervene and be substituted for Pantoja as applicant for the
arose when the respondents moved for the substitution and the petitioners Land Registration Case involving the land which petitioner earlier
opposed the same, hence, the action had not yet prescribed. acquired through the above-mentioned agreement.
III. Petitioners opposed the substitution and denied the authenticity and due
The SC dismissed the complaint, holding that as an innominate contract it execution of the agreement. They argue that it was without consent and
is governed by Article 1307 of the NCC which provides: conformity of their mother, the usufructuary owner. LRC denied
respondent’s motion.
innominate contracts shall be regulated by the stipulations of the parties, IV. Respondent then filed a complaint for Specific Performance and Damages
by the provisions of Title 1 and Title II of this book, by the rules governing against petitioners before the RTC for the enforcement of the
the most analogous nominate contracts, and by the customs of the place. agreement. Petitioners filed a MTD on the ground of prescription, laches
and prematurity of action for failure to first refer the case to the barangay
Because the agreement is most analogous to a deed of sale in favor of lupon for conciliation. ART 1144 (1) NCC states that an action founded
respondents, it is regulated by the rules that govern such. Given that, because upon a written contract must be brought within 10 yrs from the right of
the agreement had been made through a public instrument, the execution was action accrues
equivalent to the delivery of the property to the respondent as provided in V. RTC: Prescription had set in. The fact that they had waited 18 years – way
Article 1498. beyond the prescriptive period set by law is something that eludes the
comprehension of the court. Cause of action arises when that which should
Obligations and Contracts (2020) PETITIONER: JOSE CAOIBES, JR., MELENCIO CAOIBES and LOIDA CAOIBES 1
DIGEST AUTHOR: Ryon Rivera RESPONDENT: CORAZON CAOIBES-PANTOJA, assisted by her husband
CONRADO PANTOJA
have been done is not done. And it is incorrect to say that the violation Overall Ruling
only happened when the defendants objected that they be substituted by
plaintiff. Article 1307 of the NCC provides that innominate contracts shall be regulated by
VI. CA: Reversed RTC. The CA ruled that cause of action for the filing of this the stipulations of the parties, by the provisions of Title 1 and Title II of this book,
case only arose when the respondents moved for the substitution and the by the rules governing the most analogous nominate contracts, and by the customs
petitioners opposed the same, as opposed to the RTC’s theory that the of the place.
reckoning point for prescription was when that which what supposed to be
done was not done. Thus action has not prescribed yet. The agreement of the parties is analogous to a deed of sale in favor of respondents,
it having transferred ownership of the lot in consideration of the loan principal
III. Issue/s amount. (See: Article 1458) Because the agreement had been made through a public
1. W/N the laws on deed of sale apply to an innominate contract instrument, the execution was equivalent to the delivery of the property to the
such as this. - YES respondent as provided by Article 1498.
IV. Holding/s Respondent seeks to enforce the agreement for her to be substituted as applicant in
the land registration proceeding. However Section 22 of the Property Registration
Issue #1 Decree provides:
YES, The CA erred in ruling that prescription began only at the time of the
petitioner’s opposition. The law does not require that the application for registration be
amended by substituting the "buyer" or the "person to whom the property
Petitioner’s Arguments Court’s Rebuttals has been conveyed" for the applicant. Neither does it require that the
• • "buyer" or the "person to whom the property has been conveyed" be
a party to the case. He may thus be a total stranger to the land registration
proceedings. The only requirements of the law are: (1) that the instrument
be presented to the court by the interested party together with a motion that
the same be considered in relation with the application; and (2) that prior
notice be given to the parties to the case. . . . (Emphasis supplied)
Hence, the substitution by respondent of petitioners as applicant in the land

registration case is not even necessary. All respondent has to do is to comply with
the requirements under the above quoted section. It was unnecessary for respondent
to file the case against petitioners. The case is dismissed.
V. Law or Doctrine Applied

CONRADO PANTOJA
Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties,
by the provisions of Title I and II of this Book, by the rules governing the most
analogous nominate contracts, and by the customs of the place.

Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.

Art. 1498. When the sale is made through a public instrument, the execution thereof
shall be equivalent to the delivery of the thing which is the object of the contract, if
from the deed the contrary does not appear or cannot clearly be inferred. cHCaIE
VI. Disposition
WHEREFORE, the assailed decision of the Court of Appeals is REVERSED and

SET ASIDE. The complaint of respondent, docketed by the Regional Trial Court of
Balayan, Batangas as Civil Case No. 3705, Corazon Caoibes-Pantoja is, in light of
the foregoing ratiocination, DISMISSED.
VII. Random Facts

• Ponente: Carpio Morales, J.
CONRADO PANTOJA
G.R. No. L-16109 | October 2, 1922 Contracts: General Provisions
Taylor v. Uy Tieng Piao Taylor v. Uy Tieng Piao
I. Recit-ready Summary II. Facts of the Case (Material Facts)
Plaintiff Taylor contracted his services to defendants as superintendent 1. In December 1918, Taylor contracted his services to Tan Liuan &
of an oil factory which the latter contemplated to establish. As stipulated in Co as superintendent of an oil factory which the latter
their agreement, should the machinery to be used for the said factory fail – contemplated establishing.
for any reason – to arrive within the period of 6 months, the contract may be 2. The period of the contract extended over two years; (and the salary
cancelled by the party at its option. was to be at the rate of P600 per month during the first year and
P700 per month during the second, with electric light and water for
Thereafter, the machinery did not arrive within the 6 months period domestic consumption, and a residence to live in, or in lieu thereof
succeeding the agreement. While the reason for such failure to arrive does P60 per month.)
not appear with certainty, a preponderance of evidence shows that the 3. At the time of the agreement, the machinery for the contemplated
defendants either cancelled the order for the machinery or were unable to factory had not been acquired, though ten expellers had been
supply the necessary capital. Availing themselves of the option provided in ordered from the United States.
the subject stipulation, the defendants informed Taylor that they had decided 4. It was stipulated that should the machinery to be installed fail, for
to rescind the contract. Thereupon, Taylor instituted the present action to any reason, to arrive in Manila within the period of 6 months, the
recover damages (salary and perquisites). contract may be cancelled by the party at its option, provided that
The relevant issue in this case is whether or not the subject stipulation such cancellation must not occur before the expiration of such 6
was a violation of Article 1308 (formerly 1256a) of the Civil Code. Plaintiff months.
argues that the stipulation must be understood as applicable only where the 5. The machinery did not arrive in Manila within the 6 months period
cause of the failure was not upon the will or act of the defendants. The succeeding the making of the contract. (The reason for which does
Court, however, interprets the said stipulation in its plain language as used not appear with certainty, but a preponderance of evidence shows
and agreed upon by the parties. The stipulation provides that the contract that the defendants, seeing that the oil business no longer promised
may be cancelled upon failure of arrival, “for any reason,” of the machinery large returns, either cancelled the order for the machinery from
– such stipulation not having been based on the sole will of one party; choice or were unable to supply the capital necessary to finance the
hence, not in violation of Article 1308. project.)
6. Availing themselves of the option given in the clause abovestated,
the defendants informed the plaintiff that they had decided to
rescind the contract, upon which he was discharged.
7. Thereupon, Taylor instituted this action to recover damages in the
amount of P13,000, covering salary and perquisites due and to
become due under the contract.
1
Obligations and Contracts (2020) PETITIONER: M.D. Taylor
DIGEST AUTHOR: Regina Alzaga RESPONDENTS: Uy Tieng Piao

8. In this case, Plaintiff Taylor appeals on the ground that the amount affirmatively show that the would constitute an
of damages awarded is inadequate; while Defendant Uy Tieng Piao non-arrival was due to causes unjustifiable invasion of the
appeals on the ground that he is not liable at all. not of their own act or volition. power of the parties to establish
III. Issue/s the terms as they may deem
convenient (Art. 1306).
1. W/N the stipulation permitting the rescission of contract by the
defendants a violation of Article 1308 (1256a). - NO, as such Overall Ruling
stipulation does not make either the validity or compliance of
the said contract dependent upon the defendants. Such stipulation, as interpreted “in the language used by the parties from
its natural meaning,” upon which both parties having agreed, does not
make either the validity or compliance of the contract dependent solely
IV. Holding/s upon the defendants; hence, not in violation of Article 1308. The
cancellation of the contract in accordance with the conditions agreed
Issue #1
upon beforehand (NOTE: they used “for any reason”) is as much in the
NO, the subject stipulation does not make either the validity or fulfillment of the contract as any other subject of agreement.
compliance of the said contract dependent upon the defendants.
Petitioner/Trial Court’s Court’s Rebuttals V. Law or Doctrine Applied

Arguments
● As we view the case, there is
● The stipulation giving the nothing in article 1256 which
defendants the right to cancel makes it necessary for us to ARTICLE 1308 OF THE CIVIL CODE
the contract upon the given wrap the language used by the
Art. 1308. The contracts must bind both contracting parties; its validity or
contingency must be parties from its natural meaning compliance cannot be left to the will of one of them. (1256a)
understood as applicable only and thereby in legal effect to
in those cases where such restrict the words "for any
non-arrival is due to causes reason," as used in the contract, VI. Disposition
not upon the will or act of the to mean "for any reason not
defendants; that the right to having its origin in the will or The judgment appealed from will be modified by declaring that the
cancel cannot be admitted acts of the defendants." To defendants shall pay to the plaintiff the sum of P360, instead of P300, as
unless the defendants impose such interpretation allowed by the lower court, and as thus modified by the judgment will be
2

affirmed with interest from November 4, 1919, as provided in section 510 of

the Code of Civil Procedure, and with costs. So ordered.
VII. Random Facts

● Ponente: Street, J.
3

G.R. No. 156841 | June 30, 2005 Article 1308, Civil Code: Principle of Mutuality of Contracts
GF Equity v Valenzona GF Equity v Valenzona
I. Recit-ready Summary 2. Under their contract, Valenzona would receive P 35,000.00

GF Equity hired Arturo Valenzona as Head Coach of the Alaska monthly and GF Equity will provide him with a service vehicle and
basketball team in the Philippine Basketball Association under a Contract of gasoline allowance with the employment period of 2 years.
Employment where GF Equity would pay Valenzona the sum of P35,000.00 3. Under paragraph 3 of the same contract it was stipulated there that:
monthly. While the employment period agreed upon was for 2 years “If at any time during the contract, the COACH, in the
commencing, the last sentence of paragraph 3 of the contract carried the sole opinion of the CORPORATION, fails to exhibit
following condition: “If at any time during the contract, the COACH, in sufficient skill or competitive ability to coach the team,
the sole opinion of the CORPORATION, fails to exhibit sufficient skill or
the CORPORATION may terminate this contract.”
competitive ability to coach the team, the CORPORATION may terminate
this contract.” Although, he had consulted his lawyer for the stipulations in 4. Although Valenzona had consulted his lawyer for the stipulations
the contract and was pointed by his counsel that there is one-sidedness face in the contract and was pointed by his counsel that there is one-
still he agreed to the contract because of his trust to the chief financial sidedness face still he agreed to the contract because of trust and
officer of GF Equity. Thereafter, Valenzona was constructively dismissed as confidence in Uytengsu, the chief financial officer of GF Equity.
head coach of the Alaska team. Valenzona demanded from GF Equity 5. Even before the contract, Valenzona was already coaching Hills
payment of compensation arising from the arbitrary and unilateral Brothers (also by GF Equity) under a verbal contract and was able
termination of his employment. GF Equity, however, refused the claim. to put the team as a runner-up in the 3rd PBA Conference of 1987.
Valenzona thus filed before the RTC Manila a complaint against GF Equity 6. During his time as the head coach of Alaska, the team placed third
for breach of contract with damages. RTC, upholding the validity of the both in the Open and All-Filipino PBA Conferences in 1988.
assailed provision of the contract, dismissed the complaint. CA reversed the 7. 8 months after signing the contract, Valenzona was terminated as
RTC’s decision and thus ordered GF Equity liable for damages based on coach of the Alaska team. Valenzona demanded from GF Equity
Article 19 of the Civil Code. Hence this petition. payment of compensation arising from the arbitrary and unilateral
The issue in the case at bar is whether or not paragraph 3 of the
termination of his employment. GF Equity, however, refused.
contract is violative of mutuality of contracts. The SC affirmed as mutuality
is one of the characteristics of a contract. The purpose of the mutuality 8. Valenzona thus filed before the Manila RTC a complaint against
principle is to nullify a contract containing a condition which makes its GF Equity for breach of contract with damages.
fulfillment or pre-termination dependent exclusively upon the uncontrolled 9. Manila RTC dismissed the complaint, stating that the contract was
will of one of the contracting parties. The paragraph 3 in the contract gives valid and that Valenzona is aware of the bad bargain, and upheld
GF Equity the right to pre-terminate the contract clearly transgresses the the validity of the assailed provision of the contract.
principle of mutuality of contract. The assailed stipulation being violative of 10. CA reversed the RTC’s decision and thus ordered GF Equity liable
the mutuality principle underlying Article 1308 of the Civil Code, it is null for damages based on Article 19 of the Civil Code. It stated that
and void. there is mutuality in paragraph 3 but GF Equity shouldn’t abuse it,
II. Facts of the Case (Material Facts) leaving such decision within the ambit of GF Equity’s management
1. GF Equity hired Arturo Valenzona (Valenzona) as head basketball prerogative.
coach of Alaska team. As head coach, Valenzona was required to III. Issue/s
comply to his duties such as coaching at all practices and games 1. W/N the last sentence of paragraph 3 of the stipulated contract
scheduled for the team. is violative of the principle of mutuality of contracts? (YES)
Obligations and Contracts (2020) PETITIONER: GF Equity, Inc. 1

DIGEST AUTHOR: Joses RESPONDENT: Arturo Valenzona
G.R. No. 156841 | June 30, 2005 Article 1308, Civil Code: Principle of Mutuality of Contracts
GF Equity v Valenzona GF Equity v Valenzona
IV. Holding/s ARTICLE 1308, CIVIL CODE OF THE PHILIPPINES

The contract must bind both contracting parties; its validity or compliance cannot be
left to the will of one of them.
Issue #1
YES, the last sentence of paragraph 3 of the stipulated contract is VI. Disposition
violative of the principle of mutuality of contracts as GF Equity was WHEREFORE, the decision of the Court of Appeals dated October 14,
given an unbridled prerogative to pre-terminate the contract. 2002 is hereby SET ASIDE and another rendered declaring the assailed
Petitioner’s Arguments Court’s Rebuttals provision of the contract NULL AND VOID and ORDERING petitioner,
• CA committed a non-sequitir • Since the pre-termination of the GF Equity, to pay private respondent, Arturo Valenzona, actual damages in
when it agreed with the findings contract was anchored on an the amount of P525,000.00 and attorney's fees in the amount of P60,000.00.
of RTC but reached an opposite illegal ground, hence, contrary to Costs against petitioner.
conclusion law. GF Equity also negligently SO ORDERED.
failed to provide legal basis for
VII. Random Facts
such pre-termination, thereby
abusing the right of Valenzona to
thus entitle him to damages under
Article 19 in relation to Article 20
of the Civil Code
Overall Ruling
Mutuality is one of the characteristics of a contract, its validity or
performance or compliance of which cannot be left to the will of only one of
the parties. The ultimate purpose of the mutuality principle is thus to nullify
a contract containing a condition which makes its fulfillment or pre-
termination dependent exclusively upon the uncontrolled will of one of the
contracting parties. In the case at bar, the contract incorporates in paragraph
3 the right of GF Equity to pre-terminate the contract. The assailed
condition clearly transgresses the principle of mutuality of contracts. GF
Equity was given an unbridled prerogative to pre-terminate the contract
irrespective of the soundness, fairness or reasonableness, or even lack of
basis of its opinion. The assailed stipulation being violative of the mutuality
principle underlying Article 1308 of the Civil Code, it is null and void.
Obligations and Contracts (2020) PETITIONER: GF Equity, Inc. 2

DIGEST AUTHOR: Joses RESPONDENT: Arturo Valenzona
G.R. No. 187678 | April 10, 2013 Topic (e.g. Irregularities: Fortuitous Events)
Spouses Juico v. China Banking Corp Spouses Juico v. China Banking Corp
I. Recit-ready Summary a. the amount due on the two promissory notes totaled to
Spouses Jucio obtained a loan from China Banking Corporation. P19,201,776.63 representing the principal, interests, penalties and
The loan was secured by a Real Estate Mortgage over the spouses’ attorney's fees.
property in White Plains, Quezon City. The spouses failed to pay the b. The mortgaged property (on the same day) was sold at public
monthly amortizations due; as a result, China Bank demanded the full auction for P10,300,000, with China Bank as highest bidder.
payment of the outstanding balance (with accrued monthly interests). By 7. On May 8, 2001, petitioners received a demand letter dated May 2,
Feb 2001, the amount due on the two promissory notes totaled to 2001 from respondent for the payment of P8,901,776.63 (the amount
P19,201,776.63 (which consists of principal + interests + penalties + atty. of deficiency after applying the proceeds of the foreclosure sale to the
fees). On the same day, the mortgaged property was sold at public auction mortgage debt).
for P10,300,000, with China Bank as highest bidder. After, the petitioner
spouses received a demand letter from China Bank demanding them to pay TC – in favor of China Bank
P8,901,776.63 (the deficiency remaining after the public auction). In trial As its demand remained unheeded, China Bank led a collection suit in the
court, the senior loans assistant of China Bank reiterated that the interest trial court, ordering Spouses Jucio to pay jointly and severally:
rate changes every month based on the prevailing market rate and she (1) P8,901,776.63 (the of deficiency + interests at the legal rate, from
notified the spouses of the prevailing rate by calling them monthly before February 23, 2001 until fully paid)
their account becomes past due. Both trial court and CA ruled in favor of (2) an additional amount equivalent to 1/10 of 1% per day of the total
China Bank, hence, this petition. amount, until fully paid (as penalty)
The issue of the case at bar is W/N the interest rates imposed (3) an amount equivalent to 10% of the foregoing amounts (as attorney's
upon them by respondent are valid. The SC ruled the interest rates void. fees)
Although interest rates, for the case at bar, would vary as determined by (4) expenses of litigation and costs of suit
prevailing market rates, we hold that the escalation clause is still void At the trial, China Bank presented Ms. Annabelle Cokai Yu, (Senior Loans
because it grants respondent the power to impose an increased rate of Assistant) as witness:
interest without a written notice to petitioners and their written a. testified she handled the account of petitioners and assisted them in
consent. processing their loan application
b. called them monthly to inform them of the prevailing rates to be used
II. Facts of the Case (Material Facts) in computing interest due on their loan
1. Spouses Ignacio and Alice Jucio obtained a loan from China Banking c. reiterated that the interest rate changes every month based on the
Corporation (China Bank) as evidenced by two Promissory Notes prevailing market rate and she notified the spouses of the prevailing
(P6,216,000 and P4,139,000, respectively) rate by calling them monthly BEFORE their account becomes past due
2. The loan was secured by a Real Estate Mortgage over petitioners' CA – affirmed TC’s decision
property located at 49 Greensville St., White Plains, Quezon City.
3. Spouses Jucio failed to pay the monthly amortizations due. III. Issue/s
4. China Bank then demanded the full payment of the outstanding 1. W/N the interest rates imposed upon them by respondent are
balance with accrued monthly interests. valid? YES.
5. On September 5, 2000, petitioners received respondent's last demand
letter dated August 29, 2000. IV. Holding/s
6. As of February 23, 2001:
Obligations and Contracts (2020) PETITIONER: Spouses Ignacio F. Juico and Alice P. Juico 1
DIGEST AUTHOR: Steph Naval RESPONDENT: China Banking Corporation
Issue #1 • The 2 promissory notes signed by petitioners

NO, the interest rates imposed upon them by respondent (China Bank) provide:
are void. “I/We hereby authorize the CHINA BANKING
Petitioner’s Arguments Court’s Response CORPORATION to increase or decrease as the
• Interest rates are • SC: petition is partly meritorious case may be, the interest rate/service charge
not valid as they presently stipulated in this note without any
• The principle of mutuality of contracts – Art.
were not by virtue advance notice to me/us in the event a law or
1308. The contract must bind both
of any law, Bangko Central Bank regulation is passed or
contracting parties; its validity or
Sentral ng Pilipinas promulgated by the Central Bank of the
compliance cannot be left to the will of one
regulation or any Philippines or appropriate government entities,
of them
regulation that was increasing or decreasing such interest rate or
• Art. 1956 likewise ordains “no interest shall
passed by an service charge.”
be due unless it has been expressly
appropriate Overall Ruling
stipulated in writing”
government entity. The Court cited several cases upon which the escalation clauses were
• The binding effect of any agreement is
deemed void. In these cases, the increase/ decrease of interest rates under
• The escalation premised on two settled principles
such clauses hinged solely on the discretion of the bank (as they do not
clause does not (1) that any obligation arising from contract
necessarily require the conformity of the debtor before a new interest rate
give China Bank has the force of law between the parties
could be enforced). In other words, it is a settled rule that an escalation
the unbridled (2) that there must be mutuality between the
clause is void when the creditor unilaterally determines and imposes an
authority to parties based on their essential equality
increase in the stipulated rate of interest without the express conformity of
increase the interest • Invalid/ void contracts:
rates unilaterally the debtor.
(1) when any contract appears to be heavily
since any change weighed in favor of one of the parties For the case at bar, the escalation clause in the promissory notes is likened
must be mutually (2) when any stipulation for compliance is left by the Court to another case, Floirendo, Jr. v. Metropolitan Bank and Trust
agreed upon. solely to the will of one of the parties Company. Metropolitan Bank and Trust Company’s clause stipulated
• Yes, escalation clauses (grants the creditor an “without advance notice” as well. Here, the monthly upward/ downward
unbridled right to adjust the interest rate adjustment of interest rate is left to the will of the bank alone, thus, deemed
agreed upon by the contracting parties) are void for violating the essence of mutuality of the contract.
VALID stipulations
• BUT are VOID when the clause grants the Its clear import that interest rates, for the case at bar, would vary as
creditor an unbridled right to adjust the determined by prevailing market rates. Evidently, the parties intended the
interest independently and upwardly, interest on petitioners' loan, including any upward or downward adjustment,
completely depriving the debtor of the right to to be determined by the prevailing market rates and not dictated by
assent an important modification in the respondent's policy. It may also be mentioned that since the deregulation of
agreement bank rates in 1983, the Central Bank has shifted to a market-oriented
• A stipulation of such nature violates the interest rate policy.
principle of mutuality of contracts
There is no indication that petitioners were coerced into agreeing with the
foregoing provisions of the promissory notes. In fact, petitioner Ignacio, a VOID ESCALATION CLAUSE
physician engaged in the medical supply business, admitted having When the escalation clause grants the creditor an unbridled right to adjust
understood his obligations before signing them. At no time did petitioners the interest independently and upwardly, completely depriving the debtor of
protest the new rates imposed on their loan even when their property was the right to assent an important modification in the agreement
foreclosed by respondent.
VI. Disposition
However, we hold that the escalation clause is still void because it grants
respondent the power to impose an increased rate of interest without a WHEREFORE, the petition for review on certiorari is PARTLY
written notice to petitioners and their written consent. Respondent's GRANTED. The February 20, 2009 Decision and April 27, 2009 Resolution
monthly telephone calls to petitioners advising them of the prevailing of the Court of Appeals in CA G.R. CV No. 80338 are hereby MODIFIED.
interest rates would not suffice. A detailed billing statement based on the Petitioners Spouses Ignacio F. Juico and Alice P. Juico are hereby
new imposed interest with corresponding computation of the total debt ORDERED to pay jointly and severally respondent China Banking
should have been provided by the respondent to enable petitioners to make Corporation P4,761,865.79 representing the amount of deficiency inclusive
an informed decision. An appropriate form must also be signed by the of interest, penalty charge and attorney's fees. Said amount shall bear
petitioners to indicate their conformity to the new rates. interest at 12% per annum, reckoned from the time of the filing of the
complaint until its full satisfaction. No pronouncement as to costs. SO
Compliance with these requisites is essential to preserve the mutuality of ORDERED.
contracts. For indeed, one-sided impositions do not have the force of law
between the parties, because such impositions are not based on the parties' VII. Additional Notes
essential equality. • Escalation clauses – grants the creditor an unbridled right to adjust
the interest rate agreed upon by the contracting parties
V. Law or Doctrine Applied The Court also cited cases of VALID ESCALATION CLAUSES:
• Solidbank Corporation v. Permanent Homes, Incorporated
ARTICLE 1308 OF THE CIVIL CODE "5.We/I irrevocably authorize Solidbank to increase or decrease at any time
The contract must bind both contracting parties; its validity or compliance the interest rate agreed in this Note or Loan on the basis of, among others,
cannot be left to the will of one of them. prevailing rates in the local or international capital markets. For this
purpose, We/I authorize Solidbank to debit any deposit or placement
ARTICLE 1956 OF THE CIVIL CODE account with Solidbank belonging to any one of us. The adjustment of the
No interest shall be due unless it has been expressly stipulated in writing. interest rate shall be effective from the date indicated in the written notice
sent to us by the bank, or if no date is indicated, from the time the notice
TWO SETTLED PRINCIPLES FOR THE BINDING EFFECT OF was sent.
ANY CONTRACT
(1) that any obligation arising from contract has the force of law between 6.Should We/I disagree to the interest rate adjustment, We/I shall prepay all
the parties amounts due under this Note or Loan within thirty (30) days from the
(2) that there must be mutuality between the parties based on their essential receipt by anyone of us of the written notice. Otherwise, We/I shall be
equality deemed to have given our consent to the interest rate adjustment."
• Valid because: o Evidently, the point of difference in the cited escalation

(1) the parties mutually agreed on said stipulations clauses lies in the use of the phrase "any increase or
(2) repricing takes effect only upon Solidbank's written notice to Permanent decrease in the interest rate" without reference to the
of the new interest rate prevailing market rate actually imposed by the
(3) Permanent has the option to prepay its loan if Permanent and Solidbank regulations of the Central Bank. It is thus not enough
do not agree on the new interest rate. to state, as akin to China Bank's provision, that the
The phrases "irrevocably authorize," "at any time" and "adjustment of the bank may increase or decrease the interest rate in the
interest rate shall be effective from the date indicated in the written notice event a law or a Central Bank regulation is passed.
sent to us by the bank, or if no date is indicated, from the time the notice o To adopt that stance will necessarily involve a
was sent," emphasize that Permanent should receive a written notice from determination of the interest rate by the creditor since
Solidbank as a condition for the adjustment of the interest rates. the provision spells a vague condition — it only requires
that any change in the imposable interest must conform to
• Polotan, Sr. v. CA the upward or downward movement of borrowing rates.
"if there occurs any change in the prevailing market rates, the new interest o And if that determination is not subjected to the
rate shall be the guiding rate in computing the interest due on the mutual agreement of the contracting parties, then the
outstanding obligation without need of serving notice to the Cardholder resulting interest rates to be imposed by the creditor
other than the required posting on the monthly statement served to the would be unilaterally determined. Consequently, the
Cardholder." escalation clause violates the principle of mutuality of
• Valid because: contracts.
"the Cardholder hereby authorizes Security Diners to correspondingly
increase the rate of such interest in the event of changes in prevailing market VII. Random Facts
rates . . ." is an escalation clause. However, it cannot be said to be • Ponente: Villarama, JR., J
dependent solely on the will of private respondent as it is also
dependent on the prevailing market rates. Escalation clauses are not
basically wrong or legally objectionable as long as they are not solely
potestative but based on reasonable and valid grounds. The fluctuation
in the market rates is beyond the control of private respondent.
• Sereno’s Concurring Opinion

o Unlike the stipulation subject of the instant case, the
interest rate involved in the Polotan case is designed to be
based on the prevailing market rate. On the other hand, a
stipulation ostensibly signifying an agreement to "any
increase or decrease in the interest rate," without more,
cannot be accepted by this Court as valid for it leaves
solely to the creditor the determination of what interest
rate to charge against an outstanding loan
G.R. No. L-1787 | September 12, 1967 General Provisions (Art. 1308)
Phil Banking Corp vs. Lui She Phil Banking Corp vs. Lui She
I. Recit-ready Summary long-time lessee of a portion of the property, paying a monthly

Justina Santos is an old rich lady who lived with 17 dogs and 8 maids. rental of P2,620.
She leased her property to Wong. The lease was for 50 years, although the 3. Justina Santos then became the owner of the entire property as her
lessee was given the right to withdraw at any time from the agreement. In sister died with no other heir.
another contract, she gave Wong an option to buy the property within 10 4. Wong became Justina‘s entrusted person to whom she delivered
year. Later, she extended the lease to 99 years and the option to 50 years. various amounts for safekeeping, including rentals from her
The stipulation that "the lessee may at any time withdraw from this property at the corner of Ongpin and Salazar streets and the rentals
agreement" is claimed to offend against art.1308 which provides that “the
which Wong himself paid as lessee of a part of the Rizal Avenue
contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them.” The issue in the case is W/N the property.
contract is freely entered into and were valid. The SC held Yes. Art. 1308 5. Justina Santos executed on November 15, 1957 a contract of lease \
creates no impediment to the insertion in a contract for personal service of a in favor of Wong, covering the portion then already leased to him
resolutory condition permitting the cancellation of the contract by one of the and another portion fronting Florentino Torres street for 50 years,
parties. Such a stipulation, as can be readily seen, does not make either the although the lessee was given the right to withdraw at any time
validity or the fulfillment of the contract dependent upon the will of the from the agreement. Ten days later (November 25), the contract
party to whom is conceded the privilege of cancellation; for where the was amended (Plff Exh. 4) so as to make it cover the entire
contracting parties have agreed that such option shall exist, the exercise of property, including the portion on which the house of Justina
the option is as much in the fulfillment of the contract as any other act which Santos stood, at an additional monthly rental of P360.
may have been the subject of agreement. Indeed, the cancellation of a 6. For his part Wong undertook to pay, out of the rental due from
contract in accordance with conditions agreed upon beforehand is him.
fulfillment. In contrast to Encarnacion v. Baldomar, the right of the lessee to
7. On December 21 she executed another contract giving Wong the
continue the lease or to terminate it is so circumscribed by the term of the
option to buy the leased premises.
contract that it cannot be said that the continuance of the lease depends upon
his will. At any rate, even if no term had been fixed in the agreement, this 8. The option, written in Tagalog, imposed on him the obligation to
case would at most justify the fixing of a period but not the annulment of the pay for the food of the dogs and the salaries of the maids in her
contract. household, the charge not to exceed P1,800 a month.
9. The option was conditioned on his obtaining Philippine citizenship,
II. Facts of the Case (Material Facts) a petition for which was then pending in the Court of First Instance
1. Justina Santos y Canon Faustino and her sister Lorenzo were the of Rizal.
owners in common of a piece of land in Manila.
2. The sisters lived in one of the houses, while Wong Heng, a III. Issue/s
Chinese, lived with his family in the restaurant. Wong had been a 1. W/N the contracts were freely entered into and were valid?
YES
Obligations and Contracts (2020) PETITIONER: PHILIPPINE BANKING CORPORATION, representing the 1
estate of JUSTINA SANTOS Y CANON FAUSTINO, deceased
DIGEST AUTHOR: Tin Dychioco RESPONDENT: LUI SHE, in her own behalf and as administratrix of
the intestate of Wong Heng, deceased,
were paid some other time as the contracts in fact recite. What is
IV. Holding/s more, the consideration need not pass from one party to the other at
the time a contract is executed because the promise of one is the
Issue #1 consideration of the other.
YES, the contracts were validly entered into and were valid.
Overall Ruling V. Law or Doctrine Applied
So it was held in Melencio v. Dy Tiao Lay that a "provision in a lease
contract that the lessee, at any time before he erected any building on
ART. 1308. The contracts must bind both contracting parties; its validity or
the land, might rescind the lease, can hardly be regarded as a compliance cannot be left to the will of one of them.
violation of article 1256 [now art. 1308] of the Civil Code."
Here, the right of the lessee to continue the lease or to terminate it is VI. Disposition
so circumscribed by the term of the contract that it cannot be said that
the continuance of the lease depends upon his will. At any rate, even ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are annulled
if no term had been fixed in the agreement, this case would at most and set aside; the land subject-matter of the contracts is ordered returned to
justify the fixing of a period but not the annulment of the contract. the estate of Justina Santos as represented by the Philippine Banking
The charge of undue influence in this case rests on a mere inference Corporation; Wong Heng (as substituted by the defendant-appellant Lui
drawn from the fact that Justina Santos could not read (as she was She) is ordered to pay the Philippine Banking Corporation the sum of
P56,567.35, with legal interest from the date of the ling of the amended
blind) and did not understand the English language in which the
complaint; and the amounts consigned in court by Wong Heng shall be
contract is written, but that inference has been overcome by her own
applied to the payment of rental from November 15, 1959 until the premises
evidence. As it was with the lease contrac, so it was with the rest of shall have been vacated by his heirs. Costs against the defendant-appellant.
the contract — the consent of Justina Santos was given freely and
voluntarily. VII. Additional Notes
Indeed, the cancellation of a contract in accordance with conditions • Fernando, J – Concurring opinion:
agreed upon beforehand is fulfillment. In contrast to Encarnacion v. o More focused on Consti on prohibition against alien
Baldomar, the right of the lessee to continue the lease or to terminate landholding which does not include application of Pare
it is so circumscribed by the term of the contract that it cannot be said Delicto doctrine
that the continuance of the lease depends upon his will. At any rate, o The doctrine as announced in the case of Rellosa v. Gaw
even if no term had been fixed in the agreement, this case would at Chee Hun, 93 Phil. 827 is that while the sale by a Filipino-
most justify the fixing of a period but not the annulment of the vendor to an alien-vendee of a residential or a commercial
contract. lot is null and void as held in the Krivenko case, still the
The fact that no money was paid at the time of the execution of the Filipino-vendor has no right to recover under a civil law
document does not rule out the possibility that the considerations doctrine, the parties being in pari delicto. The only
remedy to prevent this continuing violation of the

Constitution which the decision impliedly sanctions by
allowing the alien vendees to retain the lots in question is
either escheat or reversion. Thus: "By following either of
these remedies, or by approving an implementary law as
above suggested, we can enforce the fundamental policy
of our Constitution regarding our natural resources
without doing violence to the principle of pari delicto.
VII. Random Facts

• Ponente: Castro, J.
G.R. No. 192934 & 197010 | June 27, 2018 General Provisions
Security Bank v Sps. Mercado Security Bank v Sps. Mercado
I. Recit-ready Summary validity or compliance cannot be left to the will of one of them. Any stipulation
regarding the validity or compliance of the contract that is potestative or is left
Security Bank granted spouses Mercado a revolving credit line in the total solely to the will of one of the parties is invalid. This holds true not only as to
amount of P8,000,000.00. The terms and conditions of the revolving credit line the original terms of the contract but also to its modifications. Consequently,
agreement and addendum included, among others, the following stipulation with any change in a contract must be made with the consent of the contracting
regards to interest: parties and must be mutually agreed upon.
“I hereby agree to pay Security Bank Corporation (SBC) interest on Considering this, the interest provisions should be declared void since the
outstanding Availments based on annual rate computed and billed monthly by court observed that, first, the authority to change the interest rate was given to
SBC on the basis of its prevailing monthly rate. It is understood that the annual
Security Bank alone as the lender, without need of the written assent of the
rate shall in no case exceed the total monthly prevailing rate as computed by
SBC. I hereby give my continuing consent without need of additional spouses. This unbridled discretion given to Security Bank is evidenced by the
confirmation to the interests stipulated as computed by SBC.” clause “I hereby give my continuing consent without need of additional
confirmation to the interests stipulated as computed by Security Bank.” Second,
To secure the credit line, the spouses executed a Real Estate Mortgage in the interest rate to be imposed is determined solely by Security Bank for lack of
favor of Security Bank over the properties located in Batangas. Subsequently, a stated, valid reference rate. The reference rate of “Security Bank’s prevailing
the spouses defaulted in their payment and as a final result, Security Bank filed lending rate” is not pegged on market-based reference rate as required by BSP.
a petition for extrajudicial closure over all the properties. After publication of The stipulated interest rate based on “Security Bank’s prevailing lending rate is
the notices of the sale, the foreclosure sale for the properties were held wherein not synonymous with “prevailing market rate.” In such case, Security Bank is
Security Bank was adjudged as the winning bidder. The spouses offered to still the one who determines its own prevailing lending rate.
redeem the foreclosed properties for P10,000,00.00 but this was allegedly
denied by Security Bank who made a counteroffer of P15,000,000.00 II. Facts of the Case (Material Facts)
Both parties filed a case in the RTC which were eventually consolidated. In 1. Security Bank granted spouses Mercado a revolving credit line in the
their complaint, the spouses, among others, averred that the interests and the amount of P1,000,000.00
penalties imposed by Security Bank on their obligations were iniquitous and 2. The terms and conditions of the revolving credit line agreement included
unconscionable. The RTC declared as void the interest rates contained in the the following important stipulation:
agreement for being potestative or solely based on the will of Security Bank.
a. Interest on Availments – “I hereby agree to pay Security Bank interest
The CA affirmed this decision. Hence, this petition.
on outstanding Availments at a per annum rate determined from time
to time, by Security Bank and advised through my Statement of
The main issue in the case is W/N the provisions on interest rate in the
Account every month. I hereby agree that the basis for the
revolving credit line agreement and its addendum are void for being violative of
determination of the interest rate by Security Bank on my outstanding
the principle of mutuality of contracts. The court ruled that YES, the provisions Availments will be Security Bank's prevailing lending rate at the date
on the interest rate are void for being violative of the principle of mutuality of availment.”
of contracts. 3. On the other hand, the addendum to the revolving credit line agreement
further provided that:
The principle of mutuality of contracts is found in Article 1308 of the Civil a. “I hereby agree to pay Security Bank Corporation (SBC) interest on
Code, which states that contracts must bind both contracting parties, and its outstanding Availments based on annual rate computed and billed
Obligations and Contracts (2020) PETITIONER: Security Bank Corporation 1

DIGEST AUTHOR: Pam Madrigal RESPONDENT: Spouses Rodrigo and Erlinda Mercado
monthly by SBC on the basis of its prevailing monthly rate. It is temporary restraining order and/or preliminary injunction. The spouses, in
understood that the annual rate shall in no case exceed the total their complaint, averred that:
monthly prevailing rate as computed by SBC. I hereby give my a. The parcel of land in San Jose should not have been foreclosed
continuing consent without need of additional confirmation to the together with the properties in Batangas City because they are covered
interests stipulated as computed by SBC.” by separate real estate mortgages
4. To secure the credit line, the spouses executed a Real Estate Mortgage in b. The requirements of posting and publication of the notice were not
favor of Security Bank over their properties located in Batangas (Lipa City complied with
and San Jose) c. Security Bank acted arbitrarily in disallowing the redemption of the
5. Another Real Estate Mortgage in favor of Security Bank over their foreclosed properties for P10,000,000.00
properties in Batangas City, Batangas was executed by the spouses to d. The total price for all of the parcels of land only amounted to
secure an additional amount of P7,000,000.00 under the same revolving P4,723,620.00
credit line agreement e. The interests and the penalties imposed by Security Bank on their
6. Subsequently, the spouses defaulted in their payment under the revolving obligations were iniquitous and unconscionable
credit line agreement 14. Meanwhile, Security Bank filed an ex-parte petition for issuance of a writ
7. Security Bank requested the spouses to update their account and sent a final of possession over the parcels of land located in Batangas City and San
demand letter. Thereafter, it filed a petition for extrajudicial closure over all Jose
the properties 15. The two cases were consolidated
8. The respective notices of the foreclosure sales of the properties were 16. The RTC declared that: (1) the foreclosure sales of the five parcels of land
published in newspapers of general circulation once a week for three void; (2) the interest rates contained in the revolving credit line agreement
consecutive weeks as required void for being potestative or solely based on the will of Security Bank; and
9. However, the publication of the notices of the foreclosure of the properties (3) the sum of P8,000,000.00 as the true and correct obligation of the
in Batangas City and San Jose contained errors with respect to their spouses to Security Bank
technical description 17. Relevant to the topic, the RTC ruled that the stipulation as to the interest
10. Security Bank caused the publication of an erratum in a newspaper to rate on the availments under the revolving credit line agreement “where the
correct these errors. The erratum was published only once, and did not fixing of the interest rate is the sole prerogative of the creditor/mortgagee,
correct the lack of indication of location in both cases belongs to the class of potestative condition which is null and void under
11. The foreclosure sale of the parcel of land in Lipa City was held wherein Article 1308 of the Civil Code
Security Bank was adjudged as the winning bidder. A similar foreclosure 18. The stipulation on the interest rate also violates Central Bank Circular No.
sale was conducted over the parcels of land in Batangas City and San Jose 1191 which requires the interest rate for each re-pricing period to be subject
where Security Bank was likewise adjudged as the winning bidder to a mutual agreement between the borrower and bank
12. The spouses offered to redeem the foreclosed properties for P10,000,00.00 19. Considering these, no interest has been expressly stipulated in writing as
but Security Bank allegedly refused the offer and made a counteroffer in required under Article 1956 of the Civil Code
the amount of P15,000,000.00 20. Security Bank moved for reconsideration and the RTC modified its
decision and declared that: (1) only the foreclosure sales of the parcels of
Before the RTC land in Batangas City and San Jose, Batangas are void as it has no
jurisdiction over the properties in Lipa City, Batangas; (2) the obligation of
13. The spouses filed a complaint for annulment of foreclosure sale, damages, the spouses Mercado is P7,500,000.00, after deducting P500,000.00 from
injunction, specific performance, and accounting with application for the principal loan of P1,000,000.00; and (3) as "cost of money," the

obligation shall bear the interest at the rate of 6% from the time of date of Issue #1
the Amendatory Order until fully paid. YES, the provisions on the interest rate are void for being violative of the
principle of mutuality of contracts
Before the Court of Appeals
Petitioner’s Arguments Court’s Rebuttals
21. The CA affirmed with modifications the amended decision of the RTC
22. They also concluded that the provisos giving Security Bank the sole
discretion to determine the annual interest rate is violative of the principle Overall Ruling
of mutuality of contracts because there is no reference rate from which to
peg the annual interest rate to be imposed The principle of mutuality of contracts is found in Article 1308 of the Civil
Code, which states that contracts must bind both contracting parties, and its
Before the Supreme Court
validity or compliance cannot be left to the will of one of them. Any contract
which appears to be heavily weighted in favor of one of the parties so as to lead
23. In this petition, Security Bank argues, among others, that the CA erred in
declaring the provisions on interest rate violative of the principle of to an unconscionable result is void. Likewise, any stipulation regarding the
mutuality of contracts validity or compliance of the contract that is potestative or is left solely to the
24. Security Bank insists that the provision on the interest rate observed the will of one of the parties is invalid. This holds true not only as to the original
principle of mutuality contracts. They argue that: terms of the contract but also to its modifications. Consequently, any change in
a. Absolute discretion on its part is wanting because a ceiling on the a contract must be made with the consent of the contracting parties and must be
maximum applicable rate is found in the addendum mutually agreed upon.
b. It is the market forces that dictate and establish the rate of interest to
be applied and takes into account various factors such as, but not Stipulations as to the payment of interest are subject to the principle of
limited to, Singapore Rate, London Rate, Inter-Bank Rate which serve mutuality of contract. As a principal condition and an important component in
as reference rates contracts of loan, interest rates are only allowed if agreed upon by express
c. The spouses are bound by the rate because they were aware of, and stipulation of the parties, and only when reduced into writing. Any change to it
had freely and voluntarily assented to it must be mutually agreed upon, or it produces no binding effect. This doctrine
has been solidified in several decisions made by the Court.
II. Issue/s
Furthermore, Banko Sentral ng Pilipas (BSP) Manual of Regulations for
1. W/N the provisions on interest rate in the revolving credit line Banks (MORB) states that “the rate of interest on a floating rate loan during
agreement and its addendum are void for being violative of the each interest period shall be stated on the basis of Manila Reference Rates
principle of mutuality of contracts. YES. (MRRs), T-Bill Rates or other market based reference rates plus a margin as
may be agreed upon by the parties.”
III. Holding/s
In this case, the spouses supposedly: (1) agreed to pay an annual interest
based on a "floating rate of interest;" (2) to be determined solely by Security
Bank; (3) on the basis of Security Bank's own prevailing lending rate; (4) which

shall not exceed the total monthly prevailing rate as computed by Security Bank; 2013 until finality of this Decision. The total amount shall thereafter earn
and (5) without need of additional confirmation to the interests stipulated as interest at the rate of 6% per annum from the finality of judgment until its full
computed by Security Bank. satisfaction.
Considering the above, the provisions as to the interest rate shall be No costs.
considered void.
VI. Additional Notes
The court further explained that the RTC and CA were correct in holding
VII. Random Facts
that the interest provisions violate the principle of mutuality of contracts for two
reasons. First, the authority to change the interest rate was given to Security
 Ponente: Jardeleza, J.
Bank alone as the lender, without need of the written assent of the spouses. This
unbridled discretion given to Security Bank is evidenced by the clause “I hereby
give my continuing consent without need of additional confirmation to the
interests stipulated as computed by Security Bank.” Second, the interest rate to
be imposed is determined solely by Security Bank for lack of a stated, valid
reference rate. The reference rate of “Security Bank’s prevailing lending rate” is
not pegged on market-based reference rate as required by BSP. The stipulated
interest rate based on “Security Bank’s prevailing lending rate is not
synonymous with “prevailing market rate.” In such case, Security Bank is still
the one who determines its own prevailing lending rate.
IV. Law or Doctrine Applied
ART. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
V. Disposition
WHEREFORE, the petitions are DENIED. Accordingly, the Court of

Appeals' Decision dated July 19, 2010 and the Amendatory Order dated June
19, 2007 are hereby MODIFIED. Spouses Rodrigo and Erlinda Mercado are
hereby ordered to pay Security Bank Corporation the sum of P8,317,756.71
representing the amount of deficiency, inclusive of interest and penalty. Said
amount shall earn legal interest of 12% per annum from January 5, 2001 until
June 30, 2013; and shall earn the legal interest of 6 % per annum from July 1,

G.R. No. 12490 | January 16, 1998 Art. 1308 – Validity of Contracts
Allied Banking Corp v. CA Allied Banking Corp v. CA

Felimon Tanquenco and Lucia Domingo-Tanquenco owned a lot in 1. Felimon Tanquenco and Lucia Domingo-Tanquenco owned a
Quezon City that they leased to the petitioner Allied Bank. Provision lot in Quezon City that they leased to the petitioner Allied
No. 1 of the lease contract specifically states that “the term of the lease Banking Corporation.
shall be fourteen years commencing from April 1, 1978, and may be 2. In its Provision No. 1, the lease contract specifically states that
renewed for a like term at the option of the lessee.” On February 1988, “the term of the lease shall be fourteen years commencing from
the lessor spouses executed a deed of donation over the subject property April 1, 1978, and may be renewed for a like term at the option
of their four children, herein respondents, who accepted the donation. of the lessee.”
On February 13, 1991, the Tanquenco children told Allied that they were 3. Allied Bank constructed a building to be used as its office.
no longer interested in extending the lease. Allied Bank replied that it 4. As stipulated, the ownership of the building would be
was exercising its option to renew their lease under the same terms with transferred to the lessors upon the contract’s expiration.
additional proposals. An action for ejectment was filed against Allied 5. On February 1988, the lessor spouses executed a deed of
Bank. The trial court granted the ejectment suit, declaring Provision No. donation over the subject property of their four children, herein
1 of the contract void for violating Article 1308 of the Civil Code. The respondents, who accepted the donation.
CA affirmed. On 20 February 1993, while the case was pending in the 6. On February 13, 1991, the Tanquenco children told Allied Bank
Court of Appeals, Allied Bank vacated the leased premises by reason of that they were no longer interested in extending the lease.
the controversy. 7. Allied Bank replied that it was exercising its option to renew
their lease under the same terms with additional proposals.
The main issue is W/N Provision No. 1 of the contract of lease which Ruben D. Tanqueco, acting in behalf of all the donee-lessors,
stipulates that the lease "may be renewed for a like term at the option of made a counter-proposal which Allied Bank rejected, insisting
the lessee" is void for being potestative / violative of the principle of on Provision No. 1 of their lease contract.
mutuality of contracts under Art. 1308 of the Civil Code. 8. An action for ejectment was filed against Allied Bank.
9. The trial court granted the ejectment suit, declaring Provision
The SC held that the provision is valid. The fact that such option is No. 1 of the contract void for violating Article 1308 of the Civil
binding only on the lessor and can be exercised only by the lessee does Code which states: “The contracts must bind both contracting
not render it void for lack of mutuality because the lessor is free to give parties; its validity or compliance cannot be left to the will of
or not to give the option to the lessee. The parties’ rights and obligations one of them.” The CA affirmed.
become mutually fixed, and the lessee is entitled to retain possession of 10. On 20 February 1993, while the case was pending in the Court
the property for the duration of the new lease, and the lessor may hold of Appeals, Allied Bank vacated the leased premises by reason
him liable for the rent. Mutuality obtains in such a contract and equality of the controversy.
exists between the lessor and the lessee since they remain with the same
faculties in respect to fulfillment. But since Allied Bank vacated the III. Issue/s
premises indicating its abandonment of renewal rights, what is left to be 1. W/N Provision No. 1 of the contract of lease which stipulates
done is for Allied Bank to pay rentals for the continued use of the that the lease "may be renewed for a like term at the option of
premises until it vacated the same. the lessee" is void for being potestative / violative of the
Obligations and Contracts (2020) PETITIONER: Allied Banking Corporation 1

DIGEST AUTHOR: Pia Casano RESPONDENT: Lucia Tanqueco-Matias, Oscar, Ruben, and Nestor D. Tanqueco
principle of mutuality of contracts under Art. 1308 of the Civil

Code – NO Following the clause "may be renewed for a like term at the option of
the lessee," Allied Bank’s exercise of the option resulted in the
2. W/N a lessee has the legal personality to assail the validity of a deed automatic extension of the contract of lease under the same terms and
of donation executed by the lessor over the leased premises - NO conditions. While the contract is silent as to what the specific terms and
IV. Holding/s conditions of the renewed lease shall be, the SC cited jurisprudence
stating that “a stipulation to renew always relates to the contract in
Issue #1 which it is found and the rights granted thereunder, unless it expressly
No, such provision in the contract is valid (does not violate Art. 1308 provides for variations in the terms of the contract to be renewed.”
of the Civil Code)
Petitioner’s Arguments Court’s Rebuttals Since Allied Bank vacated the premises indicating its abandonment of
renewal rights, what is left to be done is for Allied Bank to pay rentals
• Provision No. 1 of the lease • N/A. Court agreed with for the continued use of the premises until it vacated the same, the basis
contract was mutually agreed petitioner’s argument. of the computation of rentals being the rental rate provided for in the
upon hence valid and binding existing contract.
on both parties
Overall Ruling
Issue #2
An express agreement which gives the lessee the sole option to renew No, Allied Bank (the lessee) has no legal personality to assail the validity of
the lease is valid and binding on the parties, being fundamentally part of the deed of donation.
the consideration in the contract. It is a purely executory contract and at
most confers a right to obtain a renewal if there is compliance with the Overall Ruling
conditions on which the right is made to depend. The right of renewal
constitutes a part of the lessee’s interest in the land and forms a A person not principally or subsidiarily bound has no legal capacity to
substantial and integral part of the agreement. challenge the validity of the contract. He must first have an interest in it.
"Interest" means material interest, not mere incidental interest. Hence, a
The fact that such option is binding only on the lessor and can be person who is not a party to a contract and for whose benefit was not
exercised only by the lessee does not render it void for lack of mutuality expressly made cannot maintain an action on it, even if the contract, if
because the lessor is free to give or not to give the option to the lessee. performed by the parties thereto would incidentally affect him, except when
The parties’ rights and obligations become mutually fixed, and the lessee he is prejudiced in his rights with respect to one of the contracting parties
and can show the detriment which could positively result to him from the
is entitled to retain possession of the property for the duration of the new
contract in which he had no intervention. The exception does not apply in
lease, and the lessor may hold him liable for the rent. Mutuality obtains
Allied Bank’s case.
in such a contract and equality exists between the lessor and the lessee
since they remain with the same faculties in respect to fulfillment.


The contracts must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
VI. Disposition
WHEREFORE, the Decision of the Court of Appeals is REVERSED
and SET ASIDE. Considering that petitioner ALLIED BANKING
CORPORATION already vacated the leased premises as of 20 February
1993, the renewed lease contract is deemed terminated as of that date.
However, petitioner is required to pay rentals to respondent lessors at the
rate provided in their existing contract, subject to computation in view of
the consignment in court of P68,400.00 by petitioner, and of such other
amounts it may have deposited or advanced in connection with the lease.
VIII. Random Facts

• Ponente: Bellosillo, J.

G.R. No. 153674 | December 20, 2006 Contracts| General provisions
Avon Cosmetics v Luna Avon Cosmetics v Luna
I. Recit-ready Summary portion of the relevant market during the term of the agreement. Only
The present petition stemmed from a complaint dated 1 December those arrangements whose probable effect is to foreclose competition
1988, filed by herein respondent Luna alleging, inter alia¸ that she in a substantial share of the line of commerce affected can be
began working for Beautifont, Inc. in 1972, first as a franchise dealer considered as void for being against public policy. The foreclosure
and then a year later, as a Supervisor. Sometime in 1978, Avon effect, if any, depends on the market share involved. The relevant
Cosmetics, Inc. (Avon), herein petitioner, acquired and took over the market for this purpose includes the full range of selling opportunities
management and operations of Beautifont, Inc. Nonetheless, reasonably open to rivals, namely, all the product and geographic sales
respondent Luna continued working for said successor company. they may readily compete for, using easily convertible plants and
marketing organizations.
In the Supervisor’s Agreement, both parties agreed, among others, that
the Supervisor shall sell or offer to sell, display or promote only and Agreements in violation of orden público must be considered as those
exclusively products sold by the Company (exclusivity clause) and that which conflict with law, whether properly, strictly and wholly a public
either party may terminate this agreement at will, with or without law or whether a law of the person, but law which in certain respects
cause, at any time upon notice to the other (termination clause). affects the interest of society. Plainly put, public policy is that principle
of the law which holds that no subject or citizen can lawfully do that
Later, respondent Luna entered into the sales force of Sandre which has a tendency to be injurious to the public or against the public
Philippines which caused her termination for the alleged violation of good. As applied to contracts, in the absence of express legislation or
the terms of the contract. The trial court ruled in favor of Luna that the constitutional prohibition, a court, in order to declare a contract void as
Supervisor’s contract was contrary to public policy thus the dismissal against public policy, must find that the contract as to the consideration
was not proper. The Court of Appeals affirmed the decision, hence this or thing to be done, has a tendency to injure the public, is against the
petition. public good, or contravenes some established interests of society, or is
inconsistent with sound policy and good morals, or tends clearly to
The issue is whether or not that the Supervisor’s Agreement, undermine the security of individual rights, whether of personal
particularly the exclusivity clause, is void for being contrary to public liability or of private property.
policy.
Petition granted.
The Court ruled that Agreement is valid. There is nothing invalid or
contrary to public policy either in the objectives sought to be attained II. Facts of the Case (Material Facts)
the exclusivity clause, in prohibiting respondent Luna, and all other • Sometime in 1978, Avon Cosmetics, Inc. (Avon), herein
Avon supervisors, from selling products other than those manufactured petitioner, acquired and took over the management and operations
by petitioner Avon. of Beautifont, Inc.
• Leticia H. Luna, an employee of Beautifont, Inc., continued
The main objection to exclusive dealing is its tendency to foreclose working for Avon as a Supervisor.
existing competitors or new entrants from competition in the covered
Obligations and Contracts (2020) PETITIONER: Avon Cosmetics v Luna 1

DIGEST AUTHOR: Kerwin C. Aguilar RESPONDENT: Leticia H. Luna
• In the Supervisor’s Agreement, both parties agreed, among others, interpreted the exclusivity clause to apply only to those products
that the Supervisor shall sell or offer to sell, display or promote that do not compete with that of petitioner Avon's; and that the
only and exclusively products sold by the Company (exclusivity words "only and exclusively" need no other interpretation other
clause) and that either party may terminate this agreement at will, than the literal meaning — that "THE SUPERVISORS CANNOT
with or without cause, at any time upon notice to the other SELL THE PRODUCTS OF OTHER COMPANIES WHETHER
(termination clause). OR NOT THEY ARE COMPETING PRODUCTS."
• In 1988, Luna was offered by Sandre Philppines, Inc., a • Moreover, Avon reasons that the exclusivity clause prohibits
corporation engaged in the sale of vitamins and other food supervisors from selling other products utilizing their training,
supplements, to sell such products which Luna accepted and began experience and network being provided by Avon.
marketing Sandre’s products to other Avon employees and
friends. III. Issue/s
• Luna requested a law firm to render a legal opinion as to the legal 1. Whether or not that the Supervisor’s Agreement, particularly
consequence of the Supervisor's Agreement she executed with the exclusivity clause, is void for being contrary to public policy.
petitioner Avon. In response to her query, a lawyer of the firm NO
opined that the Supervisor's Agreement was "contrary to law and
public policy." IV. Holding/s
• As a consequence of Luna’s actions, Avon notified respondent
Luna of the termination or cancellation of her Supervisor's No. The Supervisor’s Agreement is valid.
Agreement. Respondent’s Argument Court’s Rebuttals
• Aggrieved, respondent Luna filed a complaint for damages before The exclusivity clause is against There is nothing invalid or contrary
the trial court. public policy because it to public policy either in the
• The trial court rendered judgment in favor of Luna. The Court of unreasonably restrains trade. objectives sought to be attained by,
Appeals affirmed the decision of the trial court, ruling that the the exclusivity clause, in prohibiting
exclusivity clause should be interpreted to apply solely to those respondent Luna, and all other Avon
products directly in competition with those of petitioner Avon's, supervisors, from selling products
i.e., cosmetics and/or beauty supplies and lingerie products. Its other than those manufactured by
declaration is anchored on the fact that Avon products, at that petitioner Avon.
time, were not in any way similar to the products sold by Sandré
Philippines, Inc. At that time, the latter was merely selling vitamin Such prohibition is neither directed
products. Put simply, the products of the two companies do not to eliminate the competition like
compete with each other. Sandré Phils., Inc. nor foreclose new
• Petitioner Avon disputes the conclusion reached by the Court of entrants to the market. In its
Appeals. It argues that the latter went beyond the literal and Memorandum, it admits that the
obvious intent of the parties to the subject contract when it reason for such exclusion is to

safeguard the network that it has two ways of terminating and/or canceling the contract. One mode does not
cultivated through the years. exclude the other. The contract provided that it can be terminated or
cancelled for cause, it also stated that it can be terminated without cause,
Overall Ruling both at any time and after written notice. Thus, whether or not the
There is nothing invalid or contrary to public policy either in the objectives termination or cancellation of the Supervisor's Agreement was "for cause,"
sought to be attained by, the exclusivity clause, in prohibiting respondent is immaterial. The only requirement is that of notice to the other party.
Luna, and all other Avon supervisors, from selling products other than those When petitioner Avon chose to terminate the contract, for cause, respondent
manufactured by petitioner Avon. Luna was duly notified thereof.
It was not by chance that Sandré Philippines, Inc. made respondent Luna
one of its Group Franchise Directors. It doesn't take a genius to realize that V. Law or Doctrine Applied
Art. 1305 of the Civil Code
by making her an important part of its distribution arm, Sandré Philippines,
A contract is a meeting of minds between two persons whereby one
Inc., a newly formed direct-selling business, would be saving time, effort
binds himself, with respect to the other, to give something or to render
and money as it will no longer have to recruit, train and motivate some service.
supervisors and dealers. Respondent Luna, who learned the tricks of the
trade from petitioner Avon, will do it for them. This is tantamount to unjust Art. 1306 of the Civil Code
enrichment. The contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not
Worse, the goodwill established by petitioner Avon among its loyal contrary to law, morals, good customs, public order, or public policy.
customers will be taken advantage of by Sandre Philippines, Inc. It is not so
hard to imagine the scenario wherein the sale of Sandré products by Avon VI. Disposition
dealers will engender a belief in the minds of loyal Avon customers that the WHEREFORE, in view of the foregoing, the instant petition is
product that they are buying had been manufactured by Avon. In other GRANTED. The Decision dated 20 May 2002 rendered by the Court
of Appeals in CA-G.R. CV No. 52550, affirming the judgment of the
words, they will be misled into thinking that the Sandré products are in fact
RTC of Makati City, Branch 138, in Civil Case No. 88-2595, are
Avon products. From the foregoing, it cannot be said that the purpose of the
hereby REVERSED and SET ASIDE. Accordingly, let a new one be
subject exclusivity clause is to foreclose the competition, that is, the entered dismissing the complaint for damages. Costs against
entrance of Sandré products in to the market. Therefore, it cannot be respondent Leticia Luna
considered void for being against public policy. How can the protection of
one's property be violative of public policy? Sandré Philippines, Inc. is still VII. Additional Notes
very much free to distribute its products in the market but it must do so at its None
own expense. The exclusivity clause does not in any way limit its selling
opportunities, just the undue use of the resources of petitioner Avon.
VII. Random Facts
The termination clause of the Supervisor's Agreement clearly provides for • Ponente: Chico Nazario, J.

G.R. No. L-18639 | January 31, 1963 Art. 1311
Javier Security v Shell Craft Javier Security v Shell Craft
I. Recit-ready Summary 1. Shell Craft entered into a contract whereby it engaged in the
services of Javier, the owner of a watchman agency
Shell Craft entered into a contract whereby it engaged in the services of a. Contract did not specify conditions required of the guards
Javier, the owner of a watchman agency. Shell Craft annually renewed its and watchmen
contract with Javier. Before the contract expired, Javier suddenly died. Shell 2. Shell Craft annually renewed its contract with Javier
Craft engaged the services of another agency on the same day. As a result, 3. Before the contract expired, Javier suddenly died
the heirs of Javier sued Shell Craft for breach of contract with damages for a. His widow was in Hong Kong
4. Shell Craft engaged the services of another agency on the same day
its unexpired term. TC held the contract to be a personal contract.
a. As a result, the heirs of Javier sued Shell Craft for breach
of contract with damages for its unexpired term
5. TC held the contract to be a personal contract
W/N the contract in question is a personal contract in the sense that the
a. Primordial consideration which prompted Shell Craft to
rights and obligations thereunder are intransmissible to the heirs? enter into the contract was the personality of Javier
i. Javier personally supervised the watchmen
The fact that Javier was not required to personally guard the premises of employed and controlled by him
Shell Craft does NOT negate the fact that the guarding job was entrusted to b. Shell Craft could not have expected any other person to
him by reason of his personal qualifications. The failure to specify in the render the same personal supervision and attention that
contract the conditions required of the individual guards and watchmen Javier exercised over his guards
proves that Shell Craft relied upon their (guards and watchmen) proper
selection and supervision by Javier himself.This trust and confidence of Issue/s
Shell Craft cannot be compelled to repose in Javier’s wife and heirs because
the contract is NOT transmissible. Therefore, the contract was a personal W/N the contract in question is a personal contract in the sense that the
one and the rights and obligations are intransmissible Shell Craft is free to
rights and obligations thereunder are intransmissible to the heirs? YES
engage other guards
W/N THE CONTRACT IN QUESTION IS A PERSONAL CONTRACT
IN THE SENSE THAT THE RIGHTS AND OBLIGATIONS
THEREUNDER ARE INTRANSMISSIBLE TO THE HEIRS
1
Obligations and Contracts (2020) PETITIONER: "JAVIER SECURITY SPECIAL WATCHMAN AGENCY"
and CONCEPCION D. JAVIER, in her own behalf and as guardian ad litem
of the minors CLARO D. JAVIER and RENE D. JAVIER
DIGEST AUTHOR: Mikhail Macasaet RESPONDENT: SHELL CRAFT & BUTTON CORPORATION
proper selection and

W/N the credit extension awarded to FSI novated FSI’ obligation to pay supervision by Javier himself.
interest? NO ● This trust and confidence of
Shell Craft cannot be
compelled to repose in
IV. Holding/s Javier’s wife and heirs
because the contract is NOT
transmissible
Issue #1
Overall Ruling
YES, the contract in question is a personal contract in the sense that the ● Art. 1311 provides: “Contracts take effect only between the parties,
their assigns and heirs, EXCEPT in case where the rights and
rights and obligations thereunder are intransmissible to the heirs
obligations arising from the contract are NOT intransmissible by their
nature, or by stipulation or by provision of law. The heir is not liable
Petitioner’s Arguments Court’s Rebuttals beyond the value of the property he received from the descendent
● Shell Craft breached its
contract ● The fact that Javier was not ● The fact that Javier was not required to personally guard the premises
required to personally guard of Shell Craft does NOT negate the fact the the guarding job was
the premises of Shell Craft entrusted to him by reason of his personal qualifications
does NOT negate the fact that
the guarding job was entrusted ● The failure to specify in the contract the conditions required of the
to him by reason of his individual guards and watchmen proves that Shell Craft relied upon
personal qualifications their (guards and watchmen) proper selection and supervision by
● The failure to specify in the Javier himself.
contract the conditions
required of the individual ● This trust and confidence of Shell Craft cannot be compelled to
guards and watchmen proves repose in Javier’s wife and heirs because the contract is NOT
that Shell Craft relied upon transmissible
their (guards and watchmen)
2
● Shell Craft is entitled to regard its contract with Javier terminated

because VII. Random Facts
○ The widow could not be expected to perform the contract ● Ponente: REYES, J.B.L.,, J.:
○ And because no one could take Javier’s place upon his death
(widow was in HK and children were minors)
● Therefore, the contract was a personal one and the rights and
obligations are intransmissible Shell Craft is free to engage other
guards
III. Law or Doctrine Applied
ART. 1311
“Contracts take effect only between the parties, their assigns and heirs, except
in case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. The heir
is not liable beyond the value of the property he received from the decedent."
IV. Disposition
The decision appealed from is affrmed, with costs against the plaintiffs-
appellants.
V. Additional Notes
3
G.R. No. 165907 | July 27, 2009 General Provisions: Pour Autrui (Art. 1311)
Sps Narvaez v. Sps Alciso Sps Narvaez v. Sps Alciso

Larry Ogas owned a parcel of land located in La Trinidad, Benguet, 1. Larry Ogas owned a parcel of land in La Trinidad, Benguet,
with a portion thereof subject to a 30-year lease with Esso Standard Eastern, wherein a portion was subject to a 30-year lease with Esso
Inc. Ogas then sold the property to his daughter Respondent Rose Alciso. Standard Eastern, Inc.
Alciso sold the property to one Jaime Sansano, and later on repurchased the 2. Ogas then sold the property to his daughter, Respondent Rose O.
same. She then sold the property to Celso Bate, transferring her rights in Alciso.
full. In August 1981, Bate entered into a Deed of Sale of Realty, selling the 3. In August 1979, Alciso sold the property to Jaime Sansano, which
property to herein Petitioners Sps Narvaez. The Sps Narvaez thereafter built she repurchased from him later on.
a commercial building on the land. 4. In March 1980, Alciso then sold it to Celso Bate, with a Deed of
Absolute Sale transferring her rights in full to the buyer.
Alciso demanded that a stipulation be included in the Deed of Sale of 5. In August 1981, Bate entered into a Deed of Sale of Realty, selling
Realty, allowing her to repurchase the property from the Sps Narvaez. A the property to herein Petitioners Sps Narvaez.
stipulation was thus included pursuant to such demand. However, Alciso 6. Sps Narvaez built a commercial building on the property
and Sps Narvaez failed to reach an agreement as to the purchase price. amounting to P300,000.
7. Alciso demanded that a stipulation be included in the Deed of Sale
Alciso filed a complaint with the RTC, praying that the Sps Narvaez be of Realty allowing her to repurchase the property from Sps
ordered to reconvey the property to her. The RTC held that the subject Deed Narvaez.
contained a stipulation pour autrui in favor of Alciso’s repurchase of the 8. Alciso’s demand was complied with, providing a stipulation
property. On appeal, CA held that the Deed contained a stipulation pour allowing her to buy back the property at a price and under such
autrui and that Sps Narvaez were builders in good faith. Sps Narvaez conditions Sps Narvaez may impose.
contended that Alciso allegedly failed to communicate her acceptance of the 9. Sps Narvaez furnished Alciso with a copy of the Deed.
favor contained therein, as it was at best by mere inference. 10. Alciso alleged that she informed Sps Narvaez that she wanted to
repurchase the property.
The issue presented is W/N the requisites of a stipulation pour autrui 11. The Sps demanded P300,000, but Alciso was willing to pay only
are present in the case. P150,000, thus failing to reach an agreement as to the price.
12. Alciso filed a complaint with the RTC praying that the Sps
The Court found the petition unmeritorious, and that all requisites of a Narvaez be ordered to reconvey the property to her, among others.
stipulation pour autrui are present in the case at bar. Holding that the factual 13. RTC held that the Deed of Sale of Realty contained a pour autrui
findings of the RTC are binding upon the Court, the Court held that Alciso in favor of Alciso’s repurchase of the property at P80,000.
communicated her acceptance of the stipulation when she went to see 14. RTC further held that Alciso could either appropriate the building
Narvaez in their house. Acceptance may be made anytime before the after payment of indemnity or sell the land to the Sps Narvaez.
favorable stipulation is revoked, and may be made in any form – either 15. Sps Narvaez contended that not all requisites of a stipulation pour
express or implied. Thus, Alciso can demand the fulfillment of the autrui were present, as Alciso failed to communicate her
stipulation pour autrui. acceptance of the favor contained therein.
Obligations and Contracts (2020) PETITIONER: Sps Dominador and Lilia Narvaez 1
DIGEST AUTHOR: Micah Espion RESPONDENT: Sps Rose and Antonio Alciso
16. CA held that the Deed contained a pour autrui and involved a Overall Ruling
contract of sale with the right to repurchase. Relying on Article 1311 (2) of the Civil Code and Limitless Potentials
17. CA further noted that the Sps Narvaez were builders in good faith. Inc v. Quilala, the Court held that all the requisites of a stipulation pour
18. CA remanded the case for determination of a reasonable purchase autrui are present in the instant case.
price.
The Court found that 1) there is a stipulation in favor of Alciso; 2) the
III. Issue/s stipulation is a part of the contract, and not the whole; 3) Bate and Sps
1. W/N all the requisites of a stipulation pour autrui are present? Narvaez clearly and deliberately conferred a favor to Alciso; 4) the favor
is unconditional and uncompensated; 5) Alciso communicated her
IV. Holding/s acceptance of the favor before its revocation; and 6) Bate and Sps Narvaez
did not represent Alciso.
Issue #1
YES, all requisites of a stipulation pour autrui are present, thus Alciso Holding that the factual findings of the RTC are binding upon the
can demand its fulfillment. Court, the Court found that Alciso communicated her acceptance of the
Petitioner’s Arguments Court’s Rebuttals stipulation when she went to see Narvaez in their house.
• Alciso did not communicate her • Whether Alciso communicated
acceptance of the favor her acceptance in the stipulation The Court held that there is no specific form required by law for
contained in the stipulation pour is a question of fact which is not acceptance. Acceptance may be made anytime before the favorable
autrui to the Sps Narvaez, as the reviewable. stipulation is revoked, and may be made in any form, either express or
acceptance was at best by mere implied. Thus, Alciso can demand fulfillment of the stipulation pour autrui.
interference.
ARTICLE 1311 (2) OF THE CIVIL CODE
If a contract should contain some 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.
REQUISITES OF A STIPULATION POUR AUTRUI

(1) There is a stipulation in favor of a third person
(2) The stipulation is a part, not the whole, of the contract
(3) The contracting parties clearly and deliberately coffered a favor to
the third person – favor is not an incidental benefit
(4) The favor is unconditional and uncompensated
VI. Disposition
WHEREFORE, the Court DENIES the petition. The Court AFFIRMS the
29 October 2004 Decision of the Court of Appeals in CA-G.R. CV No.
63757 with MODIFICATION. Respondent Rose O. Alciso may exercise her
right of redemption by paying the petitioners Spouses Dominador R.
Narvaez and Lilia W. Narvaez (1) the price of the sale, (2) the expenses of
the contract, (3) legitimate payments made by reason of the sale, and (4) the
necessary and useful expenses made on the subject property. The Court
DIRECTS the Regional Trial Court, Judicial Region 1, Branch 8, La
Trinidad, Benguet, to determine the amounts of the expenses of the contract,
the legitimate expenses made by reason of the sale, and the necessary and
useful expenses made on the subject property. After such determination,
respondent Rose O. Alciso shall have 30 days to pay the amounts to
petitioners Spouses Dominador R. Narvaez and Lilia W. Narvaez.

• Article 448 of the Civil Code on builders in good faith is
inapplicable because Sps Narvaez built the commercial building on
the land that they own.
• Article 1606 of the Civil Code provides that Alciso may exercise
her right of redemption by paying the purchase price, expenses of
contract, legitimate payments by reason of the sale, and the
necessary expenses made on the thing sold.
• According to Article 1606, Alciso has 4 years from 1981 to
repurchases upon tender of payment. Albeit failing to do so, Alciso
has 30 days from the final judgment to repurchase.
VII. Random Facts

• Ponente: Carpio, J.
G.R. No. 205722 | August 19, 2015
Republic vs Heirs of Africa Republic vs Heirs of Africa
I. Recit-ready Summary and Imelda Marcos, Roberto S. Benedicto (Benedicto), Hector T. Rivera,
The Presidential Commission on Good Government (PCGG) filed a complaint for Julita Benedicto, Lourdes Rivera, Miguel V. Gonzalez, Pag-Asa San
reconveyance before the Sandiganbayan against several personalities including Jose Agustin, Bennet Thelmo, Exequiel B. Africa, Rocio R. Torres, Marciano
Africa. According to the PCGG, they siphoned funds from the national treasury and Benedicto, Romulo Benedicto, Zacarias Amante, Francisca C. Benedicto,
unjustly enriched themselves and the Marcoses. Jose Montalvo, Jesus Martinez, Nestor Mata, Alberto Velez, Richard de
Leon, Zapiro Tanpinco, Leopoldo Vergara, Dominador Pangilinan,
The PCGG entered into a Compromise Agreement with Benedicto, one of the Rodolfo Arambulo, Rafael Sison, Placido Mapa, Jr., Cesar C. Zalamea,
defendants in the reconveyance case. Benedicto surrendered the listed properties. In Don M. Ferry, Jose R. Tengco, Jr., Ramon Monzon, Generosa C. Olazo,
return, Benedicto, along with some of his associates and nominees were then granted Cynthia Cheong, Ma. Luisa E. Nograles, and Africa.
absolute immunity such that no criminal prosecution would be undertaken against 2. PCGG alleges that they siphoned funds from the national treasury and
him and his family. The Compromise Agreement specifically enumerated the names unjustly enriched themselves and the Marcoses.
of the associates which would be covered by the immunity and Africa’s name was 3. The present case pertains to Jose L. Africa, one of the defendants in the
not in the list. reconveyance case.
4. Africa was the Chairman of the Board of Directors of the Traders Royal
Heirs of Africa filed a motion seeking the dismissal of the case against Africa (now Bank. According to the PCGG, Africa collaborated with Benedicto and
deceased), asserting that he should be exonerated since his supposed conspirators several of the defendants in acting as conduits of the pilfered funds by
had been exonerated by virtue of the Compromise Agreement. The issue in this case laundering the same using the banking facilities of Traders Royal before
is whether or not Africa should benefit from the Compromise Agreement entered remitting them to the Marcoses.
into by Benedicto and the PCGG. The court said no. 5. The PCGG entered into a Compromise Agreement with Benedicto who
undertook to cede to the government the listed properties and to transfer
Applying Article 1311 of the Civil Code, the Court listed down the requisites for a all his rights in the assets of the listed corporations.
stipulation pour autrui and explained that for a stipulation pour autrui to be 6. The sequestration orders over Benedicto’s properties were lifted and he
appreciated, it is indispensable that there be a stipulation deliberately conferring a was granted absolute immunity such that no criminal investigation or
benefit to a third person. prosecution would be undertaken against him and his family.
7. The Compromise Agreement explicitly stated that it “covers the remaining
The Court has examined the Compromise Agreement and found no stipulation that claims and cases of the PH government against Benedicto including his
would even resemble a provision in favor of Africa or the respondents. The associates and nominees, namely: Julita C. Benedicto, Hector T. Rivera,
Compromise Agreement does not give a blanket protection to all officers and Lourdes V. Rivera, Miguel V. Gonzales, Pag-Asa San Agustin, Rocio B.
employees of the Benedicto corporations. The word "abovementioned" should be Torres, Marciano Benedicto, Romulo Benedicto, Francisca C. Benedicto,
interpreted to refer to the "officers and employees" enumerated in the second Richard de Leon, Jose Montalvo, Jesus Martinez, Nestor Mata, Alberto
whereas clause of the Compromise Agreement only. Velez, Zafiro Tanpinco, Dominador Pangilinan, Mariano del Mundo and
II. Facts of the Case Zacarias Amante.”
1. The Presidential Commission on Good Government (PCGG) filed a 8. Notably, some of the defendants, including Africa, were not named
complaint for reconveyance before the Sandiganbayan against Ferdinand therein.
1
Obligations and Contracts (2020) PETITIONER: Republic of the Philippines
DIGEST AUTHOR: Myna RESPONDENT: Legal Heirs of Jose L. Africa
G.R. No. 205722 | August 19, 2015
9. The Compromise Agreement was approved by the Sandiganbayan and its TRB wherein Africa was the
validity was upheld by the Supreme Court. Chairman of the Board of
10. Heirs of Africa (herein Respondents) then filed a motion seeking the Directors.
dismissal of the case against Africa, asserting that he should be exonerated Overall Ruling
since his supposed conspirators had been exonerated by virtue of the
Compromise Agreement. The Court laid down the requisites of a stipulation pour autrui, namely: (1) there is a
11. The Sandiganbayan granted the motion and ruled that the acts complained stipulation in favor of a third person; (2) the stipulation is a part, not the whole, of
against Africa constituted a quasi-delict or tort and the solidary obligation the contract; (3) the contracting parties clearly and deliberately conferred a favor to
had been extinguished when the Compromise Agreement was executed. the third person — the favor is not an incidental benefit; (4) the favor is
12. The CA reversed the Sandiganbayan decision saying there was no unconditional and uncompensated; (5) the third person communicated his or her
stipulation in the Compromise Agreement that clearly conferred benefits to acceptance of the favor before its revocation; and (6) the contracting parties do not
Africa. They also ruled that the case does not only pertain to the represent, or are not authorized by, the third party.
reconveyance of Benedicto’s own illegally acquired wealth but also the
reconveyance of the unexplained wealth of the other defendants in the For a stipulation pour autrui to be appreciated, it is indispensable that there be a
case. The CA, however, reversed itself and granted the motion for stipulation deliberately conferring a benefit to a third person. The Court has
reconsideration of the respondents. examined the Compromise Agreement and found no stipulation that would even
III. Issue/s resemble a provision in favor of Africa or the respondents.
1. W/N the respondents may benefit from the Compromise Agreement
entered into by the PCGG and Benedicto. NO The Court further explained that the clause in the Compromise Agreement which
says:
IV. Holding/s
Issue #1 "[t]he Government hereby extends absolute immunity, x x x, to x x x, officers and
NO, the Heirs of Africa may not benefit from the compromise agreement employees of his corporations [a bovementioned], who are included in past,
entered into by PCGG and Benedicto present[,] and future cases and investigations of the Philippine Government,"
Sandiganbayan’s Ruling Court’s Rebuttals
● Africa should benefit from the ● For a stipulation pour autrui, it is does not give a blanket protection to all officers and employees of the Benedicto
Compromise Agreement entered indespensable that there be a corporations.
into by Benedicto and the PCGG stipulation deliberately conferring a
considering that the absolute benefit to a third person. The word "abovementioned" should be interpreted to refer to the "officers and
immunity under the agreement employees" enumerated in the second whereas clause of the Compromise
extended to the officers and Agreement and not to the Benedicto corporations, considering that the list of the
employees of Benedicto’s Benedicto corporations is found only in the annexes to, and not in, the Compromise
corporations, one of which is the Agreement itself.
2
G.R. No. 205722 | August 19, 2015
If the words appear to be contrary to the evident intention of the parties, the latter
Viewed in the context of the allegations in the Amended Complaint, the shall prevail over the former.
Compormise Agreement shows that the parties thereto deliberately excluded some
defendants from its benefits even if other defendants who were similarly situated VI. Disposition
benefited therefrom.
WHEREFORE, premises considered, the petition is GRANTED. The Resolution
dated February 4, 2013 of the Sandiganbayan in Civil Case No. 0034 is hereby
Considering that Africa was neither a party nor one of the intended beneficiaries of REVERSED and SET ASIDE. The Sandiganbayan is ordered to REINSTATE
the Compromise Agreement, and absent any stipulations pour autrui in his favor, the Jose L. Africa and/or respondents Legal Heirs of Jose L. Africa as defendants in
rule on relativity of contracts, that only the parties thereto and their privies acquire Civil Case No. 0034.
rights and assume obligations thereunder, prevails. No rule is more settled than that
the parties' intent is "embodied in the writing itself, and when the words are clear VII. Additional Notes
and unambiguous the intent is to be discovered only from the express language of VII. Random Facts
the agreement." ● Ponente: Perlas-Bernabe, J.
V. Law or Doctrine Applied.
Article 1311 of the Civil Code
Contracts take effect only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not transmissible by
their nature, or by stipulation or by provision of law. The heir is not liable beyond
the value of the property he received from the decedent.
If a contract should contain some 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.
If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control.
3
G.R. No. 120554 | September 21, 1999 Contracts
So Ping Bun v. CA So Ping Bun v. CA
I. Recit-ready Summary 1. Tek Hua Trading entered into four contracts of lease agreement
Tek Hua Trading entered into four contracts of lease agreement with Dee C. with Dee C. Chuan & Sons, Inc. (DCCSI) for the lease of premises
Chuan & Sons, Inc. (DCCSI) for the lease of premises located in Binondo, located in Binondo, for the use of Tek Hua as storage for its textile
for the use of Tek Hua as storage for its textile business. Each contract had a business. This was done by their manager, So Pek Giok.
one year term. Their agreement provided that should the lessee continue to 2. Each contract had a one year term. Their agreement provided that
occupy the premises after the term, the lease will turn into a should the lessee continue to occupy the premises after the term,
month-to-month basis payment. When the contract expired, the parties did the lease will turn into a month-to-month basis payment.
not renew their agreement but Tek Hua continued to occupy DCCSI’s 3. When the contract expired, the parties did not renew their
premises. After the death of his grandfather, So Ping Bun replaced him and agreement but Tek Hua continued to occupy DCCSI’s premises
continued to occupy the premises with his own textile business, Trendsetter 4. In 1976, Tek Hua trading was dissolved, later its original members
Marketing. The new president of Tek Hua Trading, Mr, Tiong, then sent a including Mr Tiong formed Tek Hua Enterprising Corp.
letter to So Ping Bun asking him to vacate as they wish to use the premises 5. When Tek Hua’s manager, So Pek Giok died, he was succeeded by
for his own textile business. So Ping Bun refused to vacate the premises and his grandson, So Ping Bun, occupying the premises for his own
claims that he had been occupying the premises since his grandfather died textile business, Trendsetter Marketing.
and had been paying rent religiously. So Ping Bun requested for a new 6. Mr, Tiong, then sent a letter to So Ping Bun asking him to vacate
formal contract with DCCS. A new contract was executed. Tek Hua filed as they wish to use the premises for his own textile business.
for nullification of the contract and claimed damages. The issue in this case 7. So Ping Bun refused to vacate the premises and claims that he had
is whether or not So Ping Bun is guilty of tortuous interference of contract. been occupying the premises since his grandfather died and had
The Court ruled that So Ping Bun is indeed guilty of tortuous interference of been paying rent religiously.
contract. The Court found that all elements of tort of interference and 8. So Ping Bun requested for a new formal contract with DCCS. A
existent in this case. The elements of tort interference are: new contract was executed.
1. Existence of a valid contract 9. Tek Hua filed for nullification of the contract and claimed
2. Knowledge on the part of the third person of the existence of damages.
contract,
3. Interference of third person is without legal justification or excuse. III. Issue/s
Although, there was no malice, it did not absolve So Ping Bun of its Whether or not So Ping Bun is guilty of tortuous interference of
liability. contract. YES.
II. Facts of the Case (Material Facts) IV. Holding/s
1
Obligations and Contracts (2020) PETITIONER: So Ping Bun
DIGEST AUTHOR: Alex Sulaik RESPONDENT: Court of Appeals / Dee C. Chuan & Sons, Inc. (DCCSI)
Issue contracts in its favor, and as a result petitioner deprived respondent

YES, So Ping Bun is guilty of tortuous interference of contract. 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.”
Petitioner's Argument Court’s Rebuttal
Further, it is held in Art. 1314 that "Any third person who induces
another to violate his contract shall be liable for damages to the
So Ping Bun claims that he had The Court held that the elements of
other contracting party."
been paying rent religiously for the tort of interference are all present To counter this, So Ping Bun states that malice is an essential element of
premises and had been occupying in this case. Further, the Court held tortuous interference and since since the trial court and the appellate
the same since the death of his that even when there is no malice court ruled that private respondents were not entitled to actual,
grandfather. Further, So Ping Bun or bad faith on the part of moral or exemplary damages, it follows that he ought to be
claims that he cannot be made
petitioner, he cannot be absolved absolved of any liability, including attorney's fees.
liable because he claims that the
for his liability. The Court held that although they did not grant damages, it was not
presence of malice or bad faith is
because he was absolved, but because it was unquantifiable. Further, just
required for him to be guilty of
because the Court did not award damages did not mean that So Ping Bun
tortuous interference of contract.
is absolved from his liability.
Overall Ruling
Damage is the loss, hurt or harm which result from injury, and damages
ART. 1314
are the compensation awarded for the damage suffered. The elements of
Any third person who induces another to violate his contract shall be
tort interference are:
liable for damages to the other contracting party.
4. Existence of a valid contract
5. Knowledge on the part of the third person of the existence of
VI. Disposition
contract,
WHEREFORE, the petition is hereby DENIED. The assailed Decision
6. Interference of third person is without legal justification or and Resolution of the Court of Appeals in CA-G.R. CV No. 38784
excuse. are hereby AFFIRMED, with MODIFICATION that the award of
The Court held that all elements are present in this case, hence So Ping attorney's fees is reduced from two hundred thousand (P200,000.00)
Bun is guilty of tortuous interference of contract. “This may pertain to to one hundred thousand (P100,000.00) pesos. No pronouncement as to
a situation where a third person induces a party to renege on or costs.
violate his undertaking under a contract. In the case before us,
petitioner's Trendsetter Marketing asked DCCSI to execute lease VII. Additional Notes
2
VII. Random Facts: Ponente:Quisumbing, J.
3
G.R. No. 119107 | March 18, 2005 Contracts (Art. 1314)
Lagon vs. CA Lagon vs. CA
I. Recit-ready Summary 6. Lapuz discovered that Lagon was collecting rentals from the tenants
Petitioner Jose Lagon purchased land from the estate of Bai Tonina Sepi and representing himself as the new owner.
in 1982. However, private respondent Lapuz claimed to have been in a lease 7. Some months after Lagon’s purchase, Lapuz filed a complaint for
contract over the same property since 1964. This allowed him to construct torts and damages against Lagon, accusing the latter of inducing the
commercial buildings on the land. Once this lease ended in 1974, it was heirs of Bai Tonina to sell the property to thus violating Lapuz’
allegedly renewed. When Bai Tonina died, Lapuz was advised by the estate leasehold rights over the same property.
administrator to stop collecting rentals from the building tenants, but Lapuz 8. The RTC ruled for Lapuz, declared the lease contract valid, and
later found out Lagon, presenting himself as the new owner, was collecting allowed him to collect rentals of the commercial buildings plus
rentals himself. various damages.
Lapuz filed a complaint for torts and damages against Lagon, accusing 9. The CA modified the RTC decision upon Lagon’s appeal. The
him of tortuous interference in the lease contract. The RTC rules for Lapuz, awards of various damaged were deleted.
and the CA affirmed (but modified damages)
The issue is whether or not Lagon’s purchase of the property during the III. Issue/s
existence of Lapuz’ lease contract constituted tortuous interference. 1. W/N Lagon’s purchase of the property during the supposed
The SC held that there is no tortuous interference because not all the existence of Lapuz’ lease contract constituted tortuous
elements are present. The elements are 1. A valid contract, 2. The third party’s interference for which Lagon should be liable for damages? NO.
knowledge of such of, and 3. The third party’s unjustified or malicious
interference. Although there was a valid contract, there was no proof that IV. Holding/s
Lagon had knowledge thereof nor that he made an unjustified or malicious
interference. Thus, he cannot be held liable for damages. This is an instance
of damage without injury. Issue #1
NO, Lagon cannot be held liable for damages from tortuous
II. Facts of the Case (Material Facts) interference for his act of purchasing the property.
1. Petitioner Jose Lagon purchased two parcels of land from the estate Petitioner’s Arguments Court’s Rebuttals
of Bai Tonina Sepi in 1982.  Lagon claimed to have no  For a third party to be held liable
2. On the other hand, private respondent Lapuz claimed to have been knowledge of a lease contract for tortuous interference, there
in a lease contract with Bai Tonina Sepi from 1964. between Lapuz and Bai Tonina. must be a valid contract, the third
3. The lease contract granted the lease over three parcels of land (the He presented a certification party’s knowledge of such, and
“property”) to Lapuz and allowed him to construct commercial from the Office of the Clerk of the third party’s interference
buildings. The rent from the building tenants would answer for the Court confirming that no record without legal justification.
rent Lapuz owed Bai Tonina Sepi for the land lease. of any lease contract by the o The notarized copy of the
4. The lease contract ended in 1974 but was allegedly renewed. notarizing attorney. lease contract is proof that
5. After Bai Tonina’s death, Lapuz started remitting rentals to the Lapuz and Bai Tonina
administrator of the estate, who advised Lapuz to stop collecting
renewed their lease.
rentals from the building tenants.
1
Obligations and Contracts (2020) PETITIONER: Jose V. Lagon
DIGEST AUTHOR: Kara Nazario RESPONDENT: CA and Menandro V. Lapuz
G.R. No. 119107 | March 18, 2005 Contracts (Art. 1314)
Lagon vs. CA Lagon vs. CA
o Lagon had no knowledge of Any third person who induces another party to violate his contract shall be
the contract. He conducted liable for damages to the other contracting party.
his own investigation which
turned up no suspicious ELEMENTS OF TORTUOUS INTEFERENCE WITH
circumstances. There was CONTRACTUAL RELATIONS (from SO Ping Bun vs CA)
no indication of Lapuz’ a. existence of a valid contract
b. knowledge on the part of the third person of the existence of the contract
leashold interest in the
c. interference of the third person without legal justification or excuse
property title.
o There was no proof of JUSTIFICATION FOR INTERFERING (from SO Ping Bun vs CA)
malice or unjustified …, as a general rule, justification for interfering with the business relations
interference by Lagon. The of another exists where the actor’s motive is to benefit himself. Such
decision of the heirs of Bai justification does not exist where the actor’s motive is to cause harm to the
Tonina to sell the property other.
was completely of their
own volition. Further, DAMAGE WITHOUT INJURY
Lagon’s purchase was Injury is the legal invasion of a legal right.
merely for economic Damage is the hurt, loss, or harm which results from the injury.
interests, absent proof of There can be damage without injury where the loss or harm is not the result
of a violation of a legal duty. The consequences must be borne by the injured
malice on his part.
person alone.
Overall Ruling
For a third party to be held liable for tortuous interference, there must be a VI. Disposition
valid contract, the third party’s knowledge of such, and the third party’s
interference without legal justification. WHEREFORE, premises considered, the petition is hereby GRANTED. The
Although there was a valid contract, the knowledge and unjustified or assailed decision of the Court of Appeals is hereby REVERSED and SET ASIDE.
malicious interference (inducing Bai Tonina to sell the property to him) of No costs.
SO ORDERED.
Lagon was not proven.
Since not all the three elements necessary to hold Lagon liable for tortuous VII. Additional Notes
interference are present, he cannot be held liable for Lapuz’ losses.
This is a case of damage without injury. VII. Random Facts
 Ponente: Corona, J.
ARTICLE 1314
2
Obligations and Contracts (2020) PETITIONER: Jose V. Lagon
DIGEST AUTHOR: Kara Nazario RESPONDENT: CA and Menandro V. Lapuz
G.R. No. 164703 | May 4, 2010 General Provisions - Art. 1314
Go v. Cordero Go v. Cordero

1. In 1996, Mortimer Cordero, Vice President of Pamana Marketing
Mortimer Cordero, VP of Pamana Marketing Corporation, ventured into a Corporation, ventured into a business of marketing inter-island
business of marketing inter-island passenger vessels. He met Tony Robinson, passenger vessels.
managing director of Aluminum Fast Ferries Australia (AFFA). 2. He came to meet Tony Robinson, managing director of Aluminum
The latter signed documents appointing Cordero as exclusive distributor of Fast Ferries Australia (AFFA).
AFFA catamaran and other fast ferry vessel in the PH. Eventually, Cordero 3. Robinson signed documents appointing Cordero as exclusive
was able to close a deal for the purchase of 2 SEACAT 25 in which Cordero distributor of AFFA catamaran and other fast ferry vessel in the PH
will receive commissions totaling 22.43% of the purchase price, from the sale 4. After negotiations with Felipe Landicho and Vicente Tecson,
of each vessel. Later he discovered that Go was dealing directly with lawyers of Allan C Go who is the owner or operator of ACG Express
Robinson when he was informed that Go was canvassing for a second Liner of Cebu City, Cordero was able to close a deal for the purchase
catamaran engine from their company. Despite follow-up calls, no of two SEACAT 25. Cordero shall receive commissions totaling
explanation was given by Robinson, Go, et al who even made Cordero believe 22.43% of the purchase price, from the sale of each vessel.
there would be no further sale between AFFA and ACG Express Liner. 5. Cordero later discovered that Go was dealing directly with Robinson
when he was informed by Dennis Padua of Wartsila Philippines that
Cordero instituted a Civil Case seeking to hold Robinson, Go, et al liable
Go was canvassing for a second catamaran engine from their
jointly and solidarily for conniving and conspiring together in violating his
company. Despite repeated follow-up calls, no explanation was
exclusive distributorship in bad faith, depriving him of his due given by Robinson, Go, Landicho, and Tecson who even made
commissions.vTrial court ruled in favor of Plaintiff and against defendants. Cordero believe there would be no further sale between AFFA and
CA affirmed. W/N Cordero has a cause of action against the respondents ACG Express Liner.
for breach of contract? – YES 6. Cordero instituted a Civil Case seeking to hold Robinson, Go,
Tecson, and Landicho liable jointly and solidarily for conniving and
SC held that while it is true that a third person cannot be sued for breach of conspiring together in violating his exclusive distributorship in bad
contract because only parties can breach contractual provisions, a contracting faith and wanton disregard of his rights, thus depriving him of his
party may sue a third person not for breach but for inducing another to commit due commissions.
such breach based on Art. 1314 of the Civil Code. Through the letters issued 7. Trial court ruled in favor of Plaintiff and against defendants Allan
by Robinson attesting that Cordero is the exclusive distributor of AFFA in the C. Go, Tony Robinson, Felipe Landicho, and Vincent Tecson
PH and the act of Go, et al in inducing Robinson and AFFA to enter into 8. CA affirmed trial court’s decision.
another contract directly with ACG Express Liner to obtain a lower
obligation, resulting in AFFA’s breach of its contractual obligation to pay in
III. Issue/s
full the commission due to Cordero and unceremonious termination of
1. W/N Cordero has a cause of action against the respondents for
Cordero’s appointment as exclusive distributor, the element of interference
breach of contract? - YES
were satisfied.
IV. Holding/s
1
Obligations and Contracts (2020) PETITIONER: Allan C. Go
DIGEST AUTHOR: Wischelle Gabriel RESPONDENT: Mortimer F. Cordero
Issue #1 Cordero was practically excluded from the transaction when Go,
YES, respondents can be sued for breach of contract for inducing Robinson, Tecson and Landicho suddenly ceased communicating with
AFFA to commit such breach . him, without giving him any explanation. They clearly connived not
Petitioner’s Arguments Court’s Rebuttals only in ensuring that Cordero would have no participation in the
contract for sale of the second SEACAT 25, but also that Cordero would
• Lower court erred erred in • While it is true that third
not be paid the balance of his commission from the sale of the first
holding them solidarily person cannot be sued for
SEACAT 25. This, despite their knowledge that it was commission
liable for Cordero’s unpaid breach of contract because
already earned by and due to Cordero.
commission, which is the only parties can breach
sole obligation of the contractual provisions, a
Hence, lower court correctly ruled that the actuations of Go, Robinsons,
principal AFFA contracting party may sue a
Tecson and Landicho were without legal justification and intended
third person not for breach but
solely to prejudice Cordero.
for inducing another to commit
such breach.
Overall Ruling
Art. 1314. Any third person who induces another to violate his contract shall
While it is true that a third person cannot be sued for breach of contract
be liable for damages to the other contracting party
because only parties can breach contractual provisions, a contracting
party may sue a third person not for breach but for inducing another to
VI. Disposition
commit such breach based on Art. 1314 of the Civil Code.
WHEREFORE, the petitions are DENIED. The Decision dated March 16,
Elements of tort interference: (1) existence of a valid contract; (2)
2004 as modified by the Resolution dated July 22, 2004 of the Court of
knowledge on the part of the third person of the existence of a contract;
Appeals in CA-G.R. CV No. 69113 are hereby AFFIRMED with
and (3) interference of the third person is without legal justification.
MODIFICATION in that the awards of moral and exemplary damages are
hereby reduced to ₱300,000.00 and ₱200,000.00, respectively.
First two elements are present. Through the letters issued by Robinson
attesting that Cordero is the exclusive distributor of AFFA in the
With costs against the petitioner in G.R. No. 164703.
Philippines, respondents were clearly aware of the contract between
Cordero and AFFA represented by Robinson.
SO ORDERED.
As to the third element, the act of Go, Landicho and Tecson in inducing
Elements of tort interference: (1) existence of a valid contract; (2)
Robinson and AFFA to enter into another contract directly with ACG
knowledge on the part of the third person of the existence of a contract; and
Express Liner to obtain a lower obligation, a lower price for the second
(3) interference of the third person is without legal justification.
vessel resulted in AFFA’s breach of its contractual obligation to pay in
full the commission due to Cordero and unceremonious termination of
VII. Random Facts
Cordero’s appointment as exclusive distributor.
• Ponente: Villarama, Jr., J.
2
3
G.R. No. 212256 | December 9, 2015 General Provisions
Bitte v. Spouses Jonas Bitte v. Spouses Jonas
I. Recit-ready Summary sale was unenforceable. Article 1924 of the Civil Code provides that an
Respondent Rosa executed a SPA to authorize Andrea, her mother, to sell agency is revoked if the principal directly manages the business entrusted to
her real property in Davao. Cipriano, Rosa’s brother, offered to sell the the agent, dealing directly with third persons. In the case, the Court held that
same to Spouses Bitte and received an advance payment. Spouse Bitte the actions of Rosa in taking over the negotiations for the sale of the
offered to pay Rosa's plane ticket in order for them to have final property shows that Andrea’s authority has been revoked already. The Court
negotiations. When Rosa arrived in the Philippines, she immediately ruled that when a contract is entered into in the name of another by one who
revoked the SPA and went to see Spouses Bitte. After the meeting, Rosa has no authority or legal representation, or who has acted beyond his
withdrew from the transaction. Hence, a complaint for specific performance powers, shall be unenforceable.
with damages. While the case was pending, Andrea sold the property to
Spouses Britte through a deed of absolute sale. Rosa pleaded to cancel the II. Facts of the Case (Material Facts)
sale because she mortgaged the said property to Mindanao Development 1. Before she went to Australia in July 1985, Rosa Elsa Serrano Jonas
Bank before and the mortgage was foreclosed due to her failure to pay. (respondent) executed a Special Power of Attorney to Andrea
Nevertheless, Spouse Bitte was still able to redeem the property from the Serrano, her mother, to authorize the latter to sell her property in
highest bidder for P1.6M. During the trial for the first case, the RTC Davao. Cipriano Serrano, Rosa’s brother, offered to sell the
dismissed the complaint for spouses Bitte failed to appear. In November property to Spouses Benjamin and Farida Bitte (petitioners).
1999, Spouses Jonas filed a complaint for annulment of deed of absolute Cipriano received a total amount of P600K as advance payment.
sale. The RTC ordered Spouses Bitte to pay approximately P1.5M to Rosa 2. Spouses Bitte wanted to meet up with Rosa Elsa, but the latter was
for the balance of the sale. On appeal, the CA reversed the decision of the in Australia and she had no money to go back to the Philippines.
RTC because the former focused on the validity and enforceability of the Hence, Spouses Jonas paid her round trip ticket. Upon Rosa Elsa’s
deed of sale and held the same as null and void. The issues in this case are: arrival, she immediately revoked the SPA. She met up with
W/N the genuineness and due execution of the deed of sale in favor of Spouses Jonas, but withdrew from the transaction after the
Spouses Bitte were proven; and W/N the deed of absolute sale is meeting.
enforceable. In the first issue, the Court held that the genuineness and due 3. In October 1996, Spouses Bitte filed a complaint for specific
execution of the deed were not established because a deed of absolute sale is performance with damages (1st civil case) before the RTC to
required under Article 1358 of the Civil Code to be in a public document, compel Rosa to transfer to their names the title. While the case was
however it is still valid and binding even if it is not in a public document, pending, Andrea sold the property to Spouses Bitte through a deed
provided that the said deed must be proved by any person who saw the of absolute sale. Upon Rosa’s knowledge, she pleaded for the
document being executed or by evidence of the genuineness of the signature cancellation of the sale because the property was mortgaged to
and handwriting of the maker. In the instant case, the said deed would have Mindanao Development Bank before and the mortgage was
been still valid and binding despite the finding of the Court that it was not in foreclosed due to her failure to pay. However, Spouses Bitte
a public document, but since they were declared in default, they failed to redeemed the property from the highest bidder for P1.6M and sold
discharge the burden. In the second issue, the Court held that the deed of the same to Spouses Yap.
1
Obligations and Contracts (2020) PETITIONER: Farida Yap Bitte and the heirs of Benjamin D. Bitte
DIGEST AUTHOR: Steven Rivera RESPONDENT: Spouses Fred and Rosa Elsa Serrano Jonas
4. In their complaint for the 1st case, Spouses Bitte alleged that when Petitioner’s Arguments Court’s Rebuttals
they had a meeting with Rosa, the parties reached an agreement of ● The deed of absolute sale ● The Regional Archives Division
sale of the property, but Rosa withdrew after. The RTC issued an executed by Andrea was valid Office in Davao had no copy of
TRO to prevent Rosa from disposing the property. In Rosa’s and legal because the SPA was the said Deed. When the said
defense, she mentioned that her mother was told not to sell the not validly revoked as the Deed’s notarial entries were
property anymore, that the SPA was already revoked, and that revocation was not registered in checked, the entries pertained to
Cipriano had no authority to receive the payment. The RTC the Office of the Register of a different document which
dismissed the complaint for Spouses Bitte’s failure to appear Deeds of Davao City. rendered doubtful if it was
during trial. notarized.
5. In November 1999, Spouses Jonas filed a complaint for Overall Ruling
Annulment of Deed of Absolute Sale (2nd civil case). The RTC Under Article 1358 of the Civil Code, a contract which transmits or
issued a TRO to restrain Spouses Bitte from selling the property. extinguishes real rights over immovable property should be in a public
The case was ordered to be consolidated with the first case. document. However, the Court clarified that a sale of real property, which is
Spouses Bitte was declared in default for their failure to attend the not consigned in a public document, is still valid and binding among the
pre-trial. Hence, they were declared non-suited and Rosa presented parties because a verbal contract of sale or real estate still produces legal
her evidence. The RTC ordered Spouses Bitte to pay effects, provided that Section 20 of Rule 132 is complied. Section 20 states
approximately P1.5M to Rosa for the balance of the sale. that the said deed must be proved either by anyone who saw the document
6. On appeal, the CA focused on the validity and enforceability of the executed or written, or by evidence of the genuineness of the signature or
deed of absolute sale (deed). The CA pointed out that Andrea’s handwriting of the maker. In other words, a deed of absolute sale is required
execution of the deed, on behalf of Rosa, was void and under Article 1358 of the Civil Code to be in a public document, however it
unenforceable because the SPA had been revoked before. Hence, is still valid and binding even if it is not in a public document, provided that
the CA reversed the RTC’s decision, and declared the deed of the said deed must be proved by any person who saw the document being
absolute sale, together with the TCT, as null and void. executed or by evidence of the genuineness of the signature and
III. Issue/s handwriting of the maker. In the case at bar, the said deed would have been
1. W/N the genuineness and due execution of the deed of sale in still valid and binding despite the finding of the Court that it was not in a
favor of Spouses Bitte were proven; (NO) public document, but since they were declared in default, they failed to
2. W/N the deed of absolute sale is enforceable. (NO) discharge the burden. Also, the National Archives, Records Management
and Archives Office, Regional Archives Division, Davao City, certified that
IV. Holding/s it had no copy on file of the Deed of Absolute Sale Hence, the Court held
Issue #1 the deed to be non-existent.
NO, the genuineness and due execution of the deed were not established
2
Issue #2 is Article 1317 of the Civil Code which provides a contract entered into in
NO, assuming that the genuineness and due execution of the deed were the name of another by one who has no authority or legal representation, or
established, the deed of sale is still unenforceable. who has acted beyond his powers, shall be unenforceable, unless it is
Petitioner’s Arguments Court’s Rebuttals ratified, expressly or impliedly, by the person on whose behalf it has been
● The deed must be recognized ● Third parties are not affected by executed, before it is revoked by the other contracting party. In the instant
and enforced for the reason that, the revocation of the agency, case, the deed of sale was executed by Andrea, whose authority had been
despite the revocation of the unless they get notified of such revoked, hence the transaction was unenforceable.
authority of Andrea prior to the revocation. They get affected
execution of the deed, they once it is no longer reasonable V. Law or Doctrine Applied
should not be bound by that for them to believe that the agent Art. 1358 of the Civil Code
revocation for lack of notice. has actual authority. The following must appear in a public document:
Overall Ruling (1) Acts and contracts which have for their object the creation, transmission,
The Court held that the revocation of an agency will only be operative to the modification or extinguishment of real rights over immovable property;
agent upon the time that it is made known to him. Third parties will only get sales of real property or of an interest therein governed by Articles 1403,
No. 2, and 1405.
affected by the revocation of the agency when he is notified of such
revocation. In order to bind a third party by a revocation, it must be shown
that they had been notified or the circumstances made them aware about the
An agency is revoked if the principal directly manages the business
termination of the agency. Article 1924 of the Civil Code provides that an entrusted to the agent, dealing directly with third persons.
agency is revoked if the principal directly manages the business entrusted to
the agent, dealing directly with third persons. The law only requires that the Article 1317 of the Civil Code
principal was the one dealing directly with the third person. In the instant No one may contract in the name of another without being authorized by the
case, Spouses Bitte initially transacted with Andrea, but when Rosa returned latter, or unless he has by law a right to represent him. A contract entered
to the Philippines, she was the one who directly negotiated with the spouses. into in the name of another by one who has no authority or legal
However, despite having the information that Andrea was no longer an representation, or who has acted beyond his powers, shall be unenforceable,
agent, Spouses Bitte still entered into a contract of sale with Andrea. The unless it is ratified, expressly or impliedly, by the person on whose behalf it
Court held that the actions of Rosa in taking over the negotiations for the has been executed, before it is revoked by the other contracting party.
sale of the property shows that Andrea’s authority has been revoked
already. Art. 1403 of the Civil Code
The following contracts are unenforceable, unless they are ratified:
Since it was held by the Court that Andrea’s authority has been revoked (1) Those entered into in the name of another person by one who has been
given no authority or legal representation, or who has acted beyond his
pursuant to Article 1924. The Court ruled that the legal consequence of this
powers;
3
VI. Disposition
WHEREFORE, the petition is DENIED.
VII. Random Facts

● Ponente: Mendoza, J.
4
G.R. No. 194366 | October 10, 2012 Article 1317 (General Provisions)
Neri v Heirs of Sps Yusop Neri v Heirs of Sps Yusop
I. Recit-ready Summary
This case is about the heirs of Anunciacion Neri, petitioners, seeking to II. Facts of the Case (Material Facts)
annul the Extra-Judicial Settlement and Absolute Deed of Sale executed by 1. Petitioners in this case are the legitimate children of the late
Enrique Neri (husband of Anunciacion) in favor of Hadji Yusop Uy and Anunciacion Neri (Anunciacion)
Julpha Ibrahim Uy, herein respondents. 2. Two of which are from her first marriage with Gonzalo Illut
Anunciacion had 7 children, two of which are from her first marriage (Gonzalo): Eutropia and Victoria, and five (5) from her second
with Gonzalo Illut (Gonzalo): Eutropia and Victoria, and five from her marriage with Enrique Neri (Enrique), namely: Napoleon, Alicia,
second marriage with Enrique Neri (Enrique), namely: Napoleon, Alicia, Visminda, Douglas and Rosa.
Visminda, Douglas and Rosa.She died intestate in 1977. In 1979, Enrique 3. Respondents in this case are the heirs of the spouses Uy which
executed said settlement and sale in his personal capacity and in behalf of bought the petitioner’s property
his children in favor of the spouses Uy in consideration of 4. Throughout Anunciacon’s marriage with Enrique, they acquired
₱ 80,000.00. several homestead properties with a total area of 296, 555 sqm in
In 1996, the heirs of Anunciacion from her marriage with Enrique filed Samal, Davao del Norte.
a complaint which sought to annul said sale on the grounds that it was sold 5. 1977: Anunciacion died intestate
within the prohibited period. Later it was amended to include other heirs 6. 1979: Enrique executed
from the first marriage of Anunciacion. 7. Extra-Judicial Settlement of the Estate – in his personal capacity
RTC ruled in favor of petitioners but their basis was not prescription and as natural guardian of Rosa and Douglas (both minors) and
but the exclusion of Eutropia and Victoria in the settlement and the lack of with Napoleon, Alicia, Visminda
authority of Enrique to dispose of his minor children’s share. CA reversed 8. Absolute Deed of Sale – for the price of ₱ 80,000.00 to Hadji
RTC’s decision. Yusop Uy and Julpha Ibrahim Uy (spouses Uy)
The Court answered the following issues: (1) W/N the Extra Judicial 9. 1996: COMPLAINT: Enrique’s children filed for the annulment of
Settlement of the Estate with Absolute Deed of Sale as far as the shares of sale against spouses Uy assailing the its validity for having been
Eutropia and Victoria were concerned are valid; (2) W/N CA erred in not sold within the prohibited period
annulling Extra Judicial Settlement of the Estate with Absolute Deed of Sale 10. Amended complaint: Eutropia and Victoria as additional plaintiffs
with respect to shares of Rosa and Douglas; (3) W/N the disputed sale as they are deprived of their inheritance
entered into by Enrique in behalf of his minor children, Rosa and 11. COUNTERCLAIM: Heirs of Uy argued that the sale took place
Douglas, without proper judicial authority is enforceable; (4) W/N CA beyond the 5-year prohibitory period and denied knowledge of
erred in finding that laches or prescription set in. Eutropia and Victoria’s exclusion and interposed defenses of
The Court held: (1) NO, because they were deprived of their prescription and laches
inheritance due to their exclusion in the division of Anunciacion’s property; 12. RTC:
(2) YES, because Enrique was merely clothed with powers of administration a. Void sale because Eutropia and Victoria were deprived of their
and bereft of any authority to dispose of the 2/16 shares of the minors; (3) hereditary rights and that Enrique had no judicial authority to
YES, but only with respect to Rosa because records later showed that sell the shares of his minor children, Rosa and Douglas.
she voluntarily ratified said sale upon reaching majority; (4) YES, b. No prescription because even if spouses Uy occupied the
because the prescriptive period provided in Section 1 Rule 74 does not property for 17 years, co-ownership rights are imprescriptible
apply to them – hence, prescription is 10 years and the complaint is well 13. CA: Reversed RTC and dismissed the complaint
within the said period.
Obligations and Contracts (2020) PETITIONER: Napoloen D. Neri, Alicia D. Neri-Mondejar, Visminda D. Neri-Chambers, 1
Rosa D. Neri-Millan, Douglas D. Neri, Eutropia D. Illut-Cockinos and Victoria D. Illut-Piala
DIGEST AUTHOR: Leslie Castillo RESPONDENT: Heirs of Hadji Yusop Uy and Julpha Ibrahim Uy
a. Valid settlement with respect to Enrique and his children, Petitioner’s Arguments Court’s Rebuttals
holding that as co-owners, they have the right to dispose of their Enrique only included his five It is indisputable that the legitimate
respective shares as they consider necessary or fit – as for the children in the partition. children of Anunciacion from her
minors, deemed ratified because of their failure to question it first and second marriages with
upon reaching the age of majority; there are laches because of Gonzalo and Enrique are entitled to
inaction inherit equal shares pursuant to
b. Eutropia and Victoria had no knowledge of sale so they are not Articles 979 and 980 of the Civil
bound by it Code. Such exclusion and non-
c. Unconscionable to annul sale when the Uys possessed it for 17 participation in the extrajudicial
years settlement makes it not binding upon
d. Eutropia and Victoria filed their action late (1997), more than them according to Section 1, Rule
two years from knowledge of their exclusion as heirs in 1994 47 of the Rules of Court.
when their stepfather died Overall Ruling
e. But, this is not a bar for them to recover their legitimes from In the execution of the Extra-Judicial Settlement of the Estate with Absolute
their co-heirs Deed of Sale in favor of spouses Uy, all the heirs of Anunciacion should
have participated. Considering that Eutropia and Victoria were admittedly
III. Issue/s excluded and that then minors Rosa and Douglas were not properly
1. W/N the Extra Judicial Settlement of the Estate with Absolute represented therein, the settlement was not valid and binding uponthem and
Deed of Sale as far as the shares of Eutropia and Victoria were consequently, a total nullity.
concerned are valid? NO.
2. W/N CA erred in not annulling Extra Judicial Settlement of the
Issue #2
Estate with Absolute Deed of Sale with respect to shares of Rosa
and Douglas? YES YES, because Enrique was merely clothed with powers of administration
3. W/N the disputed sale entered into by Enrique in behalf of his and bereft of any authority to dispose of the 2/16 shares of the minors.
minor children, Rosa and Douglas, without proper judicial Petitioner’s Arguments Court’s Rebuttals
authority is enforceable? YES Enrique, in his personal capacity and Articles 320 and 326 Civil Code
4. W/N CA erred in finding that laches or prescription set in? YES as natural guardian of his minor (laws in force at time of the
children Rosa and Douglas, together execution of the settlement and sale)
IV. Holding/s with Napoleon, Alicia, and provide the role of the father as a
Visminda executed an Extra-Judicial guardian of the child’s property
Settlement of the Estate with subject to the duties and obligations
Issue #1
Absolute Deed of Sale on July 7, of guardians under Section 7, Rule
NO, because they were deprived of their inheritance due to their exclusion 1979. 93 of the Rules of Court.
in the division of Anunciacion’s property.
Overall Ruling
On the basis of the laws prevailing at that time, Enrique was merely clothed
with powers of administration and bereft of any authority to dispose of their
2/16 shares in the estate of their mother, Anunciacion. Hence, subsequent
sale of the subject properties is only valid upon Enrique, Napoleon, Alicia Issue #4
and Visminda (Note: For the three children, they acquired their respective YES because the prescriptive period provided in Section 1 Rule 74 does not
shares upon their mother’s death). apply to them – hence, prescription is 10 years and the complaint is well
within the said period.
Issue #3 Petitioner’s Arguments Court’s Rebuttals
YES, but only with respect to Rosa because records later showed that Present action has not prescribed in Contrary to CA, the prescriptive
she voluntarily ratified said sale upon reaching majority. so far as it seeks to annul the period of 2 years provided in
Petitioner’s Arguments Court’s Rebuttals extrajudicial settlement of the estate. Section 1 Rule 74 of the Rules of
[Author’s Note] Remember: Enrique Records, however, show that Rosa Court reckoned from the execution
disposed of Rosa and Douglas’ had ratified the extrajudicial of the extrajudicial settlement finds
inheritance. Is it allowed? No, as settlement of the estate with absolute no application to petitioners
stated in Issue #2, Enrique did not deed of sale. The Court took into Eutropia, Victoria and Douglas, who
have proper authority. Further, consideration Napoleon and Rosa’s were deprived of their lawful
Articles 1317 and 1403 explains that Manifestation before the RTC dated participation in the subject estate.
contract shall be unenforceable if it July 11, 1997 and their Joint- Overall Ruling
is entered into by a person with no Affidavit dated June 30, 1997 [see An "action or defense for the declaration of the inexistence of a contract
authority, unless such is ratified by additional notes]. does not prescribe" in accordance with Article 1410 of the Civil Code,
the person on whose behalf it has however, an action to recover property held in trust (as for Eutropia,
been executed. Victoria, Douglas and the Uys) prescribes after 10 years from the time the
cause of action accrues, which is from the time of actual notice in case of
Overall Ruling unregistered deed. In this case, Eutropia, Victoria and Douglas claimed to
Clearly, the foregoing statements constituted ratification of the settlement of have knowledge of the extrajudicial settlement with sale after the death of
the estate and the subsequent sale, thus, purging all the defects existing at their father, Enrique, in 1994 which spouses Uy failed to refute. Hence, the
the time of its execution and legitimizing the conveyance of Rosa’s 1/16 complaint filed in 1997 was well within the prescriptive period of 10 years.
share in the estate of Anunciacion to spouses Uy. The same, however, is not
true with respect to Douglas for lack of evidence showing ratification. V. Law or Doctrine Applied
[Author’s Note: The only provision related to our topic is Article 1317 but I included all others
Further, the sale was invalid and not binding upon Eutropia, Victoria and for reference]
Douglas, only the shares of Enrique, Napoleon, Alicia, Visminda and Rosa
in the homestead properties have effectively been disposed in favor of ARTICLE 979, CIVIL CODE
spouses Uy. Spouses Uy or their substituted heirs became pro indiviso co- ART. 979. Legitimate children and their descendants succeed the parents and other
owners of the homestead properties with Eutropia, Victoria and Douglas, ascendants, without distinction as to sex or age, and even if they should come from
who retained title to their respective 1/16 shares. different marriages.
ARTICLE 980, CIVIL CODE

ART. 980. The children of the deceased shall always inherit from him in their own
right, dividing the inheritance in equal shares.
VI. Disposition
SECTION 1, RULE 74, RULES of COURT WHEREFORE, the instant petition is GRANTED. The April 27, 2010
SECTION 1. Extrajudicial settlement by agreement between heirs. – xxx The fact of Decision and October 18, 2010 Resolution of the Court of Appeals
the extrajudicial settlement or administration shall be published in a newspaper of are REVERSED and SET ASIDE and a new judgment is entered:
general circulation in the manner provided in the next succeeding section; but no
extrajudicial settlement shall be binding upon any person who has not participated
1. Declaring the Extra-Judicial Settlement of the Estate of
therein or had no notice thereof. (Underscoring added) Anunciacion Neri NULL and VOID;
2. Declaring the Absolute Deed of Sale in favor of the late spouses
ARTICLE 320, CIVIL CODE Hadji Yusop Uy and Julpha Ibrahim Uy as regards the 13/16 total
ART. 320. The father, or in his absence the mother, is the legal administrator of the shares of the late Enrique Neri, Napoleon Neri, Alicia D. Neri-
property pertaining to the child under parental authority. If the property is worth Mondejar, Visminda D. Neri-Chambers and Rosa D. Neri-
more than two thousand pesos, the father or mother shall give a bond subject to the Millan VALID;
approval of the Court of First Instance. 3. Declaring Eutropia D. Illut-Cockinos, Victoria D. Illut-Piala and
Douglas D. Neri as the LAWFUL OWNERS of the 3/16 portions
ART. 326. When the property of the child is worth more than two thousand pesos,
of the subject homestead properties, covered by Original
the father or mother shall be considered a guardian of the child’s property, subject to Certificate of Title Nos. (P-7998) P-2128, (P-14608) P-5153 and P-
the duties and obligations of guardians under the Rules of Court. 20551 (P-8348); and
4. Ordering the estate of the late Enrique Neri, as well as Napoleon
SECTION 7, RULE 93, RULES of COURT Neri, Alicia D. Neri-Mondejar, Visminda D. Neri-Chambers and
SEC. 7. Parents as Guardians. – When the property of the child under parental Rosa D. Neri-Millan to return to the respondents jointly and
authority is worth two thousand pesos or less, the father or the mother, without the solidarily the amount paid corresponding to the 3/16 shares of
necessity of court appointment, shall be his legal guardian. When the property of the Eutropia, Victoria and Douglas in the total amount of ₱ 15,000.00,
child is worth more than two thousand pesos, the father or the mother shall be with legal interest at 6% per annum computed from the time of
considered guardian of the child’s property, with the duties and obligations of
guardians under these Rules, and shall file the petition required by Section 2 hereof.
payment until finality of this decision and 12% per annum
For good reasons, the court may, however, appoint another suitable persons. thereafter until fully paid.
ARTICLE 1317, CIVIL CODE VII. Additional Notes

ART. 1317. No one may contract in the name of another without being authorized by a. Napoleon and Rosa’s Manifestation before the RTC dated July 11, 1997:
the latter or unless he has by law a right to represent him. "Concerning the sale of our parcel of land executed by our father, Enrique Neri concurred in
and conformed to by us and our other two sisters and brother (the other plaintiffs), in favor of
A contract entered into in the name of another by one who has no authority or legal
Hadji Yusop Uy and his spouse Hadja Julpa Uy on July 7, 1979, we both confirmed that the
representation, or who has acted beyond his powers, shall be unenforceable, unless it same was voluntary and freely made by all of us and therefore the sale was absolutely valid and
is ratified, expressly or impliedly, by the person on whose behalf it has been enforceable as far as we all plaintiffs in this case are concerned;" (Underscoring supplied)
executed, before it is revoked by the other contracting party. b. Napoleon and Rosa’s Joint-Affidavit dated June 30, 1997:
"That we are surprised that our names are included in this case since we do not have any
ARTICLE 1403, CIVIL CODE intention to file a case against Hadji Yusop Uy and Julpha Ibrahim Uy and their family and we
ART. 1403. The following contracts are unenforceable, unless they are ratified: respect and acknowledge the validity of the Extra-Judicial Settlement of the Estate
(1) Those entered into the name of another person by one who has been given with Absolute Deed of Sale dated July 7, 1979;" (Underscoring supplied)
no authority or legal representation, or who has acted beyond his powers; VIII. Random Facts
xxx • Ponente: Perlas-Bernabe, J.
G.R. No. 179323 | November 28, 2011 Essential Requisites of Contracts: General Provisions (Art. 1318)
Manzano, Jr. v Garcia Manzano, Jr. v Garcia
I. Recit-ready Summary 2. Under said contract, Garcia purportedly reserved the right to
Respondent Marcelino D. Garcia (Garcia) allegedly sold in a pacto de repurchase the subject property for the same price within three
retro sale, a parcel of land to Constancio Manzano, the predecessor-in- months from the date of the instrument.
interest and brother of petitioner Vicente Manzano, Jr (Vicente) for P80,500. 3. Constancio passed away
Under said contract, Garcia purportedly reserved the right to repurchase the 4. After three months Vicente’s counsel sent Garcia a letter
subject property for the same price within three months from the date of the demanding his repurchase of the property within fifteen days.
instrument. 5. Garcia did not redeem the subject property within the three-month
Constancio passed away afterwards and after three months Vicente’s
period.
counsel sent Garcia a letter demanding his repurchase of the property within
6. Consequently, Vicente instituted a petition for consolidation of
fifteen days. Garcia did not pay but filed a complaint for the annulment of
the pacto de retro sale in favor of Vicente on the grounds that he was in the ownership over the property.
US during the alleged sale and that his signature was forged. The RTC ruled 7. Garcia filed a complaint for annulment of pacto de retro sale and
for the validity of the sale but the CA reversed and declared the sale void recovery of the owner's title with preliminary injunction against
according to Art. 1409 and 1505 of the Civil Code. Hence the current Vicente.
petition. 8. The two cases were consolidated.
The main issue in the case is whether or not the pacto de retro contract 9. Garcia argued that:
of sale is valid. The court ruled in the negative as the passport and driver’s a. The signature on the deed of conveyance is a forgery as
license of Garcia show completely different signatures and that the notary seen from his different signature on his passport and
public himself and witness to the notarization testified that a different person driver’s license.
was present. Furthermore, the presumption of regularity was defeated by the b. He was in the USA during the signing of the deed of
testimony of the notary public and lastly, that the proper basis of nullity is conveyance.
Art. 1318 of the Civil Code.
c. Atty. Demosthenes Mediante, Jr. (Atty. Mediante), the
Art. 1409 articulates types of void contracts while 1505 refers to an
person who notarized the deed himself testified that the
unenforceable contract and is applicable only to goods. There are two types
of void contracts: (1) those where one of the essential requisites of a valid person who appeared in his office was a different person.
contract as provided for by Article 1318 of the Civil Code is totally wanting; d. Perla Babano, one of the witnesses to the execution of
and (2) those declared to be so under Article 1409 of the Civil Code. The the pacto de retro sale, likewise testified that the person
contract having a forged signature is devoid of the essential requisites of who introduced himself as Marcelino G. Garcia and
both consent and cause or consideration thus making it void. signed the document.
10. Vicente merely presented a tax declaration to prove the execution
II. Facts of the Case (Material Facts) of sale.
1. Respondent Marcelino D. Garcia (Garcia) allegedly sold in a pacto 11. RTC ruled in favor of Vicente but the CA reversed and declared
de retro sale, a parcel of land to Constancio Manzano, the the sale void according to Art. 1409 and 1505 of the Civil Code.
predecessor-in-interest and brother of petitioner Vicente Manzano, 12. Hence the current petition.
Jr (Vicente) for P80,500.
Obligations and Contracts (2020) PETITIONER: Vicente Manzano, Jr.

DIGEST AUTHOR: King Manalo RESPONDENTS: Marcelino Garcia
1
G.R. No. 179323 | November 28, 2011 Essential Requisites of Contracts: General Provisions (Art. 1318)
Manzano, Jr. v Garcia Manzano, Jr. v Garcia
III. Issue/s Overall Ruling – Petition is devoid of Merit

1. W/N the pacto de retro contract of sale of Garcia in favor is From an assiduous examination of the records of the case, it is plainly
Vicente is valid? NO. apparent to this Court that the alleged signature of Garcia in the pacto de
retro sale is utterly dissimilar from his customary signature appearing in the
IV. Holding/s evidence on record, as well as in the verifications of the pleadings before
Issue #1 this Court and the courts a quo. From this circumstance alone, we are
NO, the sale is void for lack of essential requisites to a contract. constrained to affirm the ruling of the Court of Appeals finding that
Petitioner’s Arguments Court’s Response to Petitioner the pacto de retro sale was forged and, therefore, void ab initio.
• Expert testimony is needed to • Expert testimony is not needed to
prove forgery of signature. prove forgery and the passport and The proper basis of nullity is Art. 1318 of the Civil Code. Art. 1409
• Testimony of notary public is license are enough to prove that articulates types of void contracts while 1505 refers to an unenforceable
unconvincing as he could not the signature it utterly dissimilar. contract and is applicable only to goods. There are two types of void
possibly remember all persons • Atty. Mediante is believable contracts: (1) those where one of the essential requisites of a valid contract
appearing before him for sufficiently explained that he as provided for by Article 1318 of the Civil Code is totally wanting; and (2)
notarization and that he had remembers the imposter as he those declared to be so under Article 1409 of the Civil Code. The contract
seen the alleged imposter is asked him to broker a loan for having a forged signature is devoid of the essential requisites of both
Divisoria for two weeks. P200,000. consent and cause or consideration thus making it void.
• As for witness Babano, it is • It would’ve been more suspicious
unbelievable that an if the imposter were to withhold V. Law or Doctrine Applied
impersonator would show a the title from the witness as it is his
stranger such important proof of being the true owner. ARTICLE 1318 OF THE CIVIL CODE
There is no contract unless the following requisites concur:
documents. • The property has an estimated
(1) Consent of the contracting parties;
• Garcia could’ve easily paid the value of P4.5 million and a (2) Object certain which is the subject matter of the contract;
P80,500. mortgage value of P170,000 it is (3) Cause of the obligation which is established.
• The presumption of regularity unlikely that Garcia would sell for
of the document should stand. much less. VI. Disposition
• The presumption is overturned by
the testimony of the notary public WHEREFORE, the Petition is DENIED. The Decision of the Court of
himself. Appeals in CA-G.R. CV No. 55408 dated September 26, 2006 and its
• The proper basis of nullity is Art. Resolution dated August 9, 2007 are hereby AFFIRMED.
1318 of the Civil Code.
VII. Random Facts
• Ponente: Reyes, J.B.L., J.
Obligations and Contracts (2020) PETITIONER: Vicente Manzano, Jr.

DIGEST AUTHOR: King Manalo RESPONDENTS: Marcelino Garcia
2
G.R. No. 159373 || November 16, 2006 Right of First Refusal
Moreno Jr. v Private Management Office Moreno Jr. v Private Management Office
I. Recit-ready Summary could confirm the suggested indicative price, the Committee on
Privatization must first approve the terms of the sale or disposition. Mutual
The subject-matter of this complaint is the J. Moreno Building. Plaintiff assent is judged by an objective standard, looking to express words the
Jose R. Moreno is the owner of the Ground Floor, the 7th Floor and the parties used in the contract; understanding and interpretation are effective
Penthouse of the J. Moreno Building and the lot on which it stands. only if shared by the parties.
Defendant Private Management Office is the owner of the 2nd, 3rd, 4th, 5th
and 6th floors of the building. Based on the objective manifestations of the parties there was no meeting of
the minds. Moreno’s construction of the letter is his own subjective
The PMO then called for a conference for the purpose of discussing understanding alone. It is not shared by PMO. The parties are yet
Moreno’s right of first refusal over the floors of the building owned by undergoing the preliminary steps toward the formation of a valid contract.
PMO. At said meeting, PMO informed Moreno that the proposed purchase
price for said floors was P21M. PMO, in a letter signed by its Trustee, Juan II. Facts of the Case (Material Facts)
W. Moran, informed Moreno thru Atty. Jose Feria, Jr., that the Board of
Trustees (BOT) of PMO is in agreement that Mr. Jose Moreno, Jr. has the I. The subject matter of this suit is 5 floors of a building.
right of first refusal and requested Moreno to deposit 10% of the suggested o Private management office (PMO) is a juridical entity,
indicative price of P21M on or before February 26, 1993. and is the owner of these specific floors, while Moreno is
the owner of all the other floors, as well as the lot on
Then on March 12, 1993, PMO wrote Moreno that its Legal Department has which the building stands.
questioned the basis for the computation of the indicative price for the said II. PMO called for a conference to discuss Moreno's right of first
floors. On April 2, 1993, PMO wrote Moreno that the BOT has tentatively refusal over the sale of the five floors.
agreed on a settlement price of P42M for the said floors. Moreno filed an o At said meeting, PMO informed Moreno that the proposed
action for specific performance, seeking to compel PMO to accept the P21 purchase price was P21 Million.
Million purchase price, and the delivery of the 5 floors. When the case the o In a letter signed by a PMO trustee, Moreno was informed
CA, it held that there was no contract of sale, thus, Moreno could not that PMO’s Board of Trustees (BOT) is in agreement that:
compel PMO to accept the 21M as payment. Moreno had the right of first refusal.
The suggested indicative price for PMO’s 5
Issue: W/N THERE WAS A PERFECTED CONTRACT OF SALE OVER floors of the building in question is P21 Million.
THE SUBJECT FLOORS AT THE PRICE OF P21 MILLION? NO. Moreno is to pay a deposit of 10% of the
purchase price.
The Court ruled that there no perfected contract of sale over the subject III. Moreno paid the 10% deposit. However, PMO’s legal department
floors at the price of P21M. questioned the basis for the computation of the indicative price.
o PMO then informs Moreno that its BOT has tentatively
The first letter of PMO and the surrounding circumstances clearly show that agreed on a settlement price of P42 Million.
the parties are not past the stage of negotiation, hence there could not have IV. Moreno filed an action for specific performance, seeking to compel
been a perfected contract of sale. The letter clearly states that PMO to accept the P21 Million purchase price, and the delivery of
P21,000,000.00 is merely a suggested indicative price of the subject floors the 5 floors.
as it was yet to be approved by the Board of Trustees. Before the Board
Obligations and Contracts (2020) PETITIONER: Moreno 1

DIGEST AUTHOR: Julianna Soberano RESPONDENT: PMO
V. RTC ruled in favor of Moreno, ordering PMO to sell the 5 floors at Overall Ruling
the price of 21 Million.
o RTC held that there was already a perfected contract. A contract of sale is perfected at the moment there is a meeting of minds
VI. The CA found that there was no perfected contract of sale over the upon the thing which is the object of the contract and upon the
subject floors and reversed the ruling of the trial court price. Consent is manifested by the meeting of the offer and the acceptance
of the thing and the cause which are to constitute the contract.
I. Issue/s The offer must be certain and the acceptance absolute. The parties must
agree on the same thing in the same sense, so that their minds meet as to all
W/N THERE WAS A PERFECTED CONTRACT OF SALE OVER THE the terms. So long as there is any uncertainty or indefiniteness, or future
SUBJECT FLOORS AT THE PRICE OF P21 MILLION? NO! negotiations or considerations to be discussed, there is no contract at all.
II. Holding/s There are three distinct stages in the formation of contracts; once there is a
concurrence of the offer and acceptance of the object and cause, the stage of
Issue #1 negotiation is finished, and thus the creation of a valid and perfected
contract.
NO, THERE WAS NO PERFECTED CONTRACT OF SALE.
PMO’s letter and the surrounding circumstances clearly show that the
Petitioner’s Arguments Court’s Rebuttals parties are not past the stage of negotiation, and hence, there could not have
• PMO must allow him to buy the • No contract of sale yet so he been a perfected contract of sale. The letter clearly states that P21 Million is
5 floors for 21M (already a cannot compel PMO to accept merely a “suggested indicative price” of the subject floors as it was yet to be
perfected contract of sale) the 21M as payment approved by the Board of Trustees. The letter is a mere evidence of a
memorialization of inconclusive negotiations. It is a mere evidence of the
parties’ preliminary transactions which did not crystallize into a perfected
contract.
As provided by law, the Committee of Privatization must first approve the

terms of the sale or disposition before the Board could confirm the
suggested indicative price. The imposition of this suspensive condition finds
basis under Proclamation No. 50. Since there was no approval by the
Committee, then there is no confirmation by the Board of Trustees on the
price of P21 Million.
The terms of a writing are presumed to have been used in their primary and
general acceptation. However, evidence is admissible to show that they have
local, technical, or otherwise peculiar signification. In this case, the term
“indicative price” has technical meaning. Under the General Bidding
Procedures and Rules, an indicative price is a ball-park figure.

IV. Disposition
Mutual assent is judged by an objective standard, looking to express words
the parties used in the contract; understanding and interpretation are IN VIEW WHEREOF, the assailed Decision and Resolution of the Court of
effective only if shared by the parties. Appeals in CA-G.R. CV No. 49227 dated January 30, 2003 and July 31,
2003, respectively, are AFFIRMED.
Based on the objective manifestations of the parties there was no meeting of
the minds. Moreno’s construction of the letter is his own subjective V. Additional Notes
understanding alone. It is not shared by PMO. The parties are yet
undergoing the preliminary steps toward the formation of a valid contract. VII. Random Facts
Therefore, there was no perfected contract of sale in the case at bar.
Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must
be certain and the acceptance absolute. A qualified acceptance constitutes a
counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from
the time it came to his knowledge. The contract, in such a case, is presumed
to have been entered into in the place where the offer was made.

G.R. No. 177783 | January 23, 2013
HEIRS OF IGNACIO v. HOME BANKERS HEIRS OF IGNACIO v. HOME BANKERS
I. Recit-ready Summary 6. Despite the lapse of the redemption period and consolidation of
Fausto C. Ignacio mortgaged two parcels of land to Home Bankers Savings title in favor of HBST, Ignacio offered to repurchase the properties.
and Trust Company (HBST), as security for the P500,000.00 loan extended 7. The HBST considered Ignacio's offer to repurchase but there was
to him by said bank. Ignacio defaulted in the payment of his loan obligation no repurchase contract executed.
which prompted the bank to foreclose the real estate mortgage. HBST was 8. Ignacio expressed his willingness to pay the amount of
the highest bidder. The Certificate of Sale was issued to HBST and was P600,000.00 in full, as balance of the repurchase price.
registered with the Registry of Deeds. With the failure of Ignacio to redeem 9. HBST turned down his request which prompted Ignacio to cause
the foreclosed properties within one year from such registration, title to the the annotation of an adverse claim on the said titles.
properties were consolidated in favor of respondent bank. Despite the lapse 10. Prior to the annotation of the adverse claim, HBST sold the said
of the redemption period and consolidation of title in favor of HBST, properties.
Ignacio offered to repurchase the properties. The HBST considered 11. This prompted Ignacio to file an action of specific performance and
Ignacio's offer to repurchase but there was no repurchase contract executed. damages against HBST.
Ignacio expressed his willingness to pay the amount of P600,000.00 in full,
as balance of the repurchase price. HBST turned down his request which III. Issue/s
prompted Ignacio to cause the annotation of an adverse claim on the said 1. W/N a contract for the repurchase of the foreclosed properties
titles. Prior to the annotation of the adverse claim, HBST sold the said was perfected between petitioner and respondent bank? NO.
properties. This prompted Ignacio to file an action of specific performance
and damages against HBST. The issue in this case is whether or a contract
for the repurchase of the foreclosed properties was perfected between
petitioner and respondent bank. The court held that a contract for repurchase
was not perfected considering the fact that there was no absolute acceptance. IV. Holding/s
II. Facts of the Case (Material Facts) Issue #1

1. Fausto C. Ignacio mortgaged two parcels of land to Home Bankers NO, a contract for the repurchase of the foreclosed properties was not
Savings and Trust Company (HBST), as security for the perfected between petitioner and respondent bank.
P500,000.00 loan extended to him by said bank. UTEX’s Arguments Court’s Rebuttals
2. Ignacio defaulted in the payment of his loan obligation which • Ignacio claims that a contract of • There was no perfected contract
prompted the bank to foreclose the real estate mortgage. repurchase was perfected when for repurchase since there was no
3. HBST was the highest bidder. HBST sent a letter containing a acceptance.
4. The Certificate of Sale was issued to HBST and was registered counter-offer.
with the Registry of Deeds.
5. With the failure of Ignacio to redeem the foreclosed properties
within one year from such registration, title to the properties were
consolidated in favor of respondent bank.
Obligations and Contracts (2020) PETITIONER: HEIRS OF IGNACIO 1

DIGEST AUTHOR: John Joves RESPONDENT: HOME BANKERS SAVINGS AND TRUST COMPANY.
G.R. No. 177783 | January 23, 2013
HEIRS OF IGNACIO v. HOME BANKERS HEIRS OF IGNACIO v. HOME BANKERS
Overall Ruling May 2, 2007 of the Court of Appeals in CA-G.R. CV No. 73551 are hereby
Court held that contracts are perfected by mere consent, which is AFFIRMED
manifested by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract. The acceptance must
be absolute and must not qualify the terms of the offer. The acceptance
must be identical in all respects with that of the offer so as to produce
consent or meeting of the minds
In this case, Ignacio wrote notations on the counter-offer letter sent

by HBST. This shows that petitioner's acceptance of the respondent
bank's terms and conditions for the repurchase of the foreclosed
properties was not absolute. Ignacio set a different repurchase price and
also modified the terms of payment, which even contained a unilateral
condition for payment of the balance (P600,000), that is, depending on
Ignacio's "financial position.". This qualified acceptance by Ignacio must
then be considered as a counter-proposal which must be accepted by
HBST. However, there was no evidence of any document or writing
showing the conformity of respondent bank's officers to this counter-
proposal.

Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The
offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
VI. Disposition
WHEREFORE WHEREFORE, the petition for review on c e r t i o r a r i is

DENIED DENIED. The Decision dated July 18, 2006 and Resolution dated
Obligations and Contracts (2020) PETITIONER: HEIRS OF IGNACIO 2

DIGEST AUTHOR: John Joves RESPONDENT: HOME BANKERS SAVINGS AND TRUST COMPANY.
G.R. No. 155731| September 3, 2007 Consent
Lopez vs Bodega City Lopez vs Bodega City
I. Recit-ready Summary 2. A letter signed by Yap was sent to the petitioner, requesting for an
Petitioner Lolita Lopez was a “lady keeper” of Bodega City, owned by explanation on why she should not be suspended or terminated
respondent Andres Yap. She was tasked with manning the ladies comfort because of the incident involving a lady customer. The lady customer
room of Bodega City. The concessionaire agreement between petitioner informed management that she saw the petitioner sleeping while on
Lopez and respondents Bodega City and Yap was terminated by the latter duty.
because of an untoward incident involving Lopez, where she was caught 3. Yap informed petitioner that because of the untoward incident, the
sleeping while on duty. Petitioner Lopez filed a complaint of illegal concessionaire agreement between petitioner and Bodega City is
dismissal with the Labor Arbiter against the respondents. The Labor Arbiter deemed terminated.
dismissed the complaint for lack of merit. On appeal, the NLRC set aside 4. Petitioner filed a complaint with the Arbitration Branch of the NLRC
the order and remanded the case. Upon remand, the Labor Arbiter ruled in for illegal dismissal. Respondent, Bodega City contends that there
favor of the petitioner. Upon further appeal, the NLRC set aside the ruling was no employer-employee relationship between them and the
of the Labor Arbiter and dismissed the complaint. Petitioner filed a Petition petitioner. Respondent argues that the services rendered by petitioner
for Certiorari with the CA, which later on dismissed her action. Hence the was only by virtue of a concessionaire agreement.
present petition. The issue in this case is: W/N petitioner, Lolita Lopez, 5. Labor Arbiter dismissed the complaint for lack of merit.
consented to the concessionaire agreement even if she did not sign the 6. On appeal, the NLRC set aside the order and remanded the case.
document thus is an employee of Bodega City. Upon remand, the Labor Arbiter ruled that the petitioner was an
The SC ruled that Lolita Lopez consented to the concessionaire agreement employee of respondents and that she was illegally dismissed.
even if she did not sign the document. The Court finds no cogent reason to 7. Upon appeal, the NLRC set aside and vacated the ruling of the Labor
disregard the findings of both the CA and the NLRC that while petitioner Arbiter. NLRC dismissed the complaint.
did not affix her signature to the document evidencing the subject 8. Petitioner filed a Petition for Certiorari with the CA, which later on
concessionaire agreement, the fact that she performed the tasks indicated in dismissed her action.
the said agreement for a period of three years without any complaint or 9. Hence, the present petition.
question only goes to show that she has given her implied acceptance of or 10. Petitioner Lopez contends that the CA was wrong to conclude that
consent to the said agreement. Petitioner is likewise estopped from denying even if she did not sign the document evidencing the concessionaire
the existence of the subject concessionaire agreement. agreement, she impliedly accepted and bound herself to its terms and
conditions because she continued to perform the task specified for a
considerable length of time. She argues that she was an employee of
II. Facts of the Case the respondents.
1. Petitioner, Lolita Lopez, was a “lady keeper” of Bodega City owned III. Issue/s
by Andres C. Torres-Yap. She was tasked with manning the ladies 1. W/N petitioner, Lolita Lopez, consented to the concessionaire
comfort room. agreement even if she did not sign the document - YES
1
Obligations and Contracts (2020) PETITIONER: Lolita Lopez
DIGEST AUTHOR: Reynaldo Reveche RESPONDENT: Bodega City and/or Andre C. Torres-Yap
Overall Ruling
IV. Holding/s
An employer-employee relationship exists between petitioner and
Issue #1 respondents. The petitioner failed to prove any of the elements of the 4 fold
YES. Petitioner consented to the concessionaire agreement. test (selection and engagement, payment of wages, power of dismissal and
Petitioner’s Arguments Court’s Rebuttals power of control) in order to convince the court that she was an employee of
● Petitioner argues she did not ● Petitioner impliedly consented to Bodega City.
sign the concessionaire the agreement, because she
agreement. performed the tasks indicated in Petitioner does not dispute the existence of the concessionaire agreement.
● She receives a special allowance the agreement for three years Settled is the rule that contracts are perfected by mere consent, upon the
from respondents equivalent to without any complaint. acceptance by the offeree of the offer made by the offeror. For a contract, to
the minimum wage. ● A solitary petty cash voucher arise, the acceptance must be made known to the offeror. Moreover, the
● Her ID clearly shows that she does not prove that petitioner had acceptance of the thing and the cause, which are to constitute a contract,
was not a concessionaire but an been receiving salary from may be express or implied as can be inferred from the contemporaneous and
employee. respondents or that she has been subsequent acts of the contracting parties.
● The fact that she was required to an employee for 10 years.
follow rules and regulations ● Petitioner should have produced The Court finds no cogent reason to disregard the findings of both the CA
proves that an other evidence such as a contract and the NLRC that while petitioner did not affix her signature to the
employer-employee relationship of employment, SSS or medicare document evidencing the subject concessionaire agreement, the fact that she
exists. forms, that would prove that she performed the tasks indicated in the said agreement for a period of three
was indeed an employee of years without any complaint or question only goes to show that she has
respondents. given her implied acceptance of or consent to the said agreement.
● The petitioner failed to prove that Petitioner is likewise estopped from denying the existence of the subject
she was subject to the control of concessionaire agreement.
respondents.
● The rules and regulations Petitioner also failed to dispute the contents of the affidavit as well as the
imposed on the petitioner was testimony of the concessionaire of the men’s comfort room of Bodega City,
pursuant to the terms in the that he had personal knowledge of the fact that petitioner was the
concessionaire agreement. concessionaire of the ladies’ comfort room of Bodega City.
2
In applying the control test, the respondents clearly had no control over the
petitioner on how she would perform her job. In fact, she was even allowed
to engage other persons to work with her or assist her in the discharge of her
functions. She was also not subjected to rigid working hours. The Court
emphasized that the elements of selection and engagement as well as the
power of dismissal are not present in the instant case.

ARTICLE 1320
An acceptance may be express or implied.
VI. Disposition
WHEREFORE, the instant petition isDENIED. The assailed Decision and
Resolution of the Court of Appeals are AFFIRMED. Costs against
petitioner.
SO ORDERED.
VIII. Random Facts

● Ponente: Austria-Martinez, J.
3
G.R. No. 194983 | June 20, 2018 Essential Requisites of Contracts: Consent
PNB v. Bacani PNB v. Bacani
I. Recit-ready Summary appears. Thus, the fact that the Invitation to Bid was published cannot bind
Rodolfo Bacani owned a parcel of land which was used to secure a PNB to any offer from any party. PNB merely notified interested parties to
loan that he and his wide obtained from PNB. When the spouses failed to submit their proposals for the purchase of the subject property, which PNB
pay, PNB extrajudicially foreclosed the subject property. The issue in this may either accept or reject as the absolute owner thereof. In the same
case is whether or not the sale due to the foreclosure should be nullified. The manner, the published bidding schedule was not an offer from the PNB,
Court ruled that both the RTC and the CA gravely erred in relying on PNB notice and acceptance of which would compel the bank to sell the subject
SEL Circular No. 8-7/89 to nullify the sale of the subject property. property to such party.
The CA relied on the supposed time deposit account of the Spouses
Bacani with PNB. According to the CA, PNB should have considered this II. Facts of the Case (Material Facts)
deposit as a manifestation of the Spouses Bacani's willingness and ability to 1. Rodolfo Bacani was the registered owner of a parcel of land in
pay for the reacquisition of the subject property but by the very nature of the Isabela. The other respondents in this case (Antonio Bacani,
deposit, PNB could not have assumed that the Spouses Bacani's alleged time Rosalia Vda. De Bayaua, Jose Bayaua and Jovita Vda. De Bayaua)
deposit account was meant as an option money intended to secure the were the occupants of the subject property.
privilege of buying the subject property within a given period of time, 2. The subject property was used to secure the Php80,000 loan that
especially since there was no option contract between them. Neither may Rodolfo and his wife, Nellie Bacani (collectively, the Spouses
PNB consider the deposit as a down payment on the price of the subject
Bacani) obtained from PNB.
property because there was no perfected contract of sale. The time deposit
3. When the Spouses Bacani failed to pay their loan, PNB
with PNB did not create a contract of sale, or at the very least, an option
contract, between PNB and the Spouses Bacani. extrajudicially foreclosed the subject property.
Furthermore, considering that the reacquisition of the subject 4. It was awarded to PNB as the highest bidder, who had a bid
property involves a contract, there should be a meeting of the minds as amount of Php148,960.74.
to its terms and conditions. When the offer is not accepted by either 5. The Spouses Bacani failed to redeem the property.
party, the contract is not perfected and there is no binding juridical 6. Consequently, Rodolfo's title was cancelled, and in its place, TCT
relation between the parties. The Spouses Bacani, therefore, cannot No. T-185028 was issued in the name of PNB.
demand to repurchase the property, in the absence of PNB's consent to 7. PNB issued SEL Circular No. 8-7/89, revising its policy on the
the offer. At most, the PNB circular grants a privilege to the Spouses disposition of acquired assets. Subject to certain conditions, former
Bacani as the former owners, to be given priority in the disposition of the owners or their heirs, as the case may be, were given priority in the
subject property. It does not confer an enforceable and absolute right to re-acquisition of their foreclosed assets "on negotiated basis
reacquire the property, to the prejudice of PNB as the absolute owner. without public bidding."
Neither does the publication of the Invitation to Bid constitute a
8. In light of this PNB circular, the Spouses Bacani initiated
binding obligation on the part of PNB to sell the subject property to the
Spouses Bacani. The publication of the Invitation to Bid, which included the negotiations with PNB regarding the re-acquisition of their
subject property, was not a binding obligation on the part of PNB. Article property.
1326 of the Civil Code clearly provides that: Advertisements for bidders 9. Their intention to buy back the subject property was manifested at
are simply invitations to make proposals, and the advertiser is not the earliest through a written offer on August 26, 1991.
bound to accept the highest or lowest bidder, unless the contrary
Obligations and Contracts (2020) PETITIONER: Philippine National Bank 1
DIGEST AUTHOR: Allyzza Tanhueco RESPONDENT: Antonio Bacani, Rodolfo Bacani, Rosalia Vda. De Bayaua,
Jose Bayaua and Jovita Vda. De Bayaua
10. This was followed by another letter to PNB on November 11, 22. They were provided with copy of the Invitation to Bid, stating that
1991, addressed to the then Branch Manager of PNB Cauayan the public bidding was scheduled on February 8, 1996, at 10:00
Branch. a.m., in the office of the PNB SAMD. PNB set the fIoor bid price
11. Initially, the Spouses Bacani's written offer to purchase the subject to Php4,000,000.
property was fixed at Php150,000. 23. PNB sold the subject property through a negotiated sale to Renato
12. The Spouses Bacani sent another letter, increasing the offer to de Leon (Renato), for the price of Php1,500,000.
Php220,000. 24. Pursuant to this sale, the title of PNB was cancelled, and TCT No.
13. The Spouses Bacani continued to follow-up on their request to 261643 was issued in the name of Renato.
repurchase. 25. Renato later on filed an ejectment case against the respondents
14. The Branch Manager advised them to increase their offer because which was favorably granted by the Municipal Trial Court.
their initial proposal was low. 26. The respondents were consequently directed to vacate the subject
15. Through a letter sent to PNB, the Spouses Bacani accordingly property, and their houses were later on demolished.
offered to repurchase the subject property for Php200,000 in cash 27. The respondents filed a complaint for the annulment of the sale and
and Php100,000 payable in installments for two years, or an Renato's title over the subject property, together with a prayer for
aggregate amount of Php300,000. the payment of damages.
16. They also sent letters to PNB on various dates. 28. The respondents alleged that PNB schemed to prevent the Spouses
17. PNB later informed the Spouses Bacani that the request for Bacani from buying back the subject property.
repurchase was refused and instead, the subject property would be 29. They also claimed that PNB's refusal to accept their offer, and the
sold in a public auction. This was followed by another letter which subsequent sale of the subject property to Renato despite its earlier
attached the office memorandum explaining why the Spouses scheduled auction sale, were all badges of bad faith on the part of
Bacani's offer was refused. It stated that the reason for the rejection PNB that warrant the annulment of Renato's title and the award of
was the low offer from the Spouses Bacani, which amounted to less damages in their favor.
than the fair market value of the subject property and PNB's total 30. PNB refuted the respondents' allegations, stating that the offer of
claim. the Spouses Bacani were way below the fair market value of the
18. At that time, the subject property's fair market value was appraised subject property.
at Php494,000. 31. It was further alleged that as the registered owner, PNB may
19. Undeterred by this setback, the Spouses Bacani increased their dispose of the subject property in accordance with its own terms
offer to Php350,000. They also continued to communicate with and conditions.
PNB, even after the Branch Manager was succeeded by a new one. 32. The RTC ruled in favor of the respondents and found that PNB
20. Their efforts, however, remained unsuccessful. acted in bad faith by failing to give preference to the Spouses
21. The Spouses Bacani received a notice that the PNB Special Assets Bacani's offer to purchase the subject property.
Management Department (SAMD) had begun to accept offers for 33. The CA affirmed the trial court's findings that the sale of the
the purchase of various properties, including the subject property. subject property to Renato was fraudulent because the Spouses

Bacani were unable to exercise their right to buy back their In this case, PNB's certificate of sale was registered on October 10,
foreclosed property at the scheduled public bidding. 1986 and one year lapsed from this date without the Spouses Bacani
exercising their right to redeem the subject property. Due to the unfortunate
III. Issue/s failure of the Spouses Bacani to exercise their redemption right, the title of
1. W/N PNB fraudulently sold the subject property to the Rodolfo over the subject property was cancelled and TCT No. T-185028
prejudice of the respondents, resulting in the nullification of was issued in the name of PNB. At this point, PNB became the absolute
the sale and the buyer's certificate of title over the subject owner of the property and Rodolfo, as well as his wife, lost all their rights
property? NO. and interests over it. Verily, PNB not only had the right to its possession,
but also all the other rights considered as essential attributes of ownership
IV. Holding/s — including the right to dispose or alienate the subject property.
Issue #1 When the Spouses Bacani made its initial offer to repurchase the
Both the RTC and the CA gravely erred in relying on PNB SEL subject property on August 26, 1991, almost four years passed since the
Circular No. 8-7/89 to nullify the sale of the subject property. redemption period expired on October 10, 1987. Thus, by the time the
Overall Ruling parties started negotiating the Spouses Bacani's reacquisition of the subject
property, PNB was already the absolute owner. On this point, Article 428 of
Upon the expiration of the period to redeem, the Spouses Bacani do not the Civil Code explicitly states that: The owner has the right to enjoy and
have an enforceable right to repurchase the subject property dispose of a thing, without other limitations than those established by law.
In extrajudicial foreclosures of real estate mortgage, the debtor, his or Clearly, PNB had full discretion as to the terms and conditions relating
her successors-in-interest, or any judicial creditor or judgment creditor of to the disposition of the subject property. PNB cannot be compelled to sell
said debtor, is granted a period of one year within which to redeem the the subject property to specific persons without its consent. Neither may the
property. The redemption period is reckoned from the registration of the courts enjoin nor nullify the alienation of the property on grounds other than
certificate of sale with the Register of Deeds. When the debtor, or the those established by law.
successors-in-interest as the case may be, fails to redeem the property within
the prescribed statutory period, the consolidation of ownership in favor of Any offer on the part of the Spouses Bacani is merely an offer to repurchase
the purchaser becomes a matter of right. At that point, the purchaser The Spouses Bacani, however, anchored their claim on PNB SEL
becomes the absolute owner of the property, and may, as a necessary Circular No. 8- 7/89, which embodied the bank's policy of giving priority to
consequence, exercise all the essential attributes of ownership. former owners in the disposition of its acquired assets. But when the circular
“The buyer in a foreclosure sale becomes the absolute owner of the was issued on November 29, 1989, the redemption period has expired and
property purchased if it is not redeemed during the period of one year after the title over the subject property was already consolidated in favor of PNB
the registration of the sale. As such, he is entitled to the possession of the as its purchaser during the foreclosure sale. For this reason, any offer on the
said property and can demand it at any time following the consolidation of part of the Spouses Bacani is merely an offer to repurchase, and PNB was
ownership in his name and the issuance to him of a new transfer certificate not statutorily or contractually bound to accept such offer.
of title.” (Spouses Marquez v. Spouses Alindog) While it was similarly alleged that the Spouses Bacani started

negotiating with PNB for the reacquisition of the property as early as 1988, Similarly, the Spouses Bacani cannot enforce PNB's internal bank circular,
or before the issuance of PNB's certificate of title, it remains undisputed that absent any law prioritizing former owners of foreclosed properties in its
they failed to redeem the property within the prescribed period for subsequent sale or disposition. If the Court were to rule otherwise, an
redemption. Consequently, the Spouses Bacani were divested of their rights absolute owner would be unjustly deprived of the right to freely dispose or
over the subject property. The subsequent issuance of a final deed of sale to alienate the property.
PNB merely confirmed the title that was earlier vested in the bank. Even if the Court considers the bank circular as a binding obligation on
Since it is undisputed that the Spouses Bacani failed to exercise their the part of PNB to prioritize the former owners of its acquired assets, the
right of redemption within the prescribed period, the Court cannot uphold circular provides several terms and conditions before former owners are able
their assertion that PNB's policy of preference should allow them to to repurchase their foreclosed properties. (Selling price of assets shall be
repurchase the property unconditionally. based on total Bank's claim or fair market value, whichever is higher; Cash
“The right to redeem becomes functus officio on the date of its expiry, sale shall be preferred; The former owners or their heirs shall exercise their
and its exercise after the period is not really one of redemption but a right to repurchase their properties within ninety days from receipt of notice
repurchase. Distinction must be made because redemption is by force of from the Bank)
law; the purchaser at public auction is bound to accept redemption. In this case, the Spouses Bacani's initial offer was Php150,000, but the
Repurchase, however, of foreclosed property, after redemption period, outstanding loan balance was Php170,670.56. The Spouses Bacani increased
imposes no such obligation. After expiry, the purchaser may or may not re- their offer to Php220,000, and in 1992, to Php300,000 (Php200,000 in cash
sell the property but no law will compel him to do so. And, he is not bound and Php100,000 by installment payments). But PNB's total claim was
by the bid price; it is entirely within his discretion to set a higher price, for computed at Php210,708.12 as of April 30, 1991, and Php217,646.50 as of
after all, the property already belongs to him as owner.” (GE Money Bank, November 4, 1991. The subject property's fair market value was also
Inc. v. Spouses Dizon) appraised at Php395,520 in 1992, and at Php494,400 in 1993
The Spouses Bacani were clearly unable to fulfill the very first
The Spouses failed to comply with the terms and conditions of PNB SEL condition of PNB SEL Circular No. 8-7/89. The offer was lower than either
Circular No. 8-7/89 the total claim of PNB, or the fair market value of the property. PNB duly
In any case, the issuance of PNB SEL Circular No. 8-7/89 does not communicated the rejection of their offer, including the grounds for the
automatically entitle the Spouses Bacani to repurchase the subject property. rejection, in several letters sent and received by the Spouses Bacani.
The circular was an internal memorandum intended for the information of Because of this, the Spouses Bacani cannot insist on repurchasing the
bank employees and personnel. It was addressed to the heads of PNB's subject property without complying with the requirements in the bank
offices and branches, to guide them in the disposal and alienation of the circular that the Spouses Bacani themselves repeatedly invoked. PNB was
bank's acquired assets. Thus, as an internal bank policy, the Spouses Bacani not obliged to accept the proposal of the Spouses Bacani simply by virtue of
do not have a legally enforceable right to be prioritized over all other buyers their status as former owners, especially since they failed to observe the
of the subject property. requirements under the bank circular. PNB was therefore justified in
A practice or custom is generally not a source of a legally demandable declining these offers to repurchase.
or enforceable right. (Pantaleon v. American Express International, Inc.)

The fact that the Spouses Bacani maintained a time deposit account with Bacani as the former owners, to be given priority in the disposition of the
PNB has no bearing subject property. It does not confer an enforceable and absolute right to
The CA relied on the supposed time deposit account of the Spouses reacquire the property, to the prejudice of PNB as the absolute owner.
Bacani with PNB, which contained the sum of USD12,585.27 as of October
2, 1992. The deposit was allegedly renewed and increased to USD13,707.22 Neither does the publication of the Invitation to Bid constitute a binding
as of October 23, 2000. According to the CA, PNB should have considered obligation on the part of PNB to sell the subject property to the Spouses
this deposit as a manifestation of the Spouses Bacani's willingness and Bacani
ability to pay for the reacquisition of the subject property. With respect to the allegation of fraud, it is settled that fraud is never
Bank deposits are in the nature of a simple loan or mutuum, which must presumed — it must be proven by clear and convincing evidence. In this
be paid upon demand by the depositor. As such, the deposit of whatever case, the Spouses Bacani were unable to establish that PNB and Renato
amount to PNB creates a debtor-creditor relationship between the bank and committed fraud in the disposition of the subject property. There was no
the depositor. PNB, as the recipient of the deposit, is duty-bound to pay or showing that PNB assured the sale of the subject property to the Spouses
release the amount deposited whenever the depositor so requires. Bacani during the auction. As a matter of fact, the Spouses Bacani did not
By the very nature of the deposit, PNB could not have assumed that the even attend the scheduled auction sale to make an offer on the subject
Spouses Bacani's alleged time deposit account was meant as an option property.
money intended to secure the privilege of buying the subject property within The publication of the Invitation to Bid, which included the subject
a given period of time, especially since there was no option contract property, was not a binding obligation on the part of PNB. Article 1326 of
between them. Neither may PNB consider the deposit as a down payment on the Civil Code clearly provides that: Advertisements for bidders are
the price of the subject property because there was no perfected contract of simply invitations to make proposals, and the advertiser is not bound to
sale. accept the highest or lowest bidder, unless the contrary appears.
Evidently, as far as PNB was concerned, it cannot use the money in the Thus, the fact that the Invitation to Bid was published cannot bind PNB
time deposit to satisfy the purchase price for the subject property, without to any offer from any party. PNB merely notified interested parties to
violating its obligation to return the amount upon the demand of the submit their proposals for the purchase of the subject property, which PNB
depositors. In other words, the time deposit with PNB did not create a may either accept or reject as the absolute owner thereof. In the same
contract of sale, or at the very least, an option contract, between PNB and manner, the published bidding schedule was not an offer from the PNB,
the Spouses Bacani. notice and acceptance of which would compel the bank to sell the subject
Furthermore, considering that the reacquisition of the subject property to such party.
property involves a contract, there should be a meeting of the minds as There being no guarantee that the highest or lowest bid was entitled to
to its terms and conditions. When the offer is not accepted by either purchase the property, the Spouses Bacani cannot rely on the publication of
party, the contract is not perfected and there is no binding juridical the Invitation to Bid to support their claim of fraud.
relation between the parties. The Spouses Bacani, therefore, cannot Ultimately, the Spouses Bacani do not have a cause of action, especially
demand to repurchase the property, in the absence of PNB's consent to following the consolidation of the subject property's title in favor of PNB.
the offer. At most, the PNB circular grants a privilege to the Spouses At the time of the sale to Renato, PNB was the absolute owner of the subject

property. It had the right to dispose or alienate the property, notwithstanding

the intention of the Spouses Bacani to repurchase it. Accordingly, the sale to
Renato was valid. The complaint for the annulment of said sale, as well as
the annulment of Renato's title over the subject property, must be dismissed.
ARTICLE 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract.
The offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except
from the time it came to his knowledge. The contract, in such a case, is
presumed to have been entered into in the place where the offer was made.
ARTICLE 1326. Advertisements for bidders are simply invitations to make

proposals, and the advertiser is not bound to accept the highest or lowest
bidder, unless the contrary appears.
VI. Disposition
WHEREFORE, the present petition is GRANTED. The Decision dated

September 30, 2010 and Resolution dated January 5, 2011 of the Court of
Appeals in CA-G.R. CV No. 82923 are REVERSED and SET ASIDE. The
complaint for the annulment of sale and title is DISMISSED.
No costs.
SO ORDERED.
VII. Random Facts

• Reyes, Jr., J.

G.R. No. 109125 | December 2, 1994 Article 1319-1346 - Contract, Consent
Asuncion, et. al. vs CA and Buen Realty Dev’t. Corp. Asuncion, et. al. vs CA and Buen Realty Dev’t. Corp.
I. Recit-ready Summary 2. Then, before October 9, 1986, the defendants informed the
In the present case, the Petitioners are tenants spaces petitioners that they are offering to sell the premises and are giving
owned by the Unjiengs. On several occasions, Unjieng informed them priority to acquire the same. The defendants offered a price of
petitioners that they are offering to sell the premises and are giving P6M but the petitioners countered for P5M, which the defendants
them priority to acquire the same. The defendants offered a price of accepted.
P6M but the petitioners countered for P5M, which the defendants 3. However, despite repeated requests from the petitioners, the
accepted. The defendants failed to put their offer in writing; thus, defendants failed to put their offer in writing, wherein it would also
the Petitioners were compelled to file a complaint to compel specify the terms and conditions of the offer to sell. Thus, the
Unjieng to sell the property to them. The court found that the offer
petitioners were prompted to file a complaint to compel the
to sell was never accepted by the petitioner for the reason that the
defendants to sell the property to them
parties did not agree upon the terms and conditions of the proposed
4. The trial court found that defendants' offer to sell was never
sale, hence, there was no contract of sale at all. Nonetheless, the
accepted by the plaintiffs for the reason that the parties did not
court ruled that should the property be subsequently offered for
agree upon the terms and conditions of the proposed sale, hence,
sale, petitioners will have the right of first refusal. The Cu Unjieng
there was no contract of sale at all. Nonetheless, the lower court
spouses executed a Deed of Sale transferring the property in
ruled that should the defendants subsequently offer their property
question to herein private respondent, Buen Realty. Upon appeal
for sale at a price of P11M or below, plaintiffs will have the right
by the Respondent, the CA ruled in favor of the Respondent.
of first refusal.
Hence, the present petition. The issue in this case is w/n there was
5. Then, when the aforementioned Decision was brought to the SC,
a perfected contract to sell between the Petitioners and the Cu
Unijiegs. The SC ruled in the negative. The Court stated that until the Sps. Cu Unjieng executed a Deed of Sale and transferred the
the contract is perfected, it cannot, as an independent source of Title of the questioned properties to the Buen Realty Dev’t. Corp.
obligation, serve as a binding juridical relation. In the present case, for and in consideration of the sum P15M
the Cu Unijiegs never agreed to the terms and conditions of the 6. Upon appeal by the Respondent, the CA ruled in favor of the
proposed sale. Respondent, and set aside and declared without force and effect the
Orders of the Trial Court.
7. Hence, the present petition before the SC
1. In the present case, the Petitioners filed a complaint against Bobby
Cu Unjieng, Rose Cu Unjieng and Jose Tan before the RTC, III. Issue/s
alleging that they are tenants or lessees of residential and ● W/N there was a perfected contract to sell the questioned
commercial spaces owned by the defendants in Ongpin Street, properties to the Petitioners? NO
Binondo, Manila.
1
Obligations and Contracts (2020) PETITIONER: Asuncion, Go, and Keh Tiong
DIGEST AUTHOR: Larry Abucay RESPONDENT: CA and Buen Realty Dev’t. Corp.
Overall Ruling
IV. Holding/s
The SC stated that a contract undergoes various stages that include its
Issue #1 negotiation or preparation, its perfection and, finally, its consummation.
Negotiation covers the period from the time the prospective contracting
NO, there was no perfected contract between the Petitioners and the Cu parties indicate interest in the contract to the time the contract is concluded
Unijiegs since the never agreed upon the terms and conditions of the (perfected). The perfection of the contract takes place upon the concurrence
proposed sale - NO CONSENT of the essential elements thereof. A contract which is consensual as to
perfection is so established upon a mere meeting of minds, i.e., the
concurrence of offer and acceptance, on the object, and on the cause
thereof. A contract which requires, in addition to the above, the delivery of
Petitioner’s Argument/s Court’s Rebuttals
the object of the agreement, as in a pledge or commodatum, is commonly
● N/A referred to as a real contract. In a solemn contract, compliance with certain
● Among the sources of an formalities prescribed by law, such as in a donation of real property, is
obligation is a contract essential in order to make the act valid, the prescribed form being thereby
(Art. 1157, Civil Code), an essential element thereof. The stage of consummation begins when the
which is a meeting of parties perform their respective undertakings under the contract culminating
minds between two persons in the extinguishment thereof.
whereby one binds himself,
with respect to the other, to THEREFORE, until the contract is perfected, it cannot, as an independent
give something or to render source of obligation, serve as a binding juridical relation. In sales,
some service (Art. 1305, particularly, to which the topic for discussion about the case at bench
Civil Code) belongs, the contract is perfected when a person, called the seller, obligates
himself, for a price certain, to deliver and to transfer ownership of a thing or
right to another, called the buyer, over which the latter agrees. IN THE
PRESENT CASE, the Cu Unijiengs never agreed to the terms and
conditions of the proposed sale.
MOREOVER, whether private respondent Buen Realty Development

Corporation, the alleged purchaser of the property, has acted in good faith
or bad faith and whether or not it should, in any case, be considered bound
to respect the registration of the lis pendens in Civil Case No. 87-41058 are
matters that must be independently addressed in appropriate proceedings.
2
Buen Realty, not having been impleaded in Civil Case No. 87-41058,
cannot be held subject to the writ of execution issued by respondent Judge,
let alone ousted from the ownership and possession of the property, without
first being duly afforded its day in court.
Article 1305 - A contract is a meeting of minds between two persons

whereby one binds himself, with respect to the other, to give something or
to render some service.
Article 1458 - By the contract of sale one of the contracting parties

obligates himself to transfer the ownership and to deliver a determinate
thing, and the other to pay therefor a price certain in money or its equivalent
Article 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 promissor if the promise is supported by a
consideration distinct from the price.
VI. Disposition
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting

aside the questioned Orders, dated 30 August 1991 and 27 September 1991,
of the court a quo. Costs against petitioners.
VII. Random Facts

● Ponente: Vitug, J.
3
G.R. No. 202050 | July 25, 2016 Essential Requisites of a Contract
PNOC v Keppel PNOC v Keppel
I. Recit-ready Summary land stood, not having been withdrawn by PNOC. The offer having been duly accepted, a
contract to sell the land ensued which Keppel can rightfully demand PNOC to comply
(Note: this case is under the topic of “Consent” but discusses consideration) with.
In 1976, Keppel entered into an agreement with Luzon to lease land in Batanagas II. Facts of the Case (Material Facts)
for 25 years with an option to buy said land at the end of 25 years. In this
agreement, Luzon has the option to be issued stock of Keppel in lieu of the 1. In 1976, Keppel Philippines Holding Inc. (lessee) entered into a lease agreement with
purchase price. The agreement also stipulated that if Keppel will not have yet met Luzon Stevedoring Corporation (lessor) covering land in Bauan, Batangas with the
the equity ownership constitutional requirements by the end of the 25-year period following terms:
(2001), the lease will be renewed for another 25. Luzon warranted that they will a. Period – 25 years
not sell the land during the duration of the lease without prior consent of Keppel. b. Consideration – PHP 2.1M
Subsequently, Luzon sold the land to PNOC with the latter acquiring rights and c. At Luzon’s option, they can convert rental fees into equity shares of Keppel
obligations over it without objection from Keppel. In 2000, Keppel expressed its instead
interest to buy the land from PNOC and that they are now at least 60% Filipino- 2. Paragraph 5 (the option contract) of the Agreement: at the end of the 25 year lease
owned and can now own land. PNOC did not respond favorably to Keppel’s (2001), Keppel has the "firm and absolute option to purchase the land for PHP 4.09
demands therefore the latter asked for specific performance to execute the deed of M, provided that it had acquired the necessary qualification to own land under
sale with the trial court. The RTC ruled in favor of Keppel and so did the CA upon Philippine laws at the time the option is exercised”
appeal. a. Note: At time of contract (1976), less than 60% of Keppel was Filipino-
owned
The ObliCon-related issues in this case are: b. If Keppel does not meet ownership requirements in 25 years, lease will be
1. Whether the option contract to purchase the land given to Keppel was supported renewed for another 25 years
by a separate valuable consideration – NO c. Luzon can opt to be issued stocks in Keppel instead of being paid in cash
2. Whether or not absence of a separate consideration invalidated the option – NO 3. Luzon warranted to not sell the land during the duration of the lease without prior
consent of Keppel.
As for the first issue, the court ruled that consideration need not necessarily be 4. Subsequently, PNOC obtained the land form Luzon and took over the rights and
in the form of money. However, if such is the case, the consideration must be obligations over it.
clearly and expressly specified in the option contract. When such a. Keppel did not object to the assignment as long as the agreement was
consideration is not specified, the offeree has the burden of proving the annotated on PNOC's title
existence of a condition separate from that of the principal sale contract. 5. In 2000, Keppel wrote PNOC informing that at least 60% of their shares were now
Nothing in Paragraph 5 of their Agreement suggests that the option to convert owned by Filipinos and expressed readiness to purchase the land. However, Keppel’s
the purchase price into stock was the consideration of the option contract. The multiple demands were not favorably met.
Agreement did not categorically refer to any consideration to support Keppel's 6. In 2003, Keppel instituted an action for specific performance against PNOC in the
option to buy and for Keppel's failure to present evidence in this regard, the RTC.
SC did not uphold the existence of an option contract in this case a. During trial, PNOC asserted that the option contract was void, as it was
unsupported by a separate valuable consideration.
As for the second issue, absence of a consideration in an option contract does not 7. The RTC rendered a decision in favor of Keppel and ordered PNOC to execute a
ipso facto invalidate it. Without consideration, it only becomes an offer that deed of absolute sale upon payment by Keppel of the purchase price of PHP 4.09M
becomes binding as a contract of sale only when it is accepted. In this case, Keppel 8. PNOC appealed to the CA which affirmed the RTC decision
expressed interest in buying the land which constitutes acceptance of the offer.
Thus, when Keppel communicated its acceptance, the offer to purchase the Bauan
1
Obligations and Contracts (2020) PETITIONER: PHILIPPINE NATIONAL OIL COMPANY AND PNOC DOCKYARD &
ENGINEERING CORPORATION,
DIGEST AUTHOR: Capeding RESPONDENT: KEPPEL PHILIPPINES HOLDINGS, INC.

a. They found that since the option contract was embodied in the existence of a separate
agreement – a reciprocal contract – the consideration was the consideration for the option.
obligation that each of the contracting party assumed • There is nothing in paragraph 5 of
9. PNOC elevated the case to the SC via Rule 45 the Agreement suggests that the
grant to Luzon of the option to
III. Issue/s convert the purchase price to
Keppel shares was intended by the
1. Whether the option contract to purchase the land given to Keppel parties as the consideration for
is supported by a separate valuable consideration – NO Keppel's option to buy the land
2. Whether or not absence of a separate consideration invalidates • The option to convert the purchase
the option - NO price for shares should be deemed
part of the consideration for the
IV. Holding/s contract of sale itself (not the
option contract), since the shares
Issue #1 are merely an alternative to the
NO. The consideration for the option contract should be clearly specified as such in actual cash price
the option contract or clause. Otherwise, the offeree must bear the burden of proving Overall Ruling
that a separate consideration for the option contract exists.
An option contract is a contract where one grants to another the right or privilege
Petitioner PNCO Argument: to buy (or to sell) a determinate thing at a fixed price, if he or she chooses to do
• The option contract is void for so within an agreed period. As a contract, it must necessarily have the essential
want of consideration distinct elements of subject matter, consent, and consideration which must be separate
from the purchase price for the from the elements of the sale itself. In an option contract the elements are:
land • Subject matter - The right or privilege to buy (or to sell) a determinate thing
for a price certain. On the other hand, in a sales contract, the subject matter
Respondent Keppel’s Arguments Court’s Ruling is the determinate thing itself.
• Consent - The acceptance by the offeree of the offeror’s promise to sell (or
• To uphold the validity of the • The consideration for an option to buy) the determinate thing. This acceptance is different from the
option contract, Keppel asserts contract does not need to be acceptance of the offer itself whereby the offeree asserts his or her right or
that a separate consideration is not monetary and may be anything of privilege to buy (or to sell), which constitutes as his or her consent to the
necessary to support an option to value but when the consideration principal sales contract.
buy because the option is one of is not monetary, the consideration • Consideration - May be anything of value. There is sufficient consideration
the stipulations of the lease must be clearly specified as such for a promise if there is any benefit to the offeree or any detriment to the
contract. It is required only when in the option contract or clause. offeror. In a sale, the purchase price must be in money or its equivalent.
an option to buy is embodied in an • When the written agreement itself
independent contract. does not state the consideration
for the option contract, the offeree The SC summarized the rule regarding consideration in an option contract stating
bears the burden of proving the the rule to follow that the consideration for the option contract should be clearly
2

specified as such in the option contract or clause. Otherwise, the offeree must bear accepted, Keppel could rightfully demand PNOC to comply with their
the burden of proving that a separate consideration for the option contract exists. agreement to sell.
In this case, the Agreement did not categorically refer to any consideration to
support Keppel's option to buy and for Keppel's failure to present evidence in this The case discussed Sanchez v. Rigos which declared that a unilateral promise
regard, the SC did not uphold the existence of an option contract in this case. 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
Issue #2 consideration. On the other hand, if there exists a consideration, the option
NO. An option, though unsupported by a separate consideration, remains cannot be withdrawn once accepted.
an offer that once accepted is generated into a contract to sell where the
parties' respective obligations become reciprocally demandable. In sum, the case of Sanchez declared that there is no distinction between Art.
1324 and 1479 (see Laws below). The ruling in the case reconciled the two
Issue Court’s Ruling provisions by laying down the following rules:
• When the offer is founded upon a separate consideration, a valid and
• Does the absence of a separate • NO. An option unsupported by a complete contract exists and becomes binding once accepted. In this
consideration in an option separate consideration stands as case, the offeror cannot withdraw.
contract invalidate it? an unaccepted offer to buy (or to • When the offer is without a separate consideration, the offer remains
sell) which, when properly in existence. However, due to the lack of a binding contract, the offer
accepted, ripens into a contract to can be withdrawn at any time.
sell. • In either case, once the acceptance of the offer is communicated
• In this case, Keppel timely before the withdrawal of the offer, a bilateral contract to buy and sell
accepted the offer to buy land. In is generated.
2000, Keppel met the required
Filipino equity proportion and In the current case, PNOC did not act favorably to Keppel’s request to finally buy
duly communicated its the land. Despite this fact, PNOC made no categorical withdrawal of their offer to
acceptance of the offer to buy to sell. With Keppel having validly accepted the offer, it became incumbent upon
PNOC. Keppel met with the PNOC to adhere to the agreement to sell.
board of directors and officials of
PNOC who did not object to the V. Law or Doctrine Applied
sale. It was only when the amount
of purchase price was raised Article 1324. When the offeror has allowed the offeree a certain period to accept, the offer
when PNOC questioned the may be withdrawn at any time before acceptance by communicating such
validity of the option. withdrawal, except when the option is founded upon a consideration, as something paid or
promised.
Overall Ruling
Article 1479. A promise to buy and sell a determinate thing for a price certain is
When Keppel communicated its acceptance, the offer to purchase the land reciprocally demandable.
remained extant, not having been withdrawn by PNOC. With the offer being
3

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
VI. Disposition
In view of the foregoing, the Court AFFIRMS the decision dated 19 December 2011
and the resolution dated 14 May 2012 of the CA in CA-G.R. CV No. 86830 insofar
as these rulings uphold the respondent Keppel Philippines Holdings, Inc.'s option to
buy the land, and REMANDS the case to the Regional Trial Court of Batangas City,
Branch 84, for the determination of whether the respondent Keppel Philippines
Holdings, Inc. meets the required Filipino equity ownership and proportion in
accordance with the Court's ruling in Gamboa v. Teves, to allow it to acquire full
title to the land.
4

G.R. No.106063 | November 21, 1996 Essential Requisites of Contracts: Consent
Equatorial Realty Development v. Mayfair Theater Equatorial Realty Development v. Mayfair Theater
I. Recit-ready Summary purchase" cannot be legally categorized as an option, it is, nevertheless, a

Carmelo owns a piece of land with a two-storey building. In June valid and binding stipulation.
1967, Carmelo entered into a 20 year lease contract with Mayfair Theater Equatorial raised the petition to the SC, in which the main issue
for a part of the 2nd floor and mezzanine. And in March 1969, they entered here is whether paragraph 8 is an option or a right of first refusal. The SC
into a second 20 year lease contract where this time it was for a part of the agrees with the CA, it is not an option clause or an option contract. It is a
ground floor and second floor, in which both contracts had a similar contract of a right of first refusal. With regards to the deed of option or the
paragraph 8 clause which read: That if the LESSOR should desire to sell the option clause in a contract, in order to be valid and enforceable, must,
leased premises, the LESSEE shall be given a 30-days exclusive option to among other things, indicate the definite price at which the person granting
purchase the same. Sometime in August 1974, Mr. Henry Pascal of Carmelo the option is willing to sell. In the instant case, the right of first refusal is an
informed the President of Mayfair, through a telephone conversation that integral part of the contracts of lease. The consideration for the lease
Carmelo was selling the entire property to a certain Jose Araneta for US includes the consideration for the right of first refusal. Thus, Mayfair is in
Dollars 1,200,000, and Mr. Pascal asked if Mayfair was willing to buy the effect stating that it consents to lease the premises and to pay the price
property for Six to Seven Million Pesos. On August 23, 1974, Mayfair sent agreed upon provided the lessor also consents that, should it sell the leased
a letter reminding Carmelo about paragraph 8, but was ignored. In property, then, Mayfair shall be given the right to match the offered
September 1974, Mayfair expressed interest in buying the whole property purchase price and to buy the property at that price.
but was still ignored. 4 years later, On June 30 1978, Carmelo sold the Both parties (Carmelo and Equatorial) had acted in bad faith,
entire property to Equatorial for P11.3M. In September 1978, Mayfair filed although yes, Carmelo did initially offer the land to Mayfair, Carmelo
a case for specific performance and annulment of sale over the property. violated the right of first refusal when Carmelo had abandoned
Carmelo alleged that they had offered the property to Mayfair but they only negotiations. Equatorial on the other hand, studied the lease contracts of
wanted to buy the portion they are leasing which would be impossible, and Mayfair, in which case they knew of the said right of first refusal, but still
that the option to purchase (paragraph 8) is null and void for lack of continued with the sale; which makes them a buyer in bad faith. Thus
consideration. RTC rules in favor Carmelo, judging paragraph 8 to be an making the sale rescissible.
option clause, which is non-binding for lack of distinct consideration. The Thus, Equatorial’s petition is DENIED, and the Deed of Absolute
RTC relied on Articles 1352, 1324, 1479 and 1354. Mayfair cannot compel sale between them and Carmelo is rescinded. Carmelo & Bauermann is
defendant Carmelo to comply with the promise unless the former establishes ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots for
the existence of a distinct consideration. Mayfair elevated the case to the P11,300,000.00.
CA, in which the CA overturned the RTC’s decision, claiming that the RTC
misapplied article 1324 and 1479, as paragraph 8 is not an option contract as Facts of the Case (Material Facts)
it does not state a fixed price for the leased premises. Because of this, CA 1. Carmelo owns a piece of land with a two-storey building.
rules that paragraph 8 is a right to first refusal, and NOT an option contract. 2. In June 1967, Carmelo entered into a 20 year lease contract with
Although the provision giving Mayfair "30-days exclusive option to Mayfair Theater for a part of the 2nd floor and mezzanine.
1
Obligations and Contracts (2020) PETITIONER: Equatorial Realty Development
DIGEST AUTHOR: Sean Lee RESPONDENT: Mayfair Theater

3. And in March 1969, they entered into a second 20 year lease and 1479, as paragraph 8 is not an option contract as it does not
contract where this time it was for a part of the ground floor and state a fixed price for the leased premises.
second floor, in which both contracts had a similar paragraph 8 14. Because of this, CA rules that paragraph 8 is a right to first refusal,
clause which read: That if the LESSOR should desire to sell the and NOT an option contract.
leased premises, the LESSEE shall be given a 30-days exclusive 15. Although the provision giving Mayfair "30-days exclusive option
option to purchase the same. to purchase" cannot be legally categorized as an option, it is,
4. Sometime in August 1974, Mr. Henry Pascal of Carmelo informed nevertheless, a valid and binding stipulation.
the President of Mayfair, through a telephone conversation that 16. Thus Equatorial raised the petition to the SC.
Carmelo was selling the entire property to a certain Jose Araneta II. Issue/s
for US Dollars 1,200,000, and Mr. Pascal asked if Mayfair was 1. Whether Paragraph 8 is an option contract or a right of first
willing to buy the property for Six to Seven Million Pesos. refusal? IT IS A RIGHT OF FIRST REFUSAL.
5. On August 23, 1974, Mayfair sent a letter reminding Carmelo III. Holding/s
about paragraph 8, but was ignored.
6. In September 1974, Mayfair expressed interest in buying the Issue #1
whole property but was still ignored. IT IS A RIGHT OF FIRST REFUSAL. Whether Paragraph 8 is
7. 4 years later, On June 30 1978, Carmelo sold the entire property to an option contract or a right of first refusal?
Equatorial for P11.3M. Petitioner’s Arguments Court’s Rebuttals
8. In September 1978, Mayfair filed a case for specific performance ● Mayfair argues by saying that it ● The Court disagrees. It cannot be
and annulment of sale over the property. is an option and not a right to an option considering that in an
9. Carmelo alleged that they had offered the property to Mayfair but first refusal, and that this option option, there must be an accepted
they only wanted to buy the portion they are leasing which would is null and void due to the fact unilateral promise which
be impossible, and that the option to purchase (paragraph 8) is null that there is a lack of specifies the thing to be sold and
and void for lack of consideration. consideration. the price to be paid, when
10. RTC rules in favor Carmelo, judging paragraph 8 to be an option coupled with a valuable
clause, which is non-binding for lack of distinct consideration. consideration distinct and
11. The RTC relied on Articles 1352, 1324, 1479 and 1354. separate from the price, is what
12. Mayfair cannot compel defendant Carmelo to comply with the may properly be termed a
promise unless the former establishes the existence of a distinct perfected contract of option
consideration.
13. Mayfair elevated the case to the CA, in which the CA overturned
the RTC’s decision, claiming that the RTC misapplied article 1324
2

Overall Ruling Since Carmelo sold the property for P11,300,000.00 to Equatorial, the price
at which Mayfair could have purchased the property is fixed. It can neither
The SC agrees with the CA, it is not an option clause or an option contract. be more nor less. The damages which Mayfair suffered are in terms of
It is a contract of a right of first refusal. With regards to the deed of option actual injury and lost opportunities. The fairest solution would be to allow
or the option clause in a contract, in order to be valid and enforceable, must, Mayfair to exercise its right of first refusal at the price which it was entitled
among other things, indicate the definite price at which the person granting to accept or reject which is P11,300,000.00. Especially since Carmelo and
the option is willing to sell. In the instant case, the right of first refusal is an Equatorial acted in bad faith.
integral part of the contracts 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 IV. Law or Doctrine Applied
property, then, Mayfair shall be given the right to match the offered Article 1324. When the offeror has allowed the offeree a
purchase price and to buy the property at that price. certain period to accept, the offer may be withdrawn at any
time before acceptance by communicating such withdrawal,
To rule that a contractual stipulation such as that found in paragraph 8 of the except when the option is founded upon consideration, as
contracts is governed by Article 1324 on withdrawal of the offer or Article something paid or promised.
1479 on promise to buy and sell would render ineffectual the provisions on Article 1479. A promise to buy and sell a determine thing for
right of first refusal so commonly inserted in leases of real estate nowadays. a price certain is reciprocally demandable.
The Court of Appeals is correct in stating that Paragraph 8 was incorporated
An accepted unilateral promise to buy or to sell a determine
into the contracts of lease for the benefit of Mayfair which wanted to be
thing for a price certain is binding upon the promissor if the
assured that it shall be given the first crack or the first option to buy the
promise is supported by a consideration distinct from the price.
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 Right of First Refusal: is a contractual right to enter into a
refusal. The stipulation is part and parcel of the entire contract of lease. business transaction with a person or company before anyone
Both parties (Carmelo and Equatorial) had acted in bad faith, although yes, else can. If the party with this right declines to enter into a
Carmelo did initially offer the land to Mayfair, Carmelo violated the right of transaction, the obligor is free to entertain other offers.
first refusal when Carmelo had abandoned negotiations. Equatorial on the
other hand, studied the lease contracts of Mayfair, in which case they knew V. Disposition
of the said right of first refusal, but still continued with the sale; which
makes them a buyer in bad faith. Thus making the sale rescissible. WHEREFORE, the petition for review of the decision of the Court of
Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY
3

DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty

Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed
rescinded; petitioner Carmelo & Bauermann is ordered to return to
petitioner Equatorial Realty Development the purchase price. The latter is
directed to execute the deeds and documents necessary to return ownership
to Carmelo and Bauermann of the disputed lots. Carmelo & Bauermann is
ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots for
P11,300,000.00.
VI. Additional Notes.
VII. Random Facts

● Ponente: HERMOSISIMA, JR. , J
4

G.R. No. 140182 | April 12, 2005 Contracts-consent
Tanay Recreation Center and Development Corp v Fausto Tanay Recreation Center and Development Corp v Fausto
I. Recit-ready Summary wording of the stipulation giving petitioner the right of first refusal is plain
and unambiguous, and leaves no room for interpretation. It simply means
Petitioner Tanay Recreation Center and Development Corp. (TRCDC) that should Fausto decide to sell the leased property during the term of the
is the lessee of a 3,090-square meter property located in Sitio Gayas, Tanay, lease, such sale should first be offered to petitioner. The stipulation does not
Rizal, owned by Catalina Matienzo Fausto, under a Contract of Lease. On provide for the qualification that such right may be exercised only when the
this property stands the Tanay Coliseum Cockpit operated by petitioner. The sale is made to strangers or persons other than Fausto’s kin. Thus, under the
lease contract provided for a 20-year term, subject to renewal within sixty terms of petitioner’s right of first refusal, Fausto has the legal duty to
days prior to its expiration. The contract also provided that should Fausto petitioner not to sell the property to anybody, even her relatives, at any price
decide to sell the property, petitioner shall have the “priority right” to until after she has made an offer to sell to petitioner at a certain price and
purchase the same. said offer was rejected by petitioner.
Tanay Recreation wrote Fausto informing her of its intention to renew II. Facts of the Case (Material Facts)
the lease. However, it was Fausto’s daughter, respondent Anunciacion F.
Pacunayen, who replied, asking that petitioner remove the improvements 1. Petitioner Tanay Recreation Center and Development Corp.
built thereon, as she is now the absolute owner of the property. It appears (TRCDC) is the lessee of a 3,090-square meter property located in
that Fausto had earlier sold the property to Pacunayen and title has already Sitio Gayas, Tanay, Rizal, owned by Catalina Matienzo Fausto,
been transferred in her name. Petitioner filed an Amended Complaint for under a Contract of Lease. On this property stands the Tanay
Annulment of Deed of Sale, Specific Performance with Damages, and Coliseum Cockpit operated by petitioner. The lease contract
Injunction. provided for a 20-year term, subject to renewal within sixty days
prior to its expiration.
In her Answer, respondent claimed that petitioner is estopped from 2. The contract also provided that should Fausto decide to sell the
assailing the validity of the deed of sale as the latter acknowledged her property, petitioner shall have the “priority right” to purchase the
ownership when it merely asked for a renewal of the lease. According to same.
respondent, when they met to discuss the matter, petitioner did not demand 3. Tanay Recreation wrote Fausto informing her of its intention to
for the exercise of its option to purchase the property, and it even asked for renew the lease. However, it was Fausto’s daughter, respondent
grace period to vacate the premises. Anunciacion F. Pacunayen, who replied, asking that petitioner
remove the improvements built thereon, as she is now the absolute
ISSUE: Whether or not petitioner has the right of first refusal. (YES) owner of the property.
4. It appears that Fausto had earlier sold the property to Pacunayen
Held: When the terms of an agreement have been reduced to writing, and title has already been transferred in her name.
it is considered as containing all the terms agreed upon. As such, there can 5. In her Answer, respondent claimed that petitioner is estopped from
be, between the parties and their successors in interest, no evidence of such assailing the validity of the deed of sale as the latter acknowledged
terms other than the contents of the written agreement, except when it fails her ownership when it merely asked for a renewal of the lease.
to express the true intent and agreement of the parties. In this case, the According to respondent, when they met to discuss the matter,
Obligations and Contracts (2020) PETITIONER: International Hotel Corp 1
DIGEST AUTHOR: Tin Sumaway RESPONDENT: Francisco Joaquin; Rafael Suarez

petitioner did not demand for the exercise of its option to purchase leased property during the term of
the property, and it even asked for grace period to vacate the the lease, such sale should first be
premises. offered to petitioner. The stipulation
does not provide for the
III. Issue/s qualification that such right may be
exercised only when the sale is
1. W/N Tanay Recreation has the right of first refusal (aka “priority made to strangers or persons other
right” to purchase the property)? YES than Fausto’s kin. Thus, under the
terms of petitioner’s right of first
2. W/N Tanay Recreation was estopped from claiming its rights? NO.
refusal, Fausto has the legal duty to
petitioner not to sell the property to
IV. Holding/s anybody, even her relatives, at any
price until after she has made an
Issue #1 offer to sell to petitioner at a certain
Tanay Recreation has the right of first refusal price and said offer was rejected by
petitioner.
CA’s ruling Court’s Rebuttals Overall Ruling
However, the CA interpreted such It was erroneous for the CA to rule
right to mean that it shall be that the right of first refusal does not When a lease contract contains a right of first refusal, the lessor is under a
applicable only in case the property apply when the property is sold to legal duty to the lessee not to sell to anybody at any price until after he has
is sold to strangers and not to Fausto’s relative. When the terms of made an offer to sell to the latter at a certain price and the lessee has failed
Fausto's relative. The CA stated that an agreement have been reduced to to accept it. The lessee has a right that the lessor's first offer shall be in his
"(T)o interpret it otherwise as to writing, it is considered as favor. Petitioner’s right of first refusal is an integral and indivisible part of
comprehend all sales including those containing all the terms agreed the contract of lease and is inseparable from the whole contract. The
made to relatives and to the upon. As such, there can be, consideration for the lease includes the consideration for the right of first
compulsory heirs of the seller at that between the parties and their refusal and is built into the reciprocal obligations of the parties.
would be an absurdity," and "her successors in interest, no evidence
(Fausto's) only motive for such of such terms other than the contents
transfer was precisely one of of the written agreement, except
preserving the property within her when it fails to express the true Issue #2
bloodline and that someone intent and agreement of the parties. Tanay Recreation Center was not estopped
administer the property." In this case, the wording of the
stipulation giving petitioner the right
of first refusal is plain and
unambiguous, and leaves no room
for interpretation. It simply means
that should Fausto decide to sell the

Petitioner’s Arguments Court’s Rebuttals GRANTED. The Court of Appeals' Decision dated June 14, 1999 in CA-
The petitioner contends that Tanay Petitioner's acts of seeking all G.R. CV No. 43770 is MODIFIED as follows:
Recreation was estopped from possible avenues for the amenable
claiming its right of first refusal resolution of the conflict do not (1) the "Kasulatan ng Bilihan Patuluyan ng Lupa" dated August 8, 1990
since it acknowledge the validity of amount to an intentional and between Catalina Matienzo Fausto and respondent Anunciacion Fausto
unequivocal abandonment of its Pacunayen is hereby deemed rescinded;
the sale when it raised with
Peunayen the question of renewing right of first refusal.
(2) The Heirs of the deceased Catalina Matienzo Fausto who are hereby
the lease.. deemed substituted as respondents, represented by respondent Anunciacion
Overall Ruling Fausto Pacunayen, are ORDERED to recognize the obligation of Catalina
Matienzo Fausto under the Contract of Lease with respect to the priority
The essential elements of estoppel are: (1) conduct of a party amounting to right of petitioner Tanay Recreation Center and Development Corp. to
false representation or concealment of material facts or at least calculated to purchase the subject property under reasonable terms and conditions;
convey the impression that the facts are otherwise than, and inconsistent
with, those which the party subsequently attempts to assert; (2) intent, or at (3) Transfer Certi􀁈cate of Title No. M-35468 shall remain in the name
least expectation, that this conduct shall be acted upon by, or at least of respondent Anunciacion Fausto Pacunayen, which shall be cancelled in
influence, the other party; and (3) knowledge, actual or constructive, of the the event petitioner successfully purchases the subject property;
real facts.
(4) Respondent is ORDERED to pay petitioner Tanay Recreation Center
While petitioner may have sought the renewal of the lease, it cannot be and Development Corporation the amount of Twenty Thousand Pesos
construed as a relinquishment of its right of first refusal. Estoppel must be (P20,000.00) as actual damages, plus interest thereon at the legal rate of six
intentional and unequivocal. percent (6%) per annum from the 􀁈ling of the Complaint until the 􀁈nality
of this Decision. After this Decision becomes 􀁈nal and executory, the
Also, in the excerpts from the minutes of the special meeting, it was further applicable rate shall be twelve percent (12%) per annum until its
stated that the possibility of a sale was likewise considered. But respondent satisfaction; and,
also refused to sell the land, while the improvements, "if for sale shall be
subject for appraisal." After respondent refused to sell the land, it was then (5) Respondent is ORDERED to pay petitioner the amount of Ten Thousand
that petitioner filed the complaint for annulment of sale, specific Pesos (P10,000.00) as attorney's fees, and to pay the costs of suit.
performance and damages. Petitioner's acts of seeking all possible avenues
for the amenable resolution of the conflict do not amount to an intentional (6) Let the case be remanded to the Regional Trial Court, Morong, Rizal
and unequivocal abandonment of its right of first refusal. (Branch 78) for further proceedings on the determination of the "reasonable
terms and conditions" of the offer to sell by respondents to petitioner,
V. Law or Doctrine Applied without prejudice to possible mediation between the parties.
VI. Disposition The rest of the unaffected dispositive portion of the Court of Appeals'
Decision is AFFIRMED.
WHEREFORE, the instant Petition for Review is PARTIALLY

SO ORDERED.
When a lease contract contains a right of first refusal, the lessor is

under a legal duty to the lessee not to sell to anybody at any price until after
he has made an offer to sell to the latter at a certain price and the lessee has
failed to accept it. The lessee has a right that the lessor's first offer shall be
in his favor. Petitioner’s right of first refusal is an integral and indivisible
part of the contract of lease and is inseparable from the whole contract. The
consideration for the lease includes the consideration for the right of first
refusal and is built into the reciprocal obligations of the parties.
VII. Random Facts

Ponente: Austria Martinez J.

I. Recit-ready Summary wording of the stipulation giving petitioner the right of first refusal is plain
and unambiguous, and leaves no room for interpretation. It simply means
Petitioner Tanay Recreation Center and Development Corp. (TRCDC) that should Fausto decide to sell the leased property during the term of the
is the lessee of a 3,090-square meter property located in Sitio Gayas, Tanay, lease, such sale should first be offered to petitioner. The stipulation does not
Rizal, owned by Catalina Matienzo Fausto, under a Contract of Lease. On provide for the qualification that such right may be exercised only when the
this property stands the Tanay Coliseum Cockpit operated by petitioner. The sale is made to strangers or persons other than Fausto’s kin. Thus, under the
lease contract provided for a 20-year term, subject to renewal within sixty terms of petitioner’s right of first refusal, Fausto has the legal duty to
days prior to its expiration. The contract also provided that should Fausto petitioner not to sell the property to anybody, even her relatives, at any price
decide to sell the property, petitioner shall have the “priority right” to until after she has made an offer to sell to petitioner at a certain price and
purchase the same. said offer was rejected by petitioner.
Tanay Recreation wrote Fausto informing her of its intention to renew It is erroneous to claim that rule that it would be useless to annul the
the lease. However, it was Fausto’s daughter, respondent Anunciacion F. sale between Fausto and respondent because the property would still remain
Pacunayen, who replied, asking that petitioner remove the improvements with respondent after the death of her mother by virtue of succession. By
built thereon, as she is now the absolute owner of the property. It appears virtue of Artilce 1311 of the Civil Code, whatever rights and obligations she
that Fausto had earlier sold the property to Pacunayen and title has already had over the property, including her obligation under the lease contract,
been transferred in her name. Petitioner filed an Amended Complaint for were transmitted to Fausto’s heirs by way of succession.
Annulment of Deed of Sale, Specific Performance with Damages, and
Injunction.
1. Petitioner Tanay Recreation Center and Development Corp.
In her Answer, respondent claimed that petitioner is estopped from
(TRCDC) is the lessee of a 3,090-square meter property located in
assailing the validity of the deed of sale as the latter acknowledged her
Sitio Gayas, Tanay, Rizal, owned by Catalina Matienzo Fausto,
ownership when it merely asked for a renewal of the lease. According to
under a Contract of Lease. On this property stands the Tanay
respondent, when they met to discuss the matter, petitioner did not demand
Coliseum Cockpit operated by petitioner. The lease contract
for the exercise of its option to purchase the property, and it even asked for
provided for a 20-year term, subject to renewal within sixty days
grace period to vacate the premises.
prior to its expiration.
2. The contract also provided that should Fausto decide to sell the
ISSUE: Whether or not petitioner has the right of first refusal. (YES)
property, petitioner shall have the “priority right” to purchase the
same.
Held: When the terms of an agreement have been reduced to writing,
3. Tanay Recreation wrote Fausto informing her of its intention to
it is considered as containing all the terms agreed upon. As such, there can
renew the lease. However, it was Fausto’s daughter, respondent
be, between the parties and their successors in interest, no evidence of such
Anunciacion F. Pacunayen, who replied, asking that petitioner
terms other than the contents of the written agreement, except when it fails
remove the improvements built thereon, as she is now the absolute
to express the true intent and agreement of the parties. In this case, the
owner of the property.

4. It appears that Fausto had earlier sold the property to Pacunayen comprehend all sales including those containing all the terms agreed
and title has already been transferred in her name. made to relatives and to the upon. As such, there can be,
5. In her Answer, respondent claimed that petitioner is estopped from compulsory heirs of the seller at that between the parties and their
assailing the validity of the deed of sale as the latter acknowledged would be an absurdity," and "her successors in interest, no evidence
her ownership when it merely asked for a renewal of the lease. (Fausto's) only motive for such of such terms other than the contents
According to respondent, when they met to discuss the matter, transfer was precisely one of of the written agreement, except
petitioner did not demand for the exercise of its option to purchase preserving the property within her when it fails to express the true
bloodline and that someone intent and agreement of the parties.
the property, and it even asked for grace period to vacate the
administer the property." In this case, the wording of the
premises. stipulation giving petitioner the right
6. The CA ruled that it would be useless to annul the sale between of first refusal is plain and
Fausto and respondent because the property would still remain with unambiguous, and leaves no room
respondent after the death of her mother by virtue of succession, as for interpretation. It simply means
in fact, Fausto died and the property now belongs to respondent, that should Fausto decide to sell the
being Fausto's heir leased property during the term of
the lease, such sale should first be
III. Issue/s offered to petitioner. The stipulation
does not provide for the
1. W/N Tanay Recreation has the right of first refusal (aka “priority qualification that such right may be
right” to purchase the property)? YES exercised only when the sale is
2. W/N Tanay Recreation was estopped from claiming its rights? NO. made to strangers or persons other
than Fausto’s kin. Thus, under the
3. W/N the CA erred in ruling it would be useless to annul the sale
terms of petitioner’s right of first
between Fausto and Tanay Recreation? YES.
refusal, Fausto has the legal duty to
petitioner not to sell the property to
IV. Holding/s anybody, even her relatives, at any
price until after she has made an
Issue #1 offer to sell to petitioner at a certain
Tanay Recreation has the right of first refusal price and said offer was rejected by
petitioner.
CA’s ruling Court’s Rebuttals Overall Ruling
However, the CA interpreted such It was erroneous for the CA to rule
right to mean that it shall be that the right of first refusal does not When a lease contract contains a right of first refusal, the lessor is under a
applicable only in case the property apply when the property is sold to legal duty to the lessee not to sell to anybody at any price until after he has
is sold to strangers and not to Fausto’s relative. When the terms of made an offer to sell to the latter at a certain price and the lessee has failed
Fausto's relative. The CA stated that an agreement have been reduced to to accept it. The lessee has a right that the lessor's first offer shall be in his
"(T)o interpret it otherwise as to writing, it is considered as favor. Petitioner’s right of first refusal is an integral and indivisible part of

the contract of lease and is inseparable from the whole contract. The that petitioner filed the complaint for annulment of sale, specific
consideration for the lease includes the consideration for the right of first performance and damages. Petitioner's acts of seeking all possible avenues
refusal and is built into the reciprocal obligations of the parties. for the amenable resolution of the conflict do not amount to an intentional
and unequivocal abandonment of its right of first refusal.
Issue #2
The CA erred in ruling it would be useless to annul the contract since
Issue #2
obligations remain in force when the properties are transmitted to the
Tanay Recreation Center was not estopped heirs by succession.
Petitioner’s Arguments Court’s Rebuttals Even if the sale is annulled, The death of Fausto, whatever rights
The petitioner contends that Tanay Petitioner's acts of seeking all petitioner could not achieve and obligations she had over the
Recreation was estopped from possible avenues for the amenable anything because the property will property, including her obligation
claiming its right of first refusal resolution of the conflict do not be eventually transferred to under the lease contract, were
since it acknowledge the validity of amount to an intentional and transmitted to her heirs by way of
Pacunayen after Fausto's death.
the sale when it raised with unequivocal abandonment of its Succession.
Peunayen the question of renewing right of first refusal. Overall Ruling
the lease..
Overall Ruling Article 1311 of the Civil Code provides:
The essential elements of estoppel are: (1) conduct of a party amounting to ART. 1311. Contracts take effect only between the parties, their assigns and
false representation or concealment of material facts or at least calculated to heirs, except in case where the rights and obligations arising from the
convey the impression that the facts are otherwise than, and inconsistent contract are not transmissible by their nature, or by stipulation or by
with, those which the party subsequently attempts to assert; (2) intent, or at provision of law. The heir is not liable beyond the value of the property he
received from the decedent.
least expectation, that this conduct shall be acted upon by, or at least
influence, the other party; and (3) knowledge, actual or constructive, of the
real facts. A lease contract is not essentially personal in character. Thus, the rights and
obligations therein are transmissible to the heirs. The general rule is that
While petitioner may have sought the renewal of the lease, it cannot be heirs are bound by contracts entered into by their predecessors-in-
construed as a relinquishment of its right of first refusal. Estoppel must be interest EXCEPT when the rights and obligations arising therefrom are
NOT transmissible by (1) their nature, (2) stipulation or (3) provision of
intentional and unequivocal.
law.
Also, in the excerpts from the minutes of the special meeting, it was further
stated that the possibility of a sale was likewise considered. But respondent In this case, the nature of the rights and obligations are, by their nature,
also refused to sell the land, while the improvements, "if for sale shall be transmissible. There is also neither contractual stipulation nor provision of
law that makes the rights and obligations under the lease contract
subject for appraisal." After respondent refused to sell the land, it was then

intransmissible. The lease contract between petitioner and Fausto is a (2) The Heirs of the deceased Catalina Matienzo Fausto who are hereby
property right, which is a right that passed on to respondent and the other deemed substituted as respondents, represented by respondent Anunciacion
heirs, if any, upon the death of Fausto. Fausto Pacunayen, are ORDERED to recognize the obligation of Catalina
Matienzo Fausto under the Contract of Lease with respect to the priority
Likewise in this case, the contract of lease, with all its concomitant right of petitioner Tanay Recreation Center and Development Corp. to
provisions, continues even after Fausto's death and her heirs merely stepped purchase the subject property under reasonable terms and conditions;
into her shoes. Respondent, as an heir of Fausto, is therefore bound to fulfill
all its terms and conditions. (3) Transfer Certi􀁈cate of Title No. M-35468 shall remain in the name
of respondent Anunciacion Fausto Pacunayen, which shall be cancelled in
V. Law or Doctrine Applied the event petitioner successfully purchases the subject property;
ART. 1311. Contracts take effect only between the parties, their assigns and (4) Respondent is ORDERED to pay petitioner Tanay Recreation Center
heirs, except in case where the rights and obligations arising from the and Development Corporation the amount of Twenty Thousand Pesos
contract are not transmissible by their nature, or by stipulation or by (P20,000.00) as actual damages, plus interest thereon at the legal rate of six
provision of law. The heir is not liable beyond the value of the property he percent (6%) per annum from the 􀁈ling of the Complaint until the 􀁈nality
received from the decedent. of this Decision. After this Decision becomes 􀁈nal and executory, the
applicable rate shall be twelve percent (12%) per annum until its
The essential elements of estoppel satisfaction; and,
(1) conduct of a party amounting to false representation or concealment of (5) Respondent is ORDERED to pay petitioner the amount of Ten Thousand
material facts or at least calculated to convey the impression that the facts Pesos (P10,000.00) as attorney's fees, and to pay the costs of suit.
are otherwise than, and inconsistent with, those which the party
subsequently attempts to assert; (6) Let the case be remanded to the Regional Trial Court, Morong, Rizal
(2) intent, or at least expectation, that this conduct shall be acted upon by, or (Branch 78) for further proceedings on the determination of the "reasonable
at least influence, the other party; and terms and conditions" of the offer to sell by respondents to petitioner,
(3) knowledge, actual or constructive, of the real facts. without prejudice to possible mediation between the parties.
VI. Disposition The rest of the unaffected dispositive portion of the Court of Appeals'
Decision is AFFIRMED.
WHEREFORE, the instant Petition for Review is PARTIALLY
GRANTED. The Court of Appeals' Decision dated June 14, 1999 in CA- SO ORDERED.
G.R. CV No. 43770 is MODIFIED as follows:
(1) the "Kasulatan ng Bilihan Patuluyan ng Lupa" dated August 8, 1990
between Catalina Matienzo Fausto and respondent Anunciacion Fausto When a lease contract contains a right of first refusal, the lessor is
Pacunayen is hereby deemed rescinded; under a legal duty to the lessee not to sell to anybody at any price until after
he has made an offer to sell to the latter at a certain price and the lessee has

failed to accept it. The lessee has a right that the lessor's first offer shall be
in his favor. Petitioner’s right of first refusal is an integral and indivisible
part of the contract of lease and is inseparable from the whole contract. The
consideration for the lease includes the consideration for the right of first
refusal and is built into the reciprocal obligations of the parties.
VII. Random Facts

Ponente: Austria Martinez J.

G.R. No. 13998. November 21, 2002 Article 1327
Francisco v. Herrera Francisco v. Herrera
I. Recit-ready Summary 1. Eligio Herrera, the father of respondent Pastor Herrera, was the
owner of two parcels of land.
Eligio Herrera, the father of respondent Pastor Herrera, was the owner of a. Julian Francisco bought each parcel on two separate
two parcels of land. Julian Francisco bought each parcel on two separate occasions.
occasions. According to the children of Eligio, Sr, the contract price for the 2. According to the children of Eligio, Sr, the contract price for the
two parcels was grossly inadequate so they tried to negotiate with Francisco two parcels was grossly inadequate so they tried to negotiate with
to increase the price. Francisco rejected the request. Pastor Herrera filed a Francisco to increase the price
complaint for annulment of sale. He alleged that the sale of both lots was a. Francisco refused
null and void on the ground that at the time of the sale, Eligio, Sr. was 3. Pastor Herrera filed a complaint for annulment of sale
already incapacitated to give consent since he was afflicted with senile a. alleged that the sale of both lots was null and void on the
dementia characterized by deteriorating mental and physical condition ground that at the time of the sale, Eligio, Sr. was already
including loss of memory. In his answer, Francisco alleged that Herrera was incapacitated to give consent since he was afflicted with
estopped from assailing the sale since he ratified both contracts by receiving senile dementia characterized by deteriorating mental and
the consideration offered in each transaction. The RTC and CA declared the physical condition including loss of memory.
deeds of sale null and void. Francisco argues that the contracts are merely 4. In his answer, Francisco alleged that Herrera was estopped from
voidable and not void, hence they can be ratified. When respondent assailing the sale since he ratified both contracts by receiving the
accepted the purchase price, he effectively ratified the contracts. consideration offered in each transaction
5. The RTC declared the deeds of sale null and void
a. Affirmed by CA
The Court held that the contracts are valid and binding as they have been
ratified by Herrera’s acceptance of the consideration. Article 1327 provides
that insane or demented persons cannot give consent to a contract. However, III. Issue/s
if an insane or demented person does enetr into a contract, the contract
becomes voidable or annullable (Art. 1390). When Eligio, Sr. entered into 1. W/N THE CONTRACTS ARE VOIDABLE AND CAPABLE
the contracts of sale, he was already mentally incapacitated. Thus, the OF BEING RATIFIED? YES
contracts he entered into are valid and binding unless annulled. An
annullable contract may be ratified expressly or impliedly. Implied IV. Holding/s
ratification may take the form of accepting the benefits of a contract which
is what happened in the present case. If indeed Herrera was not agreeable Issue #1
with the contracts, he could have immediately instituted an action. Instead, W/N THE CONTRACTS ARE VOIDABLE AND CAPABLE OF
he negotiated for the increase of the price while receiving installments. He BEING RATIFIED? YES
only filed an action Francisco rejected his proposal. THE CONTRACTS
ARE VALID AND BINDING AS THEY HAVE BEEN RATIFIED BY Petitioner’s Arguments Court’s Rebuttals
HERRERA’S ACCEPTANCE OF THE CONSIDERATION. • Francisco argues that the • The contracts are not void per se
contracts are merely but are merely voidable.
II. Facts of the Case (Material Facts) voidable and not void, • A voidable or annullable contract
hence they can be ratified is one where all the essential
Obligations and Contracts (2020) PETITIONER: JULIAN FRANCISCO (Substituted by his heirs) 1
DIGEST AUTHOR: Stephanie Co RESPONDENT: PASTOR HERRERA
• When respondent accepted requisites for validity (under Art. § Instead, he

the purchase price, he 1318) are present, but vitiated by negotiated for the
effectively ratified the want of capacity, error, violence, increase of the price
contracts → became valid intimidation, undue influence or while receiving
and enforceable deceit. installments
• Article 1327 provides that insane § He only filed an
or demented persons cannot give action when
consent to a contract Francisco rejected
2. However, if an insane or his proposal.
demented person does enter Overall Ruling
into a contract, the contract A void or inexistent contract is one which has no force and effect from
becomes voidable or the very beginning. It is as if it has never been entered into and cannot be
annullable (Art. 1390) validated by passage of time or ratification. There are two types of void
3. When Eligio, Sr. entered into contracts: (1) when one of the essential requisites under Art. 1318 is not
the contracts of sale, he was present or (2) those declared void under Art. 1409. On the other hand, a
already mentally voidable or annullable contract is one where all the essential requisites
incapacitated. for validity (under Art. 1318) are present, but vitiated by want of
§ Thus, the contracts capacity, error, violence, intimidation, undue influence or deceit. Art
he entered into are 1318 of the CC states that no contract exists unless there is a concurrence
valid and binding of consent of the parties, object certain, and cause of the obligation.
unless annulled Article 1327 provides that insane or demented persons cannot give
• An annullable contract may be consent to a contract. However, if an insane or demented person does
ratified expressly or impliedly enetr into a contract, the contract becomes voidable or annullable (Art.
o Implied ratification may 1390). When Eligio, Sr. entered into the contracts of sale, he was already
take the form of mentally incapacitated. Thus, the contracts he entered into are valid and
accepting the benefits of binding unless annulled. An annullable contract may be ratified expressly
a contract which is what or impliedly. Implied ratification may take the form of accepting the
happened in the present benefits of a contract which is what happened in the present case. If
case indeed Herrera was not agreeable with the contracts, he could have
o If indeed Herrera was not immediately instituted an action. Instead, he negotiated for the increase
agreeable with the of the price while receiving installments. He only filed an action
contracts, he could have Francisco rejected his proposal. THE CONTRACTS ARE VALID AND
immediately instituted an BINDING AS THEY HAVE BEEN RATIFIED BY HERRERA’S
action ACCEPTANCE OF THE CONSIDERATION

Art. 1318. There is no contract unless the following requisites concur: (1) Consent of
the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261)

Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write.

Art. 1390. The following contracts are voidable or annullable, even though there
may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court.
They are susceptible of ratification.
VI. Disposition
WHEREFORE, the instant petition is GRANTED. The decision dated

August 30, 1999 of the Court of Appeals in CA-G.R. CV No. 47869,
affirming the decision of the Regional Trial Court in Civil Case No. 92-
2267 is REVERSED. The two contracts of sale covering lots under TD No.
01-00495 and No. 01-00497 are hereby declared VALID. Costs against
respondent.

VII. Random Facts
Ponente: Quisumbing, J. z
G.R. No. 126013 | February 12, 1997 Consent Vitiated by Mistake
Spouses Theis vs. Court of Appeals Spouses Theis vs. Court of Appeals
I. Recit-ready Summary contractual relations between the parties is legally impaired.

1. Calsons Development Corp. owns 3 parcels of land covered by Therefore, the annulment of the deed of sale is proper.
their corresponding TCT Nos. (See facts No.1)
2. In 1985, Calsons constructed a two-storey house in Parcel No.3. II. Facts of the Case (Material Facts)
3. Adjacent to Parcel No. 3 is Parcel No. 4, a vacant lot which is not 1. Calsons Development Corp. (Calsons) is the owner of 3 adjacent
owned by the Calsons. parcels of land:
4. In 1985, an erroneous survey of the land was conducted. It a. Parcel No.1 – TCT No. 15515 (1,000 sq.m.) -idle
incorrectly indicated the corresponding TCT Nos. and so, when b. Parcel No.2 – TCT No. 15516 (226 sq.m.) - idle
Calsons entered into a contract of sale with Sps. Theis, it was c. Parcel No.3 – TCT No. 15684 (1,000 sq.m.) – two-storey
unaware of the fact that the erroneous survey made it appear that he 2. Adjacent to Parcel No. 3 is Parcel No. 4, a vacant lot which is not
was the owner of Parcel No.4.
owned by the Calsons.
5. When the Sps. Theis came back to the Philippines and checked the
3. In 1985, Calsons constructed a two-storey house on Parcel No. 3.
lot to plan the construction of their house, they discovered that the
land actually sold to them was not what they intended to buy. 4. In 1985, a survey was conducted, and erroneously indicated that:
a. The land sold to them was Parcel Nos. 2 and 3. a. Parcel No.3 to be covered by TCT No. 15515
b. They intended to buy Parcel No. 4. b. Parcel No.1 and Parcel No.2 were mistakenly surveyed to
c. Parcel No. 3 could not have been sold to them because be located on Parcel No. 4.
Calsons two-storey house was built therein. c. Parcel No.1 to be covered by TCT No. 11516
6. Calsons offered two other vacant lots to the Sps. Theis or to d. Parcel No.2 to be covered by TCT No.15684
reimburse them with twice the amount paid instead but Sps. Theis 5. October 26, 1987 – Calsons sold said Parcel No. 4 to Sps. Theis.
insisted on Parcel No. 3 in addition to Parcel No. 2. - Calsons was unaware of the fact that the erroneous survey
7. Calsons filed an action for the annulment of Deed of Sale. made it appear that he was the owner of Parcel No.4, covered
8. The RTC ruled in favor of Calsons. It held that the inclusion of the by TCT No. 15516 and TCT No. 15684.
parcel where the house stands is solely attributable to a mistake in - Upon execution of the Deed of Sale, Calsons delivered TCT
the object of the sale.
No. 15516 and TCT No. 15684
9. The CA affirmed and held that there was honest mistake in the sale
of Parcel No. 4. 6. October 28, 1987 – Sps. Theis immediately registered the same in
10. The SC held that the annulment of the deed of sale as held by the the Registry of Deeds.
RTC and affirmed by the CA on the ground of mistake in the - Thus, TCT Nos. 17041 and 17042 were issued in their names.
identity of the subject property is proper. It cited Art. 1390 (2) of 7. December 4, 1987 – The actual purchase price of P486,000.00 in
the Civil Code which provided that a contract may be annulled escrow was received by Calsons.
where the consent of one of the contracting parties was procured by 8. Sps. Theis did not immediately occupy the 2 idle parcels of land
mistake The law explicitly recognizes that consent of the parties is and instead went to Germany.
one of the essential elements to the validity of the contract and 9. In 1990, Sps. Theis returned to the Philippines and went to look
where consent is given through mistake, the validity of the over the lots to plan the construction of their house. They
Obligations and Contracts (2020) PETITIONER: Spouses Heinzrich Theis and Betty Theis. 1
DIGEST AUTHOR: Princess Alvaran RESPONDENT: Court of Appeals, Hon. Eleuterio Guerrero (RTC Acting
Presiding Judge) and Calsons Development
discovered that Parcel No.4 was owned by another person and that the two-storey house stands) is confirmed by the testimony of
the land actually sold to them were Parcels Nos. 2 and 3. the broker, the ocular inspection conducted by the court and
- Parcel No. 3, however, could not have been sold to them by Betty Theis herself.
Calsons, as a two-storey house, the construction cost of - The court concludes that the inclusion of the parcel where the
P1,500,000.00 far exceeded the price they paid, had already house stands is solely attributable to a mistake in the object of
been built thereon even before the sale. the sale.
10. Sps. Theis insisted and persisted that they wanted Parcel No.4. - The deed of sale did not truly express their true intention. The
- Calsons offered Parcels Nos. 1 (TCT No. 15515) and 2 (TCT mistake or error on the subject of the sale in question appears
No. 15516) which he owns and intended to sell when they to be substantial as the object of the same transaction is
entered into the transaction with the Sps. Theis. different from that intended by the parties.
- Sps. Theis rejected the offer and insisted on taking Parcel No.3 13. *CA Ruling:
(TCT No. 15684) in addition to Parcel No.2 (TCT No. 15516) - Sps. Theis insists on Parcel No. 3. However, Said Parcel No. 3
on the ground that these TCTs have already been cancelled cannot be the object of the sale between the parties as the
and issued in their names. house already stands in the area even before.
- Calsons offered to return double the amount of the price paid - There was honest mistake in the sale of Parcel No. 4 which
but Sps. Theis still refused. Calsons tried to remedy by offering defendants-appellants
11. Calsons filed an action for the annulment of Deed of Sale and instead his Parcels Nos. 1 or 2, or reimbursement of the
reconveyance of the subject properties in the RTC. purchase price in double amount.
a. RTC ruled in favor of Calsons.
b. Sps. Theis appealed to the CA, however the CA affirmed III. Issue/s
the decision of the RTC. 1. W/N the annulment of the deed of sale on the ground of
c. Hence, the present petition. mistake is proper? YES.
12. *RTC Ruling: The RTC annulled the contract of sale after finding
that there was a mistake in the identification of the parcels of land IV. Holding/s
intended to be the subject matter of the sale. Issue #1
- Sps. Theis observed prudence in ascertaining the true nature, YES, the annulment of the deed of sale is proper and is in accordance
identity or character to the property and the title of his vendor. with existing laws and jurisprudence.
Prior to the sale, the brokers brought the Sps. Theis in the Overall Ruling
vicinity where the 3 adjacent parcels of land where located and The SC ruled that the CA correctly affirmed the findings of the RTC.
pointed to the 2 vacant parcels right beside Calsons house.
- When the Sps, Theis expressed their intent to buy the vacant Article 1390 of the New Civil Code provides that:
lots, they were brought to Calsons’ representative, Tarcisio S. Art. 1390. The following contracts are voidable or annullable, even
Calilung. This intent to buy the vacant lots (not the one where though there may have been no damage to the contracting parties:
(1) xxx
(2) Those where consent is vitiated by mistake, violence, V. Law or Doctrine Applied
or fraud. ARTICLE 1390 OF THE CIVIL CODE
Calsons Development Corp. committed an honest mistake in selling Art. 1390. The following contracts are voidable or annullable, even though there
Parcel No.4. It is impossible for Calsons to sell the lot in question as the may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
same is not owned by it. The good faith of Calsons is evident in the fact that
(2) Those where consent is vitiated by mistake, violence, or fraud.
when the mistake was discovered, it immediately offered two other vacant These contracts are binding, unless they are annulled by a proper action in court.
lots to the Sps. Theis or to reimburse them with twice the amount paid. They are susceptible of ratification.
A contract may be annulled where the consent of one of the contracting ARTICLE 1331 OF THE CIVIL CODE
Art. 1331. In order that mistake may invalidate consent, it should refer to the
parties was procured by mistake, fraud, intimidation, violence, or undue
substance of the thing, which is the object of the contract, or to those conditions
influence. (Mariano v. CA) which have principally moved one or both parties to enter into the contract
Article 1331 of the New Civil Code provides that: VI. Disposition
Art. 1331. In order that mistake may invalidate consent, it should WHEREFORE, the petition is hereby DISMISSED and the decision of the
refer to the substance of the thing, which is the object of the Court Appeals in CA-G.R. 47000 dated May 31, 1996 AFFIRMED. Costs
contract, or to those conditions which have principally moved one or against the petitioner.
both parties to enter into the contract.
The concept of error in this article must include both ignorance, which is VII. Additional Notes
the (1) absence of knowledge with respect to a thing, and (2) mistake • N/A
properly speaking, which is a wrong conception about said thing, or a belief
in the existence of some circumstance, fact, or event, which in reality does VII. Random Facts
not exist. In both cases, there is a lack of full and correct knowledge about • Ponente: Hermosisima, Jr., J.
the thing.
The mistake committed by the Calsons in selling parcel no. 4 to the
petitioners falls within the second type. Verily, such mistake invalidated its
consent and as such, annulment of the deed of sale is proper.
The petitioners cannot be justified in their insistence that Parcel No.3,
upon which Calsons constructed a two-storey house, be given to them in
lieu of Parcel No. 4. To allow the Sps. Theis 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 offers of
Calsons, as well as their insistence on Parcel No. 3, which is a house and lot,
is manifestly unreasonable.
G.R. No. 174118 | April 11, 2012 Extinguishment of Obligations, Consent, Article 1390 O317 - Roman Catholic
Church v Pante O317 - Roman Catholic Church v Pante

4. The spouses Rubi asserted their ownership by erecting a concrete
I. Recit-ready Summary fence over the lot sold to Pante, effectively
blocking Pante and his family’s access from their family home
to the municipal road.
The Roman Catholic Church contracted to sell a 32-square meter lot to
Regino Pante under the belief that the latter was an actual occupant of the lot. 5. Pante instituted with the RTC an action to annul the sale between
The Church later sold a 215-square meter lot to the spouses Rubi, though said lot the Church and the spouses Rubi, insofar as it included the lot
included the 32-square meter lot previously sold to Pante. The spouses Rubi then previously sold to him.
erected a concrete fence that blocked Pante and his family’s access from their 6. The Church asserted its policy of only selling land to occupants of
home to the municipal road. Negotiations for its removal failed and Pante filed a that land, and alleged that its consent to the contract was
case before the RTC to annul the sale of his lot to the spouses Rubi. obtained by fraud when Pante, in bad faith, misrepresented that he
The Church claimed that their contracts to sell/of sale to Pante were null and had been an actual occupant of the lot when he had only been
void, arguing that Article 1390 of the Civil Code renders void or annullable using it as a passageway.
any contract where consent is vitiated by mistake, violence, intimidation, 7. Church claimed that the spouses Rubi were the rightful buyers, as
undue influence or fraud. The Church asserted that it only sells lands to they had been longtime occupants of the 215- square meter lot.
occupants of said lands, and that Pante had, in bad faith, misrepresented himself
8. The RTC ruled in favor of the Church, finding that the Church’s
as an occupant of the lot.
consent to the sale was secured through Pante’s misrepresentation,
The Court noted that the lot was too small to be reasonably understood
as being a place of residence, that documents attached to the contract specified which rendered the obligation annullable pursuant to Article
its use as a passage and not residence, that a Church representative knew Pante 1390 of the Civil Code.
was not an occupant of the lot and willingly approved of its sale, and that the 9. Pante appealed the RTC’s decision with the CA, which reversed
Church failed to prove its policy of limiting the RTC’s ruling, on the basis that the contract was one of sale,
sales of its land to occupants only. The Court upheld the validity of the contract and that ownership had already transferred to Pante.
with Pante, finding no misrepresentation or fraud. 10. The Church then petitioned the Supreme Court, raising the
following issue:
III. Issue/s
1. The Church owned a 32-square meter lot located in Barangay a. W/N the Church’a consent to sell the land was obtained
Dinaga, Canaman, Camarines Sur. through fraud, which therefore annuls the contract: NO.
2. The Church contracted with Regino Pante for the sale of the lot to
the latter, on the belief that Pante was an actual occupant of the IV. Holding/s
lot.
3. The Church later sold in favor of the spouses Nestor and Fidela Rubi Issue #1
(spouses Rubi) a 215-square meter lot that included the lot NO, Pante made no such misrepresentation that would be considered
previously sold to Pante. fraudulent, and the contract of sale is therefore valid and binding.
Obligations and Contracts (2020) PETITIONER: The Roman Catholic Church 1

DIGEST AUTHOR: Vito Castaneda RESPONDENT: Regino Pante

Overall Ruling damage to the contracting parties:
Court’s Rebuttals
Petitioner’s Arguments
• Actual occupancy or residency of a buyer over the (1) Those where one of the parties is incapable of giving
• Sale of the lot to Pante is voidable under Article 1390 consent to a contract;
land does not appear to be a necessary qualification
of the Civil Code.
that the Church requires before it could sell its
• Pante misrepresented himself as an occupant because land. (2) Those where the consent is vitiated by mistake,
he knew of the Church’s policy to sell lands only to violence, intimidation, undue influence or fraud.
• Given the size of the lot, it could serve no other
occupants or residents thereof.
purpose than as a mere passageway; it is unthinkable These contracts are binding, unless they are annulled by
to consider that a 2x16-meter strip of land could be a proper action in court. They are susceptible of
mistaken as anyone’s residence ratification.
• According to the sketch plan attached to the contract,
the lot was marked “RIGHT OF WAY” (indicating its VI. Disposition
intended use).
• The Archdiocese approved the sale based on the WHEREFORE, we DENY the petition for review on
recommendation of a priest who represented it at a certiorari, and AFFIRM the decision of the Court of
conference with occupants of the lots, and knew that Appeals dated May 18, 2006, and its resolution dated
Pante did not occupy the lot. August 11, 2006, issued in CA-G.R.-CV No. 65069.
Costs against the Roman Catholic Church.
SO ORDERED.
Carpio, (Chairperson), Perez, Sereno, and Reyes, JJ.,
Article 1390. The following contracts are voidable or
annullable, even though there may have been no concur. VII. Additional Notes
The facts establish that there could not have been a Pante’s act; there had been no vitiation of the Church’s
deliberate, willful, or fraudulent act committed by consent to the sale of the lot to Pante.
Pante that misled the Church into giving its consent to
the sale of the subject lot in his favor. Pante’s occupancy VII. Random Facts
of the lot he purchased was a fact that the Church either • Ponente: Brion, J.
ignored or waived as a requirement. In any case, the
Church was by no means led to believe or do so by


4. The spouses Rubi asserted their ownership by erecting a concrete
I. Recit-ready Summary fence over the lot sold to Pante, effectively
blocking Pante and his family’s access from their family home
to the municipal road.
The Roman Catholic Church contracted to sell a 32-square meter lot to
Regino Pante under the belief that the latter was an actual occupant of the lot. 5. Pante instituted with the RTC an action to annul the sale between
The Church later sold a 215-square meter lot to the spouses Rubi, though said lot the Church and the spouses Rubi, insofar as it included the lot
included the 32-square meter lot previously sold to Pante. The spouses Rubi then previously sold to him.
erected a concrete fence that blocked Pante and his family’s access from their 6. The Church asserted its policy of only selling land to occupants of
home to the municipal road. Negotiations for its removal failed and Pante filed a that land, and alleged that its consent to the contract was
case before the RTC to annul the sale of his lot to the spouses Rubi. obtained by fraud when Pante, in bad faith, misrepresented that he
The Church claimed that their contracts to sell/of sale to Pante were null and had been an actual occupant of the lot when he had only been
void, arguing that Article 1390 of the Civil Code renders void or annullable using it as a passageway.
any contract where consent is vitiated by mistake, violence, intimidation, 7. Church claimed that the spouses Rubi were the rightful buyers, as
undue influence or fraud. The Church asserted that it only sells lands to they had been longtime occupants of the 215- square meter lot.
occupants of said lands, and that Pante had, in bad faith, misrepresented himself
8. The RTC ruled in favor of the Church, finding that the Church’s
as an occupant of the lot.
consent to the sale was secured through Pante’s misrepresentation,
The Court noted that the lot was too small to be reasonably understood
as being a place of residence, that documents attached to the contract specified which rendered the obligation annullable pursuant to Article
its use as a passage and not residence, that a Church representative knew Pante 1390 of the Civil Code.
was not an occupant of the lot and willingly approved of its sale, and that the 9. Pante appealed the RTC’s decision with the CA, which reversed
Church failed to prove its policy of limiting the RTC’s ruling, on the basis that the contract was one of sale,
sales of its land to occupants only. The Court upheld the validity of the contract and that ownership had already transferred to Pante.
with Pante, finding no misrepresentation or fraud. 10. The Church then petitioned the Supreme Court, raising the
following issue:
III. Issue/s
1. The Church owned a 32-square meter lot located in Barangay a. W/N the Church’a consent to sell the land was obtained
Dinaga, Canaman, Camarines Sur. through fraud, which therefore annuls the contract: NO.
2. The Church contracted with Regino Pante for the sale of the lot to
the latter, on the belief that Pante was an actual occupant of the IV. Holding/s
lot.
3. The Church later sold in favor of the spouses Nestor and Fidela Rubi Issue #1
(spouses Rubi) a 215-square meter lot that included the lot NO, Pante made no such misrepresentation that would be considered
previously sold to Pante. fraudulent, and the contract of sale is therefore valid and binding.


Overall Ruling damage to the contracting parties:
Court’s Rebuttals
• Actual occupancy or residency of a buyer over the (1) Those where one of the parties is incapable of giving
• Sale of the lot to Pante is voidable under Article 1390 consent to a contract;
land does not appear to be a necessary qualification
of the Civil Code.
that the Church requires before it could sell its
• Pante misrepresented himself as an occupant because land. (2) Those where the consent is vitiated by mistake,
he knew of the Church’s policy to sell lands only to violence, intimidation, undue influence or fraud.
• Given the size of the lot, it could serve no other
occupants or residents thereof.
purpose than as a mere passageway; it is unthinkable These contracts are binding, unless they are annulled by
to consider that a 2x16-meter strip of land could be a proper action in court. They are susceptible of
mistaken as anyone’s residence ratification.
• According to the sketch plan attached to the contract,
the lot was marked “RIGHT OF WAY” (indicating its VI. Disposition
intended use).
• The Archdiocese approved the sale based on the WHEREFORE, we DENY the petition for review on
recommendation of a priest who represented it at a certiorari, and AFFIRM the decision of the Court of
conference with occupants of the lots, and knew that Appeals dated May 18, 2006, and its resolution dated
Pante did not occupy the lot. August 11, 2006, issued in CA-G.R.-CV No. 65069.
Costs against the Roman Catholic Church.
SO ORDERED.
Carpio, (Chairperson), Perez, Sereno, and Reyes, JJ.,
Article 1390. The following contracts are voidable or
annullable, even though there may have been no concur. VII. Additional Notes
The facts establish that there could not have been a Pante’s act; there had been no vitiation of the Church’s
deliberate, willful, or fraudulent act committed by consent to the sale of the lot to Pante.
Pante that misled the Church into giving its consent to
the sale of the subject lot in his favor. Pante’s occupancy VII. Random Facts
of the lot he purchased was a fact that the Church either • Ponente: Brion, J.
ignored or waived as a requirement. In any case, the
Church was by no means led to believe or do so by

G.R. No. 174118 | April 11, 2012 Extinguishment of Obligations, Consent, Article 1390
O317 - Roman Catholic Church v Pante O317 - Roman Catholic Church v Pante
I. Recit-ready Summary blocking Pante and his family’s access from their family
home to the municipal road.
The Roman Catholic Church contracted to sell a 32-square meter lot to 5. Pante instituted with the RTC an action to annul the sale
Regino Pante under the belief that the latter was an actual occupant of between the Church and the spouses Rubi, insofar as it
the lot. The Church later sold a 215-square meter lot to the spouses Rubi, included the lot previously sold to him.
though said lot included the 32-square meter lot previously sold to Pante. 6. The Church asserted its policy of only selling land to
The spouses Rubi then erected a concrete fence that blocked Pante and his occupants of that land, and alleged that its consent to the
family’s access from their home to the municipal road. Negotiations for its contract was obtained by fraud when Pante, in bad faith,
removal failed and Pante filed a case before the RTC to annul the sale of his
misrepresented that he had been an actual occupant of the lot
lot to the spouses Rubi.
when he had only been using it as a passageway.
The Church claimed that their contracts to sell/of sale to Pante were
null and void, arguing that Article 1390 of the Civil Code renders void or 7. Church claimed that the spouses Rubi were the rightful
annullable any contract where consent is vitiated by mistake, violence, buyers, as they had been longtime occupants of the 215-
intimidation, undue influence or fraud. The Church asserted that it only square meter lot.
sells lands to occupants of said lands, and that Pante had, in bad faith, 8. The RTC ruled in favor of the Church, finding that the
misrepresented himself as an occupant of the lot. Church’s consent to the sale was secured through Pante’s
The Court noted that the lot was too small to be reasonably misrepresentation, which rendered the obligation annullable
understood as being a place of residence, that documents attached to the pursuant to Article 1390 of the Civil Code.
contract specified its use as a passage and not residence, that a Church 9. Pante appealed the RTC’s decision with the CA, which
representative knew Pante was not an occupant of the lot and willingly reversed the RTC’s ruling, on the basis that the contract was
approved of its sale, and that the Church failed to prove its policy of limiting one of sale, and that ownership had already transferred to
sales of its land to occupants only. The Court upheld the validity of the Pante.
contract with Pante, finding no misrepresentation or fraud.
10. The Church then petitioned the Supreme Court, raising the
II. Facts of the Case (Material Facts) following issue:
1. The Church owned a 32-square meter lot located in Barangay III. Issue/s
Dinaga, Canaman, Camarines Sur. a. W/N the Church’a consent to sell the land was
2. The Church contracted with Regino Pante for the sale of the obtained through fraud, which therefore annuls the
lot to the latter, on the belief that Pante was an actual contract: NO.
occupant of the lot.
3. The Church later sold in favor of the spouses Nestor and IV. Holding/s
Fidela Rubi (spouses Rubi) a 215-square meter lot that
included the lot previously sold to Pante. Issue #1
4. The spouses Rubi asserted their ownership by erecting a NO, Pante made no such misrepresentation that would be considered
concrete fence over the lot sold to Pante, effectively fraudulent, and the contract of sale is therefore valid and binding.

G.R. No. 174118 | April 11, 2012 Extinguishment of Obligations, Consent, Article 1390
O317 - Roman Catholic Church v Pante O317 - Roman Catholic Church v Pante

• Sale of the lot to Pante is • Actual occupancy or residency of V. Law or Doctrine Applied
voidable under Article 1390 of a buyer over the land does not
the Civil Code. appear to be a necessary ARTICLE 1390 OF THE CIVIL CODE
• Pante misrepresented himself as qualification that the Church
requires before it could sell its Article 1390. The following contracts are voidable or annullable, even
an occupant because he knew of
though there may have been no damage to the contracting parties:
the Church’s policy to sell lands land.
only to occupants or residents • Given the size of the lot, it could (1) Those where one of the parties is incapable of giving consent to a
thereof. serve no other purpose than as a contract;
mere passageway; it is
unthinkable to consider that a (2) Those where the consent is vitiated by mistake, violence,
2x16-meter strip of land could intimidation, undue influence or fraud.
be mistaken as anyone’s
residence These contracts are binding, unless they are annulled by a proper action in
• According to the sketch plan court. They are susceptible of ratification.
attached to the contract, the lot
was marked “RIGHT OF WAY” VI. Disposition
(indicating its intended use).
WHEREFORE, we DENY the petition for review on certiorari, and
• The Archdiocese approved the
AFFIRM the decision of the Court of Appeals dated May 18, 2006, and its
sale based on the
resolution dated August 11, 2006, issued in CA-G.R.-CV No. 65069. Costs
recommendation of a priest who
against the Roman Catholic Church.
represented it at a conference
with occupants of the lots, and
SO ORDERED.
knew that Pante did not occupy
the lot.
Carpio, (Chairperson), Perez, Sereno, and Reyes, JJ., concur.
Overall Ruling VII. Additional Notes

The facts establish that there could not have been a deliberate, willful, or
fraudulent act committed by Pante that misled the Church into giving VII. Random Facts
its consent to the sale of the subject lot in his favor. Pante’s occupancy of • Ponente: Brion, J.
the lot he purchased was a fact that the Church either ignored or waived as a
requirement. In any case, the Church was by no means led to believe or do
so by Pante’s act; there had been no vitiation of the Church’s consent to
the sale of the lot to Pante.

G.R. No.125485 | September 13, 2004 Consent - Article 1332
Leonardo v CA Leonardo v CA

Petitioner, Restituta Leonardo is the only legitimate child of the 1. Petitioner, Restituta Leonardo is the only legitimate child of the
late Tomasina and Balbino Leonardo. On the other hand, Private late Tomasina and Balbino Leonardo
respondents are the illegitimate children of Tomasina with Jose Sebastian. 2. Teodoro, Victor, Corazon, Piedad, and Eduvigis and Dominador
Corazon, one of the private respondents, along with her companions came to Salvador (Private respondents) are the illegitimate children of
the petitioner's house to persuade her to sign a deed of extrajudicial Tomasina with Jose Sebastian after Tomasina separated from
settlement. The deed was written in English which Restituta did not Balbino
understand. However, Restituta signed the document without reading it or 3. Corazon, among others, came to the petitioner's house on June 24,
waiting for her husband as Corazon assured Restituta that both their shares 1998 to persuade her to sign a deed of extrajudicial settlement. The
of the estate are provided for in the document. Corazon left without leaving deed was written in English which Restituta did not understand,
a copy. The document was later notarized. thus, she asked to wait for her husband so he might explain the
Petitioner was able to secure a copy of the document with her deed to her.
husband and a lawyer. They found out that Restituta’s share in the estate 4. However, Restituta signed the document without reading it or
was greatly reduced. Thus she filed an action to declare the nullity of the waiting for her husband as Corazon assured Restituta that both their
extrajudicial settlement before the RTC. The court dismissed the case, shares are provided for in the document. Corazon left without
saying that the proper action is reformation of the document. The CA leaving a copy.
affirmed the RTC’s ruling. 5. The document was then explained and notarized by Judge Austria
The issue in this case is W/N the consent given by the petitioner to on July 27. This was denied by the petitioner
the extrajudicial settlement was given voluntarily? 6. The petitioner and her husband were later able to examine the
The SC ruled in the negative. Regarding the notarization, It was document. The document reduced the size of the estate Restituta is
shown that some individuals (parties to the agreement) who signed the entitled to (from 19,282.5 to 7,671.75 sq.m.)
document in question in front of the judge could not have been present at the 7. Thus she filed an action to declare the nullity of the extrajudicial
signing. Thus, it was possible that another person appeared and signed the settlement before the RTC.
names. Further, the judge did not state what language he used to explain the 8. The RTC dismissed the case, saying that the proper action is
document. reformation of the document. The CA affirmed the RTC’s ruling.
Pertinently, Article 1332 of the Civil Code creates a presumption of Hence, this petition.
error which the respondents of this case failed to rebut. The petitioner who
only finished Grade 3 was not in a position to give her free, voluntary, and III. Issue/s
spontaneous consent without having the document explained to her in the 1. W/N the consent given by the petitioner to the extrajudicial
Pangasinan dialect. settlement was given voluntarily? NO
IV. Holding/s
1
Obligations and Contracts (2020) PETITIONER: Restituta Leonardo, assisted by Jose T. Ramos
DIGEST AUTHOR: Alfonso Fernandez RESPONDENT: CA and Teodoro Sebastia, et al.
Issue #1 believe that if the document was explained to her in the Pangasinan dialect,
2. W/N the consent given by the petitioner to the extrajudicial she would not have consented. There is no doubt that, given her lack of
settlement was given voluntarily? NO education, the petitioner is protected by Article 1332. The consent of the
Respondents’ Arguments Court’s Rebuttals petitioner was invalidated, thus, the extrajudicial partition should be
● Judge Austria explained the ● The respondents failed to offer annulled and set aside on the ground of mistake.
provisions of the agreement to evidence to prove that the
the parties during the extrajudicial settlement was V. Law or Doctrine Applied
notarization. explained in a language known to Article 1332
the petitioner When one of the parties is unable to, or if the contract is
● The respondents failed to offer in a language not understood by him, and mistake or fraud
evidence to prove that the is alleged, the person enforcing the contract must show
extrajudicial settlement was that the terms thereof have been fully explained to the
former.
explained in a language known to
Where a party is unable to read, and he expressly pleads in his reply
the petitioner
that he signed the voucher in question "without knowing (its) contents
which have not been explained to him," this plea is tantamount to one
Overall Ruling
of mistake or fraud in the execution of the voucher or receipt in
It was shown that some individuals (parties to the agreement) who
question and the burden is shifted to the other party to show that the
signed the document in question in front of the judge could not have been
former fully understood the contents of the document. Contracts where
present at the signing. Thus, it was possible that another person appeared
consent is given by mistake or because of violence, intimidation, undue
and signed the names.
inare voidable.
Article 1332 of the Civil Code creates a presumption of error
which the respondents of this case failed to rebut. The petitioner who only
VI. Disposition
finished Grade 3 was not in a position to give her free, voluntary, and
WHEREFORE, the decision of the Court of Appeals dated 23 May
spontaneous consent without having the document explained to her in the 1996 is hereby REVERSED. The extrajudicial settlement of the estate
Pangasinan dialect. of Tomasina Paul and Jose Sebastian is hereby ANNULLED and SET
The petitioner made a prudent request in wishing to wait for her ASIDE. No cost.
husband to explain the contents of the agreement. However, due to the
misrepresentation of Corazon Sebastian, the petitioner signed the document. VII. Additional Notes
Petitioner, as the legitimate child of Tomasina Paul, is entitled to half her ●
mother’s estate (19,282.50 sq.m.) but the extrajudicial settlement granted
her only 7,671.75 sq.m. This was a substantial mistake so there is reason to VII. Random Facts
2
● Ponente: Corona, J.
3
G.R. No. 207176 | June 18, 2014 Consent in Contracts (Article 1335)
Sps. Binua v Ong Sps. Binua v Ong
I. Recit-ready Summary husband, Victor Binua’s properties, covering an amount of P7

Edna Binua was convicted by the RTC for estafa and was sentenced to million.
be imprisoned and to pay P2.285 million with 10% interest and damages to ● So she filed a motion for a new trial, which was then granted by
Lucia Ong. To avoid criminal liability, she settled her debts by executing RTC- Branch 2. Consequently, RTC- Branch 2 then rendered a
real estate mortgages over her husband’s properties (P7 million in all) in decision, ordering her to pay Lucia the amount with its interest and
favor of Lucia. She filed a motion for a new trial which was then granted by damages that was already sentenced to her, and ruled that the
RTC branch 2. The same court also later ruled that the execution of a Mar presentation of a promissory note dated Mar 4, 1997 novated the
1997 promissory note novated her obligation into a mere civil one. Despite original agreement into a civil obligation
the lowered liability, she still failed to settle her obligations, forcing Lucia to
○ The promissory note was executed by Edna in favor of
foreclose the mortgage on the Binua properties, leading the spouses to file a
Lucia Ong
case for declaration of nullity of their mortgage contracts, on the ground that
○ In effect, the existence of the note novated the nature of
they were executed under duress, during a time when they were still reeling
from the emotional effects of Edna’s conviction. The RTC dismissed it, and her obligation from being both civil and criminal into
the CA affirmed the RTC leading to the present petition. purely civil in nature.
The main issue is whether or not the lower courts erred in refusing to ○ The execution of the note by both parties later on, turned
nullify the mortgage contracts on the grounds of having been executed in a Edna’s debt obligation into a mere loan (their intention to
state of fear, duress and threat. The SC ruled no, since in accordance with do it in the first place)
the law and jurisprudence, if the intimidation or fear was caused by a threat ● However, Edna admittedly was still indebted, and yet she failed to
to enforce one’s claim through a competent authority, it does not vitiate settle her obligation, forcing Lucia to foreclose the mortgage on
consent since the claim here is legal. In this case, Lucia merely informed properties, with Lucia being the highest bidder during the public
them of Edna’s conviction to enforce a claim, which is not unjust and evil, sale.
and a perfectly legal thing for her to do, especially considering the legal ● The Binuas then filed a case for the declaration of nullity of
consequences for Edna’s sake if she does not comply. Since she failed to mortgage contracts alleging that their mortgage documents were
prove that Lucia employed fear, threats and duress to compel the execution executed under duress, since at that time of execution, they were
of the mortgages, the petition would not stand. still suffering from the effect of Edna’s conviction, and they could
not have freely entered into said contracts.
● The RTC (different from RTC B-2) dismissed the complaint for
● Edna Binua was found guilty of estafa in a joint decision by RTC-
lack of factual and legal merit
Branch 2, sentencing her to imprisonment and ordering her to pay
○ Article 1335 could not apply since the threat to enforce
Lucia Ong the amount of P2.285 million with 10% interest and
one’s claim against the Binuas was done through
damages.
competent authority
● Edna sought to avoid criminal liability by settling her indebtedness
● The CA affirmed the RTC leading to the present petition
through the execution of separate real estate mortgages over her
1
Obligations and Contracts (2020) PETITIONER: Victor and Edna Binua
DIGEST AUTHOR: Jayvee Ala RESPONDENT: Lucia P. Ong
III. Issue/s Overall Ruling

1. W/N the lower courts erred in refusing to declare null and void the Article 1335 tells us that there is intimidation when one of the contracting
mortgage contracts despite the finding that the contracts were executed parties is compelled by a reasonable and well-grounded fear of an
under fear, duress and threat imminent and grave evil upon his person or property. However, if the
so-called fear is caused by a threat to enforce one’s claim through
IV. Holding/s competent authority then it does not vitiate consent since the claim in that
case is just or legal. Additionally, Jurisprudence (De Leon v. CA) tells us
Main Issue that in order that intimidation may vitiate consent and render the contract
NO, the lower courts did not err in refusing to declare the mortgage invalid, the following requisites must occur (check doctrine applied). Since
contracts as null and void this involves a mortgage contract, a preponderance of evidence is essential
to establish its invalidity. If to show fraud, duress or undue influence of a
Petitioner’s Arguments Court’s Rebuttals mortgage, a clear and convincing proof is necessary.
● They were compelled by duress ● The law (Article 1335)
or intimidation when they would not apply in their In this case, what Lucia did was merely inform them of Edna’s conviction
executed the mortgage contracts favor since “ a threat to for estafa. While it may have evoked fear on the Binuas, what Lucia did
o They were still enforce one’s claim was not unjust, unlawful or evil. Unfortunately, the Binuas failed to show
suffering from effects through competent how Lucia used that conviction sentence to coerce them into signing the
of Edna’s conviction authority, if the claim is mortgages. It must be noted though that the conviction was a result of a
● They also alleged that Lucia just and legal, does not valid judicial process, meaning it was perfectly legal for Lucia to inform
rammed the two mortgage vitiate consent”. them of it, especially since Edna might be imprisoned as a legal
contracts involving the 2 ○ Elsa merely consequence. As held in Callanta v NLRC, t he threat to prosecute for estafa
properties, on Victor’s throat, to informed them of is not an unjust act but rather a valid and legal act to enforce a claim, and
force him to sign the documents Edna’s cannot at all be considered as intimidation. Thus it is clear that what Lucia
● They also alleged that Lucia conviction, which did was within legal bounds. Absent any proof that showed Lucia using
took advantage of their is not unlawful or force, duress, or threat to force Victor to execute the mortgages, the
misfortune to secure the unjust petition must not stand.
mortgages for herself
Article 1335, Civil Code
There is violence when in order to wrest consent, serious or irresistible force
is employed.
2
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 intimidation, the age, sex and condition of the
person shall be borne in mind.
A threat to enforce one's claim through competent authority, if the claim is
just or legal, does not vitiate consent. (1267a)
De Leon v. CA
Requisites to vitiate consent to render a contract invalid
1. the intimidation must be the determining cause of the contract/
must have caused the consent to be given
2. the threatened act be unjust/unlawful
3. the threat be real and serious, there being an evident disproportion
between the evil and the resistance which all men can offer,
leading to the choice of the contract as the lesser evil
4. it produces a reasonable and well-grounded fear from the fact that
the person from whom it comes has the necessary means or ability
to inflict the threatened injury
VI. Disposition
WHEREFORE, the petition is DENIED for lack of merit.
VII. Random Facts

● Ponente: Reyes, J.
3
G.R. No. 115734 | February 23, 2000 Contracts: Consent; undue influence
Loyola v CA Loyola v CA

A parcel of land in Laguna was inherited by the siblings Mauricio and 1. Ownership of Lot 115-A-1(hereafter called the land), a parcel of
Gaudencia Zarraga. They had two other siblings named Victoria (Vda. de land in Biñan Laguna, is the main thing in dispute in this case.
Loyola and Cecilia (these siblings weren’t part of the land inheritors). 2. The Land was originally owned in common by the siblings Mariano
Mauricio died before Gaudencia. and Gaudencia Zarraga (they inherited it from their father.) They had
Before the current case was filed, The Land was the subject of an earlier two other sisters, Victorina Zarraga (Vda. de Loyola) and Cecilia
case (curiously, all the parties in this earlier case except Gaudencia are now Zarraga. Mariano died before Gaudencia. Gaudencia later died
the private respondents in this current case) with Romualdo Zarraga as
single, without child, at the age of 97 on August 5, 1983.
plaintiff, his siblings and aunt Gaudencia being the defendants. Said earlier
3. The Land was the subject of an earlier case, Civil Case No. B-1094
case was decided in favor of the defendants, with Gaudencia being adjudged
half of the Land. Romualdo appealed this up to the SC, where it was denied. (hereafter referred to as the earlier case), wherein one of the now
But while Romualdo’s appeal was pending, Gaudencia allegedly sold private respondents Romualdo Zarraga was the plaintiff, and the
the half adjudged to him to current respondents under a deed of sale for 34k. other Zarragas (his siblings, private respondents in the current case)
this sale occurred 3 years before her death at the age of 97, and before the and his aunt Gaudencia were the defendants. The earlier case was
earlier case became final. So when the earlier case became final, the TCT was decided in favor of the defendants, with Gaudencia being judged as
issued in favor of current respondents, since they bought Gaudencia’s half. owner of half of The Land. Romualdo appealed this decision up to
Due to the TCT being issued in favor of current respondents, Victoria the SC, but it was denied in 1982.
and Cecilia filed a complaint to annul Gaudencia’s sale to current 4. The issue however in this current case began while Romualdo’s
respondents. Current petitioners (the loyolas) substituted Victoria and Cecilia appeal of the earlier case was still pending, when Gaudencia
because the latter two died while the complaint was pending. The RTC allegedly sold her half of The Land to private respondents for 34k,
decided in petitioner’s favor, voiding the sale, but the CA reversed this. as evidenced by a notarized document entitled “Bilihang Tuluyan ng
So the main issue in this case is whether or not Gaudencia’s sale to
Kalahati (1/2) ng Isang Lagay ng Lupa” with Romualdo being one
current respondents is valid.
Petitioners argued that since Gaudencia was old at 94, weak, senile, and of the vendees – this sale allegedy occurred in 1980 (3 years before
was dependent on (respondent) Romana’s care for her daily needs, Romana Gaudencia died)
exercised undue influence to obtain her consent for the sale. This was rebutted 5. When the earlier case became final in 1984, the TCT was issued in
by the testimony of the notary public who arranged the papers for the sale, favor of private respondents due to Gaudencia’s alleged selling of
who said that she was mentally fit and knew what she was doing – undue her half to them in 1980.
influence is not to be inferred from age, sickness, etc if sufficient intelligence 6. Due to (#5), Victorina and Cecilia (the two other sisters of Mariano
remains. Petitioners were also unable to prove that the relationship between and Gaudencia) filed a complaint to annul Gaudencia’s Sale to
Romana and Gaudencia was confidential (a relation between persons which private respondents, and the TCT that was issued.
allows one to dominate the other, with the opportunity to use that dominance 7. Victorina and Cecilia died while the current case was pending in the
to the others disadvantage – only when this is present is there a presumption trial court. Victorina was substituted by petitioners (the Loyolas)
of undue influence) as they were unable to show that Romana used her aunt’s while Cecilia died childless, so only the Loyolas were left.
reliance on her to dominate her and dictate that she sell her land. So the sale
8. The RTC said that the sale executed by Gaudencia to private
was valid.
respondents was simulated, and declared it as well as the resulting
1
Obligations and Contracts (2020) PETITIONER: Ruben Loyola, Candelaria Loyola . . . (The Loyolas)
DIGEST AUTHOR: Bryan Antonio RESPONDENT: The Zarraga’s and the Heirs of Jose Zarraga
title in favor of private respondents null and void from the beginning. Romana to obtain Gaudencia’s such age/infirmity impair his
So they ordered a new title in favor of respondents and petitioners as consent for the sale. mental faculties to such extend
co-owners and legal heirs of Gaudencia. as to prevent him from properly,
9. The CA however reversed the RTC, declaring the bilihang tuluyan . intelligently, and fairly
. . document to be valid and effective, dismissing the petitioner’s protecting his property rights, is
complaint. he considered incapacitated.
10. So Private respondents are the cousins of petitioners, and they allege Petitioners had no proof that
that they are the lawful owners of The Land, because they inherited Gaudencia had no control of her
half from their father Mariano, and bought the other half from their mental faculties at the time of the
aunt, Gaudencia. sale, and they were unable to
rebut the testament of the notary
III. Issue/s public who interviewed her, the
1. W/N Gaudencia’s deed of absolute sale to private respondents is notary was convinced that
valid? YES. Gaudencia was mentally fit and
IV. Holding/s knew what she was doing.
• As to the claim of fraud, fraud is
Issue #1 never presumed – it must be
YES, the deed of absolute sale made by Gaudencia to private alleged and proven. Presumption
respondents is valid. is that private transactions are
Petitioner’s Arguments Court’s Rebuttals fair and regular, and petitioners
• Petitioners argue many things, • On whether or not there was were unable to support their
but the one related to consent is undue influence to obtain allegations, making the
that since Gaudencia was old consent for the sale, Gaudencia presumption stand.
and senile, she was incapable of being looked after by Romana is Overall Ruling (what is relevant is the undue influence part)
independent and clear not sufficient to show that the Art. 1337, the relevant part of the Civil Code for undue influence states:
judgement. She was already 94 relationship was confidential (if There is undue influence when a person takes improper advantage
years old and weak when the it was confidential, there would of his power over the will of another, depriving the latter of a
reasonable freedom of choice. The following circumstances shall
sale occurred in 1980. She was be a presumption of undue
be considered: the confidential, family, spiritual and other relations
living with private respondent influence). between the parties, or the fact that the person alleged to have been
Romana, and was dependent on • A person is not incapacitated to unduly influenced was suffering from mental weakness, or was
the latter for her daily needs. contract merely because of ignorant or in financial distress.
Thus, under these advanced years or by reason of Undue Influence depends on each case’s circumstances. To use it as
circumestances, fraud or undue physical infirmities – only when justification to cancel an instrument, the following must be present (a) a
influence was exercised by
2
person who can be influenced (b) the fact that improper influence was • Petitioners questioned the validity of the deed of sale’s execution
exerted (c) submission to the overwhelming effect of such conduct. Undue because the notary public who notarized it didn’t personally know
influence is only presumed if there is a confidential or fiduciary Gaudencia. This was rebutted by the testimony of said notary saying
relationship between two parties (basically relations which allows one that he interviewed gaudencia prior to preparing the deed of sale, and
person to dominate the other, to that other’s disadvantage), and it is not that was unrebutted by petitioners.
presumed if there is none. Examples would be attorney-client, parent- • Petitioners questioned one of the vendees being dead at the time of
child, etc. the sale, but it was shown that said vendee (Jose Zarraga) was still
alive at the time of sale.
Gaudencia being old and looked after by Romana is insufficient to show
• Petitioners contended that three of the vendees in the deed didn’t
that their relationship was confidential – to show it being confidential,
know of the transaction (one of them being Romualdo, the plaintiff
proof must show that the relationship reflects a dominant, overmastering in the earlier case) and these lead to the conclusion of the the deed
influence which controls over the dependent person – here, there was no of sale being simulated. Respondents said they just included
showing that Romana used Gaudencia’s reliance on her to dictate that she romualdo as buyer because he was their brother. The SC said that
sell the land. Simulation, when done, is not intended to produce legal effect, but
Undue influence is not to be inferred from age, sickness, or debility of only for the purposes of deception. Since the sale actually converts
body, if sufficient intelligence remains. Besides, petitioners did not rebut the co-ownership of gaudencia and respondents to a vendor-vendee
the notary’s testimony that Gaudencia still knew what she was doing. relationship (thus actually producing legal effect, so it was not just
to deceive), this was not a simulation.
V. Law or Doctrine Applied o Anent romualdo not knowing the sale, he would thus be a
stranger to it, as in 1311 of the Civil code.
Art. 1337, the relevant part of the Civil Code for undue influence states: • Petitioners questioned the inadequacy of the price. But since this was
There is undue influence when a person takes improper advantage of not raised in the lower courts, wa epek na now na nasa sc na.
his power over the will of another, depriving the latter of a reasonable • Finally, assailing the sale as being simulated and price deficient at
freedom of choice. The following circumstances shall be considered: the same time are irreconcilable grounds. If there was an actual sale
the confidential, family, spiritual and other relations between the (no matter how inadequate) hindi siya simulation.
parties, or the fact that the person alleged to have been unduly
influenced was suffering from mental weakness, or was ignorant or in Elements of undue influence to justify cancellation of instrument:
financial distress. - A person who can be influenced
- The fact that improper influence was exerted
VI. Disposition - Submission to the overwhelming effect of such unlawful conduct
WHEREFORE, the petition is DENIED, and the assailed decision of the VII. Random Facts
Court of Appeals AFFIRMED. Costs against petitioners. • Ponente: Quisuming, J.
SO ORDERED.
3
G.R. No. 171428. | November 11, 2013 Essential Requisites of Contracts (Consent)
Tankeh v. Development Bank of the Phils Tankeh v. Development Bank of the Phils
I. Recit-ready Summary 2. Ruperto approached Alejandro sometime in 1980 to inform

Alejandro V. Tankeh (petitioner) was informed by Ruperto V. Tankeh petitioner that he was operating a new shipping line business and that
(respondent) that he was operating a new shipping line business and Ruperto Ruperto would give Alejandro one thousand shares to be a director of the
would give Alejandro one thousand shares worth P1,000,000.00 to be a business. The shares were worth P1,000,000.00.
director of the business. Petitioner signed the Assignment of Shares of Stock
with Voting Rights and the promissory note to apply for the $3.5 million 3. On May 12, 1981, Alejandro signed the Assignment of Shares of
loan. After the loan was approved by Development Bank of the Philippines, Stock with Voting Rights, then signed the May 12, 1981 promissory note in
M/V Golden Lilac (renamed as M/V Sterling Ace) was acquired for $5.3 December 1981. The loan was approved by respondent Development Bank
million. A few years later, petitioner wrote a letter to respondent that he was of the Philippines on March 18, 1981. The vessel was acquired on
severing all ties with Sterling Shipping Lines, Inc and required its board of September 29, 1981 for $5.3 million. On December 3, 1981, respondent
directors release him from all liabilities, particularly the promissory note. corporation Sterling Shipping Lines, Inc. through Ruperto executed a Deed
On 1987, the M/V Sterling Ace was sold in Singapore for $350,000.00 by of Assignment in favor of Development Bank of the Philippines.
DBP. When petitioner came to know of the sale, he wrote to DBP to express
the inadequacy of the final price. The petitioner continued to be bound by 4. June 16, 1983, Alejandro wrote a letter to respondent Ruperto
the loan despite Sterling Shipping Lines, Inc.’s cash equity contribution of saying that he was severing all ties and terminating his involvement with
P13,663,200.00 used to cover part of the acquisition cost. Petitioner filed Sterling Shipping Lines, Inc. He required that its board of directors pass a
several complaints against respondents to declare the promissory note null resolution releasing him from all liabilities, particularly the loan contract
and void on the grounds of deceit and fraud binding him to pay the loan. with Development Bank of the Philippines. In addition, Alejandro asked that
The lower court ruled in petitioner’s favor and declared the promissory note the private respondents notify Development Bank of the Philippines that he
and mortgage contract null and void due to petitioner’s consent was vitiated had severed his ties with Sterling Shipping Lines, Inc. The accounts of
by fraud. However, the Court of Appeals reversed this decision finding that respondent Sterling Shipping Lines, Inc. in the Development Bank of the
petitioner failed to prove fraud with clear and convincing evidence. Hence, Philippines were transferred to public respondent Asset Privatization Trust
this petition for review for certiorari. The SC partially granted the petition on June 30, 1986.
ruling that petitioner had been unjustly excluded from participating in the
management of the affairs of the corporation. This exclusion from the 5. On January 29, 1987, the M/V Sterling Ace was sold in Singapore
management in the affairs of Sterling Shipping Lines, Inc. constituted fraud for $350,000.00 by Development Bank of the Philippines. When Alejandro
incidental to the performance of the obligation, and ordered respondent to came to know of the sale, he wrote respondent Development Bank of the
pay moral damages. Philippines to express that the final price was inadequate, and therefore, the
transaction was irregular. At this time, Alejandro was still bound as a debtor
II. Facts of the Case (Material Facts) because of the promissory note dated May 12, 1981, which Alejandro signed
1. Ruperto is the president of Sterling Shipping Lines, Inc. It was in December of 1981. The promissory note subsisted despite Sterling
incorporated on April 23, 1979 to operate ocean-going vessels engaged Shipping Lines, Inc.'s assignment of all future earnings of the mortgaged
primarily in foreign trade. Ruperto applied for a $3.5 million loan from M/V Sterling Ace to Development Bank of the Philippines. The loan also
public respondent Development Bank of the Philippines for the partial continued to bind Alejandro despite Sterling Shipping Lines, Inc.'s cash
financing of an ocean-going vessel named the M/V Golden Lilac. equity contribution of P13,663,200.00 which was used to cover part of the
acquisition cost of the vessel, pre-operating expenses, and initial working
capital.
Obligations and Contracts (2020) PETITIONER: Alejandro V. Tankeh 1

DIGEST AUTHOR: Antonio Enrile-Inton III RESPONDENT: Development Bank of the Philippines
III. Issue/s
6. Alejandro filed several Complaints against respondents, praying that 1. W/N the Court of Appeals erred in finding that respondent
the promissory note be declared null and void and that he be absolved from Rupert V. Tankeh did not commit fraud against the petitioner?
any liability from the mortgage of the vessel and the note in question. NO.
Alejandro alleged that respondent Ruperto, together with Vicente L. Arenas,
Jr. and Jose Maria Vargas, had exercised deceit and fraud in causing IV. Holding/s
petitioner to bind himself jointly and severally to pay respondent
Development Bank of the Philippines the amount of the mortgage loan.
Although he had been made a stockholder and director of the respondent Issue #1
corporation Sterling Shipping Lines, Inc., petitioner alleged that he had NO, respondents did not commit fraud to obtain the consent of
never invested any amount in the corporation and that he had never been an petitioner, however there was fraud in the performance of the contract
actual member of the board of directors. He alleged that all the money he by petitioner’s exclusion from the management in the affairs of Sterling
had supposedly invested was provided by Ruperto. He claimed that he only Shipping Lines, Inc., which constituted fraud incidental to the
attended one meeting of the board. In that meeting, he was introduced to two performance of the obligation.
directors representing Development Bank of the Philippines. Petitioner’s Arguments Court’s Rebuttals
• Deceit was shown through the • The petitioner had given his
7. Trial Court Ruling non-compliance of Ruperto V. consent to become a
This court finds and declares the promissory note and mortgage Tankeh promising him that he shareholder of the company
contract null and void. Alejandro’s consent was vitiated by the fraud before
would be a part of the without contributing a single
the several contracts were consummated.
administration staff so that he peso to pay for the shares of
8. CA Ruling could oversee the operation of stock given to him by Ruperto
Court of Appeals held that petitioner had no cause of action against the company. V. Tankeh. This fact was
public respondent Asset Privatization Trust. This was based on the Court of • Deceit was also shown by the admitted by both petitioner and
Appeals' assessment of the case records and its findings that Asset fact that he was invited to attend respondent in their respective
Privatization Trust did not commit any act violative of the right of petitioner the board meeting of the pleadings submitted to the
or constituting a breach of Asset Privatization Trust's obligations to Sterling Shipping Lines, Inc. lower court.
petitioner. Court of Appeals also ruled that in the absence of any competent only once to introduce him to • Petitioner was fully aware of
proof, Ruperto did not commit any fraud. the two directors of the DBP in the financial reverses that
the board thereafter he was Sterling Shipping Lines, Inc.
9. Alenadro filed this Petition for Review on Certiorari. Alejandro never invited again. had been undergoing, and he
stated that the appellate court failed to appreciate the findings of fact of the
lower court, which are generally binding on appellate courts. He also • He maintained that he is entitled took great pains to release
maintained that he is entitled to damages and attorney's fees due to the to damages and attorney's fees himself from the obligation.
deceit and machinations committed by the respondent. due to the deceit and • His background as a doctor, as a
machinations committed by the bank organizer, and as a
respondent. businessman with experience in

the textile business and real Overall Ruling

estate should have apprised him Although there was no fraud that had been undertaken to obtain petitioner's
of the irregularity in the consent, there was fraud in the performance of the contract. The records
contract that he would be showed that petitioner had been unjustly excluded from participating in
undertaking. the management of the affairs of the corporation. This exclusion from
• The records showed that the management in the affairs of Sterling Shipping Lines, Inc.
petitioner had been fully aware constituted fraud incidental to the performance of the obligation. These
of the effect of his signing the were evident under the following circumstances: First, it was incumbent
promissory note. upon respondent to act in good faith and to ensure that petitioner would not
• However, in refusing to allow be excluded from the affairs of Sterling Shipping Lines, Inc. Second,
petitioner to participate in the respondent claimed that petitioner could have just sold his holdings to sever
management of the business, his connection, but a sale of petitioner’s stock would not have negated the
respondent Ruperto V. Tankeh petitioner’s responsibility to pay for the loan. Third, petitioner only received
was liable for the commission news about the sale of the vessel M/V Sterling Ace through media.
of incidental fraud.
Petitioner had been effectively deprived of the opportunity to actually
engage in the operations of Sterling Shipping Lines, Inc. Petitioner had a
reasonable expectation that the same level of engagement would be present
for the duration of their working relationship. This would include an
undertaking in good faith by respondent Ruperto V. Tankeh to be
transparent with his brother that he would not automatically be made part of
the company's administration.

ARTICLE 1338
Fraud is defined in Article 1338 of the Civil Code as:
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. (n)

Art. 1340. The usual exaggerations in trade, when the other party had an Two Conditions to Constitute Fraud
opportunity to know the facts, are not in themselves fraudulent. (n) First, the fraud must be dolo causante or it must be fraud in obtaining
the consent of the party. Second, this fraud must be proven by clear and
Art. 1341. A mere expression of an opinion does not signify fraud, unless convincing evidence.
made by an expert and the other party has relied on the former's special
knowledge. (n) VII. Random Facts
• Ponente: Leonen, J.
Art. 1342. Misrepresentation by a third person does not vitiate consent, • Asset Privatization Trust is known as the Privatization and
unless such misrepresentation has created substantial mistake and the same Management Office. Asset Privatization Trust was a government
is mutual. (n) agency created through Presidential Proclamation No. 50. Through
Administrative Order No. 14 assets including loans in favor of
Art. 1343. Misrepresentation made in good faith is not fraudulent but may Development Bank of the Philippines were ordered to be
constitute error. transferred to the national government. The management and
facilitation of these assets were then delegated to Asset
Art. 1344. In order that fraud may make a contract voidable, it should be Privatization Trust, pursuant to Presidential Proclamation No. 50.
serious and should not have been employed by both contracting parties. In 1999, Republic Act No. 8758 was signed into law, and it
Incidental fraud only obliges the person employing it to pay damages. provided that the corporate term of Asset Privatization Trust would
(1270) end on December 31, 2000. The same law empowered the
President of the Philippines to determine which office would
VI. Disposition facilitate the management of assets held by Asset Privatization
WHEREFORE, this Petition is PARTIALLY GRANTED. The Decision of Trust. Thus, on December 6, 2000, Executive Order No. 323 was
the Court of Appeals as to the assailed Decision in so far as the finding of signed creating the Privatization Management Office. Its present
fraud is SUSTAINED with the MODIFICATION that respondent function is to identify disposable assets, monitor the progress of
RUPERTO V. TANKEH be ordered to pay moral damages in the amount of privatization activities, and approve the sale or divestment of assets
FIVE HUNDRED THOUSAND PESOS (P500,000.00) and the amount of with respect to price and buyer.
TWO HUNDRED THOUSAND PESOS (P200,000.00) by way of
exemplary damages.

Distinction between Fraud and Incidental Fraud
If there is fraud in the performance of the contract, then this fraud will
give rise to damages. If the fraud did not compel the imputing party to give
his or her consent, it may not serve as the basis to annul the contract, which
exhibits dolo causante However, the party alleging the existence of fraud
may prove the existence of dolo incidente. This may make the party against
whom fraud is alleged liable for damages.

G.R. No. 194533. April 19, 2017. Essential Requisites of Contracts: Consent, Art. 1340
Philippine Steel Coating v Quinones Philippine Steel Coating v Quinones
I. Recit-ready Summary 4. PhilSteel counters that it was Quinones who offered to purchase the new
product. It also claimed that the breaking and peeling of the paint was
PhilSteel made promises through its sales manager, Angbengco, who orally caused by the poor painting application by Quinones.
said that its new product and the paint process used by Quinones are 5. RTC. RTC ruled in favor of Quinones and ordered PhilSteel to pay
compatible and that their new product is superior to the steel used by damages. Lopez’s testimony was found to be damaging to the claim that it
Quinones. The sales manager guaranteed the compatibility by stating that a was Quinones who made the offer. The paint problem was concluded to be
lab test has been conducted that showed that the product and the process are the fault of the incompatibility of the paint process and the new product.
compatible. However, Quinones’ customers complained to Quinones that
Lastly, the assurance made by Angbengco constituted an express warranty
the paint job was breaking apart. Quinones repaired the damage and now
under Civil Code, Art. 1546. In view of the damages suffered by Quinones,
wants to hold PhilSteel liable for damages based on their warranty.
the Court held PhilSteel liable for damages.
Can the vague oral statements made by the sales manager be invoked to 6. CA. CA affirmed RTC’s ruling in toto.
warrant payment of damages? YES. III. Issue/s
1. Whether the vague oral statements made by the seller on the
Warranties can be oral as long as it is not given as a mere judgment. characteristics of a generic good can be considered warranties that may be
Angbengco argued that what they did was merely dealer’s talk and is thus invoked to warrant payment of damages? YES.
exempt from the liability (See. Art. 1340). However, the Court ruled that his
talk is not merely dealer’s talk for he made himself appear to be an expert in IV. Holding/s
the eyes of Quinones by stating that the new product and the paint process
are compatible by invoking that compatibility has been proven in lab tests. Issue # 1
Whether the vague oral statements made by the seller on the characteristics
of a generic good can be considered warranties that may be invoked to
1. Lopez, a sales engineer of Phil Steel, offered Quinones their new product:
warrant payment of damages? YES.
primer-coated, long-span, rolled galvanized iron sheets. Quinones was
interested but was doubtful about its compatibility with the paint process
• Mere vague oral statements • Warranty can be oral as long as it
used by Amianan Motors in the finishing its buses. The sales engineer
cannot be invoked to warrant is not given as a mere opinion or
referred to Angbengco, Phil Steel’s sales manager.
payment of damages. judgment.
2. Angbengco assured that the quality of their new product was superior to
the ones currently used by quinones. While Quinones showed reservations
about the compatibility, Angbengco said that a lab test was conducted and
the results proved that the two products (paint process and the new product)
are compatible. Hence, Angbengco successfully induced Quinones.
3. Quinones received several complaints from customers claiming that the
paint was breaking and peeling off. Quinones complained to PhilSteel
invoking the warranties given by the latter. Quinones was forced to repair
the damaged buses because of the barrage of complaints.
Obligations and Contracts (2020) PETITIONER: Philippine Steel Coating 1

DIGEST AUTHOR: Jann Amorado RESPONDENT: Eduardo Quinones
G.R. No. 194533. April 19, 2017. Essential Requisites of Contracts: Consent, Art. 1340
Philippine Steel Coating v Quinones Philippine Steel Coating v Quinones

1. The Court agrees with CA finding that this is a case of express
warranty under Civil Code, Art. 1546. Under case law, the following Civil Code, Art. 1340, 1546
requisites must be established to prove express warranty in a contract of
sale: 1) express warranty must be an affirmation of fact or any promise by Article 1340. The usual exaggerations in trade, when the other
the seller relating to the subject matter of the sale; 2) the nature effect is to party had an opportunity to know the facts, are not in themselves
induce the buyer to purchase the thing; and 3) the buyer purchases the thing fraudulent. (n)
relying on the affirmation or promise.
2. A warranty is a statement or representation made by the seller of Article 1546. Any affirmation of fact or any promise by the seller
goods – contemporaneously and as part of the contract of sale – that has relating to the thing is an express warranty if the natural tendency
reference to the character, quality, or title of the goods; and is issued to of such affirmation or promise is to induce the buyer to purchase
the same, and if the buyer purchases the thing relying thereon. No
promise or undertake to insure that certain facts are or shall be as the seller
affirmation of the value of the thing, nor any statement purporting
represents them. A warranty may be oral as long as it is not given as a mere to be a statement of the seller's opinion only, shall be construed as
opinion or judgement. (tl;dr Warranty is an affirmation of fact that the buyer a warranty, unless the seller made such affirmation or statement as
relies on and that induced the buyer to buy the product) an expert and it was relied upon by the buyer. (n)
3. Art. 1546 of the Civil Code provides that “no affirmation of the value
of the thing, nor any statement purporting to be a statement of the seller’s
opinion only, shall be construed as a warranty, unless the seller made such VI. Disposition
affirmation or statement as an expert and it was relied upon by the buyer.
Despite claims to the contrary, Angbengco was an expert in the eyes of WHEREFORE< in view of the foregoing, the instant petition is DENIED.
Quinones. As sales manager, Angbengco made repeated assurances and The Court of Appeals Decision dated 17 March 2010 and Resolution dated
affirmation and even invoked laboratory tests that showed compatibility. 19 November 2010 denying petitioner’s motion for reconsideration are
4. What Angbengco made cannot be considered as mere dealer’s talk hereby affirmed, except for the award of attorney’s fees, which is hereby
which would be a cause for exemption from the liability of the breach of DELETED.
warranty under Art. 1340 of the Civil Code. Quinones did not talk to an VII. Additional Notes
ordinary sales clerk like a department store clerk or sari-sari store clerk but
to the sales manager. If it was Lopez, who had no true knowledge about the • So pretty much na di counted sa exception under Art. 1340 re.
warranty yung talk ni Angbengco kasi he made himself to be seen
compatibility or authority to warrant it, who made the assertion, then it
as an expert by providing the lab tests and showing na compatible
would be considered as dealer’s talk. But Lopez, considering the that a yung new product ng PhilSteel at yung paint process ni Quinones.
person of greater competence and knowledge of the product can answer Di na opinion yung talk but presenting real facts na.
Quinones’ concerns, Lopez deferred to Angbengco. Angbengco through his • Did not include the other issues kasi yung case under Art. 13xx
talk about lab tests made him in the eyes of Quinones an expert and had ibang arts na yung other issues.
induced Quinones to ultimately buy the new product. VII. Random Facts
• Ponente: Sereno
Obligations and Contracts (2020) PETITIONER: Philippine Steel Coating 2

DIGEST AUTHOR: Jann Amorado RESPONDENT: Eduardo Quinones
G.R. No. 175483 | October 14, 2015 Consent (Art. 1318)
Clemente v. CA Clemente v. CA
I. Recit-ready Summary express terms of their agreement, but also from the contemporaneous and
Adela owned three (3) adjoining parcels of land in Quezon City, subsequent acts of the parties. This is especially true in a claim of absolute
subdivided as Lots 32, 34 and 35-B. Sometime in 1985 and 1987, Adela simulation where a colorable contract is executed. In ruling that the Deeds
simulated the transfer of Lots 32 and Lot 34 to her two grandsons (Carlos Jr of Absolute Sale were absolutely simulated, the lower courts considered the
and Dennis Shotwell). On April 18, 1989, prior to Adela and petitioner’s totality of the prior, contemporaneous and subsequent acts of the parties
departure for the United States, Adela requested Carlos Jr. and Dennis to such as 1) the execution of the SPA the same day the Dee the Deeds of
execute a deed of reconveyance over Lots 32 and 34 which were in fact Absolute Sale appointing petitioner as administratrix of Adela’s properties,
executed and registered with the Register of Deeds. On April 25, 1989, and) the history of simulations in favor of Carlos Jr and Dennis.
Adela executed a deed of absolute sale11 over Lots 32 and 34, and their
improvements, in favor of petitioner. On the same day, Adela also executed II. Facts of the Case (Material Facts)
a special power of attorney (SPA) in favor of petitioner. Petitioner’s 1. Adela owned three (3) adjoining parcels of land in Quezon City,
authority under the SPA included the power to administer, take charge and subdivided as Lots 32, 34 and 35-B.
manage, for Adela’s benefit, the Properties and all her other real and 2. Sometime in 1985 and 1987, Adela simulated the transfer of Lots
personal properties in the Philippines. When petitioner returned to the 32 and Lot 34 to her two grandsons (Carlos Jr and Dennis
Philippines, she registered the sale over Lots 32 and 34. Soon thereafter, Shotwell).
petitioner sought to eject Annie and Carlos Sr who thereafter filed a 3. On April 18, 1989, prior to Adela and petitioner’s departure for
complaint for reconveyance of the property. They alleged that Adela only
the United States, Adela requested Carlos Jr. and Dennis to
wanted to help petitioner travel to the United States, by making it appear
that petitioner has ownership of the Properties. They further alleged that execute a deed of reconveyance over Lots 32 and 34 which were
similar to the previous simulated transfers to Carlos Jr. and Dennis, in fact executed and registered with the Register of Deeds.
petitioner also undertook and warranted to execute a deed of reconveyance 4. On April 25, 1989, Adela executed a deed of absolute sale11 over
in favor of the deceased over the Properties, if and when Adela should Lots 32 and 34, and their improvements, in favor of petitioner,
demand the same. The issue in this case is: W/N the Deeds of Absolute bearing on its face the price of ¬250,000.00.
sale between the petitioner and her late grandmother over the 5. On the same day, Adela also executed a special power of attorney
properties were simulated and without consideration, and hence, void (SPA) in favor of petitioner.
and inexistent The SC held YES. The Deeds of Absolute Sale between 6. Petitioner’s authority under the SPA included the power to
petitioner and the late Adela Shotwell are null and void for lack of consent administer, take charge and manage, for Adela’s benefit, the
and consideration. While the Deeds of Absolute Sale appear to be valid on Properties and all her other real and personal properties in the
their face, the courts are not completely precluded to consider evidence Philippines.
aliunde in determining the real intent of the parties. Here, there was no
7. When petitioner returned to the Philippines, she registered the sale
valid contract of sale between petitioner and Adela because their consent
over Lots 32 and 34.
was absent. The contract of sale was a mere simulation. Simulation takes
place when the parties do not really want the contract they have executed to 8. Soon thereafter, petitioner sought to eject Annie and Carlos Sr
produce the legal effects expressed by its wordings. In determining the true who thereafter filed a complaint for reconveyance of the property.
nature of a contract, the primary test is the intention of the parties. If the 9. They alleged that Adela only wanted to help petitioner travel to
words of a contract appear to contravene the evident intention of the parties, the United States, by making it appear that petitioner has
the latter shall prevail. Such intention is determined not only from the ownership of the Properties.
Obligations and Contracts (2020) PETITIONER: Valentina S. Clemente 1

DIGEST AUTHOR: Tin Dychioco RESPONDENT: The Court of Appeals, Annie Shotwell Jalandoon, et. Al.
10. They further alleged that similar to the previous simulated Overall Ruling
transfers to Carlos Jr. and Dennis, petitioner also undertook and The Deeds of Absolute Sale between petitioner and the late Adela Shotwell
warranted to execute a deed of reconveyance in favor of the are null and void for lack of consent and consideration. While the Deeds of
deceased over the Properties, if and when Adela should demand Absolute Sale appear to be valid on their face, the courts are not completely
the same. precluded to consider evidence aliunde in determining the real intent of the
11. RTC promulgated a decision in favor of the private respondents parties. The Civil code defines a contract as a meeting of minds between
declaring the Deeds of Absolute Sale null and void and ordering two persons whereby one binds himself, with respect to the other, to give
the cancellation of the Transfer Certificates of Titles. something or to render some service. Article 1318 provides that there is no
12. CA affirmed the RTC decision with medication. It ruled that the contract unless the following requisites concur: (1) Consent of the
Deeds of Absolute Sale were simulated. contracting parties; (2) Object certain which is the subject matter of the
contract; and (3) Cause of the obligation which is established. All these
III. Issue/s elements must be present to constitute a valid contract; the absence of one
1. W/N the Deeds of Absolute sale between the petitioner and her renders the contract void. As one of the essential elements, consent when w
late grandmother over the properties were simulated and anting makes the contract non-existent. Consent is manifested by the
without consideration, and hence, void and inexistent? YES meeting of the offer and the acceptance of the thing and the cause, which are
to constitute the contract. A contract of sale is perfected at the moment there
IV. Holding/s is a meeting of the minds upon the thing that is the object of the contract,
and upon the price.
Issue #1 Here, there was no valid contract of sale between petitioner and Adela
YES, the Deeds of Absolute Sale between petitioner and the late Adela because their consent was absent. The contract of sale was a mere
Shotwell are null and void for lack of consent and consideration. simulation. Simulation takes place when the parties do not really want the
contract they have executed to produce the legal effects expressed by its
wordings. In determining the true nature of a contract, the primary test is
the intention of the parties. If the words of a contract appear to contravene
the evident intention of the parties, the latter shall prevail. Such intention is
determined not only from the express terms of their agreement, but also
from the contemporaneous and subsequent acts of the parties. This is
especially true in a claim of absolute simulation where a colorable contract
is executed. In ruling that the Deeds of Absolute Sale were absolutely
simulated, the lower courts considered the totality of the prior,
contemporaneous and subsequent acts of the parties such as 1) the execution
of the SPA the same day the Dee the Deeds of Absolute Sale appointing
petitioner as administratrix of Adela’s properties, and) the history of
simulations in favor of Carlos Jr and Dennis.


ART. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties
(2) Object certain which is the subject matter of the contract
(3) Cause of the obligation which is established
VI. Disposition
WHEREFORE, the petition is DENIED.

SO ORDERED.
VII. Random Facts

• Ponente: Jardeleza, J.

G.R. No. 152168 | Dec 10, 2004 Consent
Heirs of Balite v Lim Heirs of Balite v Lim
I. Recit-ready Summary an intention to transfer ownership of the share to Rogelio. Since it was
Aurelio and Esperanza Balite owned a parcel of land in Catarman, relatively simulated, the deed remains valid and enforceable, however they
Northern Samar. When Aurelio died, Esperanza and their children inherited are still bound by the P1m consideration reflected in their joint affidavit,
the property as co-owners, with Esperanza particularly inheriting an since what was only concealed was the purchase price, not the juridical
undivided share of 9,751 sq.m. When she got ill, she offered to sell her nature, and the essential requisites are still present to permit its validity.
share to Rodrigo Lim, to support her medical finances. In their agreement, Even if the purpose of the consideration is found to be unlawful, the
their agreed purchase price was P1 million, however they decided to make it petitioners still are not permitted to unmake the contract voluntarily entered
appear that the agreed purchase price in their transaction was P150k to be into by their mother since contracts will always be binding as long as it is
paid in installments, which they executed in their deed of absolute sale. legally possible. Since Esperanza and her children are co-owners of the
Even then, through their joint affidavit, their real agreed price was P1 property, by the virtue of Article 493, her selling her share to Rogelio is
million. Rodrigo started remitting his payments to Esperanza to validate his valid, as long as the sold portion is only the share she is entitled to, and
possession of the latter’s share. Upon discovery of their transaction, because of this, consent from her co-owner children is deemed unnecessary.
Esperanza’s children disapproved of it and requested the register of deeds
(RD) to hold in abeyance any attempt of Rodrigo to register his deed for the II.Facts of the Case (Material Facts)
property, on the ground that they were not informed and they did not ● Aurelio and Esperanza Balite were the owners of a parcel of land,
consent to the sale made by their mother. Despite the letter of Esperanza located at Poblacion (Bgy Molave) in Catarman, Northern Samar,
that informed him of her children’s protests against the sale, as well as her with an area of 17,551 sq.m.
eventual passing, Rodrigo continued to pay the installments and the taxes ● When Aurelio died intestate in 1985, Esperanza and their children
due. Upon Rogelio’s writ of mandamus, the Court ordered the RD to cancel inherited the property and became co-owners thereof, with
the old title and issue a new one in Rogelio’s name leading to the heirs’ Esperanza inheriting an undivided share of 9,751 sq.m.
filing of a case against Rogelio in the RTC for annulment of sale, quieting ● Esperanza became ill and in order to finance her hospital expenses,
of title, injunction and damages. The RTC and the CA ruled in favor of she, through her daughter, Cristeta, offered to sell to Rodrigo Lim,
Rogelio on the ground that Esperanza’s sale of her share was valid, leading her undivided share for the price of P1 million.
to the current petition. ● In their subsequent agreement, Rodrigo agreed that under their
Relevant to the topic is the issue of whether or not the CA erred in “Deed of Absolute Sale” to be executed by Esperanza over the
ruling that the sale was not void despite the falsified purchase price and the property, it would be made to appear that its purchase price would
apparent unlawful cause behind it. The SC affirmed the CA and ruled that be P150k, even though the actual price agreed upon over it was P1
the CA did not err in upholding the validity of the sale, instead of nullifying million
it. The contract behind Esperanza and Rogelio was a relatively simulated ● The deed was executed for the price of P150k, while at the same
one, in which the parties state a false cause to conceal their real agreement, day of its execution, a “Joint Affidavit” was also executed under
as Article 1345 provided. Based from the letter and the continuation of which they declared the real price of the property which was P1
payments by Lim to Esperanza (later on Antonio), it is clear that there was million, payable in installments
1
Obligations and Contracts (2020) PETITIONER: Heirs of Late Sps Aurelio and Esperanza Balite
DIGEST AUTHOR: Jayvee Ala RESPONDENT: Rodrigo N. Lim
G.R. No. 152168 | Dec 10, 2004 Consent
○ Aside from Esperanza, only her other two children, ○ The court issued an order to the RD to cancel the owner’s
Antonio and Cristeta knew about the transaction title and issue a new certificate of title under the name of
● A subdivision survey was conducted which resulted into the Rodrigo
“Sketch Plan” under the name of Rodrigo. The two main parties ● This led to the petitioners filing a complaint against Rodrigo with
signed, and thereafter Rodrigo took actual possession of the the RTC for annulment of sale, quieting of title, injunction and
property and even introduced improvements thereon. damages.
● Rodrigo started paying for the property via installments to ● RTC ruling:
Esperanza and Cristeta ○ dismissed the complaint on the ground that in accordance
● The other children learned of the sale and wrote a letter to the to Art 493 of the Civil Code, sale made by a co-owner
Register of Deeds (RD) of Northern Samar, saying that they were (Esperanza) is not invalidated by the absence of the
not informed of the sale of a portion of that property by their consent of the other co-owners.
mother, nor did they give consent thereto. They then requested RD ● CA ruling:
to hold in abeyance any processal or approval of application for ○ affirmed the RTC on the same ground
registration made by Rogelio ○ disagreed with the petitioners’ averment that the
● Nonetheless, Rodrigo continued to pay and remit them to registration of sale was void on the allegation that the
Esperanza, who has now appointed her son, Antonio, via special actual purchase price was not stated in the deed (it was
power of attorney, to collect and receive them found that it was P1m based on their joint affidavit), via
● Soon, Esperanza signed a letter addressed to Rodrigo, informing application of Art 1353 of the Civil Code, which
him of her children’s disapproval of the sale of the property, and supported the holding that the falsity of the price or
that she was withdrawing all her commitments until the validity of consideration did not render it void
the sale is resolved III. Issue/s (Important one)
○ Esperanza soon died intestate survived by her children 1. W/N the [CA] seriously erred in not deciding that the Deed of
● Rodrigo then remitted to Antonio the payment for the estate tax Absolute Sale dated April 16, 1996 is null and void on the
and also the capital gains tax due to the BIR, based on their P150k grounds that it is falsified; it has an unlawful cause; and it is
purchase price in their deed. The BIR issued a certification of the contrary to law and/or public policy; NO
said payments, authorizing the registration of the deed IV. Holding/s
○ However the RD refused to issue a title over the property
to the name of Rodrigo unless the owner’s duplicate of the Main Issue
title was presented to it (this move was in connection to 1. NO, the CA did not err in not deciding that the deed of sale is
the earlier request by the Balite heirs) null and void
○ Rodrigo filed a petition for mandamus in retaliation
2
G.R. No. 152168 | Dec 10, 2004 Consent
Petitioners’ Arguments Court’s Rebuttals deed remains valid and enforceable, however they are still bound by the
● It is null and void because the ● It is a relatively simulated P1m consideration reflected in their joint affidavit, since what was only
undervalued consideration contract (see overall concealed was the purchase price, not the juridical nature, and the essential
indicated therein was intended ruling) requisites are still present to permit its validity. Even if the purpose of the
for an unlawful purpose- to ● Consent from other consideration is found to be unlawful, the petitioners still are not permitted
avoid the payment of higher co-owners is not necessary to unmake the contract voluntarily entered into by their mother since
capital gains taxes on the to validate a sale of one’s contracts will always be binding as long as it is legally possible.
transaction share
● The joint affidavit is not proof of Since Esperanza and her children are co-owners, by virtue of Article 493 of
a true and lawful cause, but an the Civil Code, the sale of her share to Rogelio, is valid. As held in that
integral part of a scheme to provision, an alienation of property by one of the co-owners is valid as
evade paying lawful taxes and long as it is limited to the portion which may be allotted to him in the
registration fees to the division upon the termination of the co-ownership, basically his/her
government personal share. Obviously, Esperanza intended to sell her share of the
● The heirs never consented to family property to Rogelio which only means that it should be valid and
Esperanza’s decision to sell her consent from her other co-owners is not necessary anymore.
share
Overall Ruling (Relevant ruling in bold) Other Points of the case:
Article 1345 provides that a simulation of a contract may either be absolute - The petitioners cannot use the argument that the deed of sale here
or relative. In an absolute simulation, there is a colorable contract but is an equitable mortgage, because it is not, in accordance to
without any substance because the parties have no intention to be bound by Articles 1602 and 1604.
it, and is usually rendered void, whereas in a relative simulation, if the
parties state a false cause in the contract to conceal their real agreement,
such a contract is relatively simulated. V. Law or Doctrine Applied
In this case, it is a relative simulation since the parties here intended to be Art. 493.
bound by the contract even if it did not reflect the actual purchase price. Each co-owner shall have the full ownership of his part of the fruits and
This was shown by the letter of Esperanza to Rogelio about her decision to benefits pertaining thereto, and he may therefore alienate, assign or
withdraw from their transaction due to her children’s disapproval and the mortgage it, and even substitute another person in its enjoyment, except
petitioners’ admission that there was a partial P320k payment made by when personal rights are involved. But the effect of the alienation or the
Rogelio on the basis of the deed. Clearly, there was an intention to transfer mortgage, with respect to the co-owners, shall be limited to the portion
which may be allotted to him in the division upon the termination of the
ownership of the property to Rogelio. Since it was relatively simulated, the
co-ownership.
3
G.R. No. 152168 | Dec 10, 2004 Consent
Art. 1345.
Simulation of a contract may be absolute or relative. The former takes place
when the parties do not intend to be bound at all; the latter, when the parties
conceal their true agreement.
VI. Disposition
WHEREFORE, the Petition is DENIED and the assailed Decision

AFFIRMED. Costs against the petitioners.
VII. Random Facts

● Ponente: Panganiban, J.
4
G.R. No. 152132 | July 24, 2007 Art. 1347
Arrogante v. Sps. Deliarte Arrogante v. Sps. Deliarte
I. Recit-ready Summary of his share is effectively a donation to his children. Bernabe validly
Lot 472-A was originally the conjugal property of the Spouses Bernabe disposed of his interest in the property and that he consented to the
Deliarte Sr. and Gregoria Palencia who had 9 children. Three tragedies disposition of the lot in favor of Beethoven
occured wherein respondent Beethoven paid for all expenses. Gregoria and
Bernabe died. In between the deaths of Gregoria and Bernabe, the Deliarte II. Facts of the Case (Material Facts)
siblings agreed to waive and convey in favor of Beethoven all their rights ● Lot 472-A was originally the conjugal property of the Spouses
and interests to Lot 427-A. From the date of signing, Beethoven took Bernabe Deliarte Sr. and Gregoria Palencia who had 9 children
possession of the property and exercised full ownership and control. Only ○ one of them is respondent Beethoven Deliarte and another
Fe did not sign the confirmation of the deed of sale to ratify the 1978 deed. is petitioner Fe Arrogante
Beethoven filed an action for quieting of title against petitioners. Petitioners ○ The children of Fe, and thus nephews of Beethoven, are
averred that Beethoven does not own the property and that Fe continues to also petitioners (Arrogante children)
own 1/9 of the property. The RTC ruled in favor of respondents, CA ■ Lordito, Johnston, and Arme Jr.
affirmed and upheld the validity of the 1978 sale. petitioners are insisting ○ the other respondent is Beethoven’s wife, Leonora
that the 1978 deed of sale is not valid since Bernabe, who was still alive at Durenas
the time, did not sign it. ● 3 tragedies occured wherein Beethoven paid for ALL expenses:
○ Fe and Beethoven’s brother was hospitalized and
W/N the 1978 deed of sale was valid? NO eventually died
○ Gregoria was hospitalized and subsequently died
Court held that the deed of sale, in so far as it disposed of Bernabe’s share in ○ Bernabe died
the conjugal partnership PRIOR TO HIS DEATH, is void for being a ● Between the deaths of Gregoria and Bernabe, the Deliarte siblings
conveyance of future inheritance. Article 1347 (2) states that contracts agreed to waive and convey in favor of Beethoven all their rights
entered into upon future inheritance is void. and interests to Lot 427-A
○ at the signing of the deed of sale, the siblings who failed
HOWEVER, it is apparent that Bernabe treated his share as his children’s to attend were represented by their spouses
present inheritance and relinquished all his rights thereon as compensation ○ at that time, Bernabe knew of the sale but he was already
for the expenses Beethoven shouldered. There was a collective sense of blind at the time
responsibility towards the family and Bernabe was even present during the ○ From the date of signing, Beethoven took possession of
signing and was are that the same took place. The arrangement, which the property and exercised full ownership and control
points to a meeting of the minds among the parties, constitutes an ● Only Fe did not sign the confirmation of the deed of sale to ratify
innominate contract - onerous and remunerative donation. Bernabe’s waiver the 1978 deed
1
Obligations and Contracts (2020) PETITIONER: LORDITO ARROGANTE, JOHNSTON ARROGANTE,
ARME ARROGANTE, and FE D. ARROGANTE
DIGEST AUTHOR: Mikhail Macasaet RESPONDENT: BEETHOVEN
DELIARTE, Joined by SPOUSE LEONORA DUENAS,
G.R. No. 152132 | July 24, 2007 Art. 1347
○ Lordito installed placards on the fence of Beethoven Overall Ruling

which depicted him as a land grabber ● First of all, the Court held that the deed of sale, in so far as it disposed
● Beethoven filed an action for quieting of title against petitioners of Bernabe’s share in the conjugal partnership PRIOR TO HIS
○ petitioners averred that Beethoven does not own the DEATH, is void for being a conveyance of future inheritance
property and that Fe continues to own 1/9 of the property ● Article 1347 (2) states that contracts entered into upon future
○ RTC ruled in favor of Beethoven and his wife inheritance is void
○ CA affirmed and upheld the validity of 1978 sale ○ Requisites:
■ Fe signed the deed of sale and is barred from ■ succession had not been opened
repudiating its terms ● the succession of Bernabe was not yet
● On appeal, petitioners are insisting that the 1978 deed of sale is not open
valid since Bernabe, who was still alive at the time, did not sign it ■ object of the contract forms part of the inheritance
● the lot forms part of the children’s
Issue/s: W/N the 1978 Deed of Sale is Valid? NO inheritance
■ promissor has, with respect to the object, an
expectancy of right which is purely hereditary in
IV. Holding/s nature
● children merely had an inchoate hereditary
Issue #1 right over the property
● The deed of sale is not among those exempted from the application of
No, the 1987 deed of sale is not valid Art. 1347
○ It does not purport to be a partition of Bernabe’s estate (Art.
1080)
■ Bernabe did not divide his share of the lot upon his
● 1978 deed of sale is not ● Court held that the deed of
children
valid since Bernabe, who sale, in so far as it disposed of
■ did not even have his signature
was still alive at the time, Bernabe’s share in the
○ Neither was there an oral partition of the estate
did not sign it conjugal partnership PRIOR
■ such cannot be made effective during the lifetime of
TO HIS DEATH, is void for
its owner
being a conveyance of future
○ Since the 1978 Deed is void, it follows then that the 1986
inheritance
confirmation of the deed of sale is also void
2
G.R. No. 152132 | July 24, 2007 Art. 1347
● HOWEVER, it is apparent that Bernabe treated his share as his No contract may be entered into upon future inheritance except in cases authorized
children’s present inheritance and relinquished all his rights thereon by law
as compensation for the expenses Beethoven shouldered
○ there was a collective sense of responsibility towards the IV. Disposition
family WHEREFORE, premises considered, the petition is PARTIALLY
■ Bernabe was even present during the signing and GRANTED. The August 28, 2001 Decision of the Court of Appeals is
was are that the same took place hereby MODIFIED. Petitioner Lordito Arrogante is held solely liable to
○ Although the deed of sale is void, it evidenced the consent respondents for moral damages in the amount of P150,000.00. The quieting
and acquiescence of each Deliarte sibling to the transaction of title in favor of respondents is hereby AFFIRMED.
● The arrangement, which points to a meeting of the minds among the
parties, constitutes an innominate contract - onerous and remunerative V. Additional Notes
donation
○ Bernabe’s waiver of his share is effectively a donation to his
children VII. Random Facts
■ such act is coupled with an onerous cause: equal ● Ponente: Nachura, J.:
accountability for the hospitalization and other
expenses
■ The remunerative cause pertains to Beethoven’s
recompense for the family expenses he initially
shouldered
○ Bernabe validly disposed of his interest in the property and
that he consented to the disposition of the lot in favor of
Beethoven
ART. 1347(2)
3
G.R. No. 220517 | June 20, 2018 Contracts
Mendoza v. Spouses Palugod Mendoza v. Spouses Palugod
I. Recit-ready Summary receipt for payment as alleged by the Spouses were not given much
Lolita Mendoza and Jasminia Palugod bought a lot together in 1991 weight by the Court, as it took into consideration their “close
and built a house in 1996. However, in 1995, Jasminia became friendship” at the time of the execution of the Deed of Absolute Sale.
afflicted with breast cancer. The two lived together until Jasminia
passed away in 2004. Before she died, Jasminia signed a Deed of II. Facts of the Case (Material Facts)
Absolute Sale to Lolita. After her death, Jasminia’s parents filed a 1. In 1991, Lolita Mendoza and Jasminia Palugod bought a lot
complaint stating that they are the sole heirs of Jasminia and that Deed together in Sagana Remville Homes, Habay, Bacoor, Cavite. In
of Absolute Sale o f Lolita was void. Lolita, a few months after Jaminia 1996, Lolita and Jasminia built a house together on their lot in
died, mortgaged the said property a few months after Jasminia’s death. Cavite.
This makes her the absolute owner for the said lot. The RTC ruled that 2. There are no receipts that Lolita helped in construction, but she
there can be no contract unless the following are present: consent, shared in the cost of the construction from the income she received
object certain, and cause of the obligation. The lower court ruled that from her catering business and from selling various products (like
the Spouses Palugod were able to prove by preponderance of evidence house and lot).
that the Deed of Sale involved no actual monetary consideration. 3. In 1995, Jasminia became afflicted with breast cancer. She died on
Hence, the Deed of Sale was deemed void. The CA affirmed this September 26, 2004.
decision. The issue in this case is whether the Deed of Absolute Sale is 4. On May 11, 2004, Jasminia executed a Deed of Absolute Sale in
valid considering there is lack of monetary consideration. The SC favor of Lolita, who mortgaged the said property on November 19,
ruled that both lower courts erred in their decision, holding that such 2004 to Elizabeth Gutierrez (and her husband Alexander).
Deed of Absolute Sale was indeed valid. Lolito pointed out, and the 5. Upon learning that Jasminia’s certificate title has been canceled,
Court agreed that the Deed of Absolute Sale was itself the proof that Ramon, Sr. and Natividad Palugod filed a complaint for
the sale of the property is supported by sufficient consideration, this is Declaration of Nullity of the Deed of Absolute Sale and the Deed of
stated in the presumption of consideration inherent in all contracts, Real Estate Mortgage with the RTC of Bacoor, Cavite. The RTC
under Art. 1354. Lolita’s sworn statement is proof that she indeed had ruled that the Deed of Sale and Deed of Real Estate Mortgage is
income and the means to pay as stated in the Deed of Absolute Sale. void.
The Court took into account her proof of payment as stated in her 6. The RTC ruled that there can be no contract unless the following
testimony, saying that her sworn testimony itself is proof. The lack of are present: consent, object certain, and cause of the obligation.
1
Obligations and Contracts (2020) PETITIONER:
Lolita Espiritu Santos Mendoza, and Sps. Alexander and Elizabeth Gutierrez
DIGEST AUTHOR: Alex Sulaik RESPONDENT:
Sps. Ramon, Sr. and Natividad Palugod
The lower court ruled that the Spouses Palugod were able to prove hence, upholding the validity of
by preponderance of evidence that the Deed of Absolute Sale the Deed of Absolute Sale.
involved no actual monetary consideration. Overall Ruling
7. The CA agreed with the RTC’s ruling. The Deed of Absolute Sale executed by Jasminia in favor of Lolita is
valid, as well as the Real Estate Mortgage.
III. Issue/s Lolita points out that the Deed of Absolute Sale itself is the proof that the
Whether or not the Deed of Absolute Sale is valid considering there is sale of the property is supported by sufficient consideration, to which the
lack of monetary consideration. YES. Court agreed.. She alleges in her own sworn testimony that she had made
payments in consideration of the Deed of Absolute Sale before its
IV. Holding/s notarization. She also alleges that she had no need to keep receipts and
Issue failed to produce the same as evidence due to her close friendship with
YES, the Deed of Sale is valid even without proof (receipt of payment) Jasminia. Further, the Court cites Art. 1354 which states “Although the
of monetary considerations.. cause is not stated in the contract, it is presumed that is exists and is
Petitioner's Argument Court’s Rebuttal lawful, unless the debtor proves the contrary.” The Court held that Lolita
The Deed of Absolute Sale is valid The RTC and the CA missed out benefits from this disputable presumption of consideration with the
because the Deed of Absolute Sale on and misinterpreted important presentation of the Deed of Absolute Sale.
itself is the proof that the sale of facts of the case. They both failed Spouses Palugod allege that Lolita had no means to pay and lacked proof
the property is supported by to properly consider the validity of of payment of the Deed of Absolute Sale, however, they merely relied on
sufficient consideration. Lolita the Deed due to the Natividad Palugod’s testimony claiming the same. On the other hand,
asserts that she paid prior to the misunderstanding of when the Lolita was able to dispute such claims in her testimony, as well as
notarization of the Deed of notarization was paid for and documents that proved her livelihood and income. The Court noted that
Absolute Sale as stated in her own because Lolita was lacking there were inconsistencies with the assertions of Natividad, given these
testimony. receipts as proof. Lolita also significant inconsistencies, the Court finds the credibility of her
enjoys presumption of testimony doubtful. All evidence provided by Natividad was refuted by
consideration inherent in all Lolita.
contracts as stated in Art. 1354,
2
The Court ruled that the Spouses Palugod failed to establish their cause
of action by preponderance of evidence. Hence, they further held that the
Deed of Absolute Sale and the Real Estate Mortgage executed by
Jasminia in favor of Lolita over the subject property is valid, the
presumption that it has sufficient consideration not rebutted.

Article 1314. Although the cause is not stated in the contract, it is presumed
that it exists and is lawful, unless the debtor proves the contrary.
VI. Disposition
WHEREFORE the Petition is hereby GRANTED. The Decision of the
Court of Appeals dated April 29, 2015 and its Resolution dated September
10, 2015 in CA-G.R. CV No. 102904 as well as the Decision dated March
14, 2013 and Order dated May 8, 2014 of the Regional Trial Court of
Bacoor, Cavite, Branch 19 in Civil Case No. BCV 2004-217 are
REVERSED AND SET ASIDE. The complaint led in Civil Case No. BCV
2004-217 is DISMISSED for lack of cause of action.

● Lolita and Jasminia are actually lesbian couples who have been
living together for more than 5 years. They don’t just have a close
friendship.
VIII. Ponente: Caguioa, J.
3
I. Recit-ready Summary 3. On May 11, 2004, Jasminia executed a Deed of Absolute Sale in
Lolita Mendoza and Jasminia Palugod bought a lot together in 1991 favor of Lolita, who mortgaged the said property on November 19,
and built a house in 1996. However, in 1995, Jasminia became 2004 to Elizabeth Gutierrez (and her husband Alexander).
afflicted with breast cancer. The two lived together until Jasminia 4. Upon learning that Jasminia’s certificate title has been canceled,
passed away in 2004. Before she died, Jasminia signed a Deed of Ramon, Sr. and Natividad Palugod filed a complaint for
Absolute Sale to Lolita. After her death, Jasminia’s parents filed a Declaration of Nullity of the Deed of Absolute Sale and the Deed of
complaint stating that they are the sole heirs of Jasminia and that Deed Real Estate Mortgage with the RTC of Bacoor, Cavite. The RTC
of Absolute Sale o f Lolita was void. Lolita, a few months after Jaminia ruled that the Deed of Sale and Deed of Real Estate Mortgage is
died, mortgaged the said property a few months after Jasminia’s death. void.
This makes her the absolute owner for the said lot. 5. The CA agreed with the RTC’s ruling.
The RTC and CA ruled in favor of the parents of Jasminia. The SC
ruled that both lower courts erred in their decision. Both courts failed III. Issue/s
to look at important facts to prove that the contract, Lolita’s Deed of W/N the CA (and the RTC) erred in its decision to declare the contracts
Absolute Sale, was valid. (or Deeds) void
YES.
1. In 1991, Lolita Mendoza and Jasminia Palugod bought a lot IV. Holding/s
together in Sagana Remville Homes, Habay, Bacoor, Cavite. In Issue
1996, Lolita and Jasminia built a house together on their lot in YES, both the RTC of Bacoor, Cavite and the CA erred in its decision.
Cavite. There are no receipts that Lolita helped in construction, but Petitioner's Argument Court’s Rebuttal
she shared in the cost of the construction from the income she Both the RTC and the CA declared The RTC and the CA missed out
received from her catering business and from selling various the Deed of Absolute Sale void on on and misinterpreted important
products (like house and lot). the ground that it was fictitious or facts of the case. They both failed
2. In 1995, Jasminia became afflicted with breast cancer. She died on simulated on account of lack of to properly consider the validity of
September 26, 2004. consideration. the Deed due to the
misunderstanding of when the
1
notarization was paid for and

because Lolita was lacking
receipts as proof.
Overall Ruling
The Deed of Absolute Sale executed by Jasminia in favor of Lolita is
valid, as well as the Real Estate Mortgage. Both the RTC and the CA
were reprimanded for not going through the facts of the case with due
diligence.

Article 1314. Although the cause is not stated in the contract, it is presumed
that it exists and is lawful, unless the debtor proves the contrary.
VI. Disposition
WHEREFORE the Petition is hereby GRANTED. The Decision of the
Court of Appeals dated April 29, 2015 and its Resolution dated September
10, 2015 in CA-G.R. CV No. 102904 as well as the Decision dated March
14, 2013 and Order dated May 8, 2014 of the Regional Trial Court of
Bacoor, Cavite, Branch 19 in Civil Case No. BCV 2004-217 are
REVERSED AND SET ASIDE. The complaint led in Civil Case No. BCV
2004-217 is DISMISSED for lack of cause of action.

Ponente: Caguioa, J.
2
G.R. No. 138018 | July 26, 2002 Void for Lack of Consideration and Consent
Montecillo vs Reynes Montecillo vs Reynes
I. Recit-ready Summary II. Facts of the Case

1. Respondent Ignacia Reynes owns a 448m² lot in Mabolo, Cebu
Respondent Reynes owns a 448m² lot in Mabolo, Cebu City (Mabolo Lot). City (herein referred to as Mabolo Lot).
Reynes first sold the Mabolo Lot to Petitioner Montecillo. However, due to 2. Reynes sold the Mabolo lot to Petitioner Rido Montecillo. Reynes,
his failure to pay the purchase price, Reynes unilaterally revoked the sale. being illiterate, signed the Deed of Sale by affixing her
thumb-mark on the document.
Reynes subsequently sold the Mabolo Lot to respondents Spouses Abucay. 3. Petitioner Montecillo promised to pay the purchase price of
Later, Spouses Abucay learned that a Title covering the Mabolo Lot was P47,000 within 1 month from the signing of the Deed of Sale.
issued by the Register of Deeds in the name of Montecillo. Respondents 4. Respondent alleges that petitioner failed to pay the purchase price
then filed a complaint for the cancellation of the Title issued to Montecillo. after the lapse of the one-month period. She then demanded the
return of the Deed of Sale from the petitioner.
The issue in this case is whether or not Montecillo’s Deed of Sale, which 5. Petitioner refused to return the Deed hence, Reynes executed a
was the basis of the Title issued to him, was void for lack of consideration. document unilaterally revoking the sale and gave a copy of the
The Court ruled that it is VOID. Montecillo claims that the consideration for document to petitioner.
the sale was the amount that he paid to Cebu Ice Storage for the mortgage 6. Subsequently, Respondent Reynes signed a Deed of Sale in favor
debt of a certain Bienvenido Jayag. This certain Jayag mortgaged his house of Respondents Redemptor and Elisa Abucay. Prior to the
which was situated on the Mabolo Lot to Cebu Ice Storage. execution of this Deed of Sale, Spouses Abucay had previously
bought 185m² of the 448m² Mabolo Lot from Reynes. This
The Court, however, found no proof that Reynes agreed that the purchase present Deed of Sale was for the sale of the entire 448m² Mabolo
price be paid by Montecillo to Cebu Ice Storage as required by Article 1240 Lot.
of the Civil Code. The Court also found that Reynes is not privy of Jayag’s 7. Spouses Abucay allege that they received information that the
obligation in favor of the Cebu Ice Storage. Register of Deeds issued a Title covering the Mabolo Lot in the
name of Montecillo.
Since Montecillo never paid Reynes, there was a total absence of 8. Hence, Respondents Reynes and the Abucay Spouses filed a
consideration which is contrary to what was stated in Montecillo’s Deed of Complaint for Declaration of Nullity and Quieting of Title against
Sale. Where the deed of sale states that the purchase price has been paid but petitioner.
in fact has never been paid, the deed of sale is void for lack of consideration 9. Respondents argue that “for lack of consideration, there was no
which is one of the requisites of a valid contract under Article 1318 of the meeting of the minds between Reynes and Montecillo’s hence,
Civil Code. Montecillo’s Deed of Sale is void and the Title issued in his name
should be cancelled.
The Court also found that the Deed was void not only because it lacked 10. Montecillo counters that:
consideration but also because it lacked another requisite of a valid contract 1) He actually paid the P47,000 consideration in the Deed of Sale,
under Article 1318 which is consent since Montecillo and Reynes did not although he admits that he still owes Reynes a balance of P10,000.
reach an understanding on the manner of payment of the purchase price. 2) He paid P50,000 for the release of the chattel mortgage on the
1
Obligations and Contracts (2020) PETITIONER: Rido Montecillo
DIGEST AUTHOR: Myna RESPONDENT: Ignacia Reynes and Spouses Redemptor and Elisa Abucay
Mabolo Lot which he argued constituted a lien on the lot Overall Ruling
3) He paid real property tax and capital gains tax on the sale of the
lot The Deed of Sale did not state that payment should be made to Cebu Ice
11. During pre-trial, Montecillo claims that the consideration for the Storage. Absent any evidence, either verbal or in writing, that Reynes
sale was the amount that he paid to Cebu Ice and Cold Storage agreed to the payment of the purchase price to Cebu Ice Storage, the
Corporation for the mortgage debt of a certain Bienvenido Jayag. payment to be effective must be made to Reynes. This is required by Article
12. Reynes, however, had nothing to do with Jayag’s mortgage debt 1240 of the Civil Code.
except that the house mortgaged by Jayag stood on a portion of the
Mabolo Lot. Reynes further argues that the mortgage on the house,
Issue #2
being a chattel mortgage, could not be interpreted in any way as an
Yes, Montecillo’s Deed of Sale is void and not merely rescissible as it
encumbrance on the Mabolo lot.
lacked not only consideration but also consent.
13. Both the RTC and the CA ruled that Montecillo’s Deed of Sale is
Respondent’s Arguments Court’s Rebuttals
void for lack of consideration.
There is no lack of consideration The failure to pay the consideration
III. Issue/s
that would prevent the existence of is different from lack of
1. W/N Montecillo’s Deed of Sale stated that payment for the lot
a contract. Rather, there is only consideration. The former results in
should be effected through payment of the mortgage to Cebu Ice
non-payment of the consideration the right to demand the fulfillment
Storage. NO
within the period agreed upon. or cancellation of the obligation
2. W/N Montecillo’s Deed of Sale is void and not merely
Montecillo is then only guilty of a under an existing valid contract
rescissible for lack of consideration. YES
breach of his obligation to pay on while the latter prevents the
3. W/N mode or manner of payment is separate from the
time and therefore, Reynes can only existence of a valid contract.
consideration and does not affect the validity of the contract. NO
ask for fulfillment or rescission as This is not merely a case of failure
IV. Holding/s
provided in Article 1191. Moreover, to pay the purchase price as claimed
Issue #1
he claims that since Reynes by Montecillo. Where the deed of
NO, Montecillo’s Deed of Sale does not state that the payment for the
unilaterally revoked the Deed of sale states that the purchase price
lot should be made to Cebu Ice Storage.
Sale, the Court has just cause to fix has been paid but in fact has never
the period of payment of the been paid, the deed of sale is null
● Payment of the mortgage was ● There is no proof that Reynes
balance. and void ab initio for lack of
needed as it constituted as a lien agreed that the purchase price be
consideration.
on the lot. paid by Montecillo to Cebu Ice
Storage as required by Article
1240 of the Civil Code.
2
Overall Ruling
Issue #3
Montecillo considered the amount he paid to Cebu Ice Storage for the No, mode or manner of payment affects the validity of the contract. NO
obligation of Bienvenido Jayag as the consideration. However, Reynes was
not a party to nor privy of the obligation in favor of the Cebu Ice Storage,
Petitioner argues that the only issue An agreement on the price but a
the obligation being exclusively pertaining to Jayag who mortgaged their
in this case is whether or not disagreement on the manner of its
residential house constructed on the disputed Mabolo Lot. The payment
payment has been made. payment will not result in consent,
made by Montecillo to release the residential house from the mortgage is a
thus preventing the existence of a
matter between him and Jayag and cannot by implication or deception be
valid contract for lack of consent.
made to appear as an encumbrance upon the land.
This lack of consent is separate and
distinct from lack of consideration
Since Montecillo never paid Reynes, there was a total absence of
where the contract states that the
consideration which is contrary to what was stated in Montecillo’s Deed of
price has been paid when in fact it
Sale which states that:
has never been paid.
Overall Ruling
“That I, IGNACIA T. REYNES, x x x for and in consideration of
FORTY SEVEN THOUSAND (P47,000.00) PESOS, Philippine
The Court said that Petitioner’s argument implies that the mode of payment
Currency, to me in hand paid by RIDO MONTECILLO xxx, receipt of
is separate from the consideration and does not affect the validity of the
which is hereby acknowledged, have sold, transferred, and conveyed, unto
contract.
RIDO MONTECILLO, x x x a parcel of land x x x.”
The Court cited the case of San Miguel Properties Philippines vs Huang
This is not merely a case of failure to pay the purchase price as claimed by
where they ruled that:
Montecillo. According to Article 1318 of the Civil Code, there is no
contract unless there is (1) consent of the contracting parties, (2) object
“In Navarro v. Sugar Producers Cooperative Marketing Association, Inc.,
certain which is the subject matter of the contract, (3) cause of the
we laid down the rule that the manner of payment of the purchase price
obligation which is established. The failure to pay the consideration is
is an essential element before a valid and binding contract of sale can
different from lack of consideration because the former results in the right
exist. Although the Civil Code does not expressly state that the minds of the
to demand the fulfillment or cancellation of the obligation under an existing
parties must also meet on the terms or manner of payment of the price, the
valid contract while the latter prevents the existence of a valid contract.
same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v.
CA, agreement on the manner of payment goes into the price such that a
Where the deed of sale states that the purchase price has been paid but in
disagreement on the manner of payment is tantamount to a failure to
fact has never been paid, the deed of sale is null and void ab initio for lack
agree on the price.”
of consideration.
3
Consent of the parties on the object and cause of the contract is one of the seek rescission, even after he has chosen fulfillment, if the latter should
essential requisites of a valid contract. In a contract of sale, the parties must become impossible.
agree not only on the price, but also on the manner of payment of the
price. An agreement on the price but a disagreement on the manner of its The court shall decree the rescission claimed, unless there be just cause
payment will not result in consent, thus preventing the existence of a valid authorizing the fixing of a period.
contract for lack of consent. This lack of consent is separate and distinct
from lack of consideration where the contract states that the price has been This is understood to be without prejudice to the rights of third persons who
paid when in fact it has never been paid. have acquired the thing, in accordance with articles 1385 and 1388 and the
Mortgage Law.
In this case, there was no consent, or meeting of the minds, between Reynes
and Montecillo on the manner of payment. Reynes expected that Montecillo Article 1240 of the Civil Code
will pay her directly the P47,000 purchase price within a month after
Payment shall be made to the person in whose favor the obligation has been
signing of the Deed of Sale. Meanwhile, Montecillo thought that his
constituted, or his successor in interest, or any person authorized to receive
agreement with Reynes required him to pay the purchase price to Cebu Ice
it.
Storage to settle Jayag’s mortgage debt. Montecillo also acknowledged a
balance of P10,000 in favor of Reynes although this amount is not stated in
Montecillo’s Deed of Sale. The absence of agreement on the manner of
payment prevented the existence of a valid contract because of lack of There is no contract unless the following requisites concur:
consent. (1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
In summary, Montecillo’s Deed of Sale is void not only for lack of (3) Cause of the obligation which is established.
consideration but also for lack of consent.
VI. Disposition
V. Law or Doctrine Applied.
WHEREFORE, the petition is DENIED and the assailed Decision dated
Article 1191 of the Civil Code July 16, 1998 of the Court of Appeals in CA-G.R. CV No. 41349 is
AFFIRMED. Costs against petitioner.SO ORDERED.
The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.
VII. Random Facts
The injured party may choose between the fulfillment and the rescission of
● Ponente: Carpio, J.
the obligation, with the payment of damages in either case. He may also
4
G.R. No. 130982 | September 16, 2005 Essential Requisites of a Contract: Cause of the Contract (Art. 1355)
Sps Paguyo v. Astorga Sps Paguyo v. Astorga
I. Recit-ready Summary or inadequacy of cause shall not invalidate a contract, unless there has
Petitioners Spouses Paguyo were the owners of the Paguyo Building, been fraud, mistake or undue influence.
which was constructed upon the land owned by the Armas family. The
parcel of land was the subject of a civil case wherein a Compromise The Court discussed how the respondents believed the price to be an
Agreement provided that all rights and interests would be transferred to the adequate amount considering circumstances of the case and the depreciated
Spouses for a consideration of ₱1.7M. In order to raise the remaining value of the property.
amount of ₱917,470.00 and complete the transfer of ownership, Paguyo
entered into a Receipt of Earnest Money with respondent Pierre Astorga for The Court held that the petitioners failed to prove the instances
the sale of the property consisting of the building and the lot to be purchased mentioned in Articles 1355 and 1470, finding it hard to believe that
from the Armases. petitioner Paguyo as an astute businesswoman with legal minds available at
her disposal, had been the disadvantaged party in the contracts despite a
Sps Paguyo, however, failed to comply with their obligation to acquire series of negotiations. The Court found no reason to invalidate the contract
the lot from the Armas family, despite full financial support from Astorga. or reverse the assailed decision.
Paguyo proposed to Astorga the separate sale of the building while the Sps
continued to work on the acquisition of the lot, assuring the respondents that II. Facts of the Case (Material Facts)
they would succeed in doing so. Relying on such assurance, the respondents 1. Petitioners Sps. Paguyo were the owners of the Paguyo Building, a
agreed to the proposal to buy the building first. small five-storey building in Makati Avenue constructed on a land
belonging to the Armas family.
The respondents then paid the petitioners an additional amount of 2. The lot on which the building stood was the subject of the civil
₱500,000.00, renamed the building, and registered the same in the name of case wherein a compromise agreement was approved, providing
respondent St. Andrew Realty after paying ₱169,174.95 of accrued real that in consideration of ₱1.7M, the Armas family would transfer
estate taxes. Respondents, however, ordered to stop payment of the unto petitioners all rights and interests over the land.
₱917,470.00 check, after learning that the Sps Paguyo were in no position to 3. Having previously made partial payments, there was still an urgent
deliver the lot to them. need for Sps Paguyo to make a payment of ₱917,470.00 to the
Armases to complete the transfer of ownership.
Petitioners filed a complaint for the rescission of the Receipt of Earnest
4. In order to raise the needed amount, Lourdes Paguyo entered into a
Money and the other documents. The RTC ruled in favor of the respondents,
ordering the Sps Paguyo to pay the defendants for the damages suffered. Receipt of Earnest Money with respondent Pierre Astorga for the
The CA affirmed the decision in toto. sale of the property consisting of Paguyo Building and the lot to be
purchased from Armas.
The issue presented is W/N the consideration was inadequate as to 5. The agreement provided, among others, that the earnest money
warrant rescission of the contract? shall be good for 15 days from the date of the document during
which the owner is bound to sell the property to the buyer.
The Court found the petition lacking in merit, holding that there was no
inadequacy of consideration and that except in cases specified by law, lesion
Obligations and Contracts (2020) PETITIONER: Sps Domingo and Lourdes Paguyo 1
DIGEST AUTHOR: Micah Espion RESPONDENT: Pierre Astorga and St. Andrew Realty, Inc.
6. Sps Paguyo, however, failed to comply with their obligation to IV. Holding/s
acquire the lot from the Armas family, despite full financial Issue #1
support from Astorga totaling ₱100,000.00. NO, there was no inadequacy of consideration in the case at bar.
7. Paguyo proposed to the respondents the separate sale of the
building while they continued to work on the acquisition of the lot,
• The consideration is a far cry • There is no requirement that the
assuring the respondents that they would succeed in doing so.
from the ₱3M valuation of the price be equal to the exact value
8. Relying on such assurance, the respondents agreed to the proposal
building of the subject matter of the sale
to buy the building first.
• They are entitled to cancel the • Inadequacy of cause shall not
9. The parties executed four documents namely: Deed of Absolute invalidate a contract (Art 1355)
Sale of the Paguyo Building, Mutual Undertaking, Deed of Real Deed of Sale altogether in view
Estate Mortgage, and Deed of Assignment of Rights and Interest. of fraud, gross inadequacy of
10. The respondents then paid the petitioners an additional amount of price, mistake, and undue
₱500,000.00, renamed the building to GINZA Building, and influence.
registered the same in the name of respondent St. Andrew Realty
after paying ₱169,174.95 of accrued real estate taxes. Overall Ruling
11. Pursuant to their Mutual Undertaking, the St. Andrew Realty filed
and thereafter obtained a favorable decision in an ejectment case In finding the petitioner’s contention lacking of merit, the Court held
against the petitioners. that there was no inadequacy of consideration in the case at bar.
12. In July 1989, the respondents learned that the Sps Paguyo were not
in the position to deliver the land, and were then constrained to The Court found that 1) aside from the ₱600,000 that the petitioners
stop payment of the ₱917,470.00 check for the final execution of received, the respondents also shouldered the accrued real estate taxes of
the Deed of Conveyance. ₱169,174; 2) the respondents believed in said price as value for their money
13. In October 1989, Petitioners filed a complaint for the rescission of inasmuch as there were separate owners of the land who were reluctant to
the Receipt of Earnest Money and the other documents. sell it; and 3) in arriving on the amount, they considered the depreciation of
14. Respondents contended that it was apparent in the documents the building and the economic and political circumstances surrounding the
executed that their intention was to purchase the subject building real estate year of 1989.
and lot on which it stands simultaneously.
15. The RTC ruled in favor of the respondents, ordering the Sps Article 1355 of the Civil Code provides that except in cases specified
Paguyo to pay the defendants for the damages suffered. by law, lesion or inadequacy of cause shall not invalidate a contract, unless
16. The CA affirmed the decision in toto. there has been fraud, mistake or undue influence. Furthermore, Article 1470
provides that gross inadequacy of price does not affect a contract of sale,
III. Issue/s except as may indicate a defect in the consent, or that the parties really
1. W/N the consideration was inadequate as to warrant the intended a donation or some other act or contract.
rescission of the contract?
• The Court reduced the award of damages because damages are not
The Court held that the petitioners failed to prove the instances intended for a litigant's enrichment, at the expense of the
mentioned in the articles, finding it hard to believe that petitioner Paguyo as petitioners.
an astute businesswoman, with legal minds available at her disposal, had
been the disadvantaged party in the contracts despite a series of VII. Random Facts
negotiations. • Ponente: Chico-Nazario, J.
The Court held that in any case, there is no requirement that the
price be equal to the exact value of the subject matter of the sale. The
Court found no reason to reverse the assailed decision.

Except in cases specified by law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue
influence.

Gross inadequacy of price does not affect a contract of sale, except as may
indicate a defect in the consent, or that the parties really intended a donation
or some other act or contract.
VI. Disposition
WHEREFORE, the Decision and the Resolution dated 30 April 1997 and 12
September 1997, respectively, of the Court of Appeals in CA-G.R. CV No.
47034, are hereby AFFIRMED with MODIFICATION as to the amount of
damages and attorney's fees recoverable, as follows: (1) moral damages is
reduced to P30,000.00, (2) exemplary damages is reduced to P20,000.00,
and (3) attorney's fees is reduced to P20,000.00. Costs against petitioners.

• The Court found the stipulations in the subject documents plain and
unambiguous, leaving no room for interpretation and no cause for
applying Article 24 of the Civil Code.
G.R. No. 120465 | September 9, 1999 Essential Requisites of Contracts: Cause of Contracts
Uy v. CA Uy v. CA
Petitioners, as authorized agents, offered to sell 8 parcels of land to the 1. Petitioners William Uy and Rodel Roxas are agents authorized to
National Housing Authority (NHA) to be developed for a housing project. sell 8 parcels of land by the owners thereof.
The NHA approved such acquisition. However, after a report from the Land 2. By virtue of such authority, they offered to sell the said land to
Geosciences Bureau of the DENR that the 3 parcels of the said land are respondent National Housing Authority (NHA) to be utilized and
located at an active landslide area which is obviously not suitable for a developed for a housing project.
housing project, the NHA paid only for the 5 parcels and cancelled the sale 3. The NHA approved through a resolution the acquisition of the said
of the remaining part. land.
4. However, the NHA received a report from the Land Geosciences
Petitioners filed a complaint for damages against the respondent. The Bureau of the DENR that the 3 parcels of the subject land area are
trial court declared the cancellation of the contract as justified but located at an active landslide area, hence not suitable for a housing
nevertheless awarded damages to the petitioners. Upon appeal, the CA held project. Considering this, the NHA paid the petitioners only for 5
that there is no reason for the award of damages since the cancellation was out of the 8 parcels of the said land.
justified in the first place. It also ruled that the petitioners are not the real 5. Consequently, the NHA issued another resolution cancelling the
parties-in-interest in this case. Hence, the present petition. sale of the 3 parcels of land and offered an amount of P1.225M to
The petitioners are now contending that the respondent had no legal the landowners for danos.
basis to “rescind” the sale, and even if there was legal basis, they are still 6. Some time after, Petitioners filed a complaint for damages against
entitled to an award of damages. the respondent.
7. The trial court ruled in favor of the respondent, declaring the
The Court first rules that the petitioners are indeed not the real cancellation of the contract to be valid. The court nevertheless
parties-in-interest. Nevertheless, to forestall further litigation, the Court awarded damages to petitioners in the same amount that the
proceeds in ruling that such was not a case of rescission of a contract but respondent initially offered.
cancellation of the same on the basis of the cause of obligation and the lack 8. Upon appeal, the CA reversed the trial court decision and held that
thereof. In this case, the motive of NHA – which is to use lands for a there is no reason for the award of damages since the cancellation
housing project - precedes its cause in entering into the contract of sale. As of the contract was justified in the first place. (The CA also held
the Court rules, the cancellation was indeed justified as the cause of that the petitioners are not the real parties-in-interest in this case.)
obligation on the part of NHA was negated since the parcels of land were 9. Hence, the present petition.
found to be not suitable for a housing project.
1
Obligations and Contracts (2020) PETITIONER: William Uy, Rodel Roxas
DIGEST AUTHOR: Regina Alzaga RESPONDENTS: CA, Hon. Robert Balao, National Housing Authority
Uy v. CA Uy v. CA
III. Issue/s contract should be distinguished from ‘motive’ of a contracting party

which ordinarily does not affect the contract, the motive may be regarded
1. W/N the respondent’s cancellation of the contract was justified.
as the cause when it predetermines the same.
– YES.
As in this case, the NHA entered the contract with the purpose of
acquiring lands suitable for a housing project. Corollarily, the quality of
IV. Holding/s the lands (the motive) was an implied condition for the NHA to enter into
Issue #1 the contract (the cause).
YES, the cancellation of the contract was justified since, in the first With the findings in the report of the Land Geosciences Bureau being a
place, there was no cause of obligation which thus renders the sufficient basis, the cancellation of the contract was justified ultimately
contract inexistent. since the negation of the motive/cause of the obligation renders such
contract inexistent.
Petitioner/Trial Court’s Court’s Rebuttals
Arguments
● The petitioners are confusing
● Petitioners are contending that the respondent’s cancellation of V. Law or Doctrine Applied
NHA had no legal basis for the the contract as a rescission of
rescission of the sale involving contract under Article 1191.
the 3 parcels of land; and that ARTICLES 1350 AND 1351 OF THE CIVIL CODE
even assuming arguendo that it In this case, the NHA did not
rescind the contract but rather Art. 1350. In onerous contracts the cause is understood to be, for each
had legal basis, the petitioners contracting party, the prestation or promise of a thing or service by the other;
are still entitled for damages. cancelled the same based on the
negation of the cause of the in remuneratory ones, the service or benefit which is remunerated; and in contracts
of pure beneficence, the mere liberality of the benefactor.
contract.
Art. 1351. The particular motives of the parties in entering into a contract are
Overall Ruling different from the cause thereof.
The cause of contract is the immediate, direct and proximate reason
which justifies the creation of an obligation through the will of the
contracting parties. While ‘cause’ which is the essential reason for the
2
Uy v. CA Uy v. CA
VI. Disposition
WHEREFORE, the instant petition is hereby DENIED.
VII. Random Facts

● Ponente: Kapunan, J.
3
G.R. No. 169681 | November 5, 2009 Art. 1358
HEIRS OF GONZALES v. HEIRS OF PEREZ HEIRS OF GONZALES v. HEIRS OF PEREZ
I. Recit-ready Summary III. Issue/s

The former Municipality of Marikina in the Province of Rizal owns a parcel 1. W/N the Deed of Sale between Pedro and Marcos is valid
of land. The said property was subdivided into three (3) lots, namely, lots A, considering that it does not appear in a public document? YES.
B and C. A public bidding on the said properties were conducted Pedro
Gonzales was the highest bidder. Pedro sold to Marcos Perez a portion of IV. Holding/s
Lot C. The contract of sale was embodied in a Deed of Sale which was not
notarized. Subsequently, Pedro and Marcos died. The heirs of Marcos sent a Issue #1
demand letter to one of herein petitioners asking for the reconveyance of the YES, The Deed of Sale between Pedro and Marcos is valid even if it
subject property. However, petitioners refused to reconvey the said lot. This does not appear in a public document.
prompted the heirs of Marcos to file an action for "Annulment and/or Petitioner’s Arguments Court’s Rebuttals
Rescission of Deed of Absolute Transfer of Real Property and for • Article 1358 of the Civil Code • failure to observe the proper form
Reconveyance with Damages. The issue in this case is whether or not the requires that it should be prescribed by Article 1358 does
Deed of Sale between Pedro and Marcos is valid considering that it does not embodied in a public document not render the acts or contracts
appear in a public document. The court ruled that the Deed of Sale is valid. enumerated therein invalid.
II. Facts of the Case (Material Facts) Overall Ruling

1. The former Municipality of Marikina in the Province of Rizal owns The court ruled that that the form required under the said Article is
a parcel of land. not essential to the validity or enforceability of the transaction, but
2. The said property was subdivided into three (3) lots, namely, lots merely for convenience. The Court agrees with the CA in holding that a
A, B and C. sale of real property, though not consigned in a public instrument or
3. A public bidding on the said properties were conducted Pedro formal writing, is, nevertheless, valid and binding among the parties, for
Gonzales was the highest bidder. the time-honored rule is that even a verbal contract of sale of real estate
4. Pedro sold to Marcos Perez a portion of Lot C. produces legal effects between the parties. Article 1358 does not require
5. The contract of sale was embodied in a Deed of Sale which was not the accomplishment of the acts or contracts in a public instrument in
notarized. order to validate the act or contract but only to insure its efficacy.
6. Subsequently, Pedro and Marcos died.
7. The heirs of Marcos sent a demand letter to one of herein
petitioners asking for the reconveyance of the subject property.
8. However, petitioners refused to reconvey the said lot.
9. This prompted the heirs of Marcos to file an action for "Annulment
and/or Rescission of Deed of Absolute Transfer of Real Property
and for Reconveyance with Damages.
Obligations and Contracts (2020) PETITIONER: HEIRS OF GONZALES 1

DIGEST AUTHOR: John Joves RESPONDENT: HEIRS OF MARCOS
G.R. No. 169681 | November 5, 2009 Art. 1358
HEIRS OF GONZALES v. HEIRS OF PEREZ HEIRS OF GONZALES v. HEIRS OF PEREZ
The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property;
sales of real property or of an interest therein a governed by Articles 1403,
No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those
of the conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its
object an act appearing or which should appear in a public document, or
should prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing in a
public document.
All other contracts where the amount involved exceeds five hundred pesos
must appear in writing, even a private one. But sales of goods, chattels or
things in action are governed by Articles, 1403, No. 2 and 1405. (1280a)
VI. Disposition
WHEREFORE, WHEREFORE, the instant petition is DENIED. DENIED.

The assailed Decision and Resolution of the Court of Appeals in CA-G.R.
CV No. 60998 are AFFIRMED.
Obligations and Contracts (2020) PETITIONER: HEIRS OF GONZALES 2

DIGEST AUTHOR: John Joves RESPONDENT: HEIRS OF MARCOS
G.R. No. 95897 | Dec. 14, 1999 Art. 1359: OVERSIGHT (Reformation of Instruments)
Huibonhoa v. CA Huibonhoa v. CA
I. Recit-ready Summary 1. 8 June 1983: The parties entered into a Memorandum of

Lim, Chua and Gojocco, who are owners of 3 parcels of land, entered Agreement (MoA) stipulating that Huibonhoa would lease from the
into a lease contract with Huibonhoa, whereby the latter would construct a Gojoccos 3 adjacent commercial lots.
building which would be owned by the lessors after the expiration of the 15- 2. 30 June 1983: pursuant to the MoA, the parties entered into a lease
year lease period. They also agreed that after the building is constructed contract over the same lots for a period of 15 years (starting on 1
within 8 months from signing of the lease contract, Huibonhoa would start July 1983) and renewable upon the agreement of the parties.
paying P45,000.00 monthly rentals. Subsequently, former Sen. Benigno 3. The contract was to enable Huibonhoa to construct a building on
Aquino, Jr. was assassinated. Due to the resulting hoarding of construction
the properties, that she could let/sublease, including the spaces in
materials and skyrocketing interest rates, Huibonhoa failed to complete the
the building, to other interested parties. All amounts collected as
building within the 8-month period and was unable to start paying monthly
rentals. Huibonhoa filed an action for reformation of the contract alleging rents from the property would belong exclusively to Huibonhoa.
that the parties’ true intentions with regard to when the rentals would accrue 4. The contract stipulated that the building must be completed within
were not expressed, and that the rentals would only accrue after the 8 months from the date of the execution of the lease contract.
construction of the building. This was allegedly due to mistake or accident. Further, Huibonhoa would pay P45,000 as monthly rental,
Moreover, she alleged that by reason of mistake and accident, the provided that such obligation to pay the rental shall start upon
lease contract failed to provide that should an unforeseen event dramatically completion of the building, or if not completed within 8 months,
increase the cost of construction, the monthly rental would be equitably then it shall accrue and still be paid to the lessor (during the 8
reduced from P45,000.00 to P30,000.00 and the term of the lease would be months of construction, lessor shall not pay rentals).
extended by 5 years. In answer, the Gojoccos stated that their intention was 5. Upon termination of the lease, ownership and title to the building
to obligate Huibonhoa to pay rentals upon completion of the building or would automatically transfer to the lessor even without
after 8 months from the execution of the contract, whichever came first. implementing any document.
This was in order to prevent Huibonhoa from delaying the construction in
6. 21 August 1983: During construction of the building, former Sen.
order to avoid paying rent. The RTC dismissed the complaint, ruling that
Benigno Aquino was assassinated, affecting the country’s political
Huibonhoa did not present clear and convincing evidence to warrant a
reformation. The CA affirmed. Thus, this petition. and economic stability. The consequent hoarding of construction
The SC held that Huibonhoa indeed did not present clear and materials and increase in interest rates rendered Huibonhoa unable
convincing evidence. In actions for reformation, the onus probandi is upon to complete the building in time.
the party seeking such. The lease contract is clear in that rentals shall accrue 7. Feb 29, 1984: when the building was supposed to be completed.
upon completion of the building, or after 8 months from signing, whichever 8. March 1984: Huibonhoa was supposed to start paying rentals, but
comes first. Huibonhoa failed to discharge that burden of proving that the did not. Gojoccos made verbal demands for payment and for her to
true intention of the parties has not been accurately expressed in the lease vacate.
contract, and therefore the petition is DISMISSED. 9. Sept. 1984: building was completed 7 months later than stipulated.
10. 3 Jan. 1985: Huibonhoa brought an action for reformation of
II. Facts of the Case (Material Facts) contract before RTC Makati. She alleged that their true intention as
to when the monthly rental would accrue was not expressed due to
Obligations and Contracts (2020) PETITIONER: Florencia Huibonhoa 1

DIGEST AUTHOR: Maxi Asuncion RESPONDENT: CA, Spouses Rufina Lim and Anthony Lim, Loretta
Gojocco Chua, Spouses Severino and Priscilla Gojocco
mistake or accident. Rather than the first accrual date being on Petitioner’s Arguments Court’s Rebuttals
March, she alleged that the true intention was that there would be • She presented Rufina G. Lim • Rufina’s testimony doesn’t state
no rentals for the entire period of actual construction. Thus, first (one of the lessors) as a witness, that the contract of lease failed to
rent would only be due in Oct. 1984. who testified that the parties express the true intentions of the
11. Further, she stated that the assassination was an unforeseen event had entered into a MoA; she parties.
that the lease contract failed to provide for: that should an entered into an agreement with • Reliance on the MoA is
unforeseen event dramatically increase the cost of construction, the Huibonhoa whereby the amount misplaced. While the MoA states
monthly rental would be reduced and the term of the lease would of the rent was reduced and the
that rentals shall be due “upon
term of the lease was extended,
be extended for such duration as may be fair and equitable to all completion of the building,” it
and that Huibonhoa started
parties. paying rental in September also provides that its provisions
12. Huibonhoa prayed that the contract be reformed in order to reflect 1984 would bind the parties upon
the true intention of the parties: that the accrual of rents should be • The MoA states that the monthly signing of the lease contract; such
computed from October 1984. rental would be collected each lease contract then qualified the
13. In answer, the Gojoccos said that the true intention of the parties month upon completion of the time when the lessee should start
was to obligate Huibonhoa to pay rents immediately upon the building paying monthly rentals (upon
expiration of the maximum period of 8 months from the execution • The contract should be reformed completion of the building, or
of the lease. This was intended to avoid a situation where because, by reason of after 8 months from the signing
Huibonhoa would deliberately delay construction of the building in oversight/mistake, the true of the contract, whichever comes
order to avoid paying rent. intention of the parties as to first).
14. Gojoccos also stated that the assassination cannot be considered a when the rentals would accrue • Huibonhoa failed to prove what
fortuitous event. was not expressed. costly mistake allegedly
15. RTC ruled that Huibonhoa had not presented clear and convincing • She further alleges that they suppressed the true intention of
evidence to justify reformation of the contract. Huibonhoa was were also unable to express the the parties. She admitted that
ordered to pay the rentals that accrued from March 1, 1984 to Feb intention that should some there was an oversight by her
28 1987, with interests. unforeseen event dramatically own counsel. As such, the
III. Issue/s increase the cost of the building, oversight may not be attributed to
1. W/N the action for reformation will prosper. (NO.) then the amount of monthly rent all the parties, and cannot be
IV. Holding/s shall be reduced to such sum and considered a valid reason for the
the term of the lease extended to reformation of the contract. Since
Issue #1 such period as would be fair and it was Huibonhoa’s counsel
NO, there can be no reformation of contract in this case. equitable to both sides. himself who drafted the contract,
o The unseen assassination any obscurity should be construed
of Aquino delayed against her.

construction work because parties. By bringing an action for reformation, Huibonhoa is precluded from
it made prices and interest inserting stipulations that aren’t in the contract itself.
rates skyrocket. Further, the assassination of Aquino is not a fortuitous event which may
exempt her from liability for breach of an obligation. The assassination per
se was not the cause of the delay in the construction of the building; the
cause of such was the escalation of prices (inflation). The law only affords
Overall Ruling
relief in case of extraordinary inflation, and such is not the case here as it
Reformation is that remedy in equity by means of which a written
was not proven by the evidence. She must still comply with the terms of the
instrument is made or construed so as to express the real intention of the
contract, and pay the rentals. Reformation in this case is not proper. Petition
parties. It is an equitable relief granted to the parties where, through mistake
DISMISSED.
or fraud, the instrument failed to express the real agreement/intention of the
parties. It may not be applied if it is contrary to law or well-settled
principles. It is applied in the absence of law, never against it. Under Art. Art. 1359
1359, an action for reformation may only prosper upon the concurrence of (1) When, there having been a meeting of the minds of the parties to a
all three requisites. The lease contract is proof that there was a meeting of contract, their true intention is not expressed in the instrument purporting to
the minds between the parties; however, the last two requisites are embody the agreement, by reason of mistake, fraud, inequitable conduct or
missing. accident, one of the parties may ask for the reformation of the instrument to
Huibonhoa failed to prove that the contract does not express the true the end that such intention may be expressed.
intention of the parties. Her witness’s testimony does not point to the fact (2) […]
that the contract of lease failed to express the true intentions of the parties.
She also outright admitted that it was her counsel that drafted the contract, Requisites for an action of reformation to prosper:
and that it was his oversight. Since the oversight cannot be attributed to all (1) there must have been a meeting of the minds of the parties to the
parties to the contract, it cannot be considered a valid reason for contract;
reformation. (2) the instrument does not express the true intention of the parties;
(3) the failure of the instrument to express the true intention of the parties is
She contended that such should be interpreted in such a way that she
due to mistake, fraud, inequitable conduct or accident.
should only begin paying monthly rent in Oct. 1984. However, there is a
difference between reformation and interpretation. The latter is a method by Oversight must be proved. There was a failure to prove what costly mistake
which to determine the meaning of the words used in the contract. On the allegedly suppressed the intention of the parties. One party is aware of the
other hand, reformation is that remedy in equity wherein a written oversight in the drafting of the contract. Since such oversight may not be
instrument is made or construed so as to express or conform the real attributed to all the parties to a contract, it cannot be considered a valid
intention of the parties. It is not making a new contract, but confirming and reason for reformation.
perpetuating the real contract between the parties. This remedy is made
possible because it would be unjust to allow the enforcement of a written In actions for reformation: the onus probandi is on the party who insists on
instrument, which doesn’t reflect the real meeting of the minds of the the reformation.
order of ejectment issued by the Metropolitan Trial Court a quo on

VI. Disposition July 30, 1980 is UPHELD; and the private respondent and all
In G.R. No. 95897, the decision of the Court of Appeals in CA-G.R. CV No. persons claiming authority under her are ordered to vacate the land
16575, dismissing petitioner's complaint for reformation of contract, is and portion of the building corresponding to Lot No. 26- B covered
AFFIRMED with the modifications that: by TCT No. 80728 of petitioner Severino Gojocco, and the portion
1. Private respondent Loreta Gojocco Chua is adjudged entitled to corresponding to Lot No. 26-C covered by TCT No. 155450 of
legal interest of 6% per annum from March, 1984, the time the petitioner Loreta Chua. No pronouncement as to costs.
rents became due; o
2. Private respondent Severino Gojocco shall receive 6% legal VII. Random Facts
interest only from the time Florencia T. Huibonhoa defaulted in the • Ponente: Purisima, J.
payment of her monthly rents; and
3. Legal interest of 12% per annum shall accrue from the finality of
this decision until the amount due is fully paid.

- The Court said that if her argument was that a fortuitous event
stopped her from fulfilling her obligation, then she should’ve filed
for rescission of contract, instead of reformation.
- Further, her argument that the agreement with Rufina Lim
novated the contract is bereft of merit. The lease contract has
three lessors, and is indivisible because the lessors’ interests cannot
be separated. Thus, the acts of some of the lessors can only affect
their own individual rights as lessors because no new agreement
was made with all the other lessors.
o In order to novate this contract, which was entered into by
all three lessors and the lessee simultaneously, the
simultaneous act of abrogating the original and at the
same time forging a new one must be done. It must be
signed and agreed upon by ALL the parties.
- There’s another case that’s discussed here, but it seems unrelated to
the topic. It’s an action for ejection, and it talks about jurisdiction
of courts and termination of contracts. Here’s the disposition:
In G.R. No. 102604, the decision of the Court of Appeals in CA-
G.R. SP No. 24654, a rming the decision of the Regional Trial
Court of origin which dismissed the ejectment case instituted by
the petitioners against the private respondent is SET ASIDE; the
G.R. No. 85869 | November 6, 1992 Reformation of Contracts
NIA v. Gamit NIA v. Gamit
I. Recit-ready Summary Gamit alleges the following:

a. That in at least three paragraphs, (4, 8, 9) the NIA surreptitiously
On 23 January 1985, the Plaintiff Estanislao Gamit (private respondent inserted the following stipulations:
herein) filed with the RTC of Roxas, Isabela, a complaint against the defendant i. “4. That should LESSEE decides (sic) to continue
National Irrigation Administration for reformation of contract, recovery of utilizing the said portion of twenty five thousand
possession and damages, alleging, among others that in the contract of lease entered (25,000) square meters, more or less, beyond the ten
into, the real agreement or intention of the parties was only for the lease of the (10) year period that this contract is in force, then
twenty five (25,000) thousand square meters by defendant at the rate of P0.10 lessee may purchase the property and all rentals paid
centavos per square meter, for a period of ten (10) years from date of execution with to lessor shall be considered part of the purchase price
the right of defendant to purchase the area upon the termination of the lease, on a (which) shall not exceed twenty five thousand
price certain or consideration to be negotiated and agreed upon, by and between the (P25,000.00) Pesos;”
parties after the lapse of the ten (10) year period; That it was not the intention of the ii. “8. That six (6) months before the expiration of the ten
parties, at least that of herein plaintiff, to have the rentals paid as forming part of the (10) year period, LESSOR shall request LESSEE in
purchase price later to be negotiated or agreed upon, much less was it their intention writing about the latter's final intention on the herein
at least on the part of herein plaintiff, that the price shall not exceed P25,000.00, (property) leased; likewise, LESSEE shall inform
otherwise, there will be a gross inadequacy of the purchase price, enough to shock LESSOR in writing about LESSEE'S definite intention
the conscience of man and that of the court; that it was not also the intention or on the area; failure of parties to make bilateral
agreement of the parties, at least that of herein plaintiff, that in case the lease communication shall be deemed that this contract is in
contract is not renewed after the lapse of the ten (10) year period, for failure of the force and effect even after the ten (10) year period, as
parties to make bilateral communication, the lessor or his successors or assigns are if LESSOR, his successors, or assigns allowed
deemed to have allowed continued use of the land in suit without any additional continued use of the property by LESSEE without any
compensation whatsoever (see stipulation no. 8, contract of lease) and neither was it additional compensation whatsoever.”
the true agreement or real intention of the parties, at least on the part of herein iii. 9. That upon payment of the said amount of Twenty
plaintiff, that upon payment of the rental amount of P25,000.00, herein plaintiff shall Five Thousand (P25,000.00) Pesos, the land owner,
be deemed to have conveyed and ceded all his rights and interest on the subject Estanislao Gamit shall be deemed to have ceded and
property, in favor of herein defendant. conveyed all his rights and interest on the subject
property free from all liens and encumbrances in favor
RTC ruled in favor of plaintiff and against herein defendant. CA affirmed. of the National Irrigation Administration. Certified
Hence, the present petition for review. xerox copy of the contract is hereto attached as Annex
"B", to form part hereof.
Facts of the Case (Material Facts) b. That during negotiations an agreement was prepared by NIA for
the signature of Gamit; but for reasons unknown, the document
I. On 5 June 1975, National Irrigation Association and Estanislao Gamit was not however signed by the Assistnat Project Manager of the
entered into a contract of lease over Gamit’s parcel of land for a NIA, for which reason the contract was not perfected. Gamit
consideration or rental in the sum of ten centavos per square meter, per suggests that this was possibly because NIA’s Asst. Project
year, for ten years, from the date of execution, for use by NIA on which to Manager wanted to prolong Gamit’s anxiety, which was
construct the Administration Building and other facilities for the Magat aggravated by his deep financial needs, a fact known by the
River Multi-Purpose Project. Assistant Project Manager, thereby exercising undue influence
II. On 23 January 1985 Estanislao Gamit filed a case in the RTC against the or advantage over Gamit.
NIA for reformation of contact, recovery of possession, and damages. c. That subsequently after that on August 27, 1975, the whole
Obligations and Contracts (2020) PETITIONER: The National Irrigation Administration (NIA), represented by the 1
Project Manager, Magat River Multi-Purpose Project
DIGEST AUTHOR: Ryon Rivera RESPONDENT: Estanislao Gamit, and The Honorable Court of Appeals
rental was offered to be paid by the NIA and because of his need sale. The mere fact that there is a period agreed upon by the parties which
of case due to financial distress, Gamit accepted the offer. is ten (10) years from June 6, 1975 to June 6, 1985 clearly indicate that the
d. That only recently that Assistant Project Manager notified him contract between them is a lease contract not sale. The agreement of the
of the election to purchase the leased premises, allegedly in parties that the P25,000.00 paid in full to the plaintiff to be the purchase
accordance with stipulation No.8 above. price of the two and one-half hectares however, cannot be considered as
e. That the contract of lease entered into does not express the real the consideration for purposes of the option to buy of the defendant for the
agreement or intention of the parties, as there was error or reason that the said amount was paid to the plaintiff as rentals for the use
mistake on the part of Gamit on account of his financial distress, of the property during the period of ten (10) years when the option to buy
and that NIA acted fraudulently, exercising undue influence over of the defendant is not yet being exercised by the latter otherwise it will be
Gamit in such a way that their real agreement was not reflected considered as pactum commissorium which in the eyes of the law is illegal
in the contract signed. per se. To hold otherwise, would deprive the plaintiff the reasonable
f. That the real intention of the parties was only for the lease of the rentals of the two and one-half hectares during the duration of the lease
25,000 sqm at the rate of P0.10 centavos per sqm for a period of contract because then the P25,000.00 would be considered as advance
10 years with the right of defendant to purchase the area upon payment of the land
termination of the lease, on a price to be negotiated and agreed IV. The CA affirmed the ruling of the trial court.
upon after the lapse of the 10 year period.
g. That it was not the real agreement or intention of the parties, at II. Issue/s
least that of herein plaintiff, to have the rentals paid as forming 1. W/N the CA properly interpreted the contract.
part of the purchase price later to be negotiated or agreed upon,
much less was it their intention at least on the part of herein III. Holding/s
plaintiff, that the price shall not exceed P25,000.00
h. That the fair and reasonable market value of the land is no less Issue #1
than P50.00 per sqm. NO, The CA should have conducted a trial and received the evidence of the
i. That after the lease contract was executed and registered, herein parties for the purpose of ascertaining the true intention of the parties when
defendant fenced the area leased, but in the process, the latter they executed the instrument in question
stealthily and surreptitiously expanded its occupation and it Petitioner’s Arguments Court’s Rebuttals
included the remaining portion of five (5,000) thousand square • •
meters which could have been easily planted to palay which
Overall Ruling
would yield an average of no less than 100 cavans of palay, for 3
croppings a year and that he is entitled to compensatory damages A perusal of the complaint at bar and the relief prayed for therein shows that this
for such. is clearly a case for reformation of instrument
III. Upon a summary judgment, the Trial Court ruled in favor of Gamit. It
ruled that the contract between the parties was a contract of lease with the
In order that an action for reformation of instrument as provided in Article 1359 of
right to purchase. It reasoned: The plaintiff much less the defendant could
the Civil Code may prosper, the following requisites must concur: (1) there must
not claim ignorance of the contract executed by them because the latter is
have been a meeting of the minds of the parties to the contract; (2) the instrument
represented by a battery of corporate counsel aside from the Office of the does not express the true intention of the parties; and (3) the failure of the
Solicitor General and a project Manager whose educational qualification is instrument to express the true intention of the parties is due to mistake, fraud,
above an ordinary citizen or individual. The court cannot therefore sustain inequitable conduct or accident.
the contention of the defendant that the contract entered into is that of sale
and hereby holds that it is a lease contract with the right to purchase not
Otherwise stated, the complaint at bar alleges that the contract of lease with right to Art. 1359. When, there having been a meeting of the minds of the parties to a
purchase does not express the true intention and agreement of the parties thereto contract, their true intention is not expressed in the instrument purporting to embody
due to mistake on the part of the plaintiff (private respondent) and fraud on the part the agreement, by reason of mistake, fraud, inequitable conduct or accident, one of
of the defendant (petitioner), i.e., by unlawfully inserting the stipulations contained the parties may ask for the reformation of the instrument to the end that such true
in paragraphs 4, 8 and 9 in said contract of lease. intention may be expressed.
As a general rule, parol evidence is not admissible for the purpose of varying the ARTICLE 1362 OF THE CIVIL CODE
terms of a contract. However, when the issue that a contract does not express the Art. 1362. If one party was mistaken and the other acted fraudulently or inequitably
intention of the parties and the proper foundation is laid therefor — as in the in such a way that the instrument does not show their true intention, the former may
present case — the court should hear the evidence for the purpose of ascertaining ask for the reformation of the instrument.
the true intention of the parties.
V. Disposition
From the foregoing premises, we hold that the trial court erred in holding that the VI. WHEREFORE, the decision of the trial court dated 20 March 1986 as
issue in this case is a question of law and not a question of fact because it merely well as the decision of the Court of Appeals dated 14 November 1988
involves the interpretation of the contract between the parties. The lower court are hereby SET ASIDE and the case should be, as it is hereby,
erred in not conducting a trial for the purpose of determining the true intention of REMANDED to the court of origin for further proceedings in
the parties. It failed to appreciate the distinction between interpretation and accordance with this decision. Without costs.
reformation of contracts. While the aim in interpretation of contracts is to ascertain
the true intention of the parties, interpretation is not, however, equivalent to
reformation of contracts.
VII. Random Facts
Since the complaint in the case at bar raises the issue that the contract of lease does
• Ponente: Padilla, J.
not express the true intention or agreement of the parties due to mistake on the part
of the plaintiff (private respondent) and fraud on the part of the defendant
(petitioner), the court a quo should have conducted a trial and received the
evidence of the parties for the purpose of ascertaining the true intention of the
parties when they executed the instrument in question.
IV. Law or Doctrine Applied
G.R. No. 157439 | July 4, 2007 Art. 1359 Reformation
Multi-Ventures Capital v Stalwart Management Multi-Ventures Capital v Stalwart Management
I. Recit-ready Summary Agreement, the petitioner bought from the respondent Land Bank
Multi-Ventures (petitioner) alleged that Stalwart (respondent) bonds originally valued at P11,557,972.60 at a discounted price.
borrowed P9,000,000 with interest from the petitioner and for purposes of Petitioner claimed that the bonds serve as a partial collateral for the
expediency, this transaction was denominated by the parties as a sale of payment for the payment of loan.
Land Bank bonds from Stalwart to Multi-Ventures as shown in a 3. Petitioner alleged that the respondent and some of its officers
Confirmation of Agreement. The Bonds, as Multi-Ventures said, only serve planned to defraud their creditors by absconding and disposing its
as partial collateral for the payment of the loan. Multi-Ventures suspects that properties, which constrained the petitioner to file the complaint for
Stalwart will defraud on its loan obligation, by absconding and disposing its
reformation to express the true intent of the parties that the sale of
properties, with Multi-Ventures impelling Multi-Ventures to file before the
Makati RTC a Complaint for Reformation of Instrument with application for bonds is a loan agreement and not a sale.
attachment against the respondent, and to express the true intent of the 4. Petitioner filed before Makati RTC a Complaint for Reformation of
parties that the apparent sale of the bonds is actually a loan agreement. Instrument with application for attachment against the respondent.
Stalwart denied all allegations and affirmed the intent of the parties that the 5. Respondent filed an answer denying the allegations and affirmed
transaction they had was really a sale of Land Bank bonds. Supporting this the intent of the parties that the transaction they had was really a
statement is the fact presented that Multi-Ventures and Stalwart are engaged sale of Land Bank bonds. Supporting this statement is the fact
in dealing and trading government securities. The Makati RTC ordered the presented that Multi-Ventures and Stalwart are engaged in dealing
reformation from Contract of Sale to Contract of Loan. CA reversed RTC and trading government securities.
decision. No reformation needed and the transaction was that of a sale. The 6. Makati RTC ordered the reformation from Contract of Sale to
issue in this case is whether the contract entered into by the parties is one of Contract of Loan.
loan or sale. 7. CA reversed RTC decision. No reformation needed and the
The SC affirmed the CA’s decision that the transaction was one of sale transaction was that of a sale.
and not of loan. The SC cited Article 1359 of the Civil Code which presents
III. Issue/s
the requisites in order for an action for reformation of instrument may
prosper (see Law or Doctrine). Reformation is a remedy in equity and is not 1. W/N the contract entered into by the petitioner and the
making a new contract but establishing and perpetuating the real contract respondent is one of loan? NO.
between parties. The petitioner failed to show mistake, fraud, inequitable
conduct, or accident in the execution of the agreement. The petitioner even IV. Holding/s
admitted that the parties agreed to execute a purchase and sale agreement
“for purposes of expediency and convenience” and this is not a ground for Issue #1
reformation of an instrument. Therefore, the petitioner has no cause of NO, the transaction between the parties was one of sale and not of loan.
action for reformation Petitioner’s Arguments Court’s Rebuttals
• The buy-back letter proves that • Nothing on the record, even the
II. Facts of the Case (Material Facts) the transaction was a loan because buy-back letter, clearly proves that
1. January 11, 1991, Stalwart (respondent) obtained from Multi- if it was a sale, why would the the real intent was to enter into a
Ventures (petitioner) a loan amounting to P9,000,000.
respondent buy back the bonds in loan agreement for P11,557,972.60
2. However, for purpose of expediency, the said transaction was
the same amount that was payable • If bonds were only to serve as a
denominated as a sale where, as shown in the Confirmation of
Obligations and Contracts (2020) PETITIONER: Multi-Ventures Capital and Management Corporation 1
DIGEST AUTHOR: Joses RESPONDENT: Stalwart Management Services Corporation
G.R. No. 157439 | July 4, 2007 Art. 1359 Reformation
Multi-Ventures Capital v Stalwart Management Multi-Ventures Capital v Stalwart Management
under their loan agreement? collateral for the loan, why would
respondent offer to buy them back
if they were not sold in the first V. Law or Doctrine Applied
place?
Overall Ruling
ARTICLE 1359. When, there having been a meeting of the minds of the parties to a
The burden of proof devolves on the party asserting that the instrument contract, their true intention is not expressed in the instrument purporting to embody
did not express the true intention of the parties and so needs to be reformed. the agreement, by reason of mistake, fraud, inequitable conduct or accident, one of
The presumption is that an instrument sets out the true agreement of the the parties may ask for the reformation of the instrument to the end that such true
parties thereto and that it was executed for valuable consideration. Multi- intention may be expressed.
Ventures failed to overturn the presumption of validity of the contract and it
also failed to discharge the burden of proving that the true intention of the REQUISITES IN ORDER FOR AN ACTION FOR REFORMATION OF
parties has not been expressed. INSTRUMENT MAY PROSPER
(1) there must have been a meeting of the minds of the parties to the contract;
(2) the instrument does not express the true intention of the parties; and
The Court did not find merit in the argument and said that the buy-back (3) the failure of the instrument to express the true intention of the parties is
arrangement only corroborates the fact that the transaction was of sale. For if due to mistake, fraud, inequitable conduct or accident
the bonds were only to serve as a collateral for the loan, why would
respondent offer to buy them back from petitioner if they were not sold in the VI. Disposition
first place? The ownership of the bonds had been transferred from respondent
to petitioner on January 11, 1991; for if it were not so and the bonds were WHEREFORE, the petition is DENIED for lack of merit. Costs against
merely being held by petitioner as a security for the payment of the alleged petitioner. SO ORDERED.
loan, then ownership would have remained with respondent and there would
have been no need to buy it back. VII. Random Facts
• Ponente: Austria-Martinez, J.
In addition, the Court took notice of a subsequent transaction made by
Multi-Ventures of using the Land Bank bonds as collateral for an investment
from AFP Mutual Benefits Association, Inc. which is evidently an act of
ownership.
Lastly, Multi-Ventures failed to establish existence of the third requisite

which is, the failure of the instrument to express the true intention of the
parties is due to mistake, fraud, inequitable conduct or accident. Absent any
proof of mistake, fraud, inequitable conduct or accident, the Confirmation of
Agreement dated January 11, 1991 remains the best evidence to ascertain the
real intent of the parties.
Obligations and Contracts (2020) PETITIONER: Multi-Ventures Capital and Management Corporation 2
DIGEST AUTHOR: Joses RESPONDENT: Stalwart Management Services Corporation
G.R. No. 66394| February 5, 1990 Article 1367
Sauna v Ng Sauna v Ng
I. Recit-ready Summary 4. Ng paid the rentals due until December of 1976 and then Uy refused to
Juanito Uy allegedly terminate Alejandro Ng’s appointment as accept rentals for 1977 asking for Ng to leave the premises instead.
manager-administrator for the latter failure to comply with the terms of his 5. With the help of Metrocom soldiers, Uy forcibly ejected Ng from the
appointment. Ng then filed a case for specific performance in the Court of premises and assumed full control of the business. Uy then placed a notice
First Instance on January 21, 1977 and amended this complaint to one of outside of the establishment which stated that Ng’s services was terminated
breach of contract and damages a week after. The complaint stated that Uy and that there is another person to manage the establishment.
agreed to lease the Paradise Sauna Clinic to Ng in which the latter would 6. Uy answered that Ng’s appointment as manager-administrator was
assume full control of the business from 1976 to 1979 with 8,000 pesos terminated for the latter’s failure to pay water and electric bills, failure to
stipulated as the rentals and 16,000 pesos as a bond. Ng paid the rental due pay employee salaries, failure to supply necessary provisions, etc.
for the first full year. Uy then denied to accept further rentals and instead 7. The lower court decided in favor of Ng where the court ordered to return
asked Ng to vacate the premises. Uy, along with Metrocom soliders, the management and operation of the clinic to Ng for the unexpired term of
forcibly ejected Ng out of the establishment. The lower court decided in the lease. The lower court also declared the contract they entered into as a
favor of Ng and ordered Uy to return control of the clinic to Ng for the contract of lease and not of employment.
unexpired term of the lease considering that the contract they entered into 8. On appeal to the IAC, it affirmed the decision of the lower court.
was that of a lease. The Intermediate Appellate Court affirmed the ruling. III. Issue/s
The main issue in this case is whether or not the IAC erred in sanctioning 1. W/N the IAC erred in sanctioning the reformation of the contract
the reformation of the contract (Exhibit A) from one of management to one (Exhibit A) from one of management to one of lease contrary which is
of lease contrary which is contrary to Article 1367 of the civil code.The contrary to Article 1367 of the civil code. (NO).
Supreme Court ruled that Article 1367 cannot apply because in this case, IV. Holding/s
Ng’s amended his complaint as a matter of right accorded under the Rules of Issue #1
Court because Uy failed to file a responsive pleading and Ng also brought The IAC did not err in sanctioning the reformation of the contract
upon the amended action to enforce his rights as a lessee to the corporation. (Exhibit A) from one of management to one of lease contrary which is
The Supreme Court upheld the lower court’s declaration that the contract the contrary to Article 1367 of the civil code.
parties entered into was that of a lease and not of employment.  When respondent Ng filed an Court’s Rebuttal
II. Facts of the Case (Material Facts) action for specific performance  Article 1367 does not apply in
1. Uy allegedly terminated Ng’s appointment as manager-administrator for then for breach of contract this case.
the latter’s failure to comply with the terms of his appointment, taking effect later, he should have been  Ng amended his complaint as a
on January 15, 1977. presumed to have admitted the matter of right
2. Ng filed a case for specific performance in the CFI. Ng further amended due execution and contents of
the complaint for one of breach of contract. the letter-contract.
3. Such complaint alleged that on December 1975, Uy agreed to lease  He should never have been
Paradise Sauna in which they entered into a contact where Ng would have allowed to deny the contents
full control of the business on January 1976 until September 1979 with a thereof for purposes of
payment of 8,000 pesos as rentals and a 16,000 peso guarantee bond. reforming the said instrument
Obligations and Contracts (2020) PETITIONER: Paradise Sauna Corp and Juanito Uy 1
DIGEST AUTHOR: Himerio Garcia RESPONDENT: Alejandro Ng and Intermediate Appellate Court
Overall Ruling
Article 1367 cannot apply to Ng's case. Since when Ng amended his original Art. 1643.
complaint for specific performance, he did so as a matter of right since no In the lease of things, one of the parties binds himself to give to
responsive pleading had been filed by Uy. Under Section 2, Rule 10 of the another the enjoyment or use of a thing for a price certain, and for a period
Revised Rules of Court, "a party may amend his pleading once as a matter which may be definite or indefinite. However, no lease for more than
of course at any time before a responsive pleading is served . . . ." The ninety-nine (99) years shall be valid.
original pleading is deemed abandoned when it is amended. This means that
VI. Disposition
the amended pleading replaces the original one which no longer forms part
of the record and the trial of the case is made on the basis of the amended WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition
pleading only. is DISMISSED. The judgment appealed from is AFFIRMED with the
In Ng’s case, his amended complaint brought an action for breach of MODIFICATION that the award of moral and exemplary damages is
contract not to enforce his rights as manager-administrator but as lessee of hereby reduced to a total of P20,000. The term of the lease having
the petitioner corporation. Also, parol evidence was introduced to prove that expired, the order to return the massage clinic to the private
the contract in question was not a management contract as it appeared on its respondent is DELETED.
face but a lease contract. In ruling that the subject contract is a lease contract
and not a management contract, the supreme court adopted the findings of VII. Additional Notes
fact made by the trial court and affirmed by the respondent court.
Disputed Letter of Juanito Uy to Mr. Ng
Also Uy’s claim that Ng is thier manager-administrator is untenable because
By authority of the Board of Directors, you are hereby appointed to MANAGE and
it fails the control test pertinet to the existence of an employer-employee ADMINISTER the PARADISE SAUNA and MASSAGE CORPORATION
relationship. Employee Control of Uy over Ng is lacking in this case. effective January 1, 1976, under a commission basis over and above the amount of
Exhibit A (the contract) is under the nature of a lease which is governed by EIGHT THOUSAND PESOS (P8,000.00) which should be remitted to us not later
Article 1643. The Supreme Court finds no reason to disturb the finding that than the
first five (5) days of each month starting January 1, 1976.
the contract is one of a lease.
Further, since there is proof of the real nature of the contract to be one of
In addition, you are to fulfill the following terms and conditions:
lease, Uy being a party to a simulated contract of management cannot be 1. You are to remit the amount of Sixteen Thousand Pesos
permitted to escape liability by hiding under the veil of corporate entity. immediately after accepting this appointment as a guarantee bond for the faithful
This is an instance where such veil must be pierced to avoid injustice. performance of your duties.
2. Further, all government licenses, permits, utilities and services
in the premises such as water, gas, electricity, telephone, additional air
conditioning units and the installation and repairs thereof and all other
repairs therein during your management shall be for your account;
3. The sole control and management of the premises shall belong to you and you are
Art. 1367. not responsible to Anybody nor to Any Board of
When one of the parties has brought an action to enforce the Directors except to me alone;
instrument, he cannot subsequently ask for its reformation. 4. You are empowered to make any renovation, repairs and
improvements but expenses shall be for your account as well as to change or add
personnels therein;
5. Please take all good care of all the equipment and facilities
presently existing therein and see to it that they are always in good working
condition; Otherwise, the loss and damage on any of this equipment and facilities
shall be borne by you;
6. In case, however, that you will not be in a position to continue
Managing and Administering the business profitably due to any
Government Rules, Decree or Regulations or Force Majeure, this
appointment shall be suspended for a period of 3 months for the purpose of
determining whether or not you can still continue managing the same.
Rule 130, Sec. 7 of the Revised Rules of Court :

SEC. 7. Evidence of written agreements.
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, except in the following cases.
(a) 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;
(b) When there is an intrinsic ambiguity in the writing.
VII. Random Facts
 Ponente: Gutierrez, J.
G.R. No. 128991 | April 12, 2000 Reformation of Instruments (Arts. 1359-1369)
Rosello-Bentir v Leanda Rosello-Bentir v Leanda
I. Recit-ready Summary 4. Petitioners argued that the inadvertence of the lawyer who prepared
Yolanda Rosello-Bentir (petitioner) and Leyte Gulf Traders the lease contract is not a ground for reformation. Respondent
Incorporation (respondent), entered into a contract of lease of a parcel of corporation is also guilty of laches for not bringing the case for
land located at Sagkahan District, Tacloban City, on 05 May 1968, for a reformation of the lease contract within the prescriptive period of
period of twenty (20) years. Included in said covenant of lease is the verbal ten (10) years from its execution.
understanding and agreement between the contracting parties, that when the 5. The Trial Court issued an order dismissing the complaint premised
petitioner (as lessor) will sell the subject property, the respondent as (lessee) on its finding that the action for reformation had already
has the "right of first refusal", that is, the right to equal the offer of any other
prescribed.
prospective third-party buyer. So, the issue in this case is whether or not the
6. The RTC reversed the order of dismissal on the grounds that the
complaint for reformation of instrument by respondent Leyte Gulf Traders,
Inc. had already prescribed? The trial court ruled in favor of the petitioner action for reformation had not yet prescribed and the dismissal was
and dismissed the complain of respondent, however the RTC reversed the "premature and precipitate", denying respondent corporation of its
dismissal done by the trial court and ruled that the action for reformation right to procedural due process.
had not yet prescribed. Likewise, the Court of Appeals denied the petition 7. Court of Appeals found no error in the questioned order nor grave
and affirmed the order of the RTC. Hence, this petition for review to resolve abuse of discretion on the part of the trial court that would amount
the issue of whether reformation of instrument had already prescribed. The to lack, or in excess of jurisdiction, denied the petition and
SC granted the petition and reversed the decision of the CA on the grounds affirmed the questioned order.
that the reformation had prescribed since respondent corporation had ten 8. Hence, the petition for review.
(10) years from 1968, the time when the contract of lease was executed, to
file an action for reformation, but respondent did so twenty-four (24) years III. Issue/s
after the cause of action accrued, hence, its cause of action has become stale, 1. W/N the complaint for reformation of instrument by
hence, time-barred.
respondent Leyte Gulf Traders, Inc has prescribed? YES.
1. Leyte Gulf Traders, Inc. alleged that it entered into a contract of IV. Holding/s
lease of a parcel of land with Yolanda Rosello-Bentir for a period
of twenty (20) years starting May 5, 1968. Issue #1
2. Leyte Gulf Traders, Inc. questioned the selling of Bentir of the YES, the reformation of instrument had prescribed since it was done
leased promises to spouses Samuel Pormada and Charito Pormada after the lapse of 10 years from the execution of the contract.
as the respondent corporation had the right of first refusal. Petitioner’s Arguments: Court’s Rebuttals
3. Leyte Gulf Traders, Inc. sought the reformation of the expired • The inadvertence of the lawyer • First, if, according to
contract of lease on the ground that its lawyer inadvertently omitted who prepared the lease contract respondent corporation, there
to incorporate in the contract the verbal agreement or is not a ground for reformation. was an agreement between the
understanding between parties that in the event Bentir leases or Respondent corporation is parties to extend the lease
sells the lot after the expiration of the lease, Leyte Gulf Traders, guilty of laches for not bringing contract for four (4) years after
Inc. has the right to equal the highest offer. the case for reformation of the the original contract expired in
Obligations and Contracts (2020) PETITIONER: Yolanda Rosello-Bentir, Samuel Pormida, Charito Pormida 1
DIGEST AUTHOR: Antonio Enrile-Inton III RESPONDENT: Mateo M. Leanda and Leyte Gulf Traders, Inc.
lease contract within the 1988, then Art. 1670 would not for reformation accrued from
prescriptive period of ten (10) apply as this provision speaks the date of execution of the
years from its execution. of an implied new lease (tacita contract of lease in 1968.
reconduccion) where at the end
Respondent Arguments: of the contract, the lessee Overall Ruling
• The action for reformation has continues to enjoy the thing The remedy, being an extraordinary one, must be subject to limitations as
not prescribed. The 10-year leased "with the acquiescence may be provided by law. Our law and jurisprudence set such limitations,
prescriptive period should be of the lessor", so that the among which is laches. A suit for reformation of an instrument may be
reckoned not from the duration of the lease is "not for barred by lapse of time. The prescriptive period for actions based upon a
execution of the contract of the period of the original written contract and for reformation of an instrument is ten (10) years under
lease in 1968, but from the date contract, but for the time Article 1144 of the Civil Code. Prescription is intended to suppress stale and
of the alleged 4-year extension established in Article 1682 and fraudulent claims arising from transactions like the one at bar which facts
of the lease contract after it 1687." In other words, if the had become so obscure from the lapse of time or defective memory.
expired in 1988. Consequently, extended period of lease was
when the action for reformation expressly agreed upon by the In the case at bar, respondent corporation had ten (10) years from 1968, the
of instrument was filed in 1992 parties, then the term should time when the contract of lease was executed, to file an action for
it was within ten (10) years be exactly what the parties reformation. Sadly, it did so only on May 15, 1992 or twenty-four (24)
from the extended period of the stipulated, not more, not less. years after the cause of action accrued, hence, its cause of action has
lease. The Court of Appeals • Second, even if the supposed 4- become stale, hence, time-barred.
agreed that the extended period year extended lease be
of lease was an "implied new considered as an implied new
lease" within the contemplation lease under Art. 1670, "the V. Law or Doctrine Applied
of Article 1670 of the Civil other terms of the original ARTICLE 1359 OF THE NEW CIVIL CODE
Code, under which provision, contract" contemplated in said Art. 1359. When, there having been a meeting of the minds of the parties to
the other terms of the original provision are only those terms a contract, their true intention is not expressed in the instrument purporting
to embody the agreement, by reason of mistake, fraud, inequitable conduct
contract were deemed revived which are germane to the
or accident, one of the parties may ask for the reformation of the instrument
in the implied new lease. lessee’s right of continued
to the end that such true intention may be expressed.
enjoyment of the property
leased. The prescriptive If mistake, fraud, inequitable conduct, or accident has prevented a meeting
period of ten (10) years of the minds of the parties, the proper remedy is not reformation of the
provided for in Art. 1144 instrument but annulment of the contract.
applies by operation of law,
not by the will of the parties. ARTICLE 1144 OF THE NEW CIVIL CODE
Therefore, the right of action
Art. 1144. The following actions must be brought within ten years from the
time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
VI. Disposition
WHEREFORE, the petition is hereby GRANTED. The Decision of the
Court of Appeals dated January 17, 1997 is REVERSED and SET ASIDE.
The Order of the Regional Trial Court of Tacloban City, Branch 7, dated
December 15, 1995 dismissing the action for reformation is REINSTATED.

The remedy of reformation of an instrument is grounded on the principle
of equity where, in order to express the true intention of the contracting
parties, an instrument already executed is allowed by law to be reformed.
agencies authorized by law to exercise the power to reform an instrument,
must necessarily exercise that power sparingly and with great caution and
zealous care.
VII. Random Facts

• Ponente: Kapunan, J.
G.R. No.146726| June 16, 2006 Reformation of Instruments
Multi-Realty Corp. v. Makati Tuscany Multi-Realty Corp. v. Makati Tuscany
I. Recit-ready Summary The Supreme Court ruled that the complaint for reformation was filed on
Multi-Realty constructed Makati Tuscany Condominium, which consists of time and it should not have been dismissed solely on the basis of
160 units and 270 parking slots. A total of 164 parking slots were alloted to prescription. Prescription was not alleged nor was taken up in the RTC.
each condo unit, 8 slots were designated as guest parking slots, while 98 Well settled is the rule that no questions will be entertained on appeal unless
slots were retained by Multi-Realty to be sold to the unit owners. Makati they have been raised in the lower court. Respondent assailed petitioner's
Tuscany Corporation (MATUSCO) was organized to manage the condo. In ownership only in 1989 and claimed ownership of the unassigned parking
1975, Multi-Realty executed the Master Deed of Makati Tuscany. Section 5 slots, and it was then that petitioner discovered the error in the Master Deed;
of the Master Deed states that the parking lot/s that are assigned to each unit the dispute over the ownership of the parking slots thereafter ensued. In this
is reserved for the exclusive use of its owner, while Section 7 states that the case, before petitioner became aware of respondent's denial of its right
common areas shall comprise of all the parts of the project other than the under their true contract, petitioner could not be expected to file an action
units, all driveways, and parking areas other than those assigned to each unit for the reformation of the Master Deed. It was only in 1989 that petitioner's
under Sec. 5. The Master Deed was filed with the Register of Deeds in cause of action for a reformation of the Master Deed accrued. Since
1977. Multi-Realty executed a Deed of Transfer in favor of MATUSCO petitioner filed its complaint in 1990, the prescriptive period had not yet
over the common areas. The Master Deed and Deed of Transfer did not elapsed.
reflect the ownership of the 98 parking slots retained by Multi-Realty.
Multi-Realty proceeded to sell some of the parking slots to the unit owners, II. Facts of the Case
without the objection of MATUSCO. Multi-Realty, through its President, 1. Multi-Realty constructed Makati Tuscany Condominium (Makati
requested for 2 parking slots for the use of their executives. MATUSCO Tuscany), one of the first condominium projects in the Philippines.
denied the request, asserting, for the first time, that the remaining 2. Makati Tuscany consisted of 160 units and 270 parking slots.
unallocated parking slots were common areas owned by MATUSCO. 3. 164 parking slots were alloted to each unit of the condo, 8 parking
Multi-Realty filed a complaint in the RTC for damages and Reformation of slots were designated as guest parking slots, while the remaining 98
Instrument. Multi-Realty also alleges that the mistake was discovered for slots were to be retained by Multi-Realty for sale to unit owners who
the first time when MATUSCO rejected its request for 2 parking would want to have additional slots.
allocations. RTC dismissed the complaint. Upon appeal, the CA also 4. Pursuant to the Condominium Act, the Makati Tuscany
dismissed the action for reformation on the ground of prescription. Hence, Condominium Corporation (MATUSCO) was organized to manage
the present petition. the condo.
5. In 1975, Multi-Realty executed a Master Deed and Declaration of
The issue in this case is, whether or not the CA erred in dismissing Restrictions (Master Deed) of Makati Tuscany. Section 5 states that
petitioner’s appeal on the reformation complaint, solely on the basis of among others, the parking lot/s that are assigned to each unit is to be
prescription. (YES) considered reserved for the exclusive use of its owner. Section 7
provides, the common areas of the Makati Tuscany shall comprise of
1
Obligations and Contracts (2020) PETITIONER: Makati-Realty Development Corp.
DIGEST AUTHOR: Reynaldo Reveche RESPONDENT: The Makati Tuscany Condominium Corp.
all the parts of the project other than the units, including without mistake was discovered for the first time when MATUSCO rejected
limitations to the following: all driveways, playgrounds, garden areas its request for 2 parking allocations.
and PARKING AREAS OTHER THAN THOSE ASSIGNED TO 15. RTC dismissed the case. Multi-Realty failed to prove any ground for
EACH UNIT UNDER SEC.5. reformation.
6. The Master Deed was filed with the Register of Deeds in 1977. 16. The CA dismissed Multi-Realty’s appeal on the ground that its action
7. Multi-Realty executed a Deed of Transfer in favor of MATUSCO for reformation had already prescribed.
over the common areas. 17. Hence, the present petition.
8. The Master Deed and the Deed of Transfer did not reflect or specify III. Issue/s
the ownership of the 98 parking slots retained by Multi-Realty. 1. W/N the CA erred in dismissing petitioner’s appeal on the
9. Nevertheless, Multi-Realty sold 26 of them in 1977 to 1986 to reformation complaint, solely on the basis of prescription?
condominium unit buyers who needed additional parking slots. YES.
MATUSCO did not object, and certificates of title were later issued
by the Register of Deeds in favor of the buyers. MATUSCO issued IV. Holding/s
Certificates of Management covering the condominium units and
parking slots which Multi-Realty had sold. Issue #1
10. At a board meeting, a resolution was approved authorizing the Yes. The CA erred in dismissing petitioner’s appeal on the ground of
company president of MATUSCO to negotiate terms under which prescription.
MATUSCO would buy 36 of the unallocated parking slots of Petitioner’s Arguments Court’s Rebuttals
Multi-Realty. ● The right of action for ● CA erred in dismissing the
11. Multi-Realty proposed to sell all of the unassigned parking slots at a reformation of the Master Deed appeal solely on the basis of
discounted price. accrued only in 1989. Since the prescription.
12. Multi-Realty, through its President Henry Sy, requested for 2 parking complaint was filed in 1990, the ● According to Art. 1144 of the
slots for the use of Multi-Realty executives. action was well within the Civil Code, an action upon a
13. MATUSCO denied the request, asserting, for the first time, that the prescriptive period. written contract must be brought
remaining unallocated parking slots were common areas owned by ● Prescription was not alleged in within 10 years from the time the
MATUSCO. the Answer to the complaint. right of action accrues.
14. Multi-Realty, filed a complaint against MATUSCO for Damages and
or Reformation of Instrument. Multi-Realty asserts that it had
retained ownership of the 98 unassigned parking slots even though it
was not specified in the Master Deed since the documentation and the
terms were all of first impression. Multi-Realty also alleges that the
2
Overall Ruling In the present case, petitioner executed the Master Deed in 1975. However,
- It bears stressing that in respondent's answer to petitioner's complaint, petitioner had no doubt about its ownership of the unassigned parking lots,
prescription was not alleged as an affirmative defense. Respondent did not and even sold some of them. Respondent did not even object to these sales,
raise the issue throughout the proceedings in the RTC. Indeed, the trial court and even offered to buy some of the parking slots. Respondent assailed
did not base its ruling on the prescription of petitioner's action; neither was petitioner's ownership only in 1989 and claimed ownership of the
this matter assigned by respondent as an error of the RTC in its brief as unassigned parking slots, and it was then that petitioner discovered the error
defendant-appellant in the CA. The rule is, no questions will be entertained in the Master Deed; the dispute over the ownership of the parking slots
on appeal unless they have been raised in the trial court. thereafter ensued. It was only then that petitioner's cause of action for a
reformation of the Master Deed accrued. Since petitioner filed its complaint
-The appellate court should have proceeded to resolve petitioner's appeal on in 1990, the prescriptive period had not yet elapsed.
its merits instead of dismissing the same on a ground not raised by the
parties in the RTC and even in their pleadings in the CA.
-To determine when all the facts which constitute a cause of action for V. Law or Doctrine Applied
reformation of an instrument may be brought and when the right of the SECTION 1, Rule 63
petitioner to file such action accrues, the second paragraph of Section 1, Who may file petition. — Any person interested under a deed, will, contract
Rule 63, must be considered because an action for the reformation of an or other written instrument, whose rights are affected by a statute, executive
instrument may be brought under said Rule. order or regulation, ordinance, or any other governmental regulation may,
before breach or violation thereof, bring an action in the appropriate
-One has a right of action to file a complaint/petition for reformation of an Regional Trial Court to determine any question of construction or validity
instrument when his legal right is denied, challenged or refused by another; arising, and for a declaration of his rights or duties, thereunder.
or when there is an antagonistic assertion of his legal right and the denial
An action for the reformation of an instrument, to quiet title to real property
thereof by another concerning a real question or issue; when there is a real,
or remove clouds therefrom, or to consolidate ownership under Article 1607
definitive and substantive controversy between the parties touching on their
of the Civil Code, may be brought under this Rule (emphasis supplied).
legal relations having adverse legal interests. This may occur shortly after
the execution of the instrument or much later. VI. Disposition
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The
In this case, before petitioner became aware of respondent's denial of its Decision of the Court of Appeals in CA-G.R. CV No. 44696 is SET ASIDE.
right under their true contract, petitioner could not be expected to file an The Court of Appeals is directed to resolve petitioner's appeal with
action for the reformation of the Master Deed. reasonable dispatch. No costs.
3

Art. 1144. The following actions must be brought within ten years from the
time the right of action accrues:
(1) Upon a written contract;
VIII. Random Facts

● Ponente: Callejo,Sr. J.
4
G.R. No. 118552 | February 5, 1996 Interpretation of Contracts (Arts. 1370 to 1379)
Phil. Bank of Communications v CA Phil. Bank of Communications v CA
I. Recit-ready Summary mortgage contract does not mention the said penalties. The court ruled in the
Spouses Alejandro and Amparo Casafranca (Sps. Casafranca) sold a negative as the mortgage contract is a contract of adhesion and must be
specific lot in Cebu city to a certain Carlos Po (Po) who only paid part of the strictly construed against PBCom the party who made the agreement.
agreed price. Po subsequently mortgaged said lot the Philippine Bank of Ejusdem generis is also applied in this case as the penalty charge does not
Communications (PBCom) to secure a loan for P330,000. In this mortgage, belong to the species of obligations enumerated in the mortgage. Lastly
there were two promissory notes which indicated a penalty charges while according to Art. 1377 of the Civil Code, there is also sufficient authority to
the mortgage contract itself did not. Afterwards, a civil case ensued between declare that any ambiguity in a contract whose terms are susceptible of
Po and Sps. Casafranca wherein the latter reacquired the mortgaged subject different interpretations must be read against the party who drafted it.
lot at an auction sale to satisfy Po’s debt obligation. Hence, such penalty cannot be recovered on the foreclosure of mortgage.
Meanwhile, PBCom applied extrajudicial foreclosure of mortgage and
in the succeeding auction sale it acquired the subject lot for P1,006,540.56. II. Facts of the Case (Material Facts)
Around a year later, Amparo who stepped in the shoes of Po as mortgagor 1. Spouses Alejandro and Amparo Casafranca (Sps. Casafranca) sold
offered to redeem the property from PBCom for P500,000 which was a specific lot in Cebu city to a certain Carlos Po (Po) who only paid
allegedly sufficient to settle Po’s balance. PBCom did not accept the check part of the agreed price.
and stated that the balance should be at the price it acquired the lot. Sps. 2. Po subsequently mortgaged said lot the Philippine Bank of
Casafranca proceeded with a civil case to set aside the foreclosure sale and Communications (PBCom) to secure a loan for P330,000.
that the debt was P330,000 plus interest and charges which they won. 3. In this mortgage, there were two promissory notes which indicated
Subsequently, PBCom advised the spouses to pay Po’s Statement of
a penalty charges while the mortgage contract itself did not.
Account which was P884,281.38. The spouses did not agree with the
4. Afterwards, a civil case ensued between Po and Sps. Casafranca
amount due which resulted in a second extrajudicial foreclosure proceeding
which was won by a certain Natalie Limchio for P1,184,000. wherein the latter reacquired.
Spouses subsequently filed a case to annul the said sale but later 5. Meanwhile, PBCom applied extrajudicial foreclosure of mortgage
proceeded with an alternative demand for the residue or balance of proceeds and in the succeeding auction sale it acquired the subject lot for
from the auction sale less the correct outstanding debt of Po. The spouses P1,006,540.56.
prayed for the recovery of the amount of P625,724.90 based from the debt 6. Around a year later, Amparo who stepped in the shoes of Po as
of P558,275.80 and simple interest while PBCom still demanded mortgagor offered to redeem the property from PBCom for
P884,281.38 based from compound interest and charges. The trial court P500,000 which was allegedly sufficient to settle Po’s balance.
ruled that spouses are entitled to P273,653.32 based on the compound 7. PBCom did not accept the check and stated that the balance should
interest and charges in favor of PBCom. Both parties appealed to this ruling be at the price it acquired the lot.
with PBCom specifically contending that the penalty charges should be 8. Sps. Casafranca proceeded with a civil case to set aside the
included in the amount due and subtracted from the residue payment. The foreclosure sale and that the debt was P330,000 plus interest and
decision was only affirmed in toto by the CA hence the petition.
charges which they won.
The issue in this case is whether or not the penalties stipulated in two
promissory notes of Po secured by the mortgage may be charged against the 9. Subsequently, PBCom advised the spouses to pay Po’s Statement
mortgagor Sps. Casafranca as part of the sums secured, although the of Account which was P884,281.38.
PETITIONER: Philippine Bank of Communications

Obligations and Contracts (2020) RESPONDENTS: Court of Appeals and the Spouses Alejandro and Amparo
1
DIGEST AUTHOR: King Manalo Casafranca
10. The spouses did not agree with the amount due which resulted in a 19. The two actions were not consolidated and the SC dismissed the
second extrajudicial foreclosure proceeding which was won by a case of Sps. Casafranca.
certain Natalie Limchio for P1,184,000. 20. This petition now tackles PBCom’s contention.
11. Spouses subsequently filed a case to annul the said sale because it
was based on bloated account. III. Issue/s
12. They later proceeded with an alternative demand for the residue or 1. W/N the penalties stipulated in two promissory notes secured
balance of proceeds from the auction sale less the correct by the mortgage may be charged against the mortgagors Sps.
outstanding debt of Po. Casafranca as part of the sums secured, although the mortgage
13. The spouses prayed for the recovery of the amount of P625,724.90 contract does not mention the said penalties. NO.
based from the debt of P558,275.80 and simple interest while
PBCom still demanded P884,281.38 based from compound interest IV. Holding/s
and charges. Issue #1
14. The trial court ruled that grand total amount due is P909,639,68 NO, the mortgage contract must be strictly construed against the
and that the spouses are entitled to P273,653.32 based on the a 12% drafter and thus does not contemplate the penalty charges.
per annum (later validly changed to 14%) compound interest and Petitioner’s Arguments Court’s Response to Petitioner
charges in favor of PBCom. • The court failed to account for • The case cited only pertains to
15. Both parties appealed. the penalty charges stated in the mortgages securing future
16. PBCom contended that the court failed to include the penalty promissory notes. advancements.
charges stipulated in the initial promissory notes of Po at an extra • This is because of the rule: That • Instead, what applies here is the
12% per annum on top of the compound interest. the determination of the general rule that "an action to
17. Sps. Casafranca contended that: mortgage debt would not be foreclose a mortgage must be
a. The interest on the sum due to the petitioner should have limited on the mortgage limited to the amount mentioned in
stopped running on 31 July 1981 contract itself if from the face the mortgage
b. the lower court should have allowed twelve percent (12%) thereof, it is apparent that other • Such “dragnet” clauses as in
interest per annum on the amount awarded to the private obligations are also intended to American jurisprudence are
respondents from 3 April 1987 until the obligation was be secured. “carefully scrutinized and strictly
fully paid; and • The cases of Mojica vs. Court construed.”
c. the lower court should have awarded the private of Appeals applies insofar “that • The mortgage contract is a contract
respondents moral and exemplary damages, attorney's the amounts named as of adhesion and must be strictly
fees, and litigation expenses consideration in said contract construed against PBCom the party
18. The CA affirmed the decision of the lower court in toto. do not limit the amount for who made the agreement.
which the mortgage may stand • Ejusdem generis is also applied in

2
as security if from the four this case as the penalty charge does would be secured by the mortgage. This can then only be interpreted to
corners of the instrument the not belong to the species of mean that the petitioner had no design of including the penalty in the
intent to secure future and other obligations enumerated in the amount secured.
indebtedness can be gathered.” mortgage
• According to Art. 1377 of the Civil After interpreting the mortgage contract strictly against the petitioner,
Code any ambiguity in a contract considering the intention of the parties as evidenced by their various
whose terms are susceptible of pleadings and assertions, the inescapable conclusion is that the mortgage
different interpretations must be contract did not authorize the petitioner to include in the secured amount the
read against the party who drafted penalty stipulated in the promissory notes. The mortgage contract did not
it. contain a trace of the said penalty and, proceeding by the rule that "an action
• It should also be noted that the to foreclose a mortgage must be limited to the amount mentioned in the
private respondents consistently mortgage," such penalty cannot be recovered on the foreclosure of the
excluded penalty charges in their mortgage.
computation of the amount due to
the petitioner, while the petitioner V. Law or Doctrine Applied
seemed indecisive in including the ARTICLE 1377 OF THE CIVIL CODE
said charges. The interpretation of obscure words or stipulations in a contract shall not
Overall Ruling – Petition is devoid of Merit favor the party who caused the obscurity.
According to Art. 1377 of the Civil Code there is also sufficient authority to
VI. Disposition
declare that any ambiguity in a contract whose terms are susceptible of
WHEREFORE, finding no reversible error on the part of respondent Court
different interpretations must be read against the party who drafted it. of Appeals, its challenged decision of 29 April 1994 in CA-G.R. CV No.
38332 is hereby AFFIRMED in toto.
A mortgage and a note secured by it are deemed parts of one transaction and
are construed together, thus, an ambiguity is created when the notes provide VII. Additional Notes
for the payment of a penalty but the mortgage contract does not. Construing • Basis in mortgage contract that allegedly tackled penalty charges:
the ambiguity against the petitioner, it follows that no penalty was intended “This mortgage is given as security for the payment to the
to be covered by the mortgage. The mortgage contract consisted of three MORTGAGEE on demand or at maturity, as the case may be, of
pages with no less than seventeen conditions in fine print; it included all promissory notes, letters of credit, trust receipts, bills of
provisions for interest and attorney's fees similar to those in the promissory exchange, drafts, overdrafts and all other obligations of every kind
notes; and it even provided for the payment of taxes and insurance charges. already incurred or which hereafter may be incurred…”
Plainly, the petitioner can be as specific as it wants to be, yet it simply did VIII. Random Facts
not specify nor even allude to, that the penalty in the promissory notes • Ponente: Davide, Jr., J.

3
G.R. No. 150711 || August 10, 2006 Article 1381
Caltex v. PNOC Caltex v. PNOC
I. Recit-ready Summary The Agreement provides that PSTC may demand and receive any... claim
out of counter-suits or counterclaims arising from the actions enumerated in
PSTC and Luzon Stevedoring Corporation ("LUSTEVECO") entered into the Annexes.
an Agreement of Assumption of Obligations ("Agreement").Among the
PSTC is bound by the Agreement. PSTC cannot accept the benefits without
actions enumerated in the Annexes is Caltex (Phils.), Inc. v. Luzon
assuming the obligations under the same Agreement. PSTC cannot
Stevedoring Corporation, which at that time was pending before the then
repudiate its commitment to assume the obligations after taking over the
Intermediate Appellate Court (IAC) directing LUSTEVECO to pay Caltex.
assets for that will amount to defrauding the creditors of LUSTEVECO.
The Decision of the IAC became final and executory. The Regional Trial
Court of Manila, issued a writ of execution in favor of Caltex. However, the Caltex could not enforce the judgment debt against LUSTEVECO. The writ
judgment was not satisfied because of the prior foreclosure of of execution could not be satisfied because LUSTEVECO's remaining
LUSTEVECO’s properties. Caltex subsequently learned of the Agreement properties had been foreclosed by lienholders. In addition, all of
between PSTC and LUSTEVECO. Caltex sent successive demands to PSTC LUSTEVECO's business, properties and assets pertaining to its tanker... and
asking for the satisfaction of the judgment rendered by the CFI. PSTC then bulk business had been assigned to PSTC without the knowledge of its
informed Caltex that it was not a party to the prior case and thus, PSTC creditors. Caltex now has no other means of enforcing the judgment debt
would not pay LUSTEVECO’s judgment debt. PSTC advised Caltex to except against PSTC. If PSTC refuses to honor its written commitment to
demand satisfaction of the judgment directly from LUSTEVECO. Caltex assume the obligations of LUSTEVECO, there will be fraud on the creditors
thus filed a complaint for sum of money against PSTC. of LUSTEVECO. To allow PSTC now to welsh on its commitment is to
sanction a fraud on LUSTEVECO's creditors. HENCE, if PSTC does not
The issue in this case is WON CALTEX MAY COLLECT FROM PSTC? – assume the obligations of LUSTEVECO as PSTC had committed under the
YES. Agreement, the creditors of LUSTEVECO could no longer collect the debts
of LUSTEVECO. The assignment becomes a fraud on the part of PSTC,
The SC ruled that Caltex may recover from PSTC under the terms of the because PSTC would then have inveigled LUSTEVECO to... transfer the
Agreement.
assets on the promise to pay LUSTEVECO's creditors.
Caltex may recover the judgment debt from PSTC not because of a
stipulation in Caltex's favor but because the Agreement provides that PSTC
shall assume all the obligations of LUSTEVECO. LUSTEVECO
transferred, conveyed and assigned to PSTC all of LUSTEVECO's business, I. PSTC (PNOC Shipping) and LUSTEVECO (Luzon Stevedoring
properties and assets pertaining to its tanker and bulk business "together Corp) entered into an Agreement of Assumption of Obligations
with all the obligations relating to the said business, properties and assets." o PSTC shall assume all the obligations of LUSTEVECO
When PSTC assumed all the properties, business and assets of with respect to all its claims
LUSTEVECO pertaining to LUSTEVECO's tanker and bulk business, o PSTC shall control the conduct of any litigation pending
PSTC also assumed all of LUSTEVECO's obligations pertaining to such or which may be filed with respect to the claims of
business. LUSTEVECO
o LUSTEVECO appoints and constitutes PSTC as its atty-
in-fact to demand and receive any claim out of the
countersuits and counterclaims arising from the claims
Obligations and Contracts (2020) PETITIONER: CALTEX 1

DIGEST AUTHOR: Julianna Soberano RESPONDENT: PNOC
II. Among the actions enumerated in the Annexes of the Agreement is Overall Ruling
Caltex v. LUSTEVECO, which was at that time PENDING
o it was an appeal from the decision of the CFI directing The Court ruled that PSTC IS BOUND BY THE AGREEMENT. When
LUSTEVECO to pay Caltex 104k with legal interest PSTC assumed all the properties, business, and assets of LUSTEVECO, it
III. IAC then affirmed the decision of the CFI also assumed LUSTEVECO’s obligations pertaining to such business. The
IV. Caltex then learned of the Agreement between PSTC AND Agreement also specifically mentions the case between LUSTEVECO and
LUSTEVECO Caltex.
V. Caltex then sent successive demand letter to PSTC asking for
satisfaction of the judgment rendered by the CFI Further, EVEN WITHOUT THE AGREEMENT, PSTC IS STILL LIABLE
VI. PSCT informed Caltex that it was not a party to the case with TO CALTEX. The Corporation Code allows the transfer of all or
LUSTEVECO, thus, it would not pay for LUSTEVECO’s substantially all the properties and assets of a corporation, but such transfer
judgment debt should NOT prejudice creditors of the assignor. Thus, the only way the
VII. Caltex then filed a complaint for a sum of money against PSTC transfer can proceed without prejudice to the creditors is to hold the
VIII. When the case reached the CA, it ruled in favor of PSTC assignee liable for the obligations of the assignor. It follows then that
LUSTEVECO is no longer liable to Caltex because it already assigned all of
I. Issue/s its business, properties, and assets to PSTC without knowledge of its
creditors. THUS Caltex has no other means of enforcing the judgment debt
WON CALTEX MAY COLLECT FROM PSTC? - YES! EXCEPT against PSTC. If PSTC refuses to honor its assumption of
LUSTEVECO’s obligations, there will be FRAUD ON LUSTEVECO’S
II. Holding/s CREDITORS. Such transfer would then leave the claims of creditors
unenforceable against the debtor, and would be FRAUDULENT AND
Issue #1 RESCISSIBLE.
YES, CALTEX MAY COLLECT FROM PSTC.
The BADGES OF FRAUD AS HELD IN JURISPRUDENCE are the
following:
Petitioner’s Arguments Court’s Rebuttals o consideration of conveyance is fictitious or inadequate
• PSTC must pay in • Yes, PSTC must pay. If it o transfer made by a debtor after a suit has begun and
LUSTEVECO’s place doesn’t, then there will be fraud while it is pending against him
upon LUSTEVECO’s creditor o sale upon credit by an insolvent debtor
(Caltex) o evidence of large indebtedness or complete insolvency
o transfer of all or nearly all of his property by a debtor
especially when he is insolvent or greatly embarrassed
financially
o transfer is made between father and son, when there are
present other of the above circumstances
o failure of the vendee to take exclusive possession of all
the property

The Court then explained that if PSTC DOES NOT PAY CALTEX, (3) Those undertaken in fraud of creditors when the latter cannot in
CALTEX CAN SUE TO RESCIND THE CONTRACT. Art 1381 provides any other manner collect the claims due them;
that contracts entered into in fraud of creditors may be RESCINDED when
the creditors cannot in any manner collect the claims due them. This applies (4) Those which refer to things under litigation if they have been
to contracts where the creditors are NOT PARTIES, for such contracts are entered into by the defendant without the knowledge and approval
usually made without their knowledge. THUS, a creditor who is not a party of the litigants or of competent judicial authority;
to the contract can sue to rescind the contract to prevent fraud upon him
OR he can choose to enforce the contract if a specific provision allows him (5) All other contracts specially declared by law to be subject to
to collect his claim and protect him from fraud. IF PSTC does not assume rescission
the obligations of LUSTEVECO, the creditors of LUSTEVECO could not
longer collect its debts. The assignment will then become fraud on the part
of PSTC. HENCE, PSCT MUST PAY CALTEX. IV. Disposition
WHEREFORE, we REVERSE and SET ASIDE the 31 May 2001 Decision

and 9 November 2001 Resolution of the Court of Appeals in CA-G.R. CV
No. 46097. We AFFIRM the 1 June 1994 Decision of the Regional Trial
Court of Manila, Branch 51, in Civil Case No. 91-59512. Costs against
respondent.
V. Additional Notes
VII. Random Facts

The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards
whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter

suffer the lesion stated in the preceding number;

G.R. No. 182435 | August 13, 2012 Rescissible Contracts: Contracts with Subjects of Litigation
Ada vs. Baylon Ada vs. Baylon
I. Recit-ready Summary 3. Petitioners filed with the RTC a Complaint for partition, accounting
Petitioners filed a Complaint for partition, accounting, and damages, and damages against Florante, Rita, and Panfila in 1996. They
claiming that co-respondent Rita Baylon took possession of 43 parcels of land claimed that Rita took possession of all 43 parcels of land and used
from the estate of their late ascendants, Spouses Baylon. 22 of these were co- the proceeds to purchase two new parcels of land (two lots). They
owned by the heirs of Spouses Baylon, 10 owned solely by Rita, and 11 were also claimed that Rita refused to the partition of the lands.
owned by other parties. 4. Florante, Rita, and Panfila denied that Rita appropriated the income
Rita allegedly used the income from the 43 lots to purchase two new lots of the estate of Spouses Baylon.
which she conveyed to co-respondent Florante Baylon through a deed of
5. The heirs of Spouses Baylon co-owned 22 of the lots. 10 lots were
donation. Petitioners filed a Supplemental Pleading asking for the rescission
solely owned by Rita, and 11 were separately owned by other parties.
of the deed of donation under Art 1381(4) of the Civil Code.
The RTC ruled for petitioners and ordered the partition of the co-owned Florante, Rita, and Panfila were not opposed to the partition of the
lands and the rescission of the deed of donation. The CA reversed and ruled co-owned lots, only to those solely owned by Rita.
for petitioner, ruling that there must first be judicial determination that the 6. During the pendency of the RTC case, Rita executed a Deed of
two lots belonged to the estate before there can be rescission. Donation covering the two lots in favor of Florante, with neither the
The issue is whether or not the donation of the two lots may be rescinded knowledge nor approval of petitioners or the RTC. Rita then died.
on the ground that it was made during the pendency of the action for partition 7. As a result, petitioners filed a Supplemental Pleading praying for the
with the RTC. rescission of the donation under Art. 1381(4) of the Civil Code.
The SC ruled that yes, the deed of donation may be rescinded for being 8. The RTC ruled for petitioners and granted the rescission as well as
made during the pendency of the action for partition, which covers the two partition of the co-owned properties. It did not rule on the ownership
lots conveyed. Art. 1381(4) states that a contract which refers to a thing under of the two lots.
litigation without the knowledge or approval of the other parties or the court
9. The CA reversed the RTC ruling and ruled for respondents, saying
is a rescissible contract. Judicial determination that the estate of Spouses
that in order to ask for rescission of the donation, there must first be
Baylon owns the two lots is not required for the rescission of the deed of
donation. However, there must still be judicial determination of the ownership a judicial ruling of Spouses Baylons’ ownership of the two lots.
of the two lots because the RTC partition proceedings cover only the land co-
owned by the parties in their capacities as heirs of the estate of Spouses III. Issue/s
Baylon, not as heirs of Rita Baylon. 1. W/N the donation inter vivos of the two lots in favor of Florante
may be rescinded pursuant to Article 1381(4) of the Civil Code
II. Facts of the Case (Material Facts) on the ground that it was made during the pendency of the action
1. Spouses Florentino and Maximina Baylon owned 43 parcels of land. for partition with the RTC? YES.
2. The spouses died and were survived by their six children, two of
whom are Rita and Panfila Baylon. Respondent Florante Baylon is IV. Holding/s
the surviving son of another child of the spouses.
1
Obligations and Contracts (2020) PETITIONER: LILIA B. ADA, LUZ B. ADANZA, FLORA C. BAYLON, REMO
BAYLON, JOSE BAYLON, ERIC BA YLON, FLORENTINO BAYLON, and MA. RUBY
BAYLON
DIGEST AUTHOR: Kara Nazario RESPONDENT: FLORANTE BAYLON

Issue #1 partition proceedings cover only

YES, the donation of the two lots may be rescinded. the land co-owned by the parties
in their capacities as heirs of the
Respondents’s Arguments Court’s Rebuttals estate of Spouses Baylon and
 Respondent Florante Baylon  Rescission under Article not as heirs of Rita. If Rita is
argues that petitioners must first 1381(4) of the Civil Code is not found to be the owner of the two
obtain favorable judicial ruling preconditioned upon the judicial lots, the court cannot
confirming the estate of determination as to the simultaneously direct the
Spouses Baylons’ ownership of ownership of the thing subject partition.
the two lots before filing an of litigation. Thus, petitioners Overall Ruling
action for rescission. need not obtain judicial ruling of
the estate of Spouses Baylon’s Petitioners need not obtain judicial ruling of the estate of Spouses Baylon’s
ownership of the two lots before ownership over the two lots before they ask for the rescission of the deed
filing for rescission. of donation conveying these lots to respondent Florante. This is because
 Since the two lots are part of the the two lots are subject of litigation (the partition case). The deed of
subject of litigation in the donation, a contract entered into by respondent Rita referring to the two
partition case, the deed of lots without the knowledge nor approval of the petitioners or the court is a
donation conveying them is a rescissible contract according to Art. 1381(4).
rescissible contract under Art. However, there still must be judicial determination of ownership of the two
1381(4). This is to remedy fraud lots because the RTC can order the partition of such only if it is determined
that the litigants might commit to be owned by the estate of the Spouses.
with respect to the subject of the
litigations. V. Law or Doctrine Applied
 Contrary to the CA ruling, there
RESCISSIBLE CONTRACTS: ART. 1381
still needs to be a determination
Art. 1381. The following contracts are rescissible:
of the ownership of the two lots xxxx
even though the heirs of the (4) Those which refer to things under litigation if they have been entered
estate of Spouses Baylon and into by the defendant without the knowledge and approval of the litigants or
the heirs of Rita are both of competent judicial authority.
represented in the petitioners.
This is because the RTC REQUISITES OF ART. 1381
2
BAYLON

1. The defendant, during the pendency of the case, enters into a contract which
refers to the thing subject of litigation
2. The said contract was entered into without the knowledge and approval of
the litigants or of a competent judicial authority.
As long as the foregoing requisites concur, it becomes the duty of the
court to order the rescission of the said contract.
VI. Disposition
WHEREFORE, in consideration of the foregoing disquisitions, the petition

is PARTIALLY GRANTED. The Decision dated October 26, 2007 issued by the
Court of Appeals in CA-G.R. CV No. 01746 is MODIFIED in that the Decision dated
October 20, 2005 issued by the Regional Trial Court, Tanjay City, Negros Oriental,
Branch 43 in Civil Case No. 11657, insofar as it decreed the rescission of the Deed of
Donation dated July 6, 1997 is hereby REINSTATED. The case is REMANDED to
the trial court for the determination of the ownership of Lot No. 4709 and half of Lot
No. 4706 in accordance with this Decision.

 The SC also resolved certain procedural issues:
o The actions of partition and rescission cannot be joined in a
single action because they are governed by different rules.
o A misjoinder of these causes of action, however, can still be ruled
upon by the court if the other party or the court does not sever it,
as in this case.
o A supplementary pleading can raise a new cause of action if it is
related to the cause of action in the original pleading. In this case,
the supplemental pleading bolsters the original cause of action.
VII. Random Facts

 Ponente: Reyes, J.
3
BAYLON

G.R. No. 86150 | Marcg 2, 1992 Contracts: rescissible contracts
Guzman, Bocaling & Co v Bonnevie Guzman, Bocaling & Co v Bonnevie
Recit-ready Summary of the place. Even though a third party having lawful possession of a subject
A parcel of land belonging to the intestate estate of Jose Reynoso was property is an obstacle to rescinding a contract, petitioner cannot be said to
leased to (respondent) Bonnevie by its administratrix, Africa Reynoso. The have lawful possession since it was not a buyer in good faith, knowing of
lease contract contained a stipulation herein in case the lessor decided to sell respondent occupying the property when it was sold to them. petitioner cannot
the property, the lessee shall be given first priority to purchase the same, all plead ignorance, it only has itself to blame for not knowing there was a first
things and considerations being equal. priority provision in respondent’s lease, it should have done that when it
Administratrix Reynoso (Reynoso lang after this) later on allegedly sent bought the property.
a letter to respondents that she was selling the leased land for 600k, with a
mortgage loan of 100k, that they had 30 days from receipt to exercise their I. Facts of the Case (Material Facts)
right of first priority or else they should vacate. 2 months later, Reynoso sent 1. A 600 square meter parcel of land with two buildings in it belonging
another letter that because of respondent not exercising their right, she had to the Intestate estate of Jose Reynoso was leased to (Respondent/s)
already sold the property. Upon receipt of the second letter, Respondent Raoul and Christopher Bonnevie by its administratrix, Africa Valdez
replied that they never received the first letter, and that Reynoso should de Reynoso (hereinafter referred to as Reynoso) for a period of one
inform them if she decides to sell the property so they could negotiate. year starting August 1976, and a monthly rental of 4k.
Respondents also refused her request for termination of their lease. 2. The aforementioned lease contract contained a stipulation
The land was sold to (Petitioner) Guzman, Bocaling & Co for 400k,
(specifically paragraph 20) wherein in case the LESSOR (in this case
137k of which was to be immediately paid and the balance of 262k to be paid
Reynoso) decides to sell the leased property, the LESSEES
only when the premises were vacated by Respondent.
Reynoso filed to eject respondent. This led to a compromise agreement (respondent Bonnevie) shall be given a first priority to purchase the
of respondent voluntarily vacating, but this compromise was eventually not same, all things and considerations being equal.
followed and set aside, leading to a trial on the merits of the initial filing to 3. On November 1976, according to Reynoso, she notified respondents
eject. While the ejectment suit was pending however, respondent filed to by registered mail that she was selling the leased land for 600k less
annul the sale between Reynoso and Petitioner, and an order requiring a mortgage loan of 100k, and that she was giving them 30 days from
Reynoso to sell the land to respondent with the same conditions and terms as receipt of the letter to exercise their right of first priority of purchase
what petitioner received. – else, if they don’t, she expects them to vacate no later than March
The Ejectment case and Respondent’s case were consolidated, and it 1977.
was decided that respondents should vacate and pay rent, but Reynoso is to 4. On January 1977, Reynoso sent another letter to respondents,
sell the property to respondent with the same conditions as what was offered advising that in lieu of their failure to exercise their right of first
to petitioner, rescinding the contract of sale between petitioner and Reynoso. priority, she had already sold the property.
This was affirmed on appeal by CA. was CA correct in deciding that the
5. Upon receipt of the second letter, respondents told Reynoso that
contract of sale between Reynoso and petitioner was a rescissible one?
The SC held that the contract of sale was indeed a rescissible one, under neither of them had received her first letter, and that they had advised
1381(3) of the Civil Code. Respondent can be considered a creditor, since her agent that they should be informed should she decide to sell the
they had a substantial interest that would be prejudiced by the sale to property so that negotiations could start, and that they refuse her
petitioner without recognizing respondent’s first priority right. Petitioner request for the termination of the lease.
cannot invoke good faith, since it admitted knowing respondent’s occupancy 6. On March 1977, the leased land was formally sold to (Petitioners)
Guzman, Bocaling & Co. the Contract of sale provided for
1
Obligations and Contracts (2020) PETITIONER: Guzman, Bocaling & Co.
DIGEST AUTHOR: Bryan Antonio RESPONDENT: Raoul S. V. Bonnevie
immediate payment of 137k on the purchase price, with 265k to be deed of sale in Favor of Respondent in the amount of 400k under the
paid only when the premises were vacated. same terms and conditions that was given to Petitioner. Also the CFI
7. On April 1977, Reynoso wrote to respondents demanding they awarded damages to respondent.
vacate the premises within 15 days for their failure to pay rentals for 14. Both Reynoso and Petitioner appealed the CFI decision to CA,
four months. Respondents refused, leading to Reynoso filing a where it was just affirmed, with the damages reduced.
complaint for ejectment. 15. Only Petitioner appealed to SC, Reynoso did not appeal anymore
8. On September 1979, the parties submitted to a compromise after the CA appeal.
agreement wherein it was provided that the respondents were to
vacate the premises voluntarily no later than October 1979. II. Issue/s
9. The compromise agreement was approved, but since respondents 1. W/N CA erred in holding that the Contract of Sale between
failed to comply with the “vacation of premises” stipulation, Reynoso and petitioner was not voidable but rescissible? NO.
Reynoso filed a motion for execution of the compromise agreement, III. Holding/s
which was granted by the City Court.
10. Respondent filed to set aside the decision granting the execution of Issue #1
the compromise agreement as well as the compromise agreement No, the CA did not err in holding the Contract of Sale between
itself because Reynoso had not delivered to him the records of Petitioners and Reynoso not voidable but rescisibble.
payments and receipt of all rentals – this motion was denied and was Petitioner’s Arguments Court’s Rebuttals
then elevated to CFI, where it was remanded to City Court again • Petitioner claims that holding • CA is correct in holding the
after both parties agreed to set aside the compromise agreement (so the contract of sale not as contract of sale as not voidable
the case was now solely on the merits of the earlier ejectment case) voidable but as rescissible was but rescissible. 1380-1381(3) of
11. While the earlier ejectment case was pending in the city court, an error, and that the court cored the CC states that a contrat
respondent filed to annul the sale between Reynoso and petitioners in considering it a buyer in bad otherwise valid may nonetheless
(also the cancellation of the TCT in the name of petitioners). faith (ordering Reynoso to be subsequently rescinded by
Respondent also asked that Reynoso be required to sell the property execute the deed of sale in favor reason of injury to third persons,
to them under the same terms and conditions agreed upon in the of Respondent) like creditors. The status of
Contract of Sale with petitioner. creditors coud be validly
12. The Ejectment case was decided by the city court, ordering accorded the Bonnevies for they
respondent to vacate and pay reasonable compensation for continued had substantial interests that
unlawful use of the premises until they vacate. were prejudiced by the sale of the
13. The ejectment case decision was appealed to CFI, which subject property to the petitioner
consolidated it along with what respondent filed in #11. The CFI without recognizing their right of
upheld the need for respondents to vacate and pay, but it also first priority under the Lease
rendered a judgement in favor of respondents, voiding the deed of Contract.
sale between Reynoso and petitioner, ordering Reynoso to execute a
2
Overall Ruling (4) Those which refer to things under litigation if they have been entered into by the
1381(3) of the CC allows a rescission of a contract if it is undertaken defendant without the knowledge and approval of the litigants or of competent judicial
authority;
in fraud of a creditor wherein the creditor cannot in any other manner (5) All other contracts specially declared by law to be subject to rescission.
collect the claim due him. Respondent can be given the status of creditor,
because respondent had a substantial interest (the first priority granted by - In this case, petitioner cannot claim that it was a buyer in good faith (which
the lease contract) that was prejudiced by the sale of the property to is a roadblock to rescinding a contract otherwise valid due to injury to third
petitioner without recognizing his right of first priority under the lease. persons) because it knew of Respondent’s occupation of the land, which
should have prompted it to inquire on the agreement between the seller and
Rescission implies a contract, though initially valid, produces a lesion respondent’s relation. So, it was rescissble under 1381(3).
or pecuniary damage to someone that justifies its invalidation for reasons
of equity. A third party acquiring a property subject of a contract is an V. Disposition
obstacle to an action for its rescission if it is shown that such third party is
in lawful possession of the property and that he did not act in bad faith. WHEREFORE, the petitioner is DENIED, with costs against the petitioner.
Petitioners however are not buyers in good faith because they admitted to The Challenged decision is AFFIRMED in toto.
being aware of the Bonnevies occupying the property when it was sold to
them. although it was not annotated on the TCT, their actual knowledge of VI. Additional Notes
respondent’s lease was more than equivalent of a presumed notice by - The initial letter was never proven to have been received by respondent. The
registry return card was never presented as evidence, what was precented
registration. – they have only themselves to blame, because the knowledge
was a copy of the said letter with a photocopy of only the face of a registry
of respondent’s possession of the property should have cautioned them to return card claimed to refer to said letter. A copy of the the other side of the
look into the agreement between Reynoso and respondent to see if it card showing the signature of the person who received the letter was not
prejudiced them. due to this, they cannot invoke not being aware of the submitted.
first priority granted by the contract of lease between Reynoso and - Even if the letter was indeed sent and received by respondent and they did
respondent. not exercise their right of first priority, Reynoso still would be violating the
contract of lease requirement of respondent being able to exercise their first
They cannot invoke the Compromise Agreement, that thing was priority right “all things and conditions being equal. Respondent was
already set aside. offered 600k price, with a 100k loan mortgage only in cash. Petitioner was
offered a price of only 400k, only 137.5k of which was in cash. Clearly not
IV. Law or Doctrine Applied equal. It’s more favorable to petitioner.
Article 1380. Contracts validly agreed upon may be rescinded in the cases established - They cannot invoke the compromise agg, it was already set aside.
by law. VII. Random Facts
Article 1381. The following contracts are rescissible: • Ponente: Cruz, J.
(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things which are
the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;
3
G.R. No. 129644 | March 7, 2000 Article 1380-1389 - Rescissible Contracts
China Banking Corp. vs CA, Chua, & Chua China Banking Corp. vs CA, Chua, & Chua
I. Recit-ready Summary 3. After that, Alfonso Chua executed a public instrument wherein he
In the present case, a notice of levy was issued over the conjugal property assigned his Rights to Redeem his share of the property to his son
of the Sps. Chua. Then, upon Kiang Ming Chua complaint averring against the Paulino Chua
notice of levy, the spouses entered into a compromise agreement wherein only the
share of Alfonso shall be effected by the levy. Thereafter, Alfonso assigned his 4. Meanwhile, the Petitioner China Bank filed a complaint for
Right to Redemption over the ½ share of the property to his son, Paulino. Then, collection of sum of money before the RTC against Alfonso Roxas
when the Petitioner China Bank filed for a collection of money against Alfonso, the based on 3 promissory notes amounting to P2.5M
Respondents filed their own civil case against the same Petitioner contending that 5. Then, another Notice of Levy on execution was issued against the
Paulino (son) had a prior and better right over the conjugal share of the property of Rights and Interest of Alfonso Chua over the aforementioned
Alfonso. Both the RTC and CA ruled in favor of the Respondents stating that the
assignment of rights from Alfonso to Paulino was made for a valuable consideration property. Thereafter, a certificate of sale on execution over the
and was executed 2 years before the Petitioner levied the said property. Hence, the same property was issued in favor of China Bank
present case before the SC. The issue in this case is w/n the Assignment of Right of 6. However, Paulino Chua and his mother Kiang Chua filed a Civil
Redemption was done to defraud the creditor, and may be rescinded. The SC ruled Case before the RTC against China Bank contending that Paulino
in the Affirmative. The Court stated that after his conjugal share was foreclosed by
has a Prior and Better Right over the ½ portion of the said property
Metrobank, the only property that Alfonso Roxas Chua had was his right to redeem
the same. Then, Alfonso Chua assigned his right of redemption to his son, Paulino 7. The Trial ruled in favor of the Respondents stating that the
Chua, in 1988. However, the judgment of the trial court in favor of China Bank assignment was made for a valuable consideration and was
against Alfonso Roxas Chua was rendered as early as 1985; thus there is a executed 2 years before Petitioner China Bank levied the conjugal
presumption that the 1988 assignment of the right of redemption, is fraudulent. share of Alfonso Chua
Moreover, despite Alfonso’s knowledge that it was the only property he had left in 8. Upon appeal, the CA affirmed the RTC’s Decision
which his creditors could levy, he still assigned his right to redeem to his son,
Paulino.
II. Facts of the Case (Material Facts) III. Issue/s

1. In the present case, a Notice of Levy affecting the residential ● W/N the Assignment of the Right of Redemption made by
property in San Juan, Metro Manila, which was owned by the Sps. Alfonso Chua in favor of his son Paulino Chua was done to
Chua, was issued in connection with a prior Civil Case defraud his creditors and may be rescinded? YES
2. Subsequently, the Kiang Ming Chua filed a complaint before the
City Sheriff of Manila alleging that the Notice of Levy from the IV. Holding/s
Civil Case against Alfonso Chua on the aforementioned residential
property could not be enforced, since the questioned land was the Issue #1
conjugal property of the Respondent Sps. Then, the spouses YES, the Assignment of the Right of Redemption made by Alfonso
entered into a compromise agreement wherein the levy shall only Chua in favor of his son Paulino Chua was done to defraud the
be valid and enforceable to the conjugal share of Alfonso Roxas Petitioner China Bank, and thus may be rescinded
1
Obligations and Contracts (2020) PETITIONER: China Banking Corporation
DIGEST AUTHOR: Larry Abucay RESPONDENT: CA, Paulino Roxas Chua, & Kiang Ming Chu Chua
Respondent’s Argument/s Court’s Rebuttals Overall Ruling

● The Respondents averred that
Paulino has a prior and better ● Under Article 1381(3) of The SC stated that the law presumes that there is Fraud of Creditors when:
right over the ½ conjugal share the Civil Code, contracts (a) There is alienation of property by gratuitous title by the debtor who has
of the property which are undertaken in not reserved sufficient property to pay his debts contracted before such
● The assignment of the right to fraud of creditors when the alienation; or (b) There is alienation of property by onerous title made by a
redeem made by Alfonso Roxas latter cannot in any manner debtor against whom some judgment has been rendered in any instance or
was effected in a public collect the claims due some writ of attachment has been issued. The decision or attachment need
instrument and annotated at the them, are rescissible not refer to the property alienated and need not have been obtained by the
back of the land title, 2 years ● The existence of fraud or party seeking rescission. IN THE PRESENT CASE, after his conjugal share
before the annotation of the intent to defraud creditors in TCT 410603 was foreclosed by Metrobank, the only property that
rights of China Bank on the may either be presumed in Alfonso Roxas Chua had was his right to redeem the same. Then, Alfonso
same land title accordance with Article Chua assigned his right of redemption to his son, Paulino Chua, in 1988.
1387 of the Civil Code or Thereafter, Paulino redeemed the property and caused the annotation
duly proved in accordance thereof at the back of TCT 410603. This preceded the annotation of the levy
with the ordinary rules of of execution in favor of China Bank by two (2) years and the certificate of
evidence sale in favor of China Bank by more than three (3) years. HOWEVER, such
a conclusion runs counter to the law applicable in the case at bar. Inasmuch
as the judgment of the trial court in favor of China Bank against Alfonso
Roxas Chua was rendered as early as 1985; thus there is a presumption that
the 1988 sale of his property, in this case the right of redemption, is
fraudulent under Article 1387. The fact that private respondent Paulino
Roxas Chua redeemed the property and caused its annotation on the TCT
more than two years ahead of petitioner China Bank is of no moment. This
presumption is strengthened by the fact that the conveyance has virtually
left Alfonso's other creditors with no other property to attach.
MOREOVER, it should be noted that the presumption of fraud or intention

to defraud creditors is not just limited to the two instances set forth in the
first and second paragraphs of Article 1387. Under the third paragraph of
the same article, the design to defraud creditors may be proved in any other
manner recognized by the law of evidence. IN THIS CASE, despite Alfonso
Chua's knowledge that it is the only property he had which his other
2
creditors could levy, he still assigned his right to redeem his one-half share donor did not reserve sufficient property to pay all debts contracted before the
in favor of his son, Paulino. donation.
Alienations by onerous title are also presumed fraudulent when made by persons
LASTLY, the mere fact that the conveyance was founded on valuable against whom some judgment has been issued. The decision or attachment need not
consideration does not necessarily negate the presumption of fraud under refer to the property alienated, and need not have been obtained by the party seeking
Article 1387. There has to be a valuable consideration and the transaction the rescission.
must have been made bona fide. IN THE CASE AT BAR, the presumption
that the conveyance is fraudulent has not been overcome. At the time a VI. Disposition
judgment was rendered in favor of China Bank against Alfonso and the
corporation, Paulino was still living with his parents in the subject property. WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in
CA- G.R. CV No. 46735 is REVERSED and SET ASIDE. The permanent injunction
Paulino himself admitted that he knew his father was heavily indebted and enjoining petitioner, the Sheriff of Manila, the Register of Deeds of San Juan, their
could not afford to pay his debts. The transfer was undoubtedly made officers, representatives, agents and persons acting on their behalf from causing the
between father and son at a time when the father was insolvent and had no transfer of possession, ownership and title of the property covered by TCT No.
other property to pay off his creditors. Hence, it is of no consequence 410603 in favor of petitioner is LIFTED. The Assignment of Rights to Redeem
whether or not Paulino had given valuable consideration for the dated November 21, 1988 executed by Alfonso Roxas Chua in favor of Paulino
conveyance. Roxas Chua is ordered RESCINDED. The levy on execution dated February 4, 1991
and the Certi cate of Sale dated April 30, 1992 in favor of petitioner are
DECLARED VALID against the one-half portion of the subject property.

Article 1381 - The following contracts are rescissible:
1) Those which are entered into by guardians whenever the wards whom they VII. Random Facts
represent suffer lesion by more than one-fourth of the value of the things ● Ponente: Ynares-Santiago, J.
which are the object thereof;
2) Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;
3) Those undertaken in fraud of creditors when the latter cannot in any other
4) Those which refer to things under litigation if they have been entered into
by the defendant without the knowledge and approval of the litigants or of
competent judicial authority;
5) All other contracts specially declared by law to be subject to rescission.
Article 1387 - All contracts by virtue of which the debtor alienates property by
gratuitous title are presumed to have been entered into in fraud of creditors, when the
3
G.R. No.152347 | June 21, 2006 Rescissible Contracts
Union Bank v. Sps. Ong and Jackson Lee Union Bank v. Sps. Ong and Jackson Lee
I. Recit-ready Summary spouses have no other property from which Union Bank could obtain
Spouses Ong own majority stock of Baliwag Mahogany payment.
Corporation (BMC). On October 10, 1990, the spouses executed a Petitioners then raised the issue to the Supreme Court, in which the
Continuing Surety Agreement in favor of Union Bank to secure a main issue is W/N the sale entered into by Spouses Ong and Lee were to
P40,000,000.00-credit line facility for BMC. On October 22, 1991, the defraud Union Bank, and thus rescissible. The SC denies the petition.
spouses Ong, for P12,500,000.00, sold their 974-square meter lot located in Contracts entered into without mal intent are not rescissible, even if, as a
Greenhills to Jackson Lee. On November 22, 1991, BMC filed a Petition for result, the creditor may suffer some damage. The onus of proving by clear
Rehabilitation and for Declaration of Suspension of Payments with the SEC. and convincing evidence the existence of such fraudulent intent on the part
Union Bank then filed in the RTC of Pasig, an action for rescission of sale of the debtor rests on the creditor seeking rescission. Also in conjunction,
between Spouses Ong and Lee for being in fraud of creditors. Union Bank the act of rescission is only subsidiary, in which it cannot be instituted
alleges that the sale of the Greenhills lot was fraudulent as it kept the except for when there are no other means. (Accion Pauliana) Union Bank
property out of reach from creditors. Union Bank then cites 3 reasons as to failed to show that they had exhausted other means of claiming from the
why it is fraudulent: 1) insufficiency of consideration as the purchase price Spouses, aside from the Greenhills lot.
was way below market price, 2) lack of financial capacity as the yearly The CA had sufficiently established the validity and legitimacy of
income of Lee at the time was only P346,571.73 in 1990, and 3) Lee did not the sale in question. The conveying deed, a duly notarized document, carries
assert ownership as the spouses Ong still owned the property through a with it the presumption of validity and regularity. Testimony of Lee also
Contract of Lease. Spouses Ong and Lee answered saying that both the shows that the contract was supported by a valid consideration, and that
contract of sale and lease were founded on valid consideration and executed there are receipts to show that Lee had indeed paid the price of the lot.
in good faith. On September 27, 1999, RTC ruled in favor of Union Bank, Regarding the purchase price being lower than the fair market value, SC
applying Article 1381, the court finds that the circumstances presented by says that negotiations happen and an agreed lower price is normal, and is
Union Bank indeed shows fraud on the part of the respondents. RTC further not necessarily an indicator of fraud. Additionally the purchase price
states that BMC was insolvent, and as majority stakeholders, by selling of (13.25M (since tax included) and the fair market price (14.5M) is not a
the Greenhills lot, they left the bank with no recourse to recover from BMC. gross disparity to constitute fraud. Both parties must act maliciously for
Respondents then raised the petition to the CA, in which on there to be a rescission of contract, in this case Union Bank did not prove
December 5, 2001, the CA reversed and set aside the RTC decision. CA that there was any form of relationship between Spouses Ong and Lee prior
reasons out that the contracts being complete and regular on its face, is to the sale. Absent any evidence, they’re merely vendor and vendee. Lastly,
clothed with the presumption of regularity and legality. For a contract to be Lee exercises exclusive possession of the land, he owns it and therefore
in fraud of creditors, the creditor must prove that they cannot recover in any reserves the right to lease the land to the Spouses. The lease is also part of
other manner. Additionally, CA says that the real debtor is BMC, although the conditions in the sale. Thus all things considered, the petition is denied.
BMC is insolvent, that doesn’t mean Spouses Ong themselves are bankrupt
also. No attempt was made by Union Bank, to establish that appellants Facts of the Case (Material Facts)
1
Obligations and Contracts (2020) PETITIONER: Union Bank of the Philippines
DIGEST AUTHOR: Sean Lee RESPONDENT: Sps. Ong and Jackson Lee
1. Spouses Ong own majority stock of Baliwag Mahogany 9. Respondents then raised the petition to the CA, in which on
Corporation (BMC). December 5, 2001, the CA reversed and set aside the RTC
2. On October 10, 1990, the spouses executed a Continuing Surety decision.
Agreement in favor of Union Bank to secure a 10. CA reasons out that the contracts being complete and regular on its
P40,000,000.00-credit line facility for BMC. face, is clothed with the presumption of regularity and legality.
3. On October 22, 1991, the spouses Ong, for P12,500,000.00, sold 11. For a contract to be in fraud of creditors, the creditor must prove
their 974-square meter lot located in Greenhills to Jackson Lee. that they cannot recover in any other manner.
4. On November 22, 1991, BMC filed a Petition for Rehabilitation 12. Additionally, CA says that the real debtor is BMC, although BMC
and for Declaration of Suspension of Payments with the SEC. is insolvent, that doesn’t mean Spouses Ong themselves are
5. Union Bank then filed in the RTC of Pasig, an action for rescission bankrupt also.
of sale between Spouses Ong and Lee for being in fraud of 13. No attempt was made by Union Bank, to establish that appellants
creditors. spouses have no other property from which Union Bank could
6. Union Bank alleges that the sale of the Greenhills lot was obtain payment.
fraudulent as it kept the property out of reach from creditors. Union II. Issue/s
Bank then cites 3 reasons as to why it is fraudulent: 1. W/N the sale entered into by Spouses Ong and Lee were to
a. insufficiency of consideration as the purchase price was defraud Union Bank, and thus rescissible? NO
way below market price III. Holding/s
b. lack of financial capacity as the yearly income of Lee at
the time was only P346,571.73 in 1990 Issue #1
c. Lee did not assert ownership as the spouses Ong still NO. W/N the sale entered into by Spouses Ong and Lee were to
owned the property through a Contract of Lease. Spouses defraud Union Bank, and thus rescissible.
Ong and Lee answered saying that both the contract of Petitioner’s Arguments Court’s Rebuttals
sale and lease were founded on valid consideration and ● Union Bank then cites 3 reasons ● The Court disagrees. There were
executed in good faith. as to why it is fraudulent: 1) no markings of fraud in the sale
7. On September 27, 1999, RTC ruled in favor of Union Bank, insufficiency of consideration as between Spouses Ong and Lee.
applying Article 1381 regarding rescissible contracts, the court the purchase price was way 1) Not a gross disparity in prices
finds that the circumstances presented by Union Bank indeed below market price, 2) lack of 2) Lee had paid the purchase
shows fraud on the part of the respondents. financial capacity as the yearly price, and has receipts. 3) Lee
8. RTC further states that BMC was insolvent, and as majority income of Lee at the time was was within his right to lease his
stakeholders, by selling of the Greenhills lot, they left the bank only P346,571.73 in 1990, and own land.
with no recourse to recover from BMC. 3) Lee did not assert ownership
2
as the spouses Ong still owned sale. The spouses were paying 25k/month in rent, and thus they were merely
the property through a Contract tenants. Lee granting a lease to the spouses is a valid act as the new owner
of Lease. of the property. There is exclusive possession of the property by Lee.
Overall Ruling
The SC agrees with the CA, fraud was not attendant in the contracts made
by Spouses Ong and Lee. Contracts entered into without mal intent are not
rescissible, even if, as a result, the creditor may suffer some damage. The
onus of proving by clear and convincing evidence the existence of such IV. Law or Doctrine Applied
fraudulent intent on the part of the debtor rests on the creditor seeking Article 1381. The following contracts are rescissible:
rescission. Also in conjunction, the act of rescission is only subsidiary, in (3) Those undertaken in fraud of creditors when the latter
which it cannot be instituted except for when there are no other means. cannot in any other manner collect the claims due them;
(Accion Pauliana) Union Bank failed to show that they had exhausted other
means of claiming from the Spouses, aside from the Greenhills lot. Article 1383. The action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no other legal means
The CA had sufficiently established the validity and legitimacy of the sale to obtain reparation for the same.
in question. The conveying deed, a duly notarized document, carries with it
the presumption of validity and regularity. Testimony of Lee also shows that
the contract was supported by a valid consideration, and that there are
receipts to show that Lee had indeed paid the price of the lot. Regarding the V. Disposition
purchase price being lower than the fair market value, SC says that
negotiations happen and an agreed lower price is normal, and is not WHEREFORE, the instant petition is DENIED and the assailed
necessarily an indicator of fraud. Additionally the purchase price (13.25M decision of the Court of Appeals is AFFIRMED.
(since tax included) and the fair market price (14.5M) is not a gross
disparity to constitute fraud. VI. Additional Notes.
Both parties must act maliciously for there to be a rescission of contract, in

this case Union Bank did not prove that there was any form of relationship VII. Random Facts
between Spouses Ong and Lee prior to the sale. Absent any evidence, ● Ponente: GARCIA , J
they’re merely vendor and vendee. Regarding the spouses still occupying
the premises, the 1 year lease arrangement was part of the condition for the
3
G.R. No. 173349 | February 9, 2011 Rescissible Contracts (Arts. 1381, 1385, 1387)
Sps Lee v Bangkok Bank Sps Lee v Bangkok Bank
I. Recit-ready Summary It held that: (1) NO because the facts of the case prove that such
Petitioners in this case, Samuel U. Lee and Pauline Lee (Spouses Lee), presumption in Article 1387 does not apply in registered lands if the
are owners of Midas Diversified Export Corporation (MDEC) and Manila judgment or attachment are not registered; (2) NO because it
Home Textile, Inc. (MHI). Petitioners contracted Contract Loan Agreements substantiated the bona fide transaction between itself and spouses Lee
from respondent Bangkok Bank Public Company (Bangkok Bank). establishing its good faith in said transaction; and (3) NO because
Subsequently, they were granted a loan facility by also herein petitioner, absent an element for a valid accion pauliana, specifically that the act
Asiatrust Development Bank, Inc (Asiatrust). Meanwhile, Samuel Lee being impugned is fraudulent and the third person has been an
bought parcels of land in Antipolo, which became the subject properties in accomplice in the fraud, there can be no rescission.
this instant case.
The spouses, defaulted in its loan payments. Unlike Bangkok Bank, II. Facts of the Case (Material Facts)
Asiatrust negotiated and required certain properties to serve as security – 1. Petitioners in this case (Spouses Lee) are co-owners of Midas
hence, the Real Estate Mortgage issued in favor of Asiatrust. Later, RTC of Diversified Export Corporation (MDEC) and Manila Home
Makati issued a Writ of Preliminary Attachment in favor of SBC, granting Textile, Inc. (MHI) engaged in the manufacturing and export of
attachment of the defendants’ real and personal properties. However, was garments, ladies’ bags and apparel. Other owners are: Thelma U.
neither registered nor annotated on the titles of the subject Antipolo Lee, Maybelle L. Lim, and Daniel U. Lee.
properties at the RD. 2. The other petitioner, Asiatrust Development Bank, Inc. (Asiatrust),
The spouses Lee filed before the Securities and Exchange Commission granted loan facility for herein petitioner Lee.
(SEC) a Consolidated Petition for Suspension of Payments and listed all 3. CREDIT LOAN AGREEMENT: Respondent, on the other hand, is
their properties – including the already earmarked (indicated that serves as Bangkok Bank Public Company (Bangkok Bank) which granted
security) Antipolo properties. SEC issued the Suspension Order. CLA for both MDEC and MHI – both with guarantees.
In 1998, Bangkok Bank filed an action to recover the loans of MDEC 4. NOTE: Prior to CLA grant, respondent bank conducted a property
and MHI while, Asiatrust foreclosed the mortgaged property. TCTs check and required Samuel Lee to submit a list of his properties but
covering subject properties were consolidated in the name of Asiatrust (120 did not require to set a particular property as collateral.
titles) without the annotation of the writs of preliminary attachment, which 5. LOAN FACILITY: MDEC was granted a loan facility by Asiatrust
were deemed cancelled. with available credit of PhP 40,000,000 for letters of credit,
Bangkok Bank filed the case rescission of the REM over the subject advances on bills and export packing; and a separate credit line of
properties, annulment of the April 15, 1998 foreclosure sale, cancellation of USD 2,000,000 for bills purchase
the new TCTs issued in favor of Asiatrust, and damages amounting to PhP 6. 1997, May: Samuel brought several parcels of land in Cupang,
600,000 on the grounds of existing fraud which is a ground for rescinding Antipolo for a joint venture with Louisville Realty and
said mortgage. Development Corporation – this is the subject properties in the
RTC ruled in favor of Spouses Lee but was reversed by the CA. instant case (Antipolo properties)
The Court resolved the following issues: (1) W/N Article 1387 7. 1997, August: Samuel defaulted in its payment with Asiatrust,
applies in the present case – holding Spouses Lee guilty of fraud; (2) 8. 1997: After some negotiations, Asiatrust required the Lee family to
W/N Asiatrust committed fraud; and (3) W/N the mortgage may be provide additional collateral that would secure the loan – the Real
rescinded on the ground that there was collusion between the spouses Estate Mortgage over Antipolo properties
Lee and Asiatrust. 9. 1998, February 23: Mortgage was actually notarized, registered,
and annotated at the back of the titles
Obligations and Contracts (2020) PETITIONER: Samuel U. Lee and Pauline Lee and Asiatrust Development Bank, Inc. 1
DIGEST AUTHOR: Leslie Castillo RESPONDENT: Bangkok Bank Public Company, Limited
10. Spouses Lee have defaulted in their payments with other creditors: 19. Bangkok Bank filed the instant case rescission of the REM over the
Bangkok Bank, Security Bank Corporation subject properties, annulment of the April 15, 1998 foreclosure
11. 1998, January: RTC of Makati issued a Writ of Preliminary sale, cancellation of the new TCTs issued in favor of Asiatrust, and
Attachment in favor of SBC, granting attachment of the damages amounting to PhP 600,000 on the grounds of existing
defendants’ real and personal properties. The writ, however, was fraud which is a ground for rescinding said mortgage.
neither registered nor annotated on the titles of the subject Antipolo 20. RTC: Dismissed the case for lack of merit
properties at the RD. a. No concrete proof of alleged fraud and conspiracy committed
12. 1998, February 16: The five corporations owned by Spouses Lee by Lee family and Asiatrust
(including MDEC and MHI) filed for before the Securities and b. Article 1381 (3) does not apply as Bangkok Bank did not
Exchange Commission (SEC) a Consolidated Petition for the prove that it cannot in any manner collect its claims from the
Declaration of a State of Suspension of Payments and for Lee family.
Appointment of a Management Committee/Rehabilitation Receive c. Article 1387 does not apply as mortgage contract cannot be
13. The petition stated that the Lee family and their corporations had considered as a gratuitous alienation
more than sufficient properties to cover all liabilities to their d. No violation of SEC Suspension Order as these properties are
creditors; and presented a list of all their properties including the not within the jurisdiction of SEC
subject properties located in Antipolo, Rizal; NOTE: the list 21. CA: Reversed RTC’s decision and ruled in favor of Bangkok Bank.
indicated that the Antipolo properties serve as security for MDEC’s a. Considered the Letter sent by the counsel of the Midas Group
unpaid obligation with Asiatrust. of Companies which assailed said proceeding as bereft of legal
14. 1998, February 20: SEC issued a Suspension Order enjoining the and factual bases in the light Suspension Order of the SEC
Lee corporations from disposing of their property in any manner b. Found that the subject Antipolo properties are covered by the
except in the ordinary course of business, and from making any February 20, 1998 Suspension Order of the SEC, since they
payments outside the legitimate expenses of their business during are included in the list submitted to SEC by the Lee family
the pendency of the petition c. Rejected petitioners’ claim that the subject properties were
15. 1998, March 12: Bangkok Bank filed an action to recover the loans allotted to Asiatrust - if the subject properties were indeed
of MDEC and MHI and they discovered that the spouses had allotted to Asiatrust, then these would not have been included
executed a REM over the subject properties in favor of Asiatrust in the list of properties submitted to the SEC
16. 1998, April 15: Asiatrust foreclosed the mortgaged properties d. Held that fraud was perpetrated through the REM executed
(Antipolo properties) and purchased said properties for PhP and registered on February 23, 1998 pursuant to the
20,864,735 with PhP 14,800,000 deficiency. presumption in the second paragraph of Art. 1387 of the Civil
17. 1998, April 21: The sale was registered; Bangkok Bank did not Code, which provides that "alienations by onerous title are also
redeem subject properties – believing REM and foreclosure sale presumed fraudulent when made by persons against whom x x
was fraudulent x some writ of attachment has been issued."
18. 1999, April 30: Since there was no effort to redeem properties,
TCTs covering subject properties were consolidated in the name of III. Issue/s
Asiatrust (120 titles) without the annotation of the writs of MAIN ISSUE: Whether the February 23, 1998 REM executed over the
preliminary attachment, which were deemed canceled. subject Antipolo properties and the April 15, 1998 foreclosure sale were
committed in fraud of petitioners’ other creditors, and, as a consequence of annotations at the back of the titles
such fraud, the questioned mortgage could, therefore, be rescinded of Antipolo properties the REM
In order to answer this main issue, the Court answered the following sub- and writ of preliminary attachment.
issues: • Even if presumption applies,
a. W/N Article 1387 applies in the present case – holding Spouses “mortgage” is not the alienation
Lee guilty of fraud? No. contemplated in Art 1387. The
b. W/N Asiatrust committed fraud? No. alienation contemplated under
c. W/N the mortgage may be rescinded on the ground that there Article 1387 involves "transfer of
was collusion between the spouses Lee and Asiatrust? No. the property and possession of
lands, tenements, or other things,
IV. Holding/s from one person to another” which
is not contemplated in a mortgage.
Issue #1 [See Notes].
No because the facts of the case prove that such presumption in Article Overall Ruling
1387 does not apply in registered lands if the judgment or attachment Considering that the earlier SBC judgment or attachment was not, and in
are not registered. fact never was, annotated on the titles of the subject Antipolo properties,
Petitioner’s Arguments Court’s Rebuttals prior to the execution of the REM, the presumption of fraud under Art. 1387
• They substantially established that • Bangkok Bank presented no of the Code clearly cannot apply. Further, a mortgage is not that which is
a loan agreement has been existing substantial evidence for alleged contemplated in the term "alienation" that would make the presumption of
between them since 1996. fraud and merely relied on the fraud under Art. 1387 apply [See Notes]. This being so, as the REM is not
• The 1997 negotiations concluded presumption under Art. 1387, the alienation contemplated in Art. 1387 of the Code, the presumption of
the Antipolo properties as security however, the presumption of fraud fraud cannot apply.
for the loans by means of established under Art. 1387 does
mortgage [hence, the REM]. not apply to registered lands IF "the
Issue #2
• It is undisputed that the list of judgment or attachment made is not
No because it substantiated the bona fide transaction between itself and
properties submitted by the Lee also registered." This rule was also
upheld in the case of Abaya v spouses Lee establishing its good faith in said transaction.
corporations to the SEC clearly
indicated that the subject Antipolo Enriquez. Petitioner’s Arguments Court’s Rebuttals
properties have or have already • The judgment was made against the Asiatrust was able to establish: There was a bona fide
been serving as security spouses Lee in favor of SBC was (1) the existence of a loan transaction between the spouses
• MDEC, through its counsel, truly not annotated on the titles of the agreement Lee and Asiatrust that
believed in good faith that the subject properties. (2) the advances made by MDEC necessitated the negotiations
inclusion of the spouses Lee’s • There is no showing that the (3) the default in payment of MDEC resulting from the former’s
private properties in the list judgment has ever been annotated on its maturing loans; and default in the payment of its
submitted to the SEC is valid and on the titles of the subject obligations; and which brought
(4) the negotiations, which took
regular. properties as there were only two about the execution of the REM
place between Asiatrust and Samuel
on behalf of MDEC that led to the to secure their pre-existing Petitioner’s Arguments Court’s Rebuttals
agreement for Samuel to mortgage obligations. • First, even after the subject • In Siguan v. Lim, this Court held
the subject Antipolo properties • Asiatrust, in good faith, Antipolo properties were that in an action to rescind under
conducted the necessary foreclosed by Asiatrust, Asiatrust Art. 1381, certain requisites must
diligence and meticulousness sought the recovery of the exist [see doctrine].
expected of it. deficiency amounting to at least • Considering the discussions
Overall Ruling PhP 14,800,000.
previously expounded, the extant
Asiatrust cannot be faulted for acting with prudence, in good faith, and • Second, Asiatrust filed a criminal
records show that the fourth and
without any badge of fraud in the creation of the REM and in the case against Samuel for violation
fifth requisites enumerated above
foreclosure of the mortgage to ensure the satisfaction of the debts owed to it of BP 22.
are absent: 4) the act being
by MDEC. On the contrary, Bangkok Bank never acted on its as creditor at • Third, contrary to the CA’s
appreciation of the facts, the letter impugned is fraudulent; (5) the
the soonest possible time. A careful reading of Art. 1387 of the Code vis-à-
sent by Atty. Macam, counsel of third person who received the
vis its Art. 1385 would plainly show that the presumption of fraud in case of
the Midas Group of Companies, property conveyed, if it is by
alienations by onerous title only applies to the person who made such
actually strengthens the proof that onerous title, has been an
alienation, and against whom some judgment has been rendered in any accomplice in the fraud.
no collusion existed between the
instance or some writ of attachment has been issued. A third person is not parties. MDEC alleged that the
and should not be automatically presumed to be in fraud or in collusion with foreclosure was illegal, on the
the judgment debtor. In allowing rescission in case of an alienation by other hand, Asiatrust claimed that
onerous title, the third person who received the property conveyed should subject properties cannot be made
likewise be a party to the fraud [this is in relation to Issue #4]. Court further subject of the SEC Suspension
argued that as clarified by Art. 1385(2) of the Code, so long as the person Order.
who is in legal possession of the property did not act in bad faith, rescission
cannot take place. Thus, in all instances, as to the third person in legal Overall Ruling
possession of the questioned property, good faith is presumed. Accordingly, With all the foregoing facts strongly established, We confirm the absence of
it is upon the person who alleges bad faith or fraud that rests the burden of fraud, bad faith, and collusion between the spouses Lee and Asiatrust.
proof.
SIGUAN v LIM
Issue #3 The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action
No because absent an element for a valid accion pauliana, specifically to prosper, the following requisites must be present: (1) the plaintiff asking for rescission has a
credit prior to the alienation, although demandable later; (2) the debtor has made a subsequent
that the act being impugned is fraudulent and the third person has been contract conveying a patrimonial benefit to a third person; (3) the creditor has no other legal
an accomplice in the fraud, there can be no rescission. remedy to satisfy his claim; (4) the act being impugned is fraudulent; (5) the third person who
received the property conveyed, if it is by onerous title, has been an accomplice in the fraud.
(Emphasis Ours; citations omitted.)
ARTICLE 1381, NEW CIVIL CODE Resolution in CA-G.R. CV No. 79362 are REVERSED and SET ASIDE.
ARTICLE 1381. The following contracts are rescissible:
The RTC’s April 21, 2003 Decision in Civil Case No. 99-5388 is hereby
(1) Those which are entered into by guardians whenever the wards whom they represent
suffer lesion by more than one-fourth of the value of the things which are the object REINSTATED.
thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in VII. Additional Notes
the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner
• In determining whether or not a certain conveying contract is fraudulent,
collect the claims due them; what comes to mind first is the question of whether the conveyance was
(4) Those which refer to things under litigation if they have been entered into by the a bona fide transaction or a trick and contrivance to defeat creditors.
defendant without the knowledge and approval of the litigants or of competent judicial • Alienation v Mortgage
authority;
(5) All other contracts specially declared by law to be subject to rescission. (1291a) Under Art. 1387 of the Code, fraud is presumed only in alienations by
onerous title of a person against whom a judgment or attachment has
ARTICLE 1385, NEW CIVIL CODE been issued. The term, alienation, connotes the "transfer of the property
ARTICLE 1385. Rescission creates the obligation to return the things which were the object of and possession of lands, tenements, or other things, from one person to
the contract, together with their fruits, and the price with its interest; consequently, it can be
carried out only when he who demands rescission can return whatever he may be obliged to another." This term is "particularly applied to absolute conveyances of
restore. real property" and must involve a "complete transfer from one person to
Neither shall rescission take place when the things which are the object of the contract are another." A mortgage does not contemplate a transfer or an absolute
legally in the possession of third persons who did not act in bad faith. conveyance of a real property. It is "an interest in land created by a
In this case, indemnity for damages may be demanded from the person causing the loss. (1295)
written instrument providing security for the performance of a duty or
ARTICLE 1387, NEW CIVIL CODE the payment of a debt." When a debtor mortgages his property, he
ARTICLE 1387. All contracts by virtue of which the debtor alienates property by gratuitous "merely subjects it to a lien but ownership thereof is not parted with." It
title are presumed to have been entered into in fraud of creditors, when the donor did not is merely a lien that neither creates a title nor an estate. It is, therefore,
reserve sufficient property to pay all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made by persons against whom certainly not the alienation by onerous title that is contemplated in Art.
some judgment has been rendered in any instance or some writ of attachment has been issued. 1387 where fraud is to be presumed. (mortgage is the alienation not
The decision or attachment need not refer to the property alienated, and need not have been contemplated)
obtained by the party seeking the rescission. • In this case, it is a fact that the REM was annotated on the titles of the
In addition to these presumptions, the design to defraud creditors may be proved in any other
manner recognized by the law of evidence. (1297a) subject Antipolo properties ahead of the writs of preliminary attachment
issued in favor of Bangkok Bank. In fact, it was admitted by Bangkok
ABAYA v ENRIQUEZ Bank that it only knew of the existing mortgage that has already been
Where the judgment rendered against the defendant x x x has not been entered in the records of annotated at the back of the subject titles when it sought the annotation
the register of deeds, relative to an immovable belonging to the judgment debtor, the
subsequent sale of said property by the latter, shall not be rescinded upon the ground of fraud, of the writs of preliminary attachment. Therefore, as between Asiatrust
unless the complicity of the buyer in the fraud imputed to said vendor is established by other as mortgage creditor and Bangkok Bank as attaching creditor, it is
means than the presumption of fraud x x x. apparent that the former has a superior right over the latter.
VI. Disposition VIII. Random Facts

• Ponente: Velasco, Jr., J.
Wherefore, premises considered, the petition is hereby GRANTED.
Accordingly, the CA’s March 15, 2006 Decision and June 29, 2006
G.R. No. 176131 and 176131 | August 10, 2011 Rescissible Contracts
Metrobank v IEB Metrobank v IEB
I. Recit-ready Summary is subsidiary in nature and can only be availed in the absence of any other
Sacramento Steel Corporation (SSC) entered into a Capital Credit legal remedy.
Agreement with the International Exchange Bank (IEB). As a security, SSC II. Facts of the Case (Material Facts)
executed five separate deeds of chattel mortgage over various equipment in 1. SSC entered into a Capital Credit Agreement with the respondent.
its plant. However, the SSC defaulted as IEB’s demands were unheeded This was in the amount of P60,000,000.00, a loan of
The IEB filed with the RTC an action for injunction to keep SSC P20,000,000.00 and a subsequent credit line with a limit of
from taking out the mortgaged equipment and for the issuance of a writ of P100,000,000.00.
replevin. In turn, the SSC filed with the RTC a complaint for annulment of 2. As a security, SSC executed five separate deeds of chattel
the mortgage and restructuring of the obligation. The RTC ruled in favor of mortgage over various equipment in its plant
the IEB and granted the writ of replevin. However, following an agreement 3. SSC defaulted as IEB’s demands were unheeded
by the parties, the implementation of the writ was held in abeyance. 4. The IEB filed with the RTC an action for injunction to keep SSC
Meanwhile, the SSC entered into a capacity lease agreement with from taking out the mortgaged equipment
the Chuayuco Steel Manufacturing Corporation (CSMC) which allowed the 5. SSC filed with the RTC a complaint for annulment of the mortgage
latter to lease and operate the former’s milling and galvanizing plant. and restructuring the obligation
Metrobank filed a motion for intervention as it was the creditor of SSC and 6. The RTC ruled in favor of the IEB and granted the writ of replevin.
that the mortgage contracts between the SSC and IEB were allegedly However the implementation of the writ was held in abeyance, per
entered to defraud Metrobank. The petitioner prayed for the rescission of agreement of the parties.
the mortgage. The RTC issued a resolution directing the CSMC to file its 7. Meanwhile, the SSC entered into a capacity lease agreement with
complaint-in-intervention. The CA directed respondents ro turn over the CSMC which allowed the latter to lease and operate the former’s
mortgaged properties for foreclosure. milling and galvanizing plant.
The issue in this case is W/N Metrobank and CSMC may be 8. Petitioner Metrobank filed a motion for intervention as it was the
allowed to intervene? creditor of SSC and that the mortgage contracts between the SSC
The SC ruled in the negative. It is clear that the nature of the and IEB were entered into to defraud Metrobank.Petitioner prayed
complaint of the petitioner is that of an accion pauliana. Jurisprudence is for the rescission of the mortgage.
clear that the following successive measures must be taken by a 9. The RTC issued a resolution directing the CSMC to file its
creditor before he may bring an action for rescission of an allegedly complaint-in-intervention. The CA directed respondents ro turn
fraudulent contract: (1) exhaust the properties of the debtor through over the mortgaged properties for foreclosure.
levying by attachment and execution upon all the property of the 10. Metrobank was substituted by the Meridian as the former sold the
debtor, except such as are exempt by law from execution; (2) accion loan obligation owed by the SSC to the latter.
subrogatoria; and (3) accion pauliana. The petitioner did not avail of the 11. Hence, this petition.
first and second remedies. Article 1383 is clear that an action for rescission
III. Issue/s
1
Obligations and Contracts (2020) PETITIONER: Metrobank and CSMC
DIGEST AUTHOR: Alfonso Fernandez RESPONDENT: IEB
1. W/N Metrobank and CSMC may be allowed to intervene V. Law or Doctrine Applied
IV. Holding/s ARTICLE 1383 of the Civil Code
Issue #1 Article 1383 provides that:
1. W/N Metrobank and CSMC may be allowed to intervene The action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no
other legal means to obtain reparation for the same.
The action for rescission is subsidiary in nature and can only be
● The complaint it is not a an ● The main intentions of the
availed in the absence of any other legal remedy.
accion pauliana intervention of Petitioner is for
● In order to apply the concept the rescission of the mortgages Accion Pauliana
of accion pauliana, and the executed by SSC The following successive measures must be taken by a
rules pertaining to it, the ● An accion pauliana is an action to creditor before he may bring an action for rescission of an allegedly
subject matter must be a rescind contracts in fraud of fraudulent contract: (1) exhaust the properties of the debtor through
conveyance, otherwise valid, creditors levying by attachment and execution upon all the property of the
undertaken in fraud of ● Jurisprudence is clear that debtor, except such as are exempt by law from execution; (2) exercise
creditors. There is no mortgage contracts involves the all the rights and actions of the debtor, save those personal to him
conveyance involved here conveyance of a patrimonial (accion subrogatoria); and (3) seek rescission of the contracts executed
benefit by the debtor in fraud of their rights (accion pauliana). An accion
Overall Ruling pauliana must be of last resort.
Jurisprudence is clear that the following successive measures
must be taken by a creditor before he may bring an action for VI. Disposition
rescission of an allegedly fraudulent contract: (1) exhaust the properties WHEREFORE WHEREFORE, the assailed Decision and Resolution of
of the debtor through levying by attachment and execution upon all the Court of Appeals in CA-G.R. SP No. 00549-MIN are AFFIRMED
the property of the debtor, except such as are exempt by law from AFFIRMED with MODIFICATION MODIFICATION. The February 14,
execution; (2) exercise all the rights and actions of the debtor, save 2005 Order of the Regional Trial Court of Misamis Oriental, Branch
those personal to him (accion subrogatoria); and (3) seek rescission of 17, is MODIFIED by denying Metrobank's Motion for Intervention,
the contracts executed by the debtor in fraud of their rights (accion while the Joint Resolution of the same trial court, dated June 8, 2005,
pauliana). The petitioner did not avail of the first and second remedies. reiterating its admission of CSMC's Motion for Intervention and
The contract of chattel mortgage involves a conveyance of directing the latter to le its complaint-in-intervention, is REINSTATED
patrimonial benefit as the properties subject of the chattel mortgage stand as REINSTATED.
security for the credit extended.
●
2
VII. Random Facts

● Ponente: Peralta, J.
3
G.R. No. 173441 | December 3, 2009 Rescissible Contracts
Heirs of Quirong vs. DBP Heirs of Quirong vs. DBP

Emilio Dalope died and left to his wife, Felisa, and 9 children a 1. When Emilio Dalope died, he left to his wife, Felisa, and 9 children
589-square meter untitled lot. Felisa sold the whole lot so that one of the a 589-square meter untitled lot.
children, Rosa, and her husband (The Funcions) could procure a loan from 2. Felisa sold the whole lot to enable one of the children, Rosa
the Development Bank of the Philippines. The Funcions mortgaged the lot Dalope-Funcion, and her husband to procure a loan from the
with DBP. They failed to pay their loan so the DBP foreclosed the mortgage Development Bank of the Philippines.
on the lot. 3. The Funcions mortgaged the lot with DBP.
DBP conditionally sold the lot to Sofia Quirong for the price of 4. On 12 February 1979, the Funcions failed to pay their loan so the
P78,000.00. Felisa and her 8 children filed an action for partition and DBP foreclosed the mortgage on the lot and consolidated
declaration of nullity of documents with damages against the DBP and the ownership in its name on 17 June 1981.
Funcions. (Civil Case D-7159) 5. On 20 September 1983, DBP conditionally sold the lot to Sofia
Notwithstanding the suit, DBP executed a deed of absolute sale of Quirong for the price of P78,000.00. The contract provided that
the lot in Sofia Quirong's favor. After Sofia Quirong had died, the Quirong Sofia waived any warranty against eviction and that DBP did not
heirs filed an answer in intervention and asked the RTC to award them the guarantee possession of the property and that it would not be liable
lot or to let them recover from DBP the value of the lot. for any lien or encumbrance on the same.
The heirs failed to file a formal offer of evidence. 6. On 28 November 1983, Felisa and her 8 children filed an action for
The RTC declared DBP’s sale to Quirong valid only with respect partition and declaration of nullity of documents with damages
to Felisa and Rosa’s share of the lot, and otherwise void. The DBP had until against the DBP and the Funcions. (Civil Case D-7159)
28 January 1993 to appeal but they failed to do so. DBP resisted the writ of 7. On 27 December 1984, DBP executed a deed of absolute sale of
execution with a motion to quash, which the RTC denied. DBP filed a the lot in Sofia Quirong's favor.
special civil action of certiorari, which was denied. 8. Sofia Quirong had died. On 11 May 1985, the Quirong heirs filed
On 10 June 1998, the heirs filed the present action against DBP for an answer in intervention in Civil Case D-7159. They asked the
the rescission of the contract of sale, praying for reimburesement and RTC to award them the lot or to let them recover from DBP the
damages, because the decision in D-7159 stripped them of nearly the whole value of the lot.
lot. On 14 June 2004, RTC rendered a decision rescinding the sale. On 9. The heirs failed to file a formal offer of evidence, thus the Court
appeal, the CA reversed this decision and dismissed the heirs’ action on the did not rule on the merits of their claim.
ground of prescription. 10. On 16 December 1992, the RTC declared DBP’s sale to Quirong
The issue is W/N the Quirong heirs' action for rescission of DBP's valid only with respect to Felisa and Rosa’s share of the lot, and
sale of the lot to Sofia Quirong was already barred by prescription? YES. otherwise void.
The Court held that the prescription period is 4 years, as stated in Article 11. The DBP had until 28 January 1993 to appeal but they failed to do
1389. The petition is denied. so. DBP resisted the writ of execution with a motion to quash,
which the RTC denied. DBP filed a special civil action of certiorari,
which was denied. (G.R. 116575)
Obligations and Contracts (2020) PETITIONER: Heirs of Sofia Quirong 1

DIGEST AUTHOR: Nikki RESPONDENT: Development Bank of the Philippines
12. On 10 June 1998, the heirs filed the present action against DBP for Overall Ruling
the rescission of the contract of sale, praying for reimburesement The remedy of "rescission" is not confined to the rescissible contracts under
and damages, because the decision in D-7159 stripped them of Article 1381. Article 1191 of the Civil Code gives the injured party in
nearly the whole lot. reciprocal obligations, the option to choose between fulfillment and
13. On 14 June 2004, RTC rendered a decision rescinding the sale. On “rescission.” It is noted, however, that the old code actually uses the term
appeal, the CA reversed this decision and dismissed the heirs’ "resolution" rather than the present "rescission".
action on the ground of prescription.
"Rescission" is a subsidiary action based on injury to the plaintiff's
III. Issue/s economic interests, under Article 1380 and 1381. "Resolution", under
1. W/N the Quirong heirs' action for rescission of DBP's sale of Article 1191, is based on the defendant's breach of faith, a violation of the
the lot to Sofia Quirong was already barred by prescription? reciprocity between the parties and prescribes in 10 years. Article 1191
YES. gives the injured party an option to choose between, first, fulfillment of the
2. W/N the heirs of Quirong were entitled to the rescission of the contract and, second, its rescission.
DBP's sale of the lot to Sofia Quirong, as a consequence of her heir
having been evicted fom it? The Court deemed it unnecessary to The Quirong heirs alleged that they were entitled to the rescission of the
consider this issue. contract of sale because the decision in D-7159 deprived them of nearly the
whole lot. But at the time of the filing of action, the contract of sale had
IV. Holding/s already been fully performed. Quirong even assumed "the ejectment of
Issue #1 squatters and/or occupants" on the lot, at her own expense. The Court held
YES, their action was barred by prescription. that the heirs had the right to file the action based on Article 1548 and 1556,
Petitioner’s Arguments Court’s Rebuttals but it has already prescribed, based on Article 1389 which provides for 4
 The heirs claim that the  The incident in G.R. 116575 did years from the time the action accrued. Since it accrued on 28 January 1993
prescriptive period should be not involve the merit of the when the decision in D-7159 became final and executory, the heirs had only
reckoned from 17 January 1995, decision in D-7159, which until 28 January 1997 to file their action for rescission. They filed their
the date this Court's resolution in became final and executory on 28 action on 10 June 1998, the action was already barred by prescription.
G.R. 116575 became final and January 1993. Issue #2
executory.  There is no question that the NO, the Court deemed it unnecessary to consider the 2nd issue.
 The heirs claim that the action was for rescission and
prescription period should be 10 reimbursement. The prescriptive Overall Ruling
years, citing Article 1144 (which period for such is 4 years. Since it was already held that the action was barred by prescription, the
refers to actions upon a written Court concluded that it would serve no useful purpose for it to further
contract). consider the issue of whether or not the heirs of Quirong would have been
entitled to the rescission of the DBP's sale of the subject lot to Sofia
Quirong as a consequence of her heirs having been evicted from it.

The Quirong heirs were allowed by the RTC to intervene in the original (5) All other contracts specially declared by law to be subject to rescission.
action in D-7159 that the Dalopes filed against the DBP and the Funcions.
They also filed a cross claim against the DBP. They were apparently heard ARTICLE 1389 OF THE CIVIL CODE
on their defense and cross claim but the RTC did not adjudicate their claim Article 1389. The action to claim rescission must be commenced within
because they failed to make a formal offer of evidence. They did not appeal four years.
from this omission or from the judgment of the RTC. It shows that the heirs
have themselves to blame for the loss of whatever right they may have in For persons under guardianship and for absentees, the period of four years
the case. shall not begin until the termination of the former's incapacity, or until the
domicile of the latter is known.
V. Law or Doctrine Applied ARTICLE 1144 OF THE CIVIL CODE

Article 1144. The following actions must be brought within ten years
ARTICLE 1380 OF THE CIVIL CODE from the time the right of action accrues:
Article 1380. Contracts validly agreed upon may be rescinded in the cases
established by law. (1) Upon a written contract;
Article 1381. The following contracts are rescissible: ARTICLE 1548 OF THE CIVIL CODE
Article 1548. Eviction shall take place whenever by a final judgment
(1) Those which are entered into by guardians whenever the wards whom based on a right prior to the sale or an act imputable to the vendor, the
they represent suffer lesion by more than one-fourth of the value of the vendee is deprived of the whole or of a part of the thing purchased.
things which are the object thereof;
The vendor shall answer for the eviction even though nothing has been
(2) Those agreed upon in representation of absentees, if the latter suffer said in the contract on the subject.
the lesion stated in the preceding number;
The contracting parties, however, may increase, diminish, or suppress this
(3) Those undertaken in fraud of creditors when the latter cannot in any legal obligation of the vendor.
other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered Article 1556. Should the vendee lose, by reason of the eviction, a part of
into by the defendant without the knowledge and approval of the litigants the thing sold of such importance, in relation to the whole, that he would
or of competent judicial authority; not have bought it without said part, he may demand the rescission of the

contract; but with the obligation to return the thing without other
encumbrances that those which it had when he acquired it.
He may exercise this right of action, instead of enforcing the vendor's

liability for eviction.
The same rule shall be observed when two or more things have been
jointly sold for a lump sum, or for a separate price for each of them, if it
should clearly appear that the vendee would not have purchased one
without the other.
VI. Disposition
WHEREFORE, the Court DENIES the petition and AFFIRMS the
November 30, 2005 decision of the Court of Appeals in CA-G.R. CV 83897.

VII. Random Facts
 Ponente: Abad, J.

G.R. No. 188467| March 29, 2017 Lease
Peralta v. Raval Peralta v. Raval
I. Recit-ready Summary In 1974, Flaviano Arzaga, Sr. and Magdalena Arzaga entered into a Contract of Lease with
petitioner Renato Peralta over two parcels of land, located in Ilocos Norte, for a term of 40 years. In May 1998, Flaviano
Arzaga, Jr. filed a complaint for annulment for Peralta’s alleged breach of the contract’s terms, but the RTC dismissed it.
Flaviano Jr. assigned, via deed of assignment, his interests, rights, and participation in the contract to respondent Jose
Raval. In effect, Raval made several demands to Peralta in order to let him comply with the lease contract. Through
Raval’s counsel, Atty. Castro wrote letters to Peralta in which the former demands the latter to remove the structures built
on the said land. With Peralta’s refusal, the matter was referred to the barangay, but they still failed to settle the issue.
Hence, Raval’s counsel filed an action for rescission of lease contract before the RTC. The RTC denied the rescission
since Peralta had still been depositing the monthly rentals to the bank account and his violations were merely minor or
trivial, and the award of damages since malice, fraud or bad faith was not proven. On appeal, the CA still denied the plea
for rescission, but granted Raval the award of unpaid rentals because the assignment was valid, hence Raval can go after
Peralta for the unpaid rentals. The issues in this case are: W/N the deed of assignment executed by Flaviano Jr is valid?
The Court ruled that Raval obtained the rights, interests, and privileges, including the right to rescind an agreement, of his
predecessors-in-interest over the property when he became an assignee under the deed. W/N the action to rescind the
lease contract has prescribed? The Court ruled Raval's cause of action did not refer to Article 1389 which are rescissible
contracts, but to a written contract. An action to rescind a lease contract has a prescriptive period of 10 years, provided
under Article 1144. starting from the right of action accrues. In this case, the action was filed in 1998 and the violations
happened before the first demand was instituted in 1995. Hence, the action is within the 10-year prescriptive period.
1. Flaviano Arzaga, Sr. and Magdalena Arzaga (Spouses Arzaga) owned two parcels of residential land in Ilocos Norte. In
February 1974, Petitioner Renato Peralta and spouses Arzaga entered into a contract of lease which involved the said land
for 40 years (check notes about the contract). Aside from the payment of monthly rentals, Peralta was obliged to construct
a building on the land, to pay realty taxes, and to develop a water system. 2. In May 1998, Flaviano Arzaga, Jr., heir of the
spouses Arzaga, filed a complaint for annulment of the lease contract before the RTC because Peralta allegedly breached
his obligations under the contract. The complaint was dismissed by the RTC and such ruling was affirmed by the CA. 3.
Flaviano Jr. assigned, via a Deed of Assignment, all of his interests, rights, and participation in the contract to respondent
Jose Raval in consideration of P500K. However, despite this, Peralta refused to recognize the validity of the assignment
and insisted to still deposit the rental payments to Flaviano Jr. 's account. Raval, demanded Peralta to comply with the
contract’s terms, but the latter still refused which is why the matter was referred to the barangay. Upon the failure to settle
the issue, Raval, through his counsel, Atty. Castor wrote a letter to Peralta to remove the structures built on the said land
since those are not covered by the agreement and to make the second floor of the house available to a lessee. 4. After all
the demands and barangay conciliation, Raval filed a complaint for rescission of lease before the RTC for Peralta’s failure
to comply with his demands and the contract’s terms. In Peralta’s defense, he claimed that the assignment was void since
he was not consulted about it and he did not give his approval. 5. The RTC ruled that rescission should be denied because
the latter had still been depositing monthly rentals to the bank account and 1 Obligations and Contracts (2020)
PETITIONER: Renato Ma. R. Peralta
DIGEST AUTHOR: Steven Rivera RESPONDENT: Jose Roy Raval
G.R. No. 188467| March 29, 2017 Lease
that there was no substantial breach on Peralta’s side since his failure to install a water system and to render an accounting
were merely minor. As to the counterclaim, the court ruled that there will be no award of damages since there was no
malice, fraud or bad faith in the institution of the case. 6. On appeal, the CA still denied the plea for rescission, but granted
Raval the award of unpaid rentals. The CA affirmed the validity of the assignment and ruled that there can be no rescission
because Raval was not capable of returning all the rental payments to Peralta. However, Raval can go after Peralta for the
unpaid rentals and he is entitled to moral damages for Peralta's unjustified refusal to pay to him.
III. Issue/s
1. W/N the deed of assignment executed by Flaviano Jr is valid;
and (YES) 2. W/N the action to rescind the lease contract has prescribed;
(NO)
IV. Holding/s Issue #1 YES, the Court sustained the validity of the assignment.
● Peralta insisted that the deed is void and thus cannot be deemed to have conferred to Raval the rights of a new owner and
lessor.
Overall Ruling The Court cited the RTC’s decision stating that there is no doubt that the titles of the properties covered
by the Deed of Assignment had been issued in favor of Raval. The Court ruled that Raval obtained the rights, interests,
and privileges, including the right to rescind an agreement, of his predecessors-in-interest over the property when he
became an assignee under the deed.
Issue #2 NO, the action to rescind the lease contract has not yet prescribed.
● Peralta claimed that the action for rescission has prescribed because Article 1389 of the Civil Code provides that rescission
must be filed within four years.
Court’s Rebuttals
● Peralta's reference to Article 1389 when he argued that Raval's action had already prescribed for having been filed more
than four years after the execution of the lease contract in 1974, is misplaced. Overall Ruling The Court ruled that Article
1389 does not apply in this case because it refers to rescissions in Article 1380 and 1381 which are rescissible contracts
Court’s Rebuttals
● The Court ruled that Raval is not a total stranger to Peralta's contract of lease with the Spouses Arzaga because by the
subsequent transfers of rights over the leased premises, Raval became the original lessors' successor-in-interest.
such as lesion, and not to rescissions of lease. Raval's cause of action did not refer to Article 1389, yet one that was based
on a written contract. The applicable provision is Article 1659 which provides that if the lessor or the lessee did not
comply with the obligations under Articles 1654 and 1657, the victim party may seek rescission of the contract with
indemnity, or allow the contract to remain in force, but with indemnity. Article 1654 provides for the lessor’s obligations,
while Article 1657 provides for the lessee’s. An action filed under Article 1389 has a prescriptive period of 4 years, while
an action to rescind a lease contract has a prescriptive period of 2 Obligations and Contracts (2020) PETITIONER: Renato
Ma. R. Peralta
G.R. No. 188467| March 29, 2017 Lease
Art. 1389 of the Civil Code The action to claim

10 years, provided under Article 1144. starting from the rescission must be commenced within four years.
right of action accrues. The Court also ruled that the
cause of action accrues not on the date of the contract’s For persons under guardianship and for absentees, the
execution, but on the date that there was a violation and period of four years shall not begin until the termination
default by the lessee. In this case, the action was filed in of the former's incapacity, or until the domicile of the
1998 and the violations happened either immediately latter is known.
prior to Raval's repeated extrajudicial demands that
began in August 1995, or after Peralta's refusal to heed Art. 1659 of the Civil Code If the lessor or the lessee
to the demands. Hence, the filing of rescission in 1998 should not comply with the obligations set forth in
was within the 10-year prescriptive period. Articles 1654 and 1657, the aggrieved party may ask
for the rescission of the contract and indemnification
V. Law or Doctrine Applied Art. 1144 of the Civil for damages, or only the latter, allowing the contract to
Code The following actions must be brought within ten remain in force.
years from the time the right of action accrues: (1)
Upon a written contract; (2) Upon an obligation created VI. Disposition WHEREFORE, the petition in G.R.
by law; (3) Upon a judgment. No. 188764 filed by Jose Roy B. Raval is DENIED.
The petition in G.R. No. 188467 filed by Renato Ma. R.
Peralta is PARTLY GRANTED. The Decision dated contract, it will be at P800.
October 8, 2008 of the Court of Appeals in CA-G.R. CV
No. 85685 is AFFIRMED with MODIFICATION in that The lessee’s Obligations are to pay the price of the lease
the order upon Renato Ma. R. Peralta to pay the unpaid according to the terms stipulated, to use the thing leased
monthly rentals, interest and attorney's fees is as a diligent father of a family, while devoting it to the
DELETED. use stipulated; and to pay expenses for the deed of lease.
VII. Additional Notes The term of the lease is 40 VII. Random Facts
years. The monthly rentals start at P500. After the 10th
year, it will be at P600. After the 20th year, it will be at
P700, and after the 30th year until the end of the
3 Obligations and Contracts (2020) PETITIONER: Renato Ma. R. Peralta

G.R. No. 188467| March 29, 2017 Lease

In 1974, Flaviano Arzaga, Sr. and Magdalena Arzaga entered into a 1. Flaviano Arzaga, Sr. and Magdalena Arzaga (Spouses Arzaga)
Contract of Lease with petitioner Renato Peralta over two parcels of land, owned two parcels of residential land in Ilocos Norte. In February
located in Ilocos Norte, for a term of 40 years. In May 1998, Flaviano 1974, Petitioner Renato Peralta and spouses Arzaga entered into a
Arzaga, Jr. filed a complaint for annulment for Peralta’s alleged breach of contract of lease which involved the said land for 40 years (check
the contract’s terms, but the RTC dismissed it. Flaviano Jr. assigned, via notes about the contract). Aside from the payment of monthly
deed of assignment, his interests, rights, and participation in the contract to rentals, Peralta was obliged to construct a building on the land, to
respondent Jose Raval. In effect, Raval made several demands to Peralta in pay realty taxes, and to develop a water system.
order to let him comply with the lease contract. Through Raval’s counsel, 2. In May 1998, Flaviano Arzaga, Jr., heir of the spouses Arzaga,
Atty. Castro wrote letters to Peralta in which the former demands the latter filed a complaint for annulment of the lease contract before the
to remove the structures built on the said land. With Peralta’s refusal, the RTC because Peralta allegedly breached his obligations under the
matter was referred to the barangay, but they still failed to settle the issue. contract. The complaint was dismissed by the RTC and such ruling
Hence, Raval’s counsel filed an action for rescission of lease contract before was affirmed by the CA.
the RTC. The RTC denied the rescission since Peralta had still been 3. Flaviano Jr. assigned, via a Deed of Assignment, all of his
depositing the monthly rentals to the bank account and his violations were interests, rights, and participation in the contract to respondent Jose
merely minor or trivial, and the award of damages since malice, fraud or bad Raval in consideration of P500K. However, despite this, Peralta
faith was not proven. On appeal, the CA still denied the plea for rescission, refused to recognize the validity of the assignment and insisted to
but granted Raval the award of unpaid rentals because the assignment was still deposit the rental payments to Flaviano Jr. 's account. Raval,
valid, hence Raval can go after Peralta for the unpaid rentals. The issues in demanded Peralta to comply with the contract’s terms, but the
this case are: W/N the deed of assignment executed by Flaviano Jr is latter still refused which is why the matter was referred to the
valid? The Court ruled that Raval obtained the rights, interests, and barangay. Upon the failure to settle the issue, Raval, through his
privileges, including the right to rescind an agreement, of his counsel, Atty. Castor wrote a letter to Peralta to remove the
predecessors-in-interest over the property when he became an assignee structures built on the said land since those are not covered by the
under the deed. W/N the action to rescind the lease contract has agreement and to make the second floor of the house available to a
prescribed? The Court ruled Raval's cause of action did not refer to Article lessee.
1389 which are rescissible contracts, but to a written contract. An action to 4. After all the demands and barangay conciliation, Raval filed a
rescind a lease contract has a prescriptive period of 10 years, provided under complaint for rescission of lease before the RTC for Peralta’s
Article 1144. starting from the right of action accrues. In this case, the failure to comply with his demands and the contract’s terms. In
action was filed in 1998 and the violations happened before the first demand Peralta’s defense, he claimed that the assignment was void since he
was instituted in 1995. Hence, the action is within the 10-year prescriptive was not consulted about it and he did not give his approval.
period. 5. The RTC ruled that rescission should be denied because the latter
had still been depositing monthly rentals to the bank account and
1
Obligations and Contracts (2020) PETITIONER: Renato Ma. R. Peralta
G.R. No. 188467| March 29, 2017 Lease
that there was no substantial breach on Peralta’s side since his Overall Ruling
failure to install a water system and to render an accounting were The Court cited the RTC’s decision stating that there is no doubt that the
merely minor. As to the counterclaim, the court ruled that there titles of the properties covered by the Deed of Assignment had been issued
will be no award of damages since there was no malice, fraud or in favor of Raval. The Court ruled that Raval obtained the rights, interests,
bad faith in the institution of the case. and privileges, including the right to rescind an agreement, of his
6. On appeal, the CA still denied the plea for rescission, but granted predecessors-in-interest over the property when he became an assignee
Raval the award of unpaid rentals. The CA affirmed the validity of under the deed.
the assignment and ruled that there can be no rescission because
Raval was not capable of returning all the rental payments to
Issue #2
Peralta. However, Raval can go after Peralta for the unpaid rentals
NO, the action to rescind the lease contract has not yet prescribed.
and he is entitled to moral damages for Peralta's unjustified refusal
to pay to him. Petitioner’s Arguments Court’s Rebuttals
● Peralta claimed that the action ● Peralta's reference to Article
III. Issue/s for rescission has prescribed 1389 when he argued that Raval's
1. W/N the deed of assignment executed by Flaviano Jr is valid; because Article 1389 of the Civil action had already prescribed for
and (YES) Code provides that rescission having been filed more than four
2. W/N the action to rescind the lease contract has prescribed; must be filed within four years. years after the execution of the
(NO) lease contract in 1974, is
misplaced.
IV. Holding/s Overall Ruling
Issue #1 The Court ruled that Article 1389 does not apply in this case because it
YES, the Court sustained the validity of the assignment. refers to rescissions in Article 1380 and 1381 which are rescissible contracts
such as lesion, and not to rescissions of lease. Raval's cause of action did
not refer to Article 1389, yet one that was based on a written contract. The
● Peralta insisted that the deed is ● The Court ruled that Raval is not
applicable provision is Article 1659 which provides that if the lessor or the
void and thus cannot be deemed a total stranger to Peralta's
lessee did not comply with the obligations under Articles 1654 and 1657,
to have conferred to Raval the contract of lease with the Spouses
the victim party may seek rescission of the contract with indemnity, or
rights of a new owner and lessor. Arzaga because by the
allow the contract to remain in force, but with indemnity. Article 1654
subsequent transfers of rights
provides for the lessor’s obligations, while Article 1657 provides for the
over the leased premises, Raval
lessee’s. An action filed under Article 1389 has a prescriptive period of 4
became the original lessors'
years, while an action to rescind a lease contract has a prescriptive period of
successor-in-interest.
2
G.R. No. 188467| March 29, 2017 Lease
10 years, provided under Article 1144. starting from the right of action
accrues. The Court also ruled that the cause of action accrues not on the The petition in G.R. No. 188467 filed by Renato Ma. R. Peralta is PARTLY
date of the contract’s execution, but on the date that there was a violation GRANTED. The Decision dated October 8, 2008 of the Court of Appeals in
and default by the lessee. In this case, the action was filed in 1998 and the CA-G.R. CV No. 85685 is AFFIRMED with MODIFICATION in that the
violations happened either immediately prior to Raval's repeated order upon Renato Ma. R. Peralta to pay the unpaid monthly rentals, interest
extrajudicial demands that began in August 1995, or after Peralta's refusal and attorney's fees is DELETED.
to heed to the demands. Hence, the filing of rescission in 1998 was within
the 10-year prescriptive period.
The term of the lease is 40 years. The monthly rentals start at P500. After
the 10th year, it will be at P600. After the 20th year, it will be at P700, and
V. Law or Doctrine Applied after the 30th year until the end of the contract, it will be at P800.
The following actions must be brought within ten years from the time the The lessee’s Obligations are to pay the price of the lease according to the
right of action accrues: terms stipulated, to use the thing leased as a diligent father of a family,
(1) Upon a written contract; while devoting it to the use stipulated; and to pay expenses for the deed of
(2) Upon an obligation created by law; lease.
VII. Random Facts
The action to claim rescission must be commenced within four years.
For persons under guardianship and for absentees, the period of four years
shall not begin until the termination of the former's incapacity, or until the

If the lessor or the lessee should not comply with the obligations set forth in
Articles 1654 and 1657, the aggrieved party may ask for the rescission of
the contract and indemnification for damages, or only the latter, allowing
the contract to remain in force.
VI. Disposition
WHEREFORE, the petition in G.R. No. 188764 filed by Jose Roy B. Raval
is DENIED.
3
G.R. No. L-39378 | August 28, 1984 Rescissible Contracts
Ayson-Simon v. Adamos Ayson-Simon v. Adamos
I. Recit-ready Summary No. 69475, which had been issued to defendants-appellants by

Nicolas Adamos and Vicente Feria purchased two lots from Juan virtue of the disputed sale.
Porciuncula. Porciuncula’s successors-in-interest filed a case to annul the 3. The Court rendered a Decision annulling the sale, cancelling TCT
sale and cancel the TCT issued to Adamos and Feria. The Court rendered a 69475, and authorizing the issuance of a new title in favor of
Decision annulling the sale, cancelling the TCT issued in their names and Porciuncula's successors-in-interest. The said judgment was
authorizing the issuance of a new title in favor of the successors-in-interest. affirmed by the Appellate Court and had attained finality.
During the pendency of the case, Adamos and Feria sold the two lots 4. On May 29, 1946, during the pendency of the above-mentioned
to Generosa Ayson-Simon. Since they failed to have the subdivision plan of
case, defendants-appellants sold to Generosa Ayson-Simon the two
the lots approved and to deliver the titles and possession to Generosa, the
lots in question for P3,800.00 each, plus an additional P800.00 paid
latter filed suit for specific performance. The Court rendered judgment in
favor of Generosa. However, since execution of the Order was rendered subsequently for the purpose of facilitating the issuance of new
impossible because the sale of the lots in question by Juan Porciuncula to titles in Generosa’s name.
defendants-appellants was declared null and void, Generosa filed another 5. Due to the failure of defendants-appellants to comply with their
suit for rescission of the sale with damages. commitment to have the subdivision plan of the lots approved and
Defendants contend (1) that the fulfillment and the rescission of the to deliver the titles and possession to Generosa, the latter filed suit
obligation in reciprocal ones are alternative remedies, and plaintiff having for specific performance.
chosen fulfillment in the first civil case, she cannot now seek rescission; and 6. The Court ordered that Generosa is declared entitled to a summary
(2) that even if plaintiff could seek rescission the action to rescind the judgment and the defendants are hereby ordered to have the
obligation has prescribed. subdivision of Lot No. 6, Block No. 2, and Lot No. 11, Block No.
According to the Supreme Court, the rule that injured party can only 3, relocated and resurveyed and the subdivision plan approved and,
choose between fulfillment and rescission of the obligation, and cannot have if not possible for one reason or another, and in case of the absence
both, applies when the obligation is possible of fulfillment. If, as in this
or loss of said subdivision, to cause and effect the subdivision of
case, the fulfillment has become impossible, Article 1191 allows the injured
party to seek rescission even after he has chosen fulfillment. The Court also the said lots and deliver the titles and possession thereof to
ruled that the action for rescission must be commenced within four years Generosa.
from the finality of the decision where it became impossible for defendants 7. However, since execution of the foregoing Order was rendered
to secure and deliver the titles to and the possession of the lots to plaintiff. impossible because of the judgment in the civil case which earlier
Since the complaint for rescission was filed on August 16, 1968, the four declared the sale of the lots in question by Juan Porciuncula to
year period within which the action must be commenced had not expired. defendants-appellants to be null and void, Generosa filed another
suit for rescission of the sale with damages.
II. Facts of the Case (Material Facts) 8. The Court rendered judgment, the dispositive portion of which
1. Nicolas Adamos and Vicente Feria purchased two lots forming part reads: "WHEREFORE, judgment is rendered in favor of the
of the Piedad Estate in Quezon City from Juan Porciuncula. plaintiff and against defendants, ordering the latter jointly and
2. Sometime thereafter, the successors-in-interest of the latter filed a severally, to pay the former the sum of P7,600.00, the total amount
civil case for annulment of the sale and the cancellation of TCT received by them from her as purchase price of the two lots, with
legal rate of interest from May 29, 1946 until fully paid; another
Obligations and Contracts (2020) PETITIONER: Generosa Ayson-Simon 1

DIGEST AUTHOR: Allyzza Tanhueco RESPONDENT: Nicolas Adamos and Vicenta Feria
sum of P800.00, with legal rate of interest from August 1, 1966 Overall Ruling
until fully paid; the sum of P1,000 for attorney's fees; and the costs The first contention is without merit. The rule that the injured party can
of this suit." only choose between fulfillment and rescission of the obligation, and cannot
have both, applies when the obligation is possible of fulfillment. If, as in
III. Issue/s this case, the fulfillment has become impossible, Article 1191 allows the
1. W/N Generosa’s complaint for specific performance may be injured party to seek rescission even after he has chosen fulfillment.
deemed as a waiver of her right to rescission since the It is true that in the first civil case the Court already rendered a Decision
fulfillment and rescission of an obligation are alternative and in favor of plaintiff, but since defendants cannot fulfill their obligation to
not cumulative remedies? NO. deliver the titles to and possession of the lots to plaintiff, the portion of the
2. W/N her action had prescribed, considering that she had only four decision requiring them to fulfill their obligations is without force and
years from May 29, 1946, the date of sale, within which to rescind effect. Only that portion relative to the payment of damages remains in the
said transaction? NO. dispositive part of the decision, since in either case (fulfillment or
rescission) defendants may be required to pay damages.
IV. Holding/s
Issue #2
Issue #1 NO, her action had not prescribed.
NO, Generosa’s complaint for specific performance is not a waiver of Overall Ruling
her right to rescission. Article 1191 of the Civil Code provides that the injured party may also
Defendants’ Arguments seek rescission, if the fulfillment should become impossible. The cause of
• Defendants contend (1) that the fulfillment and the rescission of the action to claim rescission arises when the fulfillment of the obligation
obligation in reciprocal ones are alternative remedies, and plaintiff became impossible when the Court declared the sale of the land to
having chosen fulfillment in the first civil case, she cannot now seek defendants by Juan Porciuncula a complete nullity and ordered the
rescission; and (2) that even if plaintiff could seek rescission the action cancellation of TCT No. 69475 issued to them.
to rescind the obligation has prescribed. Since the two lots sold to plaintiff by defendants form part of the land
involved in the civil case for specific performance, it became impossible for
defendants to secure and deliver the titles to and the possession of the lots to
plaintiff. But plaintiff had to wait for the finality of the decision. According
to the certification of the clerk of court, the decision became final and
executory 'as per entry of Judgment dated May 3, 1967 of the Court of
Appeals.' The action for rescission must be commenced within four years
from that date, May 3, 1967. Since the complaint for rescission was filed on
August 16, 1968, the four year period within which the action must be
commenced had not expired.
Defendants have the obligation to return to plaintiff the amount of

P7,600.00 representing the purchase price of the two lots, and the amount of
P800.00 which they received from plaintiff to expedite the issuance of titles
but which they could not secure by reason of the decision in the civil case.
Defendant has to pay interest at the legal rate on the amount of
P7,600.00 from May 29, 1946, when they received the amount upon the
execution of the deeds of sale, and legal interest on the P800.00 from
August 1, 1966, when they received the same from plaintiff.

seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
VI. Disposition
WHEREFORE, the appealed judgment of the former Court of First Instance

of Manila, Branch XX, in Civil Case No. 73942, dated June 7, 1969, is
hereby affirmed in toto. Costs against defendants-appellants.
SO ORDERED.
VII. Random Facts

• Ponente: Melencio-Herrera, J.

I. Recit-ready Summary The Agreement provides that PSTC may demand and receive any... claim
out of counter-suits or counterclaims arising from the actions enumerated in
PSTC and Luzon Stevedoring Corporation ("LUSTEVECO") entered into the Annexes.
an Agreement of Assumption of Obligations ("Agreement").Among the
PSTC is bound by the Agreement. PSTC cannot accept the benefits without
actions enumerated in the Annexes is Caltex (Phils.), Inc. v. Luzon
assuming the obligations under the same Agreement. PSTC cannot
Stevedoring Corporation, which at that time was pending before the then
repudiate its commitment to assume the obligations after taking over the
Intermediate Appellate Court (IAC) directing LUSTEVECO to pay Caltex.
assets for that will amount to defrauding the creditors of LUSTEVECO.
The Decision of the IAC became final and executory. The Regional Trial
Court of Manila, issued a writ of execution in favor of Caltex. However, the Caltex could not enforce the judgment debt against LUSTEVECO. The writ
judgment was not satisfied because of the prior foreclosure of of execution could not be satisfied because LUSTEVECO's remaining
LUSTEVECO’s properties. Caltex subsequently learned of the Agreement properties had been foreclosed by lienholders. In addition, all of
between PSTC and LUSTEVECO. Caltex sent successive demands to PSTC LUSTEVECO's business, properties and assets pertaining to its tanker... and
asking for the satisfaction of the judgment rendered by the CFI. PSTC then bulk business had been assigned to PSTC without the knowledge of its
informed Caltex that it was not a party to the prior case and thus, PSTC creditors. Caltex now has no other means of enforcing the judgment debt
would not pay LUSTEVECO’s judgment debt. PSTC advised Caltex to except against PSTC. If PSTC refuses to honor its written commitment to
demand satisfaction of the judgment directly from LUSTEVECO. Caltex assume the obligations of LUSTEVECO, there will be fraud on the creditors
thus filed a complaint for sum of money against PSTC. of LUSTEVECO. To allow PSTC now to welsh on its commitment is to
sanction a fraud on LUSTEVECO's creditors. HENCE, if PSTC does not
The issue in this case is WON CALTEX MAY COLLECT FROM PSTC? – assume the obligations of LUSTEVECO as PSTC had committed under the
YES. Agreement, the creditors of LUSTEVECO could no longer collect the debts
of LUSTEVECO. The assignment becomes a fraud on the part of PSTC,
The SC ruled that Caltex may recover from PSTC under the terms of the because PSTC would then have inveigled LUSTEVECO to... transfer the
Agreement.
assets on the promise to pay LUSTEVECO's creditors.
Caltex may recover the judgment debt from PSTC not because of a
stipulation in Caltex's favor but because the Agreement provides that PSTC
shall assume all the obligations of LUSTEVECO. LUSTEVECO
transferred, conveyed and assigned to PSTC all of LUSTEVECO's business, I. PSTC (PNOC Shipping) and LUSTEVECO (Luzon Stevedoring
properties and assets pertaining to its tanker and bulk business "together Corp) entered into an Agreement of Assumption of Obligations
with all the obligations relating to the said business, properties and assets." o PSTC shall assume all the obligations of LUSTEVECO
When PSTC assumed all the properties, business and assets of with respect to all its claims
LUSTEVECO pertaining to LUSTEVECO's tanker and bulk business, o PSTC shall control the conduct of any litigation pending
PSTC also assumed all of LUSTEVECO's obligations pertaining to such or which may be filed with respect to the claims of
business. LUSTEVECO
o LUSTEVECO appoints and constitutes PSTC as its atty-
in-fact to demand and receive any claim out of the
countersuits and counterclaims arising from the claims

II. Among the actions enumerated in the Annexes of the Agreement is Overall Ruling
Caltex v. LUSTEVECO, which was at that time PENDING
o it was an appeal from the decision of the CFI directing The Court ruled that PSTC IS BOUND BY THE AGREEMENT. When
LUSTEVECO to pay Caltex 104k with legal interest PSTC assumed all the properties, business, and assets of LUSTEVECO, it
III. IAC then affirmed the decision of the CFI also assumed LUSTEVECO’s obligations pertaining to such business. The
IV. Caltex then learned of the Agreement between PSTC AND Agreement also specifically mentions the case between LUSTEVECO and
LUSTEVECO Caltex.
V. Caltex then sent successive demand letter to PSTC asking for
satisfaction of the judgment rendered by the CFI Further, EVEN WITHOUT THE AGREEMENT, PSTC IS STILL LIABLE
VI. PSCT informed Caltex that it was not a party to the case with TO CALTEX. The Corporation Code allows the transfer of all or
LUSTEVECO, thus, it would not pay for LUSTEVECO’s substantially all the properties and assets of a corporation, but such transfer
judgment debt should NOT prejudice creditors of the assignor. Thus, the only way the
VII. Caltex then filed a complaint for a sum of money against PSTC transfer can proceed without prejudice to the creditors is to hold the
VIII. When the case reached the CA, it ruled in favor of PSTC assignee liable for the obligations of the assignor. It follows then that
LUSTEVECO is no longer liable to Caltex because it already assigned all of
I. Issue/s its business, properties, and assets to PSTC without knowledge of its
creditors. THUS Caltex has no other means of enforcing the judgment debt
WON CALTEX MAY COLLECT FROM PSTC? - YES! EXCEPT against PSTC. If PSTC refuses to honor its assumption of
LUSTEVECO’s obligations, there will be FRAUD ON LUSTEVECO’S
II. Holding/s CREDITORS. Such transfer would then leave the claims of creditors
unenforceable against the debtor, and would be FRAUDULENT AND
Issue #1 RESCISSIBLE.
YES, CALTEX MAY COLLECT FROM PSTC.
The BADGES OF FRAUD AS HELD IN JURISPRUDENCE are the
following:
Petitioner’s Arguments Court’s Rebuttals o consideration of conveyance is fictitious or inadequate
• PSTC must pay in • Yes, PSTC must pay. If it o transfer made by a debtor after a suit has begun and
LUSTEVECO’s place doesn’t, then there will be fraud while it is pending against him
upon LUSTEVECO’s creditor o sale upon credit by an insolvent debtor
(Caltex) o evidence of large indebtedness or complete insolvency
o transfer of all or nearly all of his property by a debtor
especially when he is insolvent or greatly embarrassed
financially
o transfer is made between father and son, when there are
present other of the above circumstances
o failure of the vendee to take exclusive possession of all
the property

The Court then explained that if PSTC DOES NOT PAY CALTEX, (3) Those undertaken in fraud of creditors when the latter cannot in
CALTEX CAN SUE TO RESCIND THE CONTRACT. Art 1381 provides any other manner collect the claims due them;
that contracts entered into in fraud of creditors may be RESCINDED when
the creditors cannot in any manner collect the claims due them. This applies (4) Those which refer to things under litigation if they have been
to contracts where the creditors are NOT PARTIES, for such contracts are entered into by the defendant without the knowledge and approval
usually made without their knowledge. THUS, a creditor who is not a party of the litigants or of competent judicial authority;
to the contract can sue to rescind the contract to prevent fraud upon him
OR he can choose to enforce the contract if a specific provision allows him (5) All other contracts specially declared by law to be subject to
to collect his claim and protect him from fraud. IF PSTC does not assume rescission
the obligations of LUSTEVECO, the creditors of LUSTEVECO could not
longer collect its debts. The assignment will then become fraud on the part
of PSTC. HENCE, PSCT MUST PAY CALTEX. IV. Disposition
WHEREFORE, we REVERSE and SET ASIDE the 31 May 2001 Decision

and 9 November 2001 Resolution of the Court of Appeals in CA-G.R. CV
No. 46097. We AFFIRM the 1 June 1994 Decision of the Regional Trial
Court of Manila, Branch 51, in Civil Case No. 91-59512. Costs against
respondent.
V. Additional Notes
VII. Random Facts

The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards
whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter

suffer the lesion stated in the preceding number;

I. Recit-ready Summary 3. Petitioners filed with the RTC a Complaint for partition, accounting
Petitioners filed a Complaint for partition, accounting, and damages, and damages against Florante, Rita, and Panfila in 1996. They
claiming that co-respondent Rita Baylon took possession of 43 parcels of land claimed that Rita took possession of all 43 parcels of land and used
from the estate of their late ascendants, Spouses Baylon. 22 of these were co- the proceeds to purchase two new parcels of land (two lots). They
owned by the heirs of Spouses Baylon, 10 owned solely by Rita, and 11 were also claimed that Rita refused to the partition of the lands.
owned by other parties. 4. Florante, Rita, and Panfila denied that Rita appropriated the income
Rita allegedly used the income from the 43 lots to purchase two new lots of the estate of Spouses Baylon.
which she conveyed to co-respondent Florante Baylon through a deed of
5. The heirs of Spouses Baylon co-owned 22 of the lots. 10 lots were
donation. Petitioners filed a Supplemental Pleading asking for the rescission
solely owned by Rita, and 11 were separately owned by other parties.
of the deed of donation under Art 1381(4) of the Civil Code.
The RTC ruled for petitioners and ordered the partition of the co-owned Florante, Rita, and Panfila were not opposed to the partition of the
lands and the rescission of the deed of donation. The CA reversed and ruled co-owned lots, only to those solely owned by Rita.
for petitioner, ruling that there must first be judicial determination that the 6. During the pendency of the RTC case, Rita executed a Deed of
two lots belonged to the estate before there can be rescission. Donation covering the two lots in favor of Florante, with neither the
The issue is whether or not the donation of the two lots may be rescinded knowledge nor approval of petitioners or the RTC. Rita then died.
on the ground that it was made during the pendency of the action for partition 7. As a result, petitioners filed a Supplemental Pleading praying for the
with the RTC. rescission of the donation under Art. 1381(4) of the Civil Code.
The SC ruled that yes, the deed of donation may be rescinded for being 8. The RTC ruled for petitioners and granted the rescission as well as
made during the pendency of the action for partition, which covers the two partition of the co-owned properties. It did not rule on the ownership
lots conveyed. Art. 1381(4) states that a contract which refers to a thing under of the two lots.
litigation without the knowledge or approval of the other parties or the court
9. The CA reversed the RTC ruling and ruled for respondents, saying
is a rescissible contract. Judicial determination that the estate of Spouses
that in order to ask for rescission of the donation, there must first be
Baylon owns the two lots is not required for the rescission of the deed of
donation. However, there must still be judicial determination of the ownership a judicial ruling of Spouses Baylons’ ownership of the two lots.
of the two lots because the RTC partition proceedings cover only the land co-
owned by the parties in their capacities as heirs of the estate of Spouses III. Issue/s
Baylon, not as heirs of Rita Baylon. 1. W/N the donation inter vivos of the two lots in favor of Florante
may be rescinded pursuant to Article 1381(4) of the Civil Code
II. Facts of the Case (Material Facts) on the ground that it was made during the pendency of the action
1. Spouses Florentino and Maximina Baylon owned 43 parcels of land. for partition with the RTC? YES.
2. The spouses died and were survived by their six children, two of
whom are Rita and Panfila Baylon. Respondent Florante Baylon is IV. Holding/s
the surviving son of another child of the spouses.
1
BAYLON

Issue #1 partition proceedings cover only

YES, the donation of the two lots may be rescinded. the land co-owned by the parties
in their capacities as heirs of the
Respondents’s Arguments Court’s Rebuttals estate of Spouses Baylon and
 Respondent Florante Baylon  Rescission under Article not as heirs of Rita. If Rita is
argues that petitioners must first 1381(4) of the Civil Code is not found to be the owner of the two
obtain favorable judicial ruling preconditioned upon the judicial lots, the court cannot
confirming the estate of determination as to the simultaneously direct the
Spouses Baylons’ ownership of ownership of the thing subject partition.
the two lots before filing an of litigation. Thus, petitioners Overall Ruling
action for rescission. need not obtain judicial ruling of
the estate of Spouses Baylon’s Petitioners need not obtain judicial ruling of the estate of Spouses Baylon’s
ownership of the two lots before ownership over the two lots before they ask for the rescission of the deed
filing for rescission. of donation conveying these lots to respondent Florante. This is because
 Since the two lots are part of the the two lots are subject of litigation (the partition case). The deed of
subject of litigation in the donation, a contract entered into by respondent Rita referring to the two
partition case, the deed of lots without the knowledge nor approval of the petitioners or the court is a
donation conveying them is a rescissible contract according to Art. 1381(4).
rescissible contract under Art. However, there still must be judicial determination of ownership of the two
1381(4). This is to remedy fraud lots because the RTC can order the partition of such only if it is determined
that the litigants might commit to be owned by the estate of the Spouses.
with respect to the subject of the
litigations. V. Law or Doctrine Applied
 Contrary to the CA ruling, there
RESCISSIBLE CONTRACTS: ART. 1381
still needs to be a determination
Art. 1381. The following contracts are rescissible:
of the ownership of the two lots xxxx
even though the heirs of the (4) Those which refer to things under litigation if they have been entered
estate of Spouses Baylon and into by the defendant without the knowledge and approval of the litigants or
the heirs of Rita are both of competent judicial authority.
represented in the petitioners.
This is because the RTC REQUISITES OF ART. 1381
2
BAYLON

1. The defendant, during the pendency of the case, enters into a contract which
refers to the thing subject of litigation
2. The said contract was entered into without the knowledge and approval of
the litigants or of a competent judicial authority.
As long as the foregoing requisites concur, it becomes the duty of the
court to order the rescission of the said contract.
VI. Disposition
WHEREFORE, in consideration of the foregoing disquisitions, the petition

is PARTIALLY GRANTED. The Decision dated October 26, 2007 issued by the
Court of Appeals in CA-G.R. CV No. 01746 is MODIFIED in that the Decision dated
October 20, 2005 issued by the Regional Trial Court, Tanjay City, Negros Oriental,
Branch 43 in Civil Case No. 11657, insofar as it decreed the rescission of the Deed of
Donation dated July 6, 1997 is hereby REINSTATED. The case is REMANDED to
the trial court for the determination of the ownership of Lot No. 4709 and half of Lot
No. 4706 in accordance with this Decision.

 The SC also resolved certain procedural issues:
o The actions of partition and rescission cannot be joined in a
single action because they are governed by different rules.
o A misjoinder of these causes of action, however, can still be ruled
upon by the court if the other party or the court does not sever it,
as in this case.
o A supplementary pleading can raise a new cause of action if it is
related to the cause of action in the original pleading. In this case,
the supplemental pleading bolsters the original cause of action.
VII. Random Facts

 Ponente: Reyes, J.
3
BAYLON

Recit-ready Summary of the place. Even though a third party having lawful possession of a subject
A parcel of land belonging to the intestate estate of Jose Reynoso was property is an obstacle to rescinding a contract, petitioner cannot be said to
leased to (respondent) Bonnevie by its administratrix, Africa Reynoso. The have lawful possession since it was not a buyer in good faith, knowing of
lease contract contained a stipulation herein in case the lessor decided to sell respondent occupying the property when it was sold to them. petitioner cannot
the property, the lessee shall be given first priority to purchase the same, all plead ignorance, it only has itself to blame for not knowing there was a first
things and considerations being equal. priority provision in respondent’s lease, it should have done that when it
Administratrix Reynoso (Reynoso lang after this) later on allegedly sent bought the property.
a letter to respondents that she was selling the leased land for 600k, with a
mortgage loan of 100k, that they had 30 days from receipt to exercise their I. Facts of the Case (Material Facts)
right of first priority or else they should vacate. 2 months later, Reynoso sent 1. A 600 square meter parcel of land with two buildings in it belonging
another letter that because of respondent not exercising their right, she had to the Intestate estate of Jose Reynoso was leased to (Respondent/s)
already sold the property. Upon receipt of the second letter, Respondent Raoul and Christopher Bonnevie by its administratrix, Africa Valdez
replied that they never received the first letter, and that Reynoso should de Reynoso (hereinafter referred to as Reynoso) for a period of one
inform them if she decides to sell the property so they could negotiate. year starting August 1976, and a monthly rental of 4k.
Respondents also refused her request for termination of their lease. 2. The aforementioned lease contract contained a stipulation
The land was sold to (Petitioner) Guzman, Bocaling & Co for 400k,
(specifically paragraph 20) wherein in case the LESSOR (in this case
137k of which was to be immediately paid and the balance of 262k to be paid
Reynoso) decides to sell the leased property, the LESSEES
only when the premises were vacated by Respondent.
Reynoso filed to eject respondent. This led to a compromise agreement (respondent Bonnevie) shall be given a first priority to purchase the
of respondent voluntarily vacating, but this compromise was eventually not same, all things and considerations being equal.
followed and set aside, leading to a trial on the merits of the initial filing to 3. On November 1976, according to Reynoso, she notified respondents
eject. While the ejectment suit was pending however, respondent filed to by registered mail that she was selling the leased land for 600k less
annul the sale between Reynoso and Petitioner, and an order requiring a mortgage loan of 100k, and that she was giving them 30 days from
Reynoso to sell the land to respondent with the same conditions and terms as receipt of the letter to exercise their right of first priority of purchase
what petitioner received. – else, if they don’t, she expects them to vacate no later than March
The Ejectment case and Respondent’s case were consolidated, and it 1977.
was decided that respondents should vacate and pay rent, but Reynoso is to 4. On January 1977, Reynoso sent another letter to respondents,
sell the property to respondent with the same conditions as what was offered advising that in lieu of their failure to exercise their right of first
to petitioner, rescinding the contract of sale between petitioner and Reynoso. priority, she had already sold the property.
This was affirmed on appeal by CA. was CA correct in deciding that the
5. Upon receipt of the second letter, respondents told Reynoso that
contract of sale between Reynoso and petitioner was a rescissible one?
The SC held that the contract of sale was indeed a rescissible one, under neither of them had received her first letter, and that they had advised
1381(3) of the Civil Code. Respondent can be considered a creditor, since her agent that they should be informed should she decide to sell the
they had a substantial interest that would be prejudiced by the sale to property so that negotiations could start, and that they refuse her
petitioner without recognizing respondent’s first priority right. Petitioner request for the termination of the lease.
cannot invoke good faith, since it admitted knowing respondent’s occupancy 6. On March 1977, the leased land was formally sold to (Petitioners)
Guzman, Bocaling & Co. the Contract of sale provided for
1
immediate payment of 137k on the purchase price, with 265k to be deed of sale in Favor of Respondent in the amount of 400k under the
paid only when the premises were vacated. same terms and conditions that was given to Petitioner. Also the CFI
7. On April 1977, Reynoso wrote to respondents demanding they awarded damages to respondent.
vacate the premises within 15 days for their failure to pay rentals for 14. Both Reynoso and Petitioner appealed the CFI decision to CA,
four months. Respondents refused, leading to Reynoso filing a where it was just affirmed, with the damages reduced.
complaint for ejectment. 15. Only Petitioner appealed to SC, Reynoso did not appeal anymore
8. On September 1979, the parties submitted to a compromise after the CA appeal.
agreement wherein it was provided that the respondents were to
vacate the premises voluntarily no later than October 1979. II. Issue/s
9. The compromise agreement was approved, but since respondents 1. W/N CA erred in holding that the Contract of Sale between
failed to comply with the “vacation of premises” stipulation, Reynoso and petitioner was not voidable but rescissible? NO.
Reynoso filed a motion for execution of the compromise agreement, III. Holding/s
which was granted by the City Court.
10. Respondent filed to set aside the decision granting the execution of Issue #1
the compromise agreement as well as the compromise agreement No, the CA did not err in holding the Contract of Sale between
itself because Reynoso had not delivered to him the records of Petitioners and Reynoso not voidable but rescisibble.
payments and receipt of all rentals – this motion was denied and was Petitioner’s Arguments Court’s Rebuttals
then elevated to CFI, where it was remanded to City Court again • Petitioner claims that holding • CA is correct in holding the
after both parties agreed to set aside the compromise agreement (so the contract of sale not as contract of sale as not voidable
the case was now solely on the merits of the earlier ejectment case) voidable but as rescissible was but rescissible. 1380-1381(3) of
11. While the earlier ejectment case was pending in the city court, an error, and that the court cored the CC states that a contrat
respondent filed to annul the sale between Reynoso and petitioners in considering it a buyer in bad otherwise valid may nonetheless
(also the cancellation of the TCT in the name of petitioners). faith (ordering Reynoso to be subsequently rescinded by
Respondent also asked that Reynoso be required to sell the property execute the deed of sale in favor reason of injury to third persons,
to them under the same terms and conditions agreed upon in the of Respondent) like creditors. The status of
Contract of Sale with petitioner. creditors coud be validly
12. The Ejectment case was decided by the city court, ordering accorded the Bonnevies for they
respondent to vacate and pay reasonable compensation for continued had substantial interests that
unlawful use of the premises until they vacate. were prejudiced by the sale of the
13. The ejectment case decision was appealed to CFI, which subject property to the petitioner
consolidated it along with what respondent filed in #11. The CFI without recognizing their right of
upheld the need for respondents to vacate and pay, but it also first priority under the Lease
rendered a judgement in favor of respondents, voiding the deed of Contract.
sale between Reynoso and petitioner, ordering Reynoso to execute a
2
Overall Ruling (4) Those which refer to things under litigation if they have been entered into by the
1381(3) of the CC allows a rescission of a contract if it is undertaken defendant without the knowledge and approval of the litigants or of competent judicial
authority;
in fraud of a creditor wherein the creditor cannot in any other manner (5) All other contracts specially declared by law to be subject to rescission.
collect the claim due him. Respondent can be given the status of creditor,
because respondent had a substantial interest (the first priority granted by - In this case, petitioner cannot claim that it was a buyer in good faith (which
the lease contract) that was prejudiced by the sale of the property to is a roadblock to rescinding a contract otherwise valid due to injury to third
petitioner without recognizing his right of first priority under the lease. persons) because it knew of Respondent’s occupation of the land, which
should have prompted it to inquire on the agreement between the seller and
Rescission implies a contract, though initially valid, produces a lesion respondent’s relation. So, it was rescissble under 1381(3).
or pecuniary damage to someone that justifies its invalidation for reasons
of equity. A third party acquiring a property subject of a contract is an V. Disposition
obstacle to an action for its rescission if it is shown that such third party is
in lawful possession of the property and that he did not act in bad faith. WHEREFORE, the petitioner is DENIED, with costs against the petitioner.
Petitioners however are not buyers in good faith because they admitted to The Challenged decision is AFFIRMED in toto.
being aware of the Bonnevies occupying the property when it was sold to
them. although it was not annotated on the TCT, their actual knowledge of VI. Additional Notes
respondent’s lease was more than equivalent of a presumed notice by - The initial letter was never proven to have been received by respondent. The
registry return card was never presented as evidence, what was precented
registration. – they have only themselves to blame, because the knowledge
was a copy of the said letter with a photocopy of only the face of a registry
of respondent’s possession of the property should have cautioned them to return card claimed to refer to said letter. A copy of the the other side of the
look into the agreement between Reynoso and respondent to see if it card showing the signature of the person who received the letter was not
prejudiced them. due to this, they cannot invoke not being aware of the submitted.
first priority granted by the contract of lease between Reynoso and - Even if the letter was indeed sent and received by respondent and they did
respondent. not exercise their right of first priority, Reynoso still would be violating the
contract of lease requirement of respondent being able to exercise their first
They cannot invoke the Compromise Agreement, that thing was priority right “all things and conditions being equal. Respondent was
already set aside. offered 600k price, with a 100k loan mortgage only in cash. Petitioner was
offered a price of only 400k, only 137.5k of which was in cash. Clearly not
IV. Law or Doctrine Applied equal. It’s more favorable to petitioner.
Article 1380. Contracts validly agreed upon may be rescinded in the cases established - They cannot invoke the compromise agg, it was already set aside.
by law. VII. Random Facts
Article 1381. The following contracts are rescissible: • Ponente: Cruz, J.
(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things which are
the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other
3
I. Recit-ready Summary 3. After that, Alfonso Chua executed a public instrument wherein he
In the present case, a notice of levy was issued over the conjugal property assigned his Rights to Redeem his share of the property to his son
of the Sps. Chua. Then, upon Kiang Ming Chua complaint averring against the Paulino Chua
notice of levy, the spouses entered into a compromise agreement wherein only the
share of Alfonso shall be effected by the levy. Thereafter, Alfonso assigned his 4. Meanwhile, the Petitioner China Bank filed a complaint for
Right to Redemption over the ½ share of the property to his son, Paulino. Then, collection of sum of money before the RTC against Alfonso Roxas
when the Petitioner China Bank filed for a collection of money against Alfonso, the based on 3 promissory notes amounting to P2.5M
Respondents filed their own civil case against the same Petitioner contending that 5. Then, another Notice of Levy on execution was issued against the
Paulino (son) had a prior and better right over the conjugal share of the property of Rights and Interest of Alfonso Chua over the aforementioned
Alfonso. Both the RTC and CA ruled in favor of the Respondents stating that the
assignment of rights from Alfonso to Paulino was made for a valuable consideration property. Thereafter, a certificate of sale on execution over the
and was executed 2 years before the Petitioner levied the said property. Hence, the same property was issued in favor of China Bank
present case before the SC. The issue in this case is w/n the Assignment of Right of 6. However, Paulino Chua and his mother Kiang Chua filed a Civil
Redemption was done to defraud the creditor, and may be rescinded. The SC ruled Case before the RTC against China Bank contending that Paulino
in the Affirmative. The Court stated that after his conjugal share was foreclosed by
has a Prior and Better Right over the ½ portion of the said property
Metrobank, the only property that Alfonso Roxas Chua had was his right to redeem
the same. Then, Alfonso Chua assigned his right of redemption to his son, Paulino 7. The Trial ruled in favor of the Respondents stating that the
Chua, in 1988. However, the judgment of the trial court in favor of China Bank assignment was made for a valuable consideration and was
against Alfonso Roxas Chua was rendered as early as 1985; thus there is a executed 2 years before Petitioner China Bank levied the conjugal
presumption that the 1988 assignment of the right of redemption, is fraudulent. share of Alfonso Chua
Moreover, despite Alfonso’s knowledge that it was the only property he had left in 8. Upon appeal, the CA affirmed the RTC’s Decision
which his creditors could levy, he still assigned his right to redeem to his son,
Paulino.
II. Facts of the Case (Material Facts) III. Issue/s

1. In the present case, a Notice of Levy affecting the residential ● W/N the Assignment of the Right of Redemption made by
property in San Juan, Metro Manila, which was owned by the Sps. Alfonso Chua in favor of his son Paulino Chua was done to
Chua, was issued in connection with a prior Civil Case defraud his creditors and may be rescinded? YES
2. Subsequently, the Kiang Ming Chua filed a complaint before the
City Sheriff of Manila alleging that the Notice of Levy from the IV. Holding/s
Civil Case against Alfonso Chua on the aforementioned residential
property could not be enforced, since the questioned land was the Issue #1
conjugal property of the Respondent Sps. Then, the spouses YES, the Assignment of the Right of Redemption made by Alfonso
entered into a compromise agreement wherein the levy shall only Chua in favor of his son Paulino Chua was done to defraud the
be valid and enforceable to the conjugal share of Alfonso Roxas Petitioner China Bank, and thus may be rescinded
1
Respondent’s Argument/s Court’s Rebuttals Overall Ruling

● The Respondents averred that
Paulino has a prior and better ● Under Article 1381(3) of The SC stated that the law presumes that there is Fraud of Creditors when:
right over the ½ conjugal share the Civil Code, contracts (a) There is alienation of property by gratuitous title by the debtor who has
of the property which are undertaken in not reserved sufficient property to pay his debts contracted before such
● The assignment of the right to fraud of creditors when the alienation; or (b) There is alienation of property by onerous title made by a
redeem made by Alfonso Roxas latter cannot in any manner debtor against whom some judgment has been rendered in any instance or
was effected in a public collect the claims due some writ of attachment has been issued. The decision or attachment need
instrument and annotated at the them, are rescissible not refer to the property alienated and need not have been obtained by the
back of the land title, 2 years ● The existence of fraud or party seeking rescission. IN THE PRESENT CASE, after his conjugal share
before the annotation of the intent to defraud creditors in TCT 410603 was foreclosed by Metrobank, the only property that
rights of China Bank on the may either be presumed in Alfonso Roxas Chua had was his right to redeem the same. Then, Alfonso
same land title accordance with Article Chua assigned his right of redemption to his son, Paulino Chua, in 1988.
1387 of the Civil Code or Thereafter, Paulino redeemed the property and caused the annotation
duly proved in accordance thereof at the back of TCT 410603. This preceded the annotation of the levy
with the ordinary rules of of execution in favor of China Bank by two (2) years and the certificate of
evidence sale in favor of China Bank by more than three (3) years. HOWEVER, such
a conclusion runs counter to the law applicable in the case at bar. Inasmuch
as the judgment of the trial court in favor of China Bank against Alfonso
Roxas Chua was rendered as early as 1985; thus there is a presumption that
the 1988 sale of his property, in this case the right of redemption, is
fraudulent under Article 1387. The fact that private respondent Paulino
Roxas Chua redeemed the property and caused its annotation on the TCT
more than two years ahead of petitioner China Bank is of no moment. This
presumption is strengthened by the fact that the conveyance has virtually
left Alfonso's other creditors with no other property to attach.
MOREOVER, it should be noted that the presumption of fraud or intention

to defraud creditors is not just limited to the two instances set forth in the
first and second paragraphs of Article 1387. Under the third paragraph of
the same article, the design to defraud creditors may be proved in any other
manner recognized by the law of evidence. IN THIS CASE, despite Alfonso
Chua's knowledge that it is the only property he had which his other
2
creditors could levy, he still assigned his right to redeem his one-half share donor did not reserve sufficient property to pay all debts contracted before the
in favor of his son, Paulino. donation.
Alienations by onerous title are also presumed fraudulent when made by persons
LASTLY, the mere fact that the conveyance was founded on valuable against whom some judgment has been issued. The decision or attachment need not
consideration does not necessarily negate the presumption of fraud under refer to the property alienated, and need not have been obtained by the party seeking
Article 1387. There has to be a valuable consideration and the transaction the rescission.
must have been made bona fide. IN THE CASE AT BAR, the presumption
that the conveyance is fraudulent has not been overcome. At the time a VI. Disposition
judgment was rendered in favor of China Bank against Alfonso and the
corporation, Paulino was still living with his parents in the subject property. WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in
CA- G.R. CV No. 46735 is REVERSED and SET ASIDE. The permanent injunction
Paulino himself admitted that he knew his father was heavily indebted and enjoining petitioner, the Sheriff of Manila, the Register of Deeds of San Juan, their
could not afford to pay his debts. The transfer was undoubtedly made officers, representatives, agents and persons acting on their behalf from causing the
between father and son at a time when the father was insolvent and had no transfer of possession, ownership and title of the property covered by TCT No.
other property to pay off his creditors. Hence, it is of no consequence 410603 in favor of petitioner is LIFTED. The Assignment of Rights to Redeem
whether or not Paulino had given valuable consideration for the dated November 21, 1988 executed by Alfonso Roxas Chua in favor of Paulino
conveyance. Roxas Chua is ordered RESCINDED. The levy on execution dated February 4, 1991
and the Certi cate of Sale dated April 30, 1992 in favor of petitioner are
DECLARED VALID against the one-half portion of the subject property.

Article 1381 - The following contracts are rescissible:
1) Those which are entered into by guardians whenever the wards whom they VII. Random Facts
represent suffer lesion by more than one-fourth of the value of the things ● Ponente: Ynares-Santiago, J.
which are the object thereof;
2) Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;
3) Those undertaken in fraud of creditors when the latter cannot in any other
4) Those which refer to things under litigation if they have been entered into
by the defendant without the knowledge and approval of the litigants or of
competent judicial authority;
5) All other contracts specially declared by law to be subject to rescission.
Article 1387 - All contracts by virtue of which the debtor alienates property by
gratuitous title are presumed to have been entered into in fraud of creditors, when the
3
I. Recit-ready Summary spouses have no other property from which Union Bank could obtain
Spouses Ong own majority stock of Baliwag Mahogany payment.
Corporation (BMC). On October 10, 1990, the spouses executed a Petitioners then raised the issue to the Supreme Court, in which the
Continuing Surety Agreement in favor of Union Bank to secure a main issue is W/N the sale entered into by Spouses Ong and Lee were to
P40,000,000.00-credit line facility for BMC. On October 22, 1991, the defraud Union Bank, and thus rescissible. The SC denies the petition.
spouses Ong, for P12,500,000.00, sold their 974-square meter lot located in Contracts entered into without mal intent are not rescissible, even if, as a
Greenhills to Jackson Lee. On November 22, 1991, BMC filed a Petition for result, the creditor may suffer some damage. The onus of proving by clear
Rehabilitation and for Declaration of Suspension of Payments with the SEC. and convincing evidence the existence of such fraudulent intent on the part
Union Bank then filed in the RTC of Pasig, an action for rescission of sale of the debtor rests on the creditor seeking rescission. Also in conjunction,
between Spouses Ong and Lee for being in fraud of creditors. Union Bank the act of rescission is only subsidiary, in which it cannot be instituted
alleges that the sale of the Greenhills lot was fraudulent as it kept the except for when there are no other means. (Accion Pauliana) Union Bank
property out of reach from creditors. Union Bank then cites 3 reasons as to failed to show that they had exhausted other means of claiming from the
why it is fraudulent: 1) insufficiency of consideration as the purchase price Spouses, aside from the Greenhills lot.
was way below market price, 2) lack of financial capacity as the yearly The CA had sufficiently established the validity and legitimacy of
income of Lee at the time was only P346,571.73 in 1990, and 3) Lee did not the sale in question. The conveying deed, a duly notarized document, carries
assert ownership as the spouses Ong still owned the property through a with it the presumption of validity and regularity. Testimony of Lee also
Contract of Lease. Spouses Ong and Lee answered saying that both the shows that the contract was supported by a valid consideration, and that
contract of sale and lease were founded on valid consideration and executed there are receipts to show that Lee had indeed paid the price of the lot.
in good faith. On September 27, 1999, RTC ruled in favor of Union Bank, Regarding the purchase price being lower than the fair market value, SC
applying Article 1381, the court finds that the circumstances presented by says that negotiations happen and an agreed lower price is normal, and is
Union Bank indeed shows fraud on the part of the respondents. RTC further not necessarily an indicator of fraud. Additionally the purchase price
states that BMC was insolvent, and as majority stakeholders, by selling of (13.25M (since tax included) and the fair market price (14.5M) is not a
the Greenhills lot, they left the bank with no recourse to recover from BMC. gross disparity to constitute fraud. Both parties must act maliciously for
Respondents then raised the petition to the CA, in which on there to be a rescission of contract, in this case Union Bank did not prove
December 5, 2001, the CA reversed and set aside the RTC decision. CA that there was any form of relationship between Spouses Ong and Lee prior
reasons out that the contracts being complete and regular on its face, is to the sale. Absent any evidence, they’re merely vendor and vendee. Lastly,
clothed with the presumption of regularity and legality. For a contract to be Lee exercises exclusive possession of the land, he owns it and therefore
in fraud of creditors, the creditor must prove that they cannot recover in any reserves the right to lease the land to the Spouses. The lease is also part of
other manner. Additionally, CA says that the real debtor is BMC, although the conditions in the sale. Thus all things considered, the petition is denied.
BMC is insolvent, that doesn’t mean Spouses Ong themselves are bankrupt
also. No attempt was made by Union Bank, to establish that appellants Facts of the Case (Material Facts)
1
1. Spouses Ong own majority stock of Baliwag Mahogany 9. Respondents then raised the petition to the CA, in which on
Corporation (BMC). December 5, 2001, the CA reversed and set aside the RTC
2. On October 10, 1990, the spouses executed a Continuing Surety decision.
Agreement in favor of Union Bank to secure a 10. CA reasons out that the contracts being complete and regular on its
P40,000,000.00-credit line facility for BMC. face, is clothed with the presumption of regularity and legality.
3. On October 22, 1991, the spouses Ong, for P12,500,000.00, sold 11. For a contract to be in fraud of creditors, the creditor must prove
their 974-square meter lot located in Greenhills to Jackson Lee. that they cannot recover in any other manner.
4. On November 22, 1991, BMC filed a Petition for Rehabilitation 12. Additionally, CA says that the real debtor is BMC, although BMC
and for Declaration of Suspension of Payments with the SEC. is insolvent, that doesn’t mean Spouses Ong themselves are
5. Union Bank then filed in the RTC of Pasig, an action for rescission bankrupt also.
of sale between Spouses Ong and Lee for being in fraud of 13. No attempt was made by Union Bank, to establish that appellants
creditors. spouses have no other property from which Union Bank could
6. Union Bank alleges that the sale of the Greenhills lot was obtain payment.
fraudulent as it kept the property out of reach from creditors. Union II. Issue/s
Bank then cites 3 reasons as to why it is fraudulent: 1. W/N the sale entered into by Spouses Ong and Lee were to
a. insufficiency of consideration as the purchase price was defraud Union Bank, and thus rescissible? NO
way below market price III. Holding/s
b. lack of financial capacity as the yearly income of Lee at
the time was only P346,571.73 in 1990 Issue #1
c. Lee did not assert ownership as the spouses Ong still NO. W/N the sale entered into by Spouses Ong and Lee were to
owned the property through a Contract of Lease. Spouses defraud Union Bank, and thus rescissible.
Ong and Lee answered saying that both the contract of Petitioner’s Arguments Court’s Rebuttals
sale and lease were founded on valid consideration and ● Union Bank then cites 3 reasons ● The Court disagrees. There were
executed in good faith. as to why it is fraudulent: 1) no markings of fraud in the sale
7. On September 27, 1999, RTC ruled in favor of Union Bank, insufficiency of consideration as between Spouses Ong and Lee.
applying Article 1381 regarding rescissible contracts, the court the purchase price was way 1) Not a gross disparity in prices
finds that the circumstances presented by Union Bank indeed below market price, 2) lack of 2) Lee had paid the purchase
shows fraud on the part of the respondents. financial capacity as the yearly price, and has receipts. 3) Lee
8. RTC further states that BMC was insolvent, and as majority income of Lee at the time was was within his right to lease his
stakeholders, by selling of the Greenhills lot, they left the bank only P346,571.73 in 1990, and own land.
with no recourse to recover from BMC. 3) Lee did not assert ownership
2
as the spouses Ong still owned sale. The spouses were paying 25k/month in rent, and thus they were merely
the property through a Contract tenants. Lee granting a lease to the spouses is a valid act as the new owner
of Lease. of the property. There is exclusive possession of the property by Lee.
Overall Ruling
The SC agrees with the CA, fraud was not attendant in the contracts made
by Spouses Ong and Lee. Contracts entered into without mal intent are not
rescissible, even if, as a result, the creditor may suffer some damage. The
onus of proving by clear and convincing evidence the existence of such IV. Law or Doctrine Applied
fraudulent intent on the part of the debtor rests on the creditor seeking Article 1381. The following contracts are rescissible:
rescission. Also in conjunction, the act of rescission is only subsidiary, in (3) Those undertaken in fraud of creditors when the latter
which it cannot be instituted except for when there are no other means. cannot in any other manner collect the claims due them;
(Accion Pauliana) Union Bank failed to show that they had exhausted other
means of claiming from the Spouses, aside from the Greenhills lot. Article 1383. The action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no other legal means
The CA had sufficiently established the validity and legitimacy of the sale to obtain reparation for the same.
in question. The conveying deed, a duly notarized document, carries with it
the presumption of validity and regularity. Testimony of Lee also shows that
the contract was supported by a valid consideration, and that there are
receipts to show that Lee had indeed paid the price of the lot. Regarding the V. Disposition
purchase price being lower than the fair market value, SC says that
negotiations happen and an agreed lower price is normal, and is not WHEREFORE, the instant petition is DENIED and the assailed
necessarily an indicator of fraud. Additionally the purchase price (13.25M decision of the Court of Appeals is AFFIRMED.
(since tax included) and the fair market price (14.5M) is not a gross
disparity to constitute fraud. VI. Additional Notes.
Both parties must act maliciously for there to be a rescission of contract, in

this case Union Bank did not prove that there was any form of relationship VII. Random Facts
between Spouses Ong and Lee prior to the sale. Absent any evidence, ● Ponente: GARCIA , J
they’re merely vendor and vendee. Regarding the spouses still occupying
the premises, the 1 year lease arrangement was part of the condition for the
3
I. Recit-ready Summary It held that: (1) NO because the facts of the case prove that such
Petitioners in this case, Samuel U. Lee and Pauline Lee (Spouses Lee), presumption in Article 1387 does not apply in registered lands if the
are owners of Midas Diversified Export Corporation (MDEC) and Manila judgment or attachment are not registered; (2) NO because it
Home Textile, Inc. (MHI). Petitioners contracted Contract Loan Agreements substantiated the bona fide transaction between itself and spouses Lee
from respondent Bangkok Bank Public Company (Bangkok Bank). establishing its good faith in said transaction; and (3) NO because
Subsequently, they were granted a loan facility by also herein petitioner, absent an element for a valid accion pauliana, specifically that the act
Asiatrust Development Bank, Inc (Asiatrust). Meanwhile, Samuel Lee being impugned is fraudulent and the third person has been an
bought parcels of land in Antipolo, which became the subject properties in accomplice in the fraud, there can be no rescission.
this instant case.
The spouses, defaulted in its loan payments. Unlike Bangkok Bank, II. Facts of the Case (Material Facts)
Asiatrust negotiated and required certain properties to serve as security – 1. Petitioners in this case (Spouses Lee) are co-owners of Midas
hence, the Real Estate Mortgage issued in favor of Asiatrust. Later, RTC of Diversified Export Corporation (MDEC) and Manila Home
Makati issued a Writ of Preliminary Attachment in favor of SBC, granting Textile, Inc. (MHI) engaged in the manufacturing and export of
attachment of the defendants’ real and personal properties. However, was garments, ladies’ bags and apparel. Other owners are: Thelma U.
neither registered nor annotated on the titles of the subject Antipolo Lee, Maybelle L. Lim, and Daniel U. Lee.
properties at the RD. 2. The other petitioner, Asiatrust Development Bank, Inc. (Asiatrust),
The spouses Lee filed before the Securities and Exchange Commission granted loan facility for herein petitioner Lee.
(SEC) a Consolidated Petition for Suspension of Payments and listed all 3. CREDIT LOAN AGREEMENT: Respondent, on the other hand, is
their properties – including the already earmarked (indicated that serves as Bangkok Bank Public Company (Bangkok Bank) which granted
security) Antipolo properties. SEC issued the Suspension Order. CLA for both MDEC and MHI – both with guarantees.
In 1998, Bangkok Bank filed an action to recover the loans of MDEC 4. NOTE: Prior to CLA grant, respondent bank conducted a property
and MHI while, Asiatrust foreclosed the mortgaged property. TCTs check and required Samuel Lee to submit a list of his properties but
covering subject properties were consolidated in the name of Asiatrust (120 did not require to set a particular property as collateral.
titles) without the annotation of the writs of preliminary attachment, which 5. LOAN FACILITY: MDEC was granted a loan facility by Asiatrust
were deemed cancelled. with available credit of PhP 40,000,000 for letters of credit,
Bangkok Bank filed the case rescission of the REM over the subject advances on bills and export packing; and a separate credit line of
properties, annulment of the April 15, 1998 foreclosure sale, cancellation of USD 2,000,000 for bills purchase
the new TCTs issued in favor of Asiatrust, and damages amounting to PhP 6. 1997, May: Samuel brought several parcels of land in Cupang,
600,000 on the grounds of existing fraud which is a ground for rescinding Antipolo for a joint venture with Louisville Realty and
said mortgage. Development Corporation – this is the subject properties in the
RTC ruled in favor of Spouses Lee but was reversed by the CA. instant case (Antipolo properties)
The Court resolved the following issues: (1) W/N Article 1387 7. 1997, August: Samuel defaulted in its payment with Asiatrust,
applies in the present case – holding Spouses Lee guilty of fraud; (2) 8. 1997: After some negotiations, Asiatrust required the Lee family to
W/N Asiatrust committed fraud; and (3) W/N the mortgage may be provide additional collateral that would secure the loan – the Real
rescinded on the ground that there was collusion between the spouses Estate Mortgage over Antipolo properties
Lee and Asiatrust. 9. 1998, February 23: Mortgage was actually notarized, registered,
and annotated at the back of the titles
10. Spouses Lee have defaulted in their payments with other creditors: 19. Bangkok Bank filed the instant case rescission of the REM over the
Bangkok Bank, Security Bank Corporation subject properties, annulment of the April 15, 1998 foreclosure
11. 1998, January: RTC of Makati issued a Writ of Preliminary sale, cancellation of the new TCTs issued in favor of Asiatrust, and
Attachment in favor of SBC, granting attachment of the damages amounting to PhP 600,000 on the grounds of existing
defendants’ real and personal properties. The writ, however, was fraud which is a ground for rescinding said mortgage.
neither registered nor annotated on the titles of the subject Antipolo 20. RTC: Dismissed the case for lack of merit
properties at the RD. a. No concrete proof of alleged fraud and conspiracy committed
12. 1998, February 16: The five corporations owned by Spouses Lee by Lee family and Asiatrust
(including MDEC and MHI) filed for before the Securities and b. Article 1381 (3) does not apply as Bangkok Bank did not
Exchange Commission (SEC) a Consolidated Petition for the prove that it cannot in any manner collect its claims from the
Declaration of a State of Suspension of Payments and for Lee family.
Appointment of a Management Committee/Rehabilitation Receive c. Article 1387 does not apply as mortgage contract cannot be
13. The petition stated that the Lee family and their corporations had considered as a gratuitous alienation
more than sufficient properties to cover all liabilities to their d. No violation of SEC Suspension Order as these properties are
creditors; and presented a list of all their properties including the not within the jurisdiction of SEC
subject properties located in Antipolo, Rizal; NOTE: the list 21. CA: Reversed RTC’s decision and ruled in favor of Bangkok Bank.
indicated that the Antipolo properties serve as security for MDEC’s a. Considered the Letter sent by the counsel of the Midas Group
unpaid obligation with Asiatrust. of Companies which assailed said proceeding as bereft of legal
14. 1998, February 20: SEC issued a Suspension Order enjoining the and factual bases in the light Suspension Order of the SEC
Lee corporations from disposing of their property in any manner b. Found that the subject Antipolo properties are covered by the
except in the ordinary course of business, and from making any February 20, 1998 Suspension Order of the SEC, since they
payments outside the legitimate expenses of their business during are included in the list submitted to SEC by the Lee family
the pendency of the petition c. Rejected petitioners’ claim that the subject properties were
15. 1998, March 12: Bangkok Bank filed an action to recover the loans allotted to Asiatrust - if the subject properties were indeed
of MDEC and MHI and they discovered that the spouses had allotted to Asiatrust, then these would not have been included
executed a REM over the subject properties in favor of Asiatrust in the list of properties submitted to the SEC
16. 1998, April 15: Asiatrust foreclosed the mortgaged properties d. Held that fraud was perpetrated through the REM executed
(Antipolo properties) and purchased said properties for PhP and registered on February 23, 1998 pursuant to the
20,864,735 with PhP 14,800,000 deficiency. presumption in the second paragraph of Art. 1387 of the Civil
17. 1998, April 21: The sale was registered; Bangkok Bank did not Code, which provides that "alienations by onerous title are also
redeem subject properties – believing REM and foreclosure sale presumed fraudulent when made by persons against whom x x
was fraudulent x some writ of attachment has been issued."
18. 1999, April 30: Since there was no effort to redeem properties,
TCTs covering subject properties were consolidated in the name of III. Issue/s
Asiatrust (120 titles) without the annotation of the writs of MAIN ISSUE: Whether the February 23, 1998 REM executed over the
preliminary attachment, which were deemed canceled. subject Antipolo properties and the April 15, 1998 foreclosure sale were
committed in fraud of petitioners’ other creditors, and, as a consequence of annotations at the back of the titles
such fraud, the questioned mortgage could, therefore, be rescinded of Antipolo properties the REM
In order to answer this main issue, the Court answered the following sub- and writ of preliminary attachment.
issues: • Even if presumption applies,
a. W/N Article 1387 applies in the present case – holding Spouses “mortgage” is not the alienation
Lee guilty of fraud? No. contemplated in Art 1387. The
b. W/N Asiatrust committed fraud? No. alienation contemplated under
c. W/N the mortgage may be rescinded on the ground that there Article 1387 involves "transfer of
was collusion between the spouses Lee and Asiatrust? No. the property and possession of
lands, tenements, or other things,
IV. Holding/s from one person to another” which
is not contemplated in a mortgage.
Issue #1 [See Notes].
No because the facts of the case prove that such presumption in Article Overall Ruling
1387 does not apply in registered lands if the judgment or attachment Considering that the earlier SBC judgment or attachment was not, and in
are not registered. fact never was, annotated on the titles of the subject Antipolo properties,
Petitioner’s Arguments Court’s Rebuttals prior to the execution of the REM, the presumption of fraud under Art. 1387
• They substantially established that • Bangkok Bank presented no of the Code clearly cannot apply. Further, a mortgage is not that which is
a loan agreement has been existing substantial evidence for alleged contemplated in the term "alienation" that would make the presumption of
between them since 1996. fraud and merely relied on the fraud under Art. 1387 apply [See Notes]. This being so, as the REM is not
• The 1997 negotiations concluded presumption under Art. 1387, the alienation contemplated in Art. 1387 of the Code, the presumption of
the Antipolo properties as security however, the presumption of fraud fraud cannot apply.
for the loans by means of established under Art. 1387 does
mortgage [hence, the REM]. not apply to registered lands IF "the
Issue #2
• It is undisputed that the list of judgment or attachment made is not
No because it substantiated the bona fide transaction between itself and
properties submitted by the Lee also registered." This rule was also
upheld in the case of Abaya v spouses Lee establishing its good faith in said transaction.
corporations to the SEC clearly
indicated that the subject Antipolo Enriquez. Petitioner’s Arguments Court’s Rebuttals
properties have or have already • The judgment was made against the Asiatrust was able to establish: There was a bona fide
been serving as security spouses Lee in favor of SBC was (1) the existence of a loan transaction between the spouses
• MDEC, through its counsel, truly not annotated on the titles of the agreement Lee and Asiatrust that
believed in good faith that the subject properties. (2) the advances made by MDEC necessitated the negotiations
inclusion of the spouses Lee’s • There is no showing that the (3) the default in payment of MDEC resulting from the former’s
private properties in the list judgment has ever been annotated on its maturing loans; and default in the payment of its
submitted to the SEC is valid and on the titles of the subject obligations; and which brought
(4) the negotiations, which took
regular. properties as there were only two about the execution of the REM
place between Asiatrust and Samuel
on behalf of MDEC that led to the to secure their pre-existing Petitioner’s Arguments Court’s Rebuttals
agreement for Samuel to mortgage obligations. • First, even after the subject • In Siguan v. Lim, this Court held
the subject Antipolo properties • Asiatrust, in good faith, Antipolo properties were that in an action to rescind under
conducted the necessary foreclosed by Asiatrust, Asiatrust Art. 1381, certain requisites must
diligence and meticulousness sought the recovery of the exist [see doctrine].
expected of it. deficiency amounting to at least • Considering the discussions
Overall Ruling PhP 14,800,000.
previously expounded, the extant
Asiatrust cannot be faulted for acting with prudence, in good faith, and • Second, Asiatrust filed a criminal
records show that the fourth and
without any badge of fraud in the creation of the REM and in the case against Samuel for violation
fifth requisites enumerated above
foreclosure of the mortgage to ensure the satisfaction of the debts owed to it of BP 22.
are absent: 4) the act being
by MDEC. On the contrary, Bangkok Bank never acted on its as creditor at • Third, contrary to the CA’s
appreciation of the facts, the letter impugned is fraudulent; (5) the
the soonest possible time. A careful reading of Art. 1387 of the Code vis-à-
sent by Atty. Macam, counsel of third person who received the
vis its Art. 1385 would plainly show that the presumption of fraud in case of
the Midas Group of Companies, property conveyed, if it is by
alienations by onerous title only applies to the person who made such
actually strengthens the proof that onerous title, has been an
alienation, and against whom some judgment has been rendered in any accomplice in the fraud.
no collusion existed between the
instance or some writ of attachment has been issued. A third person is not parties. MDEC alleged that the
and should not be automatically presumed to be in fraud or in collusion with foreclosure was illegal, on the
the judgment debtor. In allowing rescission in case of an alienation by other hand, Asiatrust claimed that
onerous title, the third person who received the property conveyed should subject properties cannot be made
likewise be a party to the fraud [this is in relation to Issue #4]. Court further subject of the SEC Suspension
argued that as clarified by Art. 1385(2) of the Code, so long as the person Order.
who is in legal possession of the property did not act in bad faith, rescission
cannot take place. Thus, in all instances, as to the third person in legal Overall Ruling
possession of the questioned property, good faith is presumed. Accordingly, With all the foregoing facts strongly established, We confirm the absence of
it is upon the person who alleges bad faith or fraud that rests the burden of fraud, bad faith, and collusion between the spouses Lee and Asiatrust.
proof.
SIGUAN v LIM
Issue #3 The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action
No because absent an element for a valid accion pauliana, specifically to prosper, the following requisites must be present: (1) the plaintiff asking for rescission has a
credit prior to the alienation, although demandable later; (2) the debtor has made a subsequent
that the act being impugned is fraudulent and the third person has been contract conveying a patrimonial benefit to a third person; (3) the creditor has no other legal
an accomplice in the fraud, there can be no rescission. remedy to satisfy his claim; (4) the act being impugned is fraudulent; (5) the third person who
received the property conveyed, if it is by onerous title, has been an accomplice in the fraud.
(Emphasis Ours; citations omitted.)
ARTICLE 1381, NEW CIVIL CODE Resolution in CA-G.R. CV No. 79362 are REVERSED and SET ASIDE.
ARTICLE 1381. The following contracts are rescissible:
The RTC’s April 21, 2003 Decision in Civil Case No. 99-5388 is hereby
(1) Those which are entered into by guardians whenever the wards whom they represent
suffer lesion by more than one-fourth of the value of the things which are the object REINSTATED.
thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in VII. Additional Notes
the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner
• In determining whether or not a certain conveying contract is fraudulent,
collect the claims due them; what comes to mind first is the question of whether the conveyance was
(4) Those which refer to things under litigation if they have been entered into by the a bona fide transaction or a trick and contrivance to defeat creditors.
defendant without the knowledge and approval of the litigants or of competent judicial • Alienation v Mortgage
authority;
(5) All other contracts specially declared by law to be subject to rescission. (1291a) Under Art. 1387 of the Code, fraud is presumed only in alienations by
onerous title of a person against whom a judgment or attachment has
ARTICLE 1385, NEW CIVIL CODE been issued. The term, alienation, connotes the "transfer of the property
ARTICLE 1385. Rescission creates the obligation to return the things which were the object of and possession of lands, tenements, or other things, from one person to
the contract, together with their fruits, and the price with its interest; consequently, it can be
carried out only when he who demands rescission can return whatever he may be obliged to another." This term is "particularly applied to absolute conveyances of
restore. real property" and must involve a "complete transfer from one person to
Neither shall rescission take place when the things which are the object of the contract are another." A mortgage does not contemplate a transfer or an absolute
legally in the possession of third persons who did not act in bad faith. conveyance of a real property. It is "an interest in land created by a
In this case, indemnity for damages may be demanded from the person causing the loss. (1295)
written instrument providing security for the performance of a duty or
ARTICLE 1387, NEW CIVIL CODE the payment of a debt." When a debtor mortgages his property, he
ARTICLE 1387. All contracts by virtue of which the debtor alienates property by gratuitous "merely subjects it to a lien but ownership thereof is not parted with." It
title are presumed to have been entered into in fraud of creditors, when the donor did not is merely a lien that neither creates a title nor an estate. It is, therefore,
reserve sufficient property to pay all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made by persons against whom certainly not the alienation by onerous title that is contemplated in Art.
some judgment has been rendered in any instance or some writ of attachment has been issued. 1387 where fraud is to be presumed. (mortgage is the alienation not
The decision or attachment need not refer to the property alienated, and need not have been contemplated)
obtained by the party seeking the rescission. • In this case, it is a fact that the REM was annotated on the titles of the
In addition to these presumptions, the design to defraud creditors may be proved in any other
manner recognized by the law of evidence. (1297a) subject Antipolo properties ahead of the writs of preliminary attachment
issued in favor of Bangkok Bank. In fact, it was admitted by Bangkok
ABAYA v ENRIQUEZ Bank that it only knew of the existing mortgage that has already been
Where the judgment rendered against the defendant x x x has not been entered in the records of annotated at the back of the subject titles when it sought the annotation
the register of deeds, relative to an immovable belonging to the judgment debtor, the
subsequent sale of said property by the latter, shall not be rescinded upon the ground of fraud, of the writs of preliminary attachment. Therefore, as between Asiatrust
unless the complicity of the buyer in the fraud imputed to said vendor is established by other as mortgage creditor and Bangkok Bank as attaching creditor, it is
means than the presumption of fraud x x x. apparent that the former has a superior right over the latter.

• Ponente: Velasco, Jr., J.
Wherefore, premises considered, the petition is hereby GRANTED.
Accordingly, the CA’s March 15, 2006 Decision and June 29, 2006
I. Recit-ready Summary is subsidiary in nature and can only be availed in the absence of any other
Sacramento Steel Corporation (SSC) entered into a Capital Credit legal remedy.
Agreement with the International Exchange Bank (IEB). As a security, SSC II. Facts of the Case (Material Facts)
executed five separate deeds of chattel mortgage over various equipment in 1. SSC entered into a Capital Credit Agreement with the respondent.
its plant. However, the SSC defaulted as IEB’s demands were unheeded This was in the amount of P60,000,000.00, a loan of
The IEB filed with the RTC an action for injunction to keep SSC P20,000,000.00 and a subsequent credit line with a limit of
from taking out the mortgaged equipment and for the issuance of a writ of P100,000,000.00.
replevin. In turn, the SSC filed with the RTC a complaint for annulment of 2. As a security, SSC executed five separate deeds of chattel
the mortgage and restructuring of the obligation. The RTC ruled in favor of mortgage over various equipment in its plant
the IEB and granted the writ of replevin. However, following an agreement 3. SSC defaulted as IEB’s demands were unheeded
by the parties, the implementation of the writ was held in abeyance. 4. The IEB filed with the RTC an action for injunction to keep SSC
Meanwhile, the SSC entered into a capacity lease agreement with from taking out the mortgaged equipment
the Chuayuco Steel Manufacturing Corporation (CSMC) which allowed the 5. SSC filed with the RTC a complaint for annulment of the mortgage
latter to lease and operate the former’s milling and galvanizing plant. and restructuring the obligation
Metrobank filed a motion for intervention as it was the creditor of SSC and 6. The RTC ruled in favor of the IEB and granted the writ of replevin.
that the mortgage contracts between the SSC and IEB were allegedly However the implementation of the writ was held in abeyance, per
entered to defraud Metrobank. The petitioner prayed for the rescission of agreement of the parties.
the mortgage. The RTC issued a resolution directing the CSMC to file its 7. Meanwhile, the SSC entered into a capacity lease agreement with
complaint-in-intervention. The CA directed respondents ro turn over the CSMC which allowed the latter to lease and operate the former’s
mortgaged properties for foreclosure. milling and galvanizing plant.
The issue in this case is W/N Metrobank and CSMC may be 8. Petitioner Metrobank filed a motion for intervention as it was the
allowed to intervene? creditor of SSC and that the mortgage contracts between the SSC
The SC ruled in the negative. It is clear that the nature of the and IEB were entered into to defraud Metrobank.Petitioner prayed
complaint of the petitioner is that of an accion pauliana. Jurisprudence is for the rescission of the mortgage.
clear that the following successive measures must be taken by a 9. The RTC issued a resolution directing the CSMC to file its
creditor before he may bring an action for rescission of an allegedly complaint-in-intervention. The CA directed respondents ro turn
fraudulent contract: (1) exhaust the properties of the debtor through over the mortgaged properties for foreclosure.
levying by attachment and execution upon all the property of the 10. Metrobank was substituted by the Meridian as the former sold the
debtor, except such as are exempt by law from execution; (2) accion loan obligation owed by the SSC to the latter.
subrogatoria; and (3) accion pauliana. The petitioner did not avail of the 11. Hence, this petition.
first and second remedies. Article 1383 is clear that an action for rescission
III. Issue/s
1
1. W/N Metrobank and CSMC may be allowed to intervene V. Law or Doctrine Applied
IV. Holding/s ARTICLE 1383 of the Civil Code
Issue #1 Article 1383 provides that:
1. W/N Metrobank and CSMC may be allowed to intervene The action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no
other legal means to obtain reparation for the same.
The action for rescission is subsidiary in nature and can only be
● The complaint it is not a an ● The main intentions of the
availed in the absence of any other legal remedy.
accion pauliana intervention of Petitioner is for
● In order to apply the concept the rescission of the mortgages Accion Pauliana
of accion pauliana, and the executed by SSC The following successive measures must be taken by a
rules pertaining to it, the ● An accion pauliana is an action to creditor before he may bring an action for rescission of an allegedly
subject matter must be a rescind contracts in fraud of fraudulent contract: (1) exhaust the properties of the debtor through
conveyance, otherwise valid, creditors levying by attachment and execution upon all the property of the
undertaken in fraud of ● Jurisprudence is clear that debtor, except such as are exempt by law from execution; (2) exercise
creditors. There is no mortgage contracts involves the all the rights and actions of the debtor, save those personal to him
conveyance involved here conveyance of a patrimonial (accion subrogatoria); and (3) seek rescission of the contracts executed
benefit by the debtor in fraud of their rights (accion pauliana). An accion
Overall Ruling pauliana must be of last resort.
Jurisprudence is clear that the following successive measures
must be taken by a creditor before he may bring an action for VI. Disposition
rescission of an allegedly fraudulent contract: (1) exhaust the properties WHEREFORE WHEREFORE, the assailed Decision and Resolution of
of the debtor through levying by attachment and execution upon all the Court of Appeals in CA-G.R. SP No. 00549-MIN are AFFIRMED
the property of the debtor, except such as are exempt by law from AFFIRMED with MODIFICATION MODIFICATION. The February 14,
execution; (2) exercise all the rights and actions of the debtor, save 2005 Order of the Regional Trial Court of Misamis Oriental, Branch
those personal to him (accion subrogatoria); and (3) seek rescission of 17, is MODIFIED by denying Metrobank's Motion for Intervention,
the contracts executed by the debtor in fraud of their rights (accion while the Joint Resolution of the same trial court, dated June 8, 2005,
pauliana). The petitioner did not avail of the first and second remedies. reiterating its admission of CSMC's Motion for Intervention and
The contract of chattel mortgage involves a conveyance of directing the latter to le its complaint-in-intervention, is REINSTATED
patrimonial benefit as the properties subject of the chattel mortgage stand as REINSTATED.
security for the credit extended.
●
2
VII. Random Facts

● Ponente: Peralta, J.
3

Emilio Dalope died and left to his wife, Felisa, and 9 children a 1. When Emilio Dalope died, he left to his wife, Felisa, and 9 children
589-square meter untitled lot. Felisa sold the whole lot so that one of the a 589-square meter untitled lot.
children, Rosa, and her husband (The Funcions) could procure a loan from 2. Felisa sold the whole lot to enable one of the children, Rosa
the Development Bank of the Philippines. The Funcions mortgaged the lot Dalope-Funcion, and her husband to procure a loan from the
with DBP. They failed to pay their loan so the DBP foreclosed the mortgage Development Bank of the Philippines.
on the lot. 3. The Funcions mortgaged the lot with DBP.
DBP conditionally sold the lot to Sofia Quirong for the price of 4. On 12 February 1979, the Funcions failed to pay their loan so the
P78,000.00. Felisa and her 8 children filed an action for partition and DBP foreclosed the mortgage on the lot and consolidated
declaration of nullity of documents with damages against the DBP and the ownership in its name on 17 June 1981.
Funcions. (Civil Case D-7159) 5. On 20 September 1983, DBP conditionally sold the lot to Sofia
Notwithstanding the suit, DBP executed a deed of absolute sale of Quirong for the price of P78,000.00. The contract provided that
the lot in Sofia Quirong's favor. After Sofia Quirong had died, the Quirong Sofia waived any warranty against eviction and that DBP did not
heirs filed an answer in intervention and asked the RTC to award them the guarantee possession of the property and that it would not be liable
lot or to let them recover from DBP the value of the lot. for any lien or encumbrance on the same.
The heirs failed to file a formal offer of evidence. 6. On 28 November 1983, Felisa and her 8 children filed an action for
The RTC declared DBP’s sale to Quirong valid only with respect partition and declaration of nullity of documents with damages
to Felisa and Rosa’s share of the lot, and otherwise void. The DBP had until against the DBP and the Funcions. (Civil Case D-7159)
28 January 1993 to appeal but they failed to do so. DBP resisted the writ of 7. On 27 December 1984, DBP executed a deed of absolute sale of
execution with a motion to quash, which the RTC denied. DBP filed a the lot in Sofia Quirong's favor.
special civil action of certiorari, which was denied. 8. Sofia Quirong had died. On 11 May 1985, the Quirong heirs filed
On 10 June 1998, the heirs filed the present action against DBP for an answer in intervention in Civil Case D-7159. They asked the
the rescission of the contract of sale, praying for reimburesement and RTC to award them the lot or to let them recover from DBP the
damages, because the decision in D-7159 stripped them of nearly the whole value of the lot.
lot. On 14 June 2004, RTC rendered a decision rescinding the sale. On 9. The heirs failed to file a formal offer of evidence, thus the Court
appeal, the CA reversed this decision and dismissed the heirs’ action on the did not rule on the merits of their claim.
ground of prescription. 10. On 16 December 1992, the RTC declared DBP’s sale to Quirong
The issue is W/N the Quirong heirs' action for rescission of DBP's valid only with respect to Felisa and Rosa’s share of the lot, and
sale of the lot to Sofia Quirong was already barred by prescription? YES. otherwise void.
The Court held that the prescription period is 4 years, as stated in Article 11. The DBP had until 28 January 1993 to appeal but they failed to do
1389. The petition is denied. so. DBP resisted the writ of execution with a motion to quash,
which the RTC denied. DBP filed a special civil action of certiorari,
which was denied. (G.R. 116575)

12. On 10 June 1998, the heirs filed the present action against DBP for Overall Ruling
the rescission of the contract of sale, praying for reimburesement The remedy of "rescission" is not confined to the rescissible contracts under
and damages, because the decision in D-7159 stripped them of Article 1381. Article 1191 of the Civil Code gives the injured party in
nearly the whole lot. reciprocal obligations, the option to choose between fulfillment and
13. On 14 June 2004, RTC rendered a decision rescinding the sale. On “rescission.” It is noted, however, that the old code actually uses the term
appeal, the CA reversed this decision and dismissed the heirs’ "resolution" rather than the present "rescission".
action on the ground of prescription.
"Rescission" is a subsidiary action based on injury to the plaintiff's
III. Issue/s economic interests, under Article 1380 and 1381. "Resolution", under
1. W/N the Quirong heirs' action for rescission of DBP's sale of Article 1191, is based on the defendant's breach of faith, a violation of the
the lot to Sofia Quirong was already barred by prescription? reciprocity between the parties and prescribes in 10 years. Article 1191
YES. gives the injured party an option to choose between, first, fulfillment of the
2. W/N the heirs of Quirong were entitled to the rescission of the contract and, second, its rescission.
DBP's sale of the lot to Sofia Quirong, as a consequence of her heir
having been evicted fom it? The Court deemed it unnecessary to The Quirong heirs alleged that they were entitled to the rescission of the
consider this issue. contract of sale because the decision in D-7159 deprived them of nearly the
whole lot. But at the time of the filing of action, the contract of sale had
IV. Holding/s already been fully performed. Quirong even assumed "the ejectment of
Issue #1 squatters and/or occupants" on the lot, at her own expense. The Court held
YES, their action was barred by prescription. that the heirs had the right to file the action based on Article 1548 and 1556,
Petitioner’s Arguments Court’s Rebuttals but it has already prescribed, based on Article 1389 which provides for 4
 The heirs claim that the  The incident in G.R. 116575 did years from the time the action accrued. Since it accrued on 28 January 1993
prescriptive period should be not involve the merit of the when the decision in D-7159 became final and executory, the heirs had only
reckoned from 17 January 1995, decision in D-7159, which until 28 January 1997 to file their action for rescission. They filed their
the date this Court's resolution in became final and executory on 28 action on 10 June 1998, the action was already barred by prescription.
G.R. 116575 became final and January 1993. Issue #2
executory.  There is no question that the NO, the Court deemed it unnecessary to consider the 2nd issue.
 The heirs claim that the action was for rescission and
prescription period should be 10 reimbursement. The prescriptive Overall Ruling
years, citing Article 1144 (which period for such is 4 years. Since it was already held that the action was barred by prescription, the
refers to actions upon a written Court concluded that it would serve no useful purpose for it to further
contract). consider the issue of whether or not the heirs of Quirong would have been
entitled to the rescission of the DBP's sale of the subject lot to Sofia
Quirong as a consequence of her heirs having been evicted from it.

The Quirong heirs were allowed by the RTC to intervene in the original (5) All other contracts specially declared by law to be subject to rescission.
action in D-7159 that the Dalopes filed against the DBP and the Funcions.
They also filed a cross claim against the DBP. They were apparently heard ARTICLE 1389 OF THE CIVIL CODE
on their defense and cross claim but the RTC did not adjudicate their claim Article 1389. The action to claim rescission must be commenced within
because they failed to make a formal offer of evidence. They did not appeal four years.
from this omission or from the judgment of the RTC. It shows that the heirs
have themselves to blame for the loss of whatever right they may have in For persons under guardianship and for absentees, the period of four years
the case. shall not begin until the termination of the former's incapacity, or until the
V. Law or Doctrine Applied ARTICLE 1144 OF THE CIVIL CODE

Article 1144. The following actions must be brought within ten years
ARTICLE 1380 OF THE CIVIL CODE from the time the right of action accrues:
Article 1380. Contracts validly agreed upon may be rescinded in the cases
established by law. (1) Upon a written contract;
Article 1381. The following contracts are rescissible: ARTICLE 1548 OF THE CIVIL CODE
Article 1548. Eviction shall take place whenever by a final judgment
(1) Those which are entered into by guardians whenever the wards whom based on a right prior to the sale or an act imputable to the vendor, the
they represent suffer lesion by more than one-fourth of the value of the vendee is deprived of the whole or of a part of the thing purchased.
things which are the object thereof;
The vendor shall answer for the eviction even though nothing has been
(2) Those agreed upon in representation of absentees, if the latter suffer said in the contract on the subject.
the lesion stated in the preceding number;
The contracting parties, however, may increase, diminish, or suppress this
(3) Those undertaken in fraud of creditors when the latter cannot in any legal obligation of the vendor.
other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered Article 1556. Should the vendee lose, by reason of the eviction, a part of
into by the defendant without the knowledge and approval of the litigants the thing sold of such importance, in relation to the whole, that he would
or of competent judicial authority; not have bought it without said part, he may demand the rescission of the

contract; but with the obligation to return the thing without other
encumbrances that those which it had when he acquired it.
He may exercise this right of action, instead of enforcing the vendor's

liability for eviction.
The same rule shall be observed when two or more things have been
jointly sold for a lump sum, or for a separate price for each of them, if it
should clearly appear that the vendee would not have purchased one
without the other.
VI. Disposition
WHEREFORE, the Court DENIES the petition and AFFIRMS the
November 30, 2005 decision of the Court of Appeals in CA-G.R. CV 83897.

VII. Random Facts
 Ponente: Abad, J.

G.R. No. 188467| March 29, 2017 Lease

In 1974, Flaviano Arzaga, Sr. and Magdalena Arzaga entered into a 1. Flaviano Arzaga, Sr. and Magdalena Arzaga (Spouses Arzaga)
Contract of Lease with petitioner Renato Peralta over two parcels of land, owned two parcels of residential land in Ilocos Norte. In February
located in Ilocos Norte, for a term of 40 years. In May 1998, Flaviano 1974, Petitioner Renato Peralta and spouses Arzaga entered into a
Arzaga, Jr. filed a complaint for annulment for Peralta’s alleged breach of contract of lease which involved the said land for 40 years (check
the contract’s terms, but the RTC dismissed it. Flaviano Jr. assigned, via notes about the contract). Aside from the payment of monthly
deed of assignment, his interests, rights, and participation in the contract to rentals, Peralta was obliged to construct a building on the land, to
respondent Jose Raval. In effect, Raval made several demands to Peralta in pay realty taxes, and to develop a water system.
order to let him comply with the lease contract. Through Raval’s counsel, 2. In May 1998, Flaviano Arzaga, Jr., heir of the spouses Arzaga,
Atty. Castro wrote letters to Peralta in which the former demands the latter filed a complaint for annulment of the lease contract before the
to remove the structures built on the said land. With Peralta’s refusal, the RTC because Peralta allegedly breached his obligations under the
matter was referred to the barangay, but they still failed to settle the issue. contract. The complaint was dismissed by the RTC and such ruling
Hence, Raval’s counsel filed an action for rescission of lease contract before was affirmed by the CA.
the RTC. The RTC denied the rescission since Peralta had still been 3. Flaviano Jr. assigned, via a Deed of Assignment, all of his
depositing the monthly rentals to the bank account and his violations were interests, rights, and participation in the contract to respondent Jose
merely minor or trivial, and the award of damages since malice, fraud or bad Raval in consideration of P500K. However, despite this, Peralta
faith was not proven. On appeal, the CA still denied the plea for rescission, refused to recognize the validity of the assignment and insisted to
but granted Raval the award of unpaid rentals because the assignment was still deposit the rental payments to Flaviano Jr. 's account. Raval,
valid, hence Raval can go after Peralta for the unpaid rentals. The issues in demanded Peralta to comply with the contract’s terms, but the
this case are: W/N the deed of assignment executed by Flaviano Jr is latter still refused which is why the matter was referred to the
valid? The Court ruled that Raval obtained the rights, interests, and barangay. Upon the failure to settle the issue, Raval, through his
privileges, including the right to rescind an agreement, of his counsel, Atty. Castor wrote a letter to Peralta to remove the
predecessors-in-interest over the property when he became an assignee structures built on the said land since those are not covered by the
under the deed. W/N the action to rescind the lease contract has agreement and to make the second floor of the house available to a
prescribed? The Court ruled Raval's cause of action did not refer to Article lessee.
1389 which are rescissible contracts, but to a written contract. An action to 4. After all the demands and barangay conciliation, Raval filed a
rescind a lease contract has a prescriptive period of 10 years, provided under complaint for rescission of lease before the RTC for Peralta’s
Article 1144. starting from the right of action accrues. In this case, the failure to comply with his demands and the contract’s terms. In
action was filed in 1998 and the violations happened before the first demand Peralta’s defense, he claimed that the assignment was void since he
was instituted in 1995. Hence, the action is within the 10-year prescriptive was not consulted about it and he did not give his approval.
period. 5. The RTC ruled that rescission should be denied because the latter
had still been depositing monthly rentals to the bank account and
1
G.R. No. 188467| March 29, 2017 Lease
that there was no substantial breach on Peralta’s side since his Overall Ruling
failure to install a water system and to render an accounting were The Court cited the RTC’s decision stating that there is no doubt that the
merely minor. As to the counterclaim, the court ruled that there titles of the properties covered by the Deed of Assignment had been issued
will be no award of damages since there was no malice, fraud or in favor of Raval. The Court ruled that Raval obtained the rights, interests,
bad faith in the institution of the case. and privileges, including the right to rescind an agreement, of his
6. On appeal, the CA still denied the plea for rescission, but granted predecessors-in-interest over the property when he became an assignee
Raval the award of unpaid rentals. The CA affirmed the validity of under the deed.
the assignment and ruled that there can be no rescission because
Raval was not capable of returning all the rental payments to
Issue #2
Peralta. However, Raval can go after Peralta for the unpaid rentals
NO, the action to rescind the lease contract has not yet prescribed.
and he is entitled to moral damages for Peralta's unjustified refusal
to pay to him. Petitioner’s Arguments Court’s Rebuttals
● Peralta claimed that the action ● Peralta's reference to Article
III. Issue/s for rescission has prescribed 1389 when he argued that Raval's
1. W/N the deed of assignment executed by Flaviano Jr is valid; because Article 1389 of the Civil action had already prescribed for
and (YES) Code provides that rescission having been filed more than four
2. W/N the action to rescind the lease contract has prescribed; must be filed within four years. years after the execution of the
(NO) lease contract in 1974, is
misplaced.
Issue #1 The Court ruled that Article 1389 does not apply in this case because it
YES, the Court sustained the validity of the assignment. refers to rescissions in Article 1380 and 1381 which are rescissible contracts
such as lesion, and not to rescissions of lease. Raval's cause of action did
not refer to Article 1389, yet one that was based on a written contract. The
● Peralta insisted that the deed is ● The Court ruled that Raval is not
applicable provision is Article 1659 which provides that if the lessor or the
void and thus cannot be deemed a total stranger to Peralta's
lessee did not comply with the obligations under Articles 1654 and 1657,
to have conferred to Raval the contract of lease with the Spouses
the victim party may seek rescission of the contract with indemnity, or
rights of a new owner and lessor. Arzaga because by the
allow the contract to remain in force, but with indemnity. Article 1654
subsequent transfers of rights
provides for the lessor’s obligations, while Article 1657 provides for the
over the leased premises, Raval
lessee’s. An action filed under Article 1389 has a prescriptive period of 4
became the original lessors'
years, while an action to rescind a lease contract has a prescriptive period of
successor-in-interest.
2
G.R. No. 188467| March 29, 2017 Lease
10 years, provided under Article 1144. starting from the right of action
accrues. The Court also ruled that the cause of action accrues not on the The petition in G.R. No. 188467 filed by Renato Ma. R. Peralta is PARTLY
date of the contract’s execution, but on the date that there was a violation GRANTED. The Decision dated October 8, 2008 of the Court of Appeals in
and default by the lessee. In this case, the action was filed in 1998 and the CA-G.R. CV No. 85685 is AFFIRMED with MODIFICATION in that the
violations happened either immediately prior to Raval's repeated order upon Renato Ma. R. Peralta to pay the unpaid monthly rentals, interest
extrajudicial demands that began in August 1995, or after Peralta's refusal and attorney's fees is DELETED.
to heed to the demands. Hence, the filing of rescission in 1998 was within
the 10-year prescriptive period.
The term of the lease is 40 years. The monthly rentals start at P500. After
the 10th year, it will be at P600. After the 20th year, it will be at P700, and
V. Law or Doctrine Applied after the 30th year until the end of the contract, it will be at P800.
The following actions must be brought within ten years from the time the The lessee’s Obligations are to pay the price of the lease according to the
right of action accrues: terms stipulated, to use the thing leased as a diligent father of a family,
(1) Upon a written contract; while devoting it to the use stipulated; and to pay expenses for the deed of
(2) Upon an obligation created by law; lease.
VII. Random Facts
The action to claim rescission must be commenced within four years.
For persons under guardianship and for absentees, the period of four years
shall not begin until the termination of the former's incapacity, or until the

If the lessor or the lessee should not comply with the obligations set forth in
Articles 1654 and 1657, the aggrieved party may ask for the rescission of
the contract and indemnification for damages, or only the latter, allowing
the contract to remain in force.
VI. Disposition
WHEREFORE, the petition in G.R. No. 188764 filed by Jose Roy B. Raval
is DENIED.
3
I. Recit-ready Summary No. 69475, which had been issued to defendants-appellants by

Nicolas Adamos and Vicente Feria purchased two lots from Juan virtue of the disputed sale.
Porciuncula. Porciuncula’s successors-in-interest filed a case to annul the 3. The Court rendered a Decision annulling the sale, cancelling TCT
sale and cancel the TCT issued to Adamos and Feria. The Court rendered a 69475, and authorizing the issuance of a new title in favor of
Decision annulling the sale, cancelling the TCT issued in their names and Porciuncula's successors-in-interest. The said judgment was
authorizing the issuance of a new title in favor of the successors-in-interest. affirmed by the Appellate Court and had attained finality.
During the pendency of the case, Adamos and Feria sold the two lots 4. On May 29, 1946, during the pendency of the above-mentioned
to Generosa Ayson-Simon. Since they failed to have the subdivision plan of
case, defendants-appellants sold to Generosa Ayson-Simon the two
the lots approved and to deliver the titles and possession to Generosa, the
lots in question for P3,800.00 each, plus an additional P800.00 paid
latter filed suit for specific performance. The Court rendered judgment in
favor of Generosa. However, since execution of the Order was rendered subsequently for the purpose of facilitating the issuance of new
impossible because the sale of the lots in question by Juan Porciuncula to titles in Generosa’s name.
defendants-appellants was declared null and void, Generosa filed another 5. Due to the failure of defendants-appellants to comply with their
suit for rescission of the sale with damages. commitment to have the subdivision plan of the lots approved and
Defendants contend (1) that the fulfillment and the rescission of the to deliver the titles and possession to Generosa, the latter filed suit
obligation in reciprocal ones are alternative remedies, and plaintiff having for specific performance.
chosen fulfillment in the first civil case, she cannot now seek rescission; and 6. The Court ordered that Generosa is declared entitled to a summary
(2) that even if plaintiff could seek rescission the action to rescind the judgment and the defendants are hereby ordered to have the
obligation has prescribed. subdivision of Lot No. 6, Block No. 2, and Lot No. 11, Block No.
According to the Supreme Court, the rule that injured party can only 3, relocated and resurveyed and the subdivision plan approved and,
choose between fulfillment and rescission of the obligation, and cannot have if not possible for one reason or another, and in case of the absence
both, applies when the obligation is possible of fulfillment. If, as in this
or loss of said subdivision, to cause and effect the subdivision of
case, the fulfillment has become impossible, Article 1191 allows the injured
party to seek rescission even after he has chosen fulfillment. The Court also the said lots and deliver the titles and possession thereof to
ruled that the action for rescission must be commenced within four years Generosa.
from the finality of the decision where it became impossible for defendants 7. However, since execution of the foregoing Order was rendered
to secure and deliver the titles to and the possession of the lots to plaintiff. impossible because of the judgment in the civil case which earlier
Since the complaint for rescission was filed on August 16, 1968, the four declared the sale of the lots in question by Juan Porciuncula to
year period within which the action must be commenced had not expired. defendants-appellants to be null and void, Generosa filed another
suit for rescission of the sale with damages.
II. Facts of the Case (Material Facts) 8. The Court rendered judgment, the dispositive portion of which
1. Nicolas Adamos and Vicente Feria purchased two lots forming part reads: "WHEREFORE, judgment is rendered in favor of the
of the Piedad Estate in Quezon City from Juan Porciuncula. plaintiff and against defendants, ordering the latter jointly and
2. Sometime thereafter, the successors-in-interest of the latter filed a severally, to pay the former the sum of P7,600.00, the total amount
civil case for annulment of the sale and the cancellation of TCT received by them from her as purchase price of the two lots, with
legal rate of interest from May 29, 1946 until fully paid; another

sum of P800.00, with legal rate of interest from August 1, 1966 Overall Ruling
until fully paid; the sum of P1,000 for attorney's fees; and the costs The first contention is without merit. The rule that the injured party can
of this suit." only choose between fulfillment and rescission of the obligation, and cannot
have both, applies when the obligation is possible of fulfillment. If, as in
III. Issue/s this case, the fulfillment has become impossible, Article 1191 allows the
1. W/N Generosa’s complaint for specific performance may be injured party to seek rescission even after he has chosen fulfillment.
deemed as a waiver of her right to rescission since the It is true that in the first civil case the Court already rendered a Decision
fulfillment and rescission of an obligation are alternative and in favor of plaintiff, but since defendants cannot fulfill their obligation to
not cumulative remedies? NO. deliver the titles to and possession of the lots to plaintiff, the portion of the
2. W/N her action had prescribed, considering that she had only four decision requiring them to fulfill their obligations is without force and
years from May 29, 1946, the date of sale, within which to rescind effect. Only that portion relative to the payment of damages remains in the
said transaction? NO. dispositive part of the decision, since in either case (fulfillment or
rescission) defendants may be required to pay damages.
IV. Holding/s
Issue #2
Issue #1 NO, her action had not prescribed.
NO, Generosa’s complaint for specific performance is not a waiver of Overall Ruling
her right to rescission. Article 1191 of the Civil Code provides that the injured party may also
Defendants’ Arguments seek rescission, if the fulfillment should become impossible. The cause of
• Defendants contend (1) that the fulfillment and the rescission of the action to claim rescission arises when the fulfillment of the obligation
obligation in reciprocal ones are alternative remedies, and plaintiff became impossible when the Court declared the sale of the land to
having chosen fulfillment in the first civil case, she cannot now seek defendants by Juan Porciuncula a complete nullity and ordered the
rescission; and (2) that even if plaintiff could seek rescission the action cancellation of TCT No. 69475 issued to them.
to rescind the obligation has prescribed. Since the two lots sold to plaintiff by defendants form part of the land
involved in the civil case for specific performance, it became impossible for
defendants to secure and deliver the titles to and the possession of the lots to
plaintiff. But plaintiff had to wait for the finality of the decision. According
to the certification of the clerk of court, the decision became final and
executory 'as per entry of Judgment dated May 3, 1967 of the Court of
Appeals.' The action for rescission must be commenced within four years
from that date, May 3, 1967. Since the complaint for rescission was filed on
August 16, 1968, the four year period within which the action must be
commenced had not expired.
Defendants have the obligation to return to plaintiff the amount of

P7,600.00 representing the purchase price of the two lots, and the amount of
P800.00 which they received from plaintiff to expedite the issuance of titles
but which they could not secure by reason of the decision in the civil case.
Defendant has to pay interest at the legal rate on the amount of
P7,600.00 from May 29, 1946, when they received the amount upon the
execution of the deeds of sale, and legal interest on the P800.00 from
August 1, 1966, when they received the same from plaintiff.

seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
VI. Disposition
WHEREFORE, the appealed judgment of the former Court of First Instance

of Manila, Branch XX, in Civil Case No. 73942, dated June 7, 1969, is
hereby affirmed in toto. Costs against defendants-appellants.
SO ORDERED.
VII. Random Facts

• Ponente: Melencio-Herrera, J.

G.R. No. 188288 | January 16, 2012 Voidable Contracts: Arts. 1390-1402
Spouses Viloria v. Continental Airlines Spouses Viloria v. Continental Airlines
I. Recit-ready Summary fraudulent, hence, justifying the annulment of the subject contracts & (2)
While in the US, Fernando Viloria purchased 2 round trip airline w/n CAI was justified in insisting that the subject tickets are non-
tickets for him and his wife, Lourdes, from San Diego, California to refundable. These issues revolve around the grounds of contract
Newark, New Jersey on board Continental Airlines. Fernando purchased the annulment expounded under Arts. 1390 and 1398 of the CC. The SC
tickets from "Holiday Travel" (travel agency) and was attended to by ruled: Because Mager’s statement was not found fraudulent based on
Margaret Mager (Mager). Mager informed them that there were no jurisprudence and the civil code, the spouses are not entitled to refund on
available seats at Amtrak (an intercity passenger train service provider in the grounds of the subject contracts’ annulment. For the second issue, CAI
the US). So Fernando requested Mager to reschedule their flight to Newark was, in fact, justified in insisting that the subject tickets are NON-
to an earlier date, but Mager informed him that flights to Newark via REFUNDABLE since Spouses Viloria were deemed to have ratified the
Continental Airlines were already fully booked and offered a round trip subject contracts. According to Art. 1393 of the CC, the subject contracts
flight via Frontier Air (which had a higher fare of US$526.00 per have been impliedly ratified when Spouses Viloria exercised their right
passenger and would mean them traveling by night). Given this, Fernando to use the subject tickets for the purchase of new ones. Hence, the
requested for a refund instead. But Mager told him that the tickets were Spouses Viloria’s petition was denied.
non-refundable, and the only option Continental Airlines can offer is the
re-issuance of new tickets within 1 year from the date the subject tickets II. Facts of the Case
were issued. So Fernando decided to reserve the 2 seats with Frontier Fernando & Lourdes Viloria (Spouses Viloria)
Air nalang. Fernando later found out that there were seats still available Margaret Mager (Mager; travel agent)
on Amtrak. He then confronted Mager asking for a refund for misleading In the United States
him into buying the tickets, but Mager still said the tickets were non- 1. While in the US (July 1997), Fernando purchased 2 round trip
refundable. airline tickets for him and his wife, Lourdes, from San Diego,
Upon returning to the Philippines, Fernando sent a letter to CAI (Feb California to Newark, New Jersey on board Continental Airlines.
1998) demanding a refund and alleging that Mager had deluded them 2. Fernando purchased the tickets (US$400.00 each) from "Holiday
into purchasing the subject tickets. In letter dated March 24, 1998, Travel" (travel agency) and was attended to by Margaret Mager.
Continental Micronesia denied Fernando’s but informed him that the 3. According to Spouses Viloria, Fernando agreed to buy the said
subject tickets may be used as a form of payment for the purchase of tickets after Mager informed them that there were no available
another Continental ticket, albeit with a re-issuance fee. In June 1999, seats at Amtrak (an intercity passenger train service provider in the
Fernando went to Continental's ticketing office at Ayala Avenue, Makati US).
City to have the subject tickets replaced by a single round trip ticket to a. The original airline tickets of Spouses Viloria were
Los Angeles, California under his name, but was informed that since scheduled to leave for Newark on August 13, 1997 and
Lourdes' ticket was non-transferable, it cannot be used for the purchase return to San Diego on August 21, 1997.
of a ticket in his favor. He was also told that a round trip ticket to Los b. So Fernando requested Mager to reschedule their flight to
Angeles was US$1,867.40 so he would have to pay what will not be Newark to an earlier date, August 6, 1997.
covered by the value of his San Diego to Newark round trip ticket. c. BUT Mager informed him that flights to Newark via
Having enough of it, Fernando filed against CAI demanding a refund for the Continental Airlines were already fully booked and
subject tickets. offered a round trip flight via Frontier Air (which had a
The two main issues of the case in relation to voidable contracts are (1) higher fare of US$526.00 per passenger and would mean
w/n Spouses Viloria are entitled to a refund for Mager’s statement being them traveling by night)
Obligations and Contracts (2020) PETITIONER: Spouses Fernando and Lourdes Viloria 1
DIGEST AUTHOR: Steph Naval RESPONDENT: Continental Airlines, Inc.
4. Due to the higher fare and time of travel, Fernando requested for a single round trip ticket to Los Angeles, California under his
a refund instead. name.
5. BUT Mager denied his request as the tickets were non-refundable, a. BUT was informed that since Lourdes' ticket was non-
and told him that the only option Continental Airlines can offer is transferable, it cannot be used for the purchase of a
the re-issuance of new tickets within 1 year from the date the ticket in his favor
subject tickets were issued. b. He was also told that a round trip ticket to Los Angeles was
6. So Fernando decided to reserve the 2 seats with Frontier Air US$1,867.40 so he would have to pay what will not be
nalang covered by the value of his San Diego to Newark round
7. Fernando, having second thoughts on this purchase, went to the trip ticket
Greyhound Station where he saw an Amtrak station nearby 11. Fernando then demanded again (via letter) for the refund of the
a. He was told that there are seats available and he can subject tickets! (he had enough of this BS)
travel on Amtrak anytime and any day he pleased. 12. He claimed that CAI charging him with US$1,867.40 for a round
b. Fernando then purchased 2 tickets for Washington, D.C. trip ticket to Los Angeles, which other airlines priced at
8. From Amtrak, Fernando went to “Holiday Travel” and confronted US$856.00, and refusal to allow him to use Lourdes' ticket,
Mager with the Amtrak tickets, telling her that she had misled breached its undertaking under its March 24, 1998 letter.
them into buying the tickets by misrepresenting that Amtrak was
already fully booked. Fernando wanted a refund but Mager still said Sept 8, 2000: Spouses Viloria filed against CAI ordering:
the tickets were non-refundable. • to refund the money they used in the purchase of the subject tickets
• with legal interest from July 21, 1997 and
In the Philippines • to pay P1,000,000.00 as moral damages, P500,000.00 as exemplary
9. Upon returning to the Philippines, Fernando sent a letter to CAI (Feb damages and P250,000.00 as attorney's fees.
1998) demanding a refund and alleging that Mager had deluded RTC – Spouses Viloria are entitled to a refund due to the acts in bad faith
them into purchasing the subject tickets. of Mager and CAI
a. Continental Micronesia then responded that his complaint CA – Spouses Viloria are NOT entitled to a refund for the absence of proof
had been referred to the Customer Refund Services of that a principal-agent relationship existed between CAI and Holiday Travel
Continental Airlines at Houston, Texas. & that the word “non-refundable” was clearly printed on the face of the
b. BUT Continental Micronesia later on denied Fernando's subject tickets
request for a refund and advised him that he may take the
subject tickets to any Continental ticketing location for the III. Issue/s (this case was heavy on different doctrines and issues but for
re-issuance of new tickets within 2 years from the date they this digest will focus those in relation to the topic given – voidable
were issued. contracts)
c. Continental Micronesia informed Fernando that the subject 1. Does a principal-agent relationship exist between CAI and Holiday
tickets may be used as a form of payment for the Travel? YES.
purchase of another Continental ticket, albeit with a re- 2. (assuming that an agency relationship exists between CAI and
issuance fee. (March 24, 1998 letter) Holiday Travel) Is CAI bound by the acts of Holiday Travel's
10. In June 1999, Fernando went to Continental's ticketing office at agents and employees such as Mager? NO.
Ayala Avenue, Makati City to have the subject tickets replaced by
3. (assuming that CAI is bound by the acts of Holiday Travel's agents vitiated consent. contract which, without them, he would not
and employees) W/N the representation of Mager as to have agreed to.
unavailability of seats at Amtrak be considered fraudulent as • In order that fraud may vitiate consent, it must
to vitiate the consent of Spouses Viloria in the purchase of the be the causal (dolo causante), not merely the
subject tickets? NO. incidental (dolo incidente), inducement to the
4. W/N CAI was justified in insisting that the subject tickets are making of the contract.
non-refundable? YES. • In Samson v. CA, causal fraud was defined as
5. W/N Spouses Viloria have the right to rescind the contract? NO, "a deception employed by one party prior to or
contracts cannot be rescinded for a slight or casual breach simultaneous to the contract in order to secure
(which is CAI’s refusal to accept Lourdes’ ticket for the the consent of the other."
purchase of a new ticket for Fernando). • In Sierra v. CA, fraud must be serious and its
*The facts actually demonstrate that both parties were equally in default; existence must be established by clear and
hence, none of them can seek judicial redress for the cancellation/ resolution convincing evidence (mere preponderance of
of the subject contracts. evidence is not enough)
Overall Ruling
IV. Holding/s The SC ruled that the fraud alleged by Spouses Viloria has not been
Issue #3 satisfactorily established as causal in nature to warrant the annulment of the
NO, Spouses Viloria are not entitled to a refund for Mager’s statement subject contracts. Spouses Viloria failed to prove by clear and convincing
cannot be considered as causal fraud that would justify the annulment evidence that Mager's statement was fraudulent.
of the subject contracts. Failed to prove:
Petitioner’s Arguments Court’s Rebuttals (a) there were available seats at Amtrak for a trip to New Jersey on
• Art. 1390 of the CC provides if the consent of August 13, 1997 at the time they spoke with Mager on July 21, 1997
• Fernando's consent the contracting parties was obtained through (b) Mager knew about this
to the subject fraud, the contract is considered voidable and (c) that Mager purposely informed them otherwise.
contracts was may be annulled within 4 years from the time The only proof of Mager's alleged fraud, which is Fernando's testimony that
supposedly secured of the discovery of the fraud an Amtrak had assured him of the perennial availability of seats at Amtrak,
by Mager through • Once a contract is annulled, the parties are to be wanting. As CAI correctly pointed out and as Fernando admitted, it
fraudulent means, obliged (under Art. 1398 of the CC) to restore was possible that during the intervening period of 3 weeks from the time
it is plainly to each other the things subject matter of the Fernando purchased the subject tickets to the time he talked to said Amtrak
apparent that their contract, including their fruits and interest. employee, other passengers may have cancelled their bookings and
demand for a • So the Court must determine whether Mager’s reservations with Amtrak, making it possible for Amtrak to accommodate
refund is alleged misrepresentation constitutes casual them.
tantamount to fraud.
seeking for an • Art. 1338 of the CC provides that there is The existence of fraud cannot be proved by mere speculations and
annulment of the FRAUD when, through insidious words or conjectures. Fraud is never lightly inferred; it is good faith that is. Under
subject contracts on machinations of one of the contracting the Rules of Court, it is presumed that "a person is innocent of crime or
the ground of parties, the other is induced to enter into a wrong" and that "private transactions have been fair and regular."
Spouses Viloria failed to overcome this presumption. Accordingly, by pursuing the remedy of rescission under Article 1191,
the Vilorias had impliedly admitted the validity of the subject contracts,
Issue #4 forfeiting their right to demand their annulment. A party cannot rely on
YES, CAI was justified in insisting that the subject tickets are NON- the contract and claim rights or obligations under it and at the same time
REFUNDABLE since Spouses Viloria were deemed to have ratified the impugn its existence or validity.
subject contracts.
Petitioner’s Arguments Court’s Rebuttals V. Law or Doctrine Applied
• Even if there was causal fraud, the subject
• Because there was contracts have been impliedly ratified when ART. 1390 OF THE CC
vitiated consent, Spouses Viloria exercised their right to use The following contracts are voidable or annullable, even though there may have
been no damage to the contracting parties:
the demand for a the subject tickets for the purchase of new
(1) Those where one of the parties is incapable of giving consent to a
refund is ones. contract;
tantamount to • Art. 1393 of the CC: Ratification may be (2) Those where the consent is vitiated by mistake, violence, intimidation,
seeking for an effected expressly or tacitly. It is understood undue influence or fraud.
annulment of the that there is a tacit ratification if, with These contracts are binding, unless they are annulled by a proper action in court.
subject contracts. knowledge of the reason which renders the They are susceptible of ratification.
contract voidable and such reason having
ceased, the person who has a right to invoke it ART. 1398 OF THE CC
should execute an act which necessarily An obligation having been annulled, the contracting parties shall restore to each
other the things which have been the subject matter of the contract, with their fruits,
implies an intention to waive his right. and the price with its interest, except in cases provided by law.
• Implied ratification may take diverse forms – In obligations to render service, the value thereof shall be the basis for damages.
silence/ acquiescence; by acts showing
approval/ adoption of the contract; or by ART. 1338 OF THE CC
acceptance and retention of benefits flowing There is fraud when, through insidious words or machinations of one of the
Overall Ruling contracting parties, the other is induced to enter into a contract which, without them,
Annulment under Article 1390 of the CC and rescission under Article 1191 he would not have agreed to.
are 2 inconsistent remedies.
ART. 1344 OF THE CC
Resolution In order that fraud may make a contract voidable, it should be serious and should not
• all the elements to make the contract valid are present have been employed by both contracting parties.
• the defect is in the consummation stage of the contract when the
parties are in the process of performing their respective obligations VI. Disposition
Annulment WHEREFORE, premises considered, the instant Petition is DENIED. SO
• one of the essential elements to a formation of a contract, which is ORDERED.
consent, is absent
• the defect is already present at the time of the negotiation and VII. Random Facts
perfection stages of the contract • Ponente: Reyes, J.
G.R. No. 196182 | September 01, 2014 Voidable Contracts, Article 1338, 1344, 1390, 1392, and 1393 of the
Civil Code
O348 - ECE Realty v Mandap O348 - ECE Realty v Mandap
I. Recit-ready Summary 2. However, printed advertisements were made indicating therein that
the said project was to be built in Makati City.
ECE Realty and Development Inc. (ECE, petitioner) started the 3. Respondent Mandap and petitioner executed a Contract to Sell,
construction of a condominium project in Pasay City, but advertised which indicated that the condominium project is located in
that said project was to be built in Makati City. Respondent Rachel G. Pasay City.
Mandap executed a contract to sell with ECE, with said contract specifying 4. More than two years after the execution of the Contract to Sell,
in its text that the condominium was located in Pasay City. More than 2 respondent, through counsel, wrote ECE a letter demanding the
years later, Mandap demanded that ECE return P422,500.00 worth of return of P422,500.00, representing the payments she made, on
payments she had made, claiming that her consent to the contract had been the ground that she subsequently discovered that the
obtained through fraudulent advertising. condominium project was being built in Pasay City and not in
Respondent Mandap filed a complaint before the Expanded National Makati City as indicated in its printed advertisements.
Capital Region Field Office (ENCRFO) of the Housing and Land Use 5. ECE did not acknowledge the request, so Mandap filed a complaint
Regulatory Board (HLURB), which dismissed it due to lack of merit. Her with the Expanded National Capital Region Field Office
petitions were likewise denied by the HLURB Commission and the Office (ENCRFO) of the Housing and Land Use Regulatory Board
of the President (OP). The Court of Appeals reversed the resolution of the (HLURB) seeking:
OP, prompting ECE to petition the Supreme Court. a. the annulment of her contract
The Supreme Court held that respondent had failed to adequately b. the return of her payments, and
prove that fraud had been the motivating factor that compelled her to c. damages.
consent to the contract. Articles 1338, 1344, and 1390 of the Civil Code 6. ENCRFO dismissed respondent's complaint for lack of merit
define fraud and provide that such fraud must be the source of vitiated and directed the parties to resume the fulfillment of the terms and
consent in order to render a contract voidable. Mandap had not sufficiently conditions of their sales contract. Respondent had failed to prove
proven that the advertised location of the condominium in Makati was her that ECE had used “insidious words or machinations which
primary consideration in signing the contract. induced or entrapped her into the contract and which, without
Additionally, her action to challenge the contract was extinguished by them, would not have encouraged her to buy the unit.”
her implied ratification. She signed a contract which clearly provided in its 7. The HLURB Board of Commissioners affirmed this decision,
text that the condominium was to be located in Pasay City. She made over citing the specific written stipulations of the contract as the
400k in payments over 2 years before contesting the issue. Articles 1392 binding law between the parties.
and 1393 of the Civil Code provide that such ratification may be implied or 8. Mandap appealed to the Office of the President, which likewise
express, and extinguish the cause of action to annul a contract. The Supreme denied the petition.
Court reversed the CA decision and upheld the contract as valid. 9. Mandap then appealed to the Court of Appeals, which reversed the
resolution of the Office of the President and annulled the contract.
II. Facts of the Case (Material Facts) 10. The CA ordered ECE Realty to return the total amount of P422,500
to Mandap, with 12% legal interest per annum.
1. ECE Realty and Development Inc. (ECE, petitioner) started the 11. ECE then appealed to the Supreme Court.
construction of a condominium project called Central Park
Condominium Building located along Jorge St., Pasay City. III. Issue/s
Obligations and Contracts (2020) Petitioner: ECE Realty and Development Inc. 1
DIGEST AUTHOR: Vito Castañeda Respondent: Rachel G. Mandap
Civil Code
1. W/N petitioner was guilty of fraud and if so, whether such Pasay City.
fraud is sufficient ground to nullify its contract with • She also made payments for two
respondent: NO. years before raising the issue.
• These show that she still agreed
IV. Holding/s to buy the subject property
regardless of the fact that it is
Issue #1 located in a different place.
No, ECE is not guilty of fraud and the contract remains valid and in • This Contract to sell was even
force. notarized, and thus enjoys the
Respondent’s Arguments Court’s Rebuttals (in favor of presumption of regularity and is
• By misrepresenting the location Petitioner) conclusive as to the truthfulness
of the condominium in • The law of the case is based on of its contents.
advertisements, ECE has used Articles 1338, 1344, and 1390, • Mandap has implicitly ratified the
“insidious words or and 1393 of the Civil Code. contract, according to the
machinations which induced or • Fraud must be dolo causante or it provisions of Articles 1392 and
entrapped her into the contract must be fraud in obtaining the 1393 of the Civil Code.
and which, without them, would consent of the party. This is Overall Ruling
not have encouraged her to buy referred to as causal fraud.
the unit (Article 1338 of the Civil • Fraud must also be proven by The petition is meritorious. Respondent has failed to prove that her consent
Code) clear and convincing evidence to the contract had been obtained through fraud. Article 1338 of the Civil
and not merely by a Code defines fraud, Article 1344 provides that such fraud must be serious
preponderance thereof. to render a contract voidable, and Article 1390 includes fraud as a source of
vitiated consent, which voids contracts. The Court holds that the fraud must
• Respondent Mandap has not
be the essential and/or moving factor that induces the party to agree to the
sufficiently proven that the
contract, and such fact must be proved with clear and convincing evidence.
advertised location of the Additionally, Articles 1392 and 1393 of the Civil Code provide that
condominium unit in Makati City ratification of a contract extinguishes actions to annul a voidable contract,
was the essential and/or moving and such ratification may be given tacitly. Implied ratification may take
factor that led her to give her diverse forms, such as by silence or acquiescence; by acts showing
consent and agree to buy the unit. approval or adoption of the contract; or by acceptance and retention of
• Respondent signed the Contract benefits flowing therefrom.
to Sell despite information
contained therein that the By signing the contract to sell even though the document clearly stated that
condominium is located in the condominium was to be located in Pasay, and making payments for 2
years before raising any complaint, respondent has given her implied
Civil Code
ratification and is estopped from filing a case for annulment of the contract. ARTICLE 1393 OF THE CIVIL CODE
Ratification may be effected expressly or tacitly. It is understood that there

V. Law or Doctrine Applied is a tacit ratification if, with knowledge of the reason which renders the
contract voidable and such reason having ceased, the person who has a right
ARTICLE 1338 OF THE CIVIL CODE to invoke it should execute an act which necessarily implies an intention to
waive his right. (1311a)
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, VI. Disposition
without them, he would not have agreed to.
WHEREFORE, the instant petition is GRANTED. The Decision and
ARTICLE 1344 OF THE CIVIL CODE Resolution of the Court of Appeals, dated July 21, 2010 and March 15,
2011, respectively, are REVERSED and SET ASIDE. The September 30,
In order that fraud may make a contract voidable, it should be serious and 2005 Decision of the Expanded National Capital Region Field Office of the
should not have been employed by both contracting parties. Housing and Land Use Regulatory Board, which dismisses respondent's
complaint and directs petitioner and respondent to resume the fulfillment of
ARTICLE 1390 OF THE CIVIL CODE their sales contract, is REINSTATED.
The following contracts are voidable or annullable, even though there may SO ORDERED.
have been no damage to the contracting parties:
Velasco, Jr., (Chairperson), Bersamin,* Villarama, Jr., and Reyes, JJ.,
concur.
(1) Those where one of the parties is incapable of giving consent to
a contract;
• The Court agreed that ECE had made false representation in its
(2) Those where the consent is vitiated by mistake, violence, advertising, but held that such misrepresentation was not the
intimidation, undue influence or fraud. motivating factor of obtaining respondent’s consent.
• ECE only received a stern warning.
These contracts are binding, unless they are annulled by a proper
action in court. They are susceptible of ratification. (n) VII. Random Facts
• Ponente: Peralta, J.
45 days of Quarantine, yo. I need a haircut and a shave. The QC cops shot a
Ratification extinguishes the action to annul a voidable contract. (1309a) mentally-ill war veteran for apparently violating quarantine. Apparently
Human rights are also a casualty of the pandemic.
G.R. No. 178529 | September 4, 2009 Contracts | Voidable contracts
Equitable PCIB v. Heirs of Tiu Equitable PCIB v. Heirs of Tiu
The issue thus is whether the complaint filed by respondents-children On July 6, 1994, Antonio Tiu executed a
real estate mortgage (REM)
of Antonio, without impleading Matilde who must also be Antonio's of a lot to secure loans totaling P7 million
obtained by Gabriel Ching
heir and who, along with Antonio, was principally obliged under the from Equitable PCI bank. The amount
covered was later increased to
AREM sought to be annulled, is dismissible for lack of cause of action. P26 million.
The Supreme Court ruled for the petitioner. The Supreme applied Before the words "With my Marital Consent"
appearing in the REM
Art. 1397 of the Civil Code and the Rules of Court (see Law or and the subsequent amendment is a signature
attributed to Antonio's
Doctrine Applied). wife Matilde.
The AREM was executed by Antonio, with the marital consent of The loan remains unpaid when Antonio died
on December 26, 1999.
Matilde. Since the mortgaged property is presumed conjugal, she is As a result, petitioner filed a for the
extrajudicial foreclosure of the
obliged principally under the AREM. It is thus Matilde who is the real mortgaged lot.
party in interest, hence, the action must be prosecuted in her name as she stands to be benefited or injured in
the action. A day before the auction sale, the heirs of Antonio Tiu filed for the annulment of the REM on the
basis that the same was executed
Assuming that Matilde is indeed incapacitated, it is her legal guardian without the valid consent of Matilde, who
at the time the mortgage was
who should file the action on her behalf. Not only is there no allegation executed, was already suffering the
advanced stage of Alzheimer’s
in the complaint, however, that respondents have been legally disease. Hence, Matilde was incapable of giving
her consent, more so
designated as guardians to file the action on her behalf. writing and signing her name. As a result, the Regional
Trial Court (RTC) issued a temporary restraining order.
• On July 6, 1994, Antonio Tiu executed a real estate mortgage Petitioner filed a motion to dismiss on the
ground that the heirs had no
(REM) of a lot to secure loans totaling P7 million obtained by cause of action since they are not the real parties
in interest. The
Gabriel Ching from Equitable PCI bank. motion was denied by the RTC, ruling that the heirs are real parties in
• On October 5, 1998, the REM was amended to increase the interest, as they will be damnified and injured or
their inheritance
amount covered by the mortgage to P26 million. rights and interest on the subject property protected and
preserved in
• Before the words "With my Marital Consent" appearing in the this action. The RTC’s denial was affirmed by
the Court of Appeals
REM and the subsequent amendment is a signature attributed to (CA).
Antonio's wife Matilde.
Petitioner appealed to the Supreme Court arguing that the party in interest is respondents' mother but the
complaint is not brought in her name, respondents' complaint states no cause of action.
• The loan remains unpaid when Antonio died on December 26, 1999. As a result, petitioner filed a for the
extrajudicial foreclosure of the mortgaged lot.
• A day before the auction sale, the heirs of Antonio Tiu filed for the annulment of the REM on the basis that the
same was executed
Obligations and Contracts (2020) PETITIONER: Equitable PCIB
1
DIGEST AUTHOR: Kerwin C. Aguilar RESPONDENT: Heirs of Tiu
without the valid consent of Matilde, who at the time the mortgage
because of her Alzheimer’s was executed, was already suffering the advanced stage of
disease. Alzheimer’s disease. Hence, Matilde was incapable of giving her consent, more so writing and signing
her name. As a result, the Regional Trial Court (RTC) issued a temporary restraining order.
• Petitioner filed a motion to dismiss on the ground that the heirs had no cause of action since they are not the
real parties in interest. The motion was denied by the RTC, ruling that the heirs are real parties in interest, as
they will be damnified and injured or their inheritance rights and interest on the subject property protected and
preserved in this action. The RTC’s denial was affirmed by the Court of Appeals (CA).
III. Issue/s
1. Whether or not the complaint filed by respondents-children of Antonio, without impleading Matilde
who must also be Antonio's heir and who, along with Antonio, was principally obliged under the AREM
sought to be annulled, is dismissible for lack of cause of action? Yes
IV. Holding/s
Yes. Art. 1397 of the Civil Code and the Rules of Court must be observed. Respondents’ Argument
• The heirs are real parties in interest, as they will be damnified and injured or their inheritance rights and
interest on the subject property protected and preserved in this action.
• Matilde was incapable of giving a valid consent
Obligations and Contracts (2020) PETITIONER: Equitable PCIB
party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the
suit. Unless otherwise authorized by law or these Rules, every action must be prosecuted or defended in the
name of the real party in interest and where the action is allowed to be prosecuted or defended by a
representative or someone acting in a fiduciary capacity, the beneficiary shall be included in the title of the case
and shall be deemed to be the real party in interest. Overall Ruling The AREM was executed by Antonio, with
the marital consent of Matilde. Since the mortgaged property is presumed conjugal, she is obliged principally
under the AREM. It is thus Matilde who is the real party in interest, hence, the action must be prosecuted in her
name as she stands to be benefited or injured in the action.
Assuming that Matilde is indeed incapacitated, it is her legal guardian who Court’s Rebuttals
should file the action on her behalf. Not only is there no allegation in the
• Art. 1397 of the Civil Code
complaint, however, that respondents have been legally designated as provides that the action for the
guardians to file the action on her behalf. The name of Matilde, who is annulment of contracts may be
deemed the real party in interest, has not been included in the title of the instituted by all who are
case, in violation of Sec. 3 of Rule 3 of the Rules of Court. thereby obliged principally or subsidiarily. Thus,
Matilde should have been included.
• The Rules of Court provides that a real party in interest is the
2
G.R. No. 178529 | September 4, 2009
Contracts | Voidable contracts
The action for the annulment of contracts may be
Equitable PCIB v. Heirs of Tiu instituted by all who are thereby obliged principally
or subsidiarily. However, persons who are capable
Equitable PCIB v. Heirs of Tiu cannot allege the incapacity of those with whom
they contracted; nor can those who exerted
intimidation, violence, or undue influence, or
employed fraud, or caused mistake base their
action upon these flaws of the contract.
Section 3, Rule 3, Rules of Court Where the action

is allowed to be prosecuted or defended by a
representative or someone acting in a fiduciary
capacity, the beneficiary shall be included in the
title of the case and shall be deemed to be the real
party in interest. A representative may be a trustee
of an express trust, a guardian, an executor or
administrator, or a party authorized by law or these
Rules. An agent acting in his own name and for
the benefit of an undisclosed principal may sue or
be sued without joining the principal except when
the contract involves things belonging to the
principal.
VI. Disposition
WHEREFORE,the petition is GRANTED.The
Decision of the Court of Appeals dated August 30,
2006 is REVERSED and SET ASIDE.Civil Case
No. 2003-12-205 lodged before Branch 8 of the
Regional Trial Court of Tacloban City is
DISMISSED for lack of cause of action.

None
VII. Random Facts


Equitable PCIB
DIGEST AUTHOR: Kerwin C. Aguilar

RESPONDENT: Heirs of Tiu
3
I. Recit-ready Summary The issue thus is whether the complaint filed by respondents-children
On July 6, 1994, Antonio Tiu executed a real estate mortgage (REM) of Antonio, without impleading Matilde who must also be Antonio's
of a lot to secure loans totaling P7 million obtained by Gabriel Ching heir and who, along with Antonio, was principally obliged under the
from Equitable PCI bank. The amount covered was later increased to AREM sought to be annulled, is dismissible for lack of cause of action.
P26 million.
The Supreme Court ruled for the petitioner. The Supreme applied
Before the words "With my Marital Consent" appearing in the REM Art. 1397 of the Civil Code and the Rules of Court (see Law or
and the subsequent amendment is a signature attributed to Antonio's Doctrine Applied).
wife Matilde.
The AREM was executed by Antonio, with the marital consent of
The loan remains unpaid when Antonio died on December 26, 1999. Matilde. Since the mortgaged property is presumed conjugal, she is
As a result, petitioner filed a for the extrajudicial foreclosure of the obliged principally under the AREM. It is thus Matilde who is the real
mortgaged lot. party in interest, hence, the action must be prosecuted in her name as
she stands to be benefited or injured in the action.
A day before the auction sale, the heirs of Antonio Tiu filed for the
annulment of the REM on the basis that the same was executed Assuming that Matilde is indeed incapacitated, it is her legal guardian
without the valid consent of Matilde, who at the time the mortgage was who should file the action on her behalf. Not only is there no allegation
executed, was already suffering the advanced stage of Alzheimer’s in the complaint, however, that respondents have been legally
disease. Hence, Matilde was incapable of giving her consent, more so designated as guardians to file the action on her behalf.
writing and signing her name. As a result, the Regional Trial Court
(RTC) issued a temporary restraining order. II. Facts of the Case (Material Facts)
• On July 6, 1994, Antonio Tiu executed a real estate mortgage
Petitioner filed a motion to dismiss on the ground that the heirs had no (REM) of a lot to secure loans totaling P7 million obtained by
cause of action since they are not the real parties in interest. The Gabriel Ching from Equitable PCI bank.
motion was denied by the RTC, ruling that the heirs are real parties in • On October 5, 1998, the REM was amended to increase the
interest, as they will be damnified and injured or their inheritance amount covered by the mortgage to P26 million.
rights and interest on the subject property protected and preserved in • Before the words "With my Marital Consent" appearing in the
this action. The RTC’s denial was affirmed by the Court of Appeals REM and the subsequent amendment is a signature attributed to
(CA). Antonio's wife Matilde.
• The loan remains unpaid when Antonio died on December 26,
Petitioner appealed to the Supreme Court arguing that the party in 1999. As a result, petitioner filed a for the extrajudicial foreclosure
interest is respondents' mother but the complaint is not brought in her of the mortgaged lot.
name, respondents' complaint states no cause of action. • A day before the auction sale, the heirs of Antonio Tiu filed for
the annulment of the REM on the basis that the same was executed
Obligations and Contracts (2020) PETITIONER: Equitable PCIB 1

without the valid consent of Matilde, who at the time the mortgage because of her Alzheimer’s party who stands to be benefited
was executed, was already suffering the advanced stage of disease. or injured by the judgment in
Alzheimer’s disease. Hence, Matilde was incapable of giving her the suit, or the party entitled to
consent, more so writing and signing her name. As a result, the the avails of the suit. Unless
Regional Trial Court (RTC) issued a temporary restraining order. otherwise authorized by law or
• Petitioner filed a motion to dismiss on the ground that the heirs these Rules, every action must
had no cause of action since they are not the real parties in be prosecuted or defended in
interest. The motion was denied by the RTC, ruling that the heirs the name of the real party in
are real parties in interest, as they will be damnified and injured or interest and where the action is
their inheritance rights and interest on the subject property allowed to be prosecuted or
protected and preserved in this action. The RTC’s denial was defended by a representative or
affirmed by the Court of Appeals (CA). someone acting in a fiduciary
capacity, the beneficiary shall
III. Issue/s be included in the title of the
1. Whether or not the complaint filed by respondents-children of case and shall be deemed to be
Antonio, without impleading Matilde who must also be Antonio's the real party in interest.
heir and who, along with Antonio, was principally obliged under Overall Ruling
the AREM sought to be annulled, is dismissible for lack of cause of The AREM was executed by Antonio, with the marital consent of Matilde.
action? Yes Since the mortgaged property is presumed conjugal, she is obliged
principally under the AREM. It is thus Matilde who is the real party in
IV. Holding/s interest, hence, the action must be prosecuted in her name as she stands to
be benefited or injured in the action.
Yes. Art. 1397 of the Civil Code and the Rules of Court must be
observed. Assuming that Matilde is indeed incapacitated, it is her legal guardian who
Respondents’ Argument Court’s Rebuttals should file the action on her behalf. Not only is there no allegation in the
• The heirs are real parties in • Art. 1397 of the Civil Code complaint, however, that respondents have been legally designated as
interest, as they will be provides that the action for the guardians to file the action on her behalf. The name of Matilde, who is
damnified and injured or annulment of contracts may be deemed the real party in interest, has not been included in the title of the
their inheritance rights and instituted by all who are case, in violation of Sec. 3 of Rule 3 of the Rules of Court.
interest on the subject thereby obliged principally or
property protected and subsidiarily. Thus, Matilde
preserved in this action. should have been included.
• Matilde was incapable of • The Rules of Court provides V. Law or Doctrine Applied
giving a valid consent that a real party in interest is the Art. 1397 of the Civil Code

The action for the annulment of contracts may be instituted by all who
are thereby obliged principally or subsidiarily. However, persons who
are capable cannot allege the incapacity of those with whom they
contracted; nor can those who exerted intimidation, violence, or undue
influence, or employed fraud, or caused mistake base their action upon
these flaws of the contract.
Section 3, Rule 3, Rules of Court

Where the action is allowed to be prosecuted or defended by a
representative or someone acting in a fiduciary capacity, the
beneficiary shall be included in the title of the case and shall be
deemed to be the real party in interest. A representative may be a
trustee of an express trust, a guardian, an executor or administrator, or
a party authorized by law or these Rules. An agent acting in his own
name and for the benefit of an undisclosed principal may sue or be
sued without joining the principal except when the contract involves
things belonging to the principal.
VI. Disposition
WHEREFORE,the petition is GRANTED.The Decision of the Court
of Appeals dated August 30, 2006 is REVERSED and SET
ASIDE.Civil Case No. 2003-12-205 lodged before Branch 8 of the
Regional Trial Court of Tacloban City is DISMISSED for lack of
cause of action.

None
VII. Random Facts


G.R. Nos. 74938-39 & G.R. Nos. 75524-25 | January 17, 1990 Art. 1397 – Voidable Contracts
Malabanan v. Gaw Ching Malabanan v. Gaw Ching
I. Recit-ready Summary As found by the CA, the subject piece of land is located outside the
Urban Land Reform Zones declared pursuant to P.D. No. 1517. As a
Respondent Gaw Ching has been leasing the house and lot in Binondo, lessee, Gaw Ching cannot attack the title of his lessor over the subject
Manila from Mr. Jabit. When Mr. Jabit died, his daughter, petitioner matter of the lease.
Malabanan, continued to lease the premises to Gaw Ching at an
increased rental fee. Malabanan repeatedly offered to sell Ching the II. Facts of the Case (Material Facts)
house and lot for Php 5,000 but he refused. Thereafter, Malabanan 1. The case involves 2 consolidated petitions. The first sought to
informed Ching that the premises was already sold to Lenoida Senolos. annul the sale and enjoin the demolition of a building standing
Ching had to move out since it was demolished by Malabanan. Ching is on said piece of land as well as prayer for award of damages.
assailing the validity of the contract of sale entered into by Malabanan. The second involves a demand for damages from petitioner
The RTC ruled that the sale was valid but the CA reversed the RTC Senolos for bringing about the demolition of the building.
decision. Thus this consolidated petitions. 2. Respondent Gaw Ching has been leasing the house and lot in
Binondo, Manila from Mr. Jabit. When Mr. Jabit died, his
The main issue is whether or not Ching (a lessee) can file an action for daughter, petitioner Malabanan, continued to lease the premises
the annulment of the contract of sale between Malabanan and Senolos. to Gaw Ching at an increased rental.
The SC held that no, Gaw Ching cannot file an action for annulment of 3. The lease was paid monthly despite the lack of written contract
the contract of sale. Article 1397 states: “The action for the annulment of of lease.
contracts may be instituted by all who are thereby obliged principally or 4. On April 1980, Malabanan told Ching that she was selling the
subsidiarily....” A possible qualification to the general principle is if a house and lot for Php 5,000 per sqm.
non-party is prejudiced in his rights with respect to one of the 5. Ching rejected the offer saying that it was too expensive. Ching
contracting parties; but, it is indispensable to show the detriment which continued to pay the lease to Malabanan but Malabanan refused
positively would result to him from the contract. Gaw Ching does not to accept the payment.
fall within the possible exception recognized in the Ybañez case. Gaw 6. The following month, Malabanan wrote to Ching, reiterating
Ching had no legal right of preemption (right to purchase ahead of that she was selling the house and lot and that if Ching is not
others) in respect of the house and lot involved. Further, the SC said that agreeable, she will sell it to another person.
even assuming that Ching did have a preemptive right to purchase the 7. Malabanan again wrote a letter re selling the house and lot, and
land from petitioner Malabanan, it must be stressed that petitioner warned that if Ching is not agreeable, she will sell it to another
Malabanan did thrice offer the land to Ching but the latter had person at Php 4,000 per sqm.
consistently refused to buy. Since Gaw Ching did not in fact accept the 8. Ching said that he was willing to purchase at that price but it
offer to sell and did not buy the land, he suffered no prejudice, and could was still expensive. Ching did not ask his counsel to write to
not have suffered any prejudice, by the sale of the same piece of land to Malabanan about it.
petitioner Senolos. No fraud was thus worked upon him notwithstanding 9. Malabanan then informed Ching that the premises was already
his insinuation that the sale of the land to petitioner Senolos had sold to Lenoida Senolos.
preceded the offer of the same piece of land to himself. 10. Ching then had to move out since it was demolished by
Malabanan. Ching, however, admitted, that he was not yet a
Obligations and Contracts (2020) PETITIONER: Angelina Malabanan 1

DIGEST AUTHOR: Pia Casano RESPONDENT: Gaw Ching
Filipino citizen at the time of offer to sell, and that he was only by all who are thereby obliged principally or subsidiarily. However,
issued a certificate of naturalization later on. persons who are capable cannot allege the incapacity of those with
11. Ching averred that he was not notified of the demolition. There whom they contracted; nor can those who exerted intimidation, violence,
was a sudden brownout and around 50 people cam and climbed or undue influence, or employed fraud, or caused mistake base their
the roof, cut the electric wires and started banging the roof. action upon these flaws of the contract.”
12. Atty. Sugay (Ching’s counsel) went to the City Hall and
thereafter presented a letter to Senolos which came from the Article 1397 follows Article 1311 which provides that contracts take
City Engineer and Building Officer. effect only between the parties, their assigns and heirs, except in case
13. Policemen came and eventually, the demolition stopped. where the rights and obligations arising from the contract are not
14. RTC upheld the contract of sale between Malabanan. CA transmissible by their nature, or by stipulation or by provision of law.
reversed the RTC decision and nullified the contract of sale The heir is not liable beyond the value of the property he received from
stating that it was vitiated by fraud and deceit causing damage the decedent.
to Ching. Thus this consolidated petitions.
As held in Ybañez v. Hongkong and Shanghai Bank, it is the existence of
III. Issue/s an interest in a particular contract that is the basis of one’s right to sue
1. W/N Gaw Ching can file an action for the annulment of the for nullification of that contract and that essential interest in a given
contract of sale between Malabanan and Senolos – NO contract is, in general, possessed only by one who is a party to the
contract. A possible qualification to the general principle is if a non-
2. W/N the CA erred in awarding Gaw Ching with moral, party is prejudiced in his rights with respect to one of the contracting
exemplary and actual damages - YES parties; but, it is indispensable to show the detriment which positively
would result to him from the contract. Gaw Ching does not fall within
the possible exception recognized in the Ybañez case. He failed to prove
IV. Holding/s that he is prejudiced in his rights by the contract of sale.
Issue #1 Gaw Ching had no legal right of preemption in respect of the house and
lot involved. Further, the SC said that even assuming that Ching did
No, Gaw Ching cannot file an action for annulment of the contract have a preemptive right to purchase the land from petitioner Malabanan,
of sale. it must be stressed that petitioner Malabanan did thrice offer the land to
Ching but the latter had consistently refused to buy. Since Gaw Ching
did not in fact accept the offer to sell and did not buy the land, he
Overall Ruling suffered no prejudice, and could not have suffered any prejudice, by the
sale of the same piece of land to petitioner Senolos. No fraud was thus
Well-settled is the rule that strangers to a contract cannot sue either or worked upon him notwithstanding his insinuation that the sale of the
both of the contracting parties to annul or set aside the contract. Article land to petitioner Senolos had preceded the offer of the same piece of
1397 states: “The action for the annulment of contracts may be instituted land to himself.

As found by the CA, the subject piece of land is located outside the ART. 1397 OF THE CIVIL CODE
Urban Land Reform Zones declared pursuant to P.D. No. 1517. As a The action for the annulment of contracts may be instituted by all who
lessee, Gaw Ching cannot attack the title of his lessor over the subject are thereby obliged principally or subsidiarily. However, persons who
matter of the lease. are capable cannot allege the incapacity of those with whom they
contracted; nor can those who exerted intimidation, violence, or undue
influence, or employed fraud, or caused mistake base their action upon
Issue #2 these flaws of the contract.
Yes, the CA erred in awarding Gaw Ching with moral, exemplary and ART. 1311 OF THE CIVIL CODE
actual damages since the demolition was valid. Contracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the contract
are not transmissible by their nature, or by stipulation or by provision of
Overall Ruling law. The heir is not liable beyond the value of the property he received
from the decedent.
The order of demolition was a valid exercise of police power and is
unquestionably legal. SC said that Gaw Ching’s claim that he suffered VI. Disposition
loss or destruction of properties is too good to be true, considering that ACCORDINGLY, The Court Resolved to GRANT the Petition and to
the items stated were so huge that they could not be spirited away REVERSE and SET ASIDE the Decision of the then Intermediate
without being noticed and also since it has been established that there Appellate Court dated 31 January 1986 and its Resolution dated 5 June
was a policeman detailed to the demolition scene from the start of the 1986, in A.C.—G.R. CV Nos. 05136-05137. The Decision of the trial
said demolition, to whom he could have easily reported the matter. The court dated 10 August 1984 in consolidated Civil Cases Nos. R-81-416
CA majority opinion failed to indicate why it preferred Gaw Ching’s and R-82-6798, is hereby REINSTATED. No pronouncement as to
version of the facts set out in his brief over the trial court’s findings. No costs.
indication was offered where the trial court had fallen into error or what
evidence had been misapprehended by it. VII. Additional Notes
Further, section 5.3 of Rule VII of the Rules and Regulations VIII. Random Facts
Implementing the National Building Code of the Philippines (P.D. No. • Ponente: Feliciano, J.
1096, as amended dated 19 February 1977) provides that an order for
demolition may be appealed by the owner of the building. In this case,
Gaw Ching was a mere lessee.

G.R. No. 78569 | February 11, 1991 Voidable Contracts
Earth Minerals Exploration, Inc. v Macaraig Earth Minerals Exploration, Inc. v Macaraig
I. Recit-ready Summary parties, and can show the detriment which could positively result to
1. Zambales Chromite owns 10 patentable chromite mining claims. him from the contract in which he had no intervention.
2. Zambales Chromite entered into a mining contract with Philzea
mining as claim-owner and operator, respectively. II. Facts of the Case (Material Facts)
3. During the lifetime of such contract, Earth Minerals sent a letter of * Zambales Chromite Mining Co., Inc. (Zambales Chromite)
Intent to Zambales Chromite proposing to operate the same mining * Philzea Mining and Development Corp. (Philzea Mining)
* Earth Minerals Exploration Inc. (Earth Minerals)
area subject of the earlier mining contract. Zambales Chromite
* Bureau of Mines and Geo-Sciences (BMGS)
agreed. * Ministry of Natural Resources (MNR)
4. Earth Minerals filed a petition for the cancellation of the mining * Office of the President (OP)
contract between Zambales Chromite and Azalea Mining with
BMGS. Earth minerals alleges that Philzea Mining committed 1. Zambales Chromite is the exclusive owner of ten (10) patentable
grave and serious violations of their contract with Zambales chromite mining claims.
Chromite. 2. September 11, 1980 – Zambales Chromite (claim-owner) and
5. Philzea Mining filed a motion to dismiss on the ground that Earth
Philzea Mining (operator) entered into a “Contract of
Minerals is not the proper party in interest.
6. BMGS held that "there appears some color of right" on Earth Development, Exploitation and Productive Operation”
Minerals to initiate the petition for cancellation. 3. June 30, 1984 – Earth Minerals submitted a Letter of Intent
7. Philzea elevated the case to MNR. MNR issued an order directing proposing to operate the same mining area and Zambales Chromite
BMGS to conduct necessary investigation. agreed.
8. BMGS found that Philzea Mining violated the terms and conditions 4. August 10, 1984 – Earth Minerals and Zambales Chromite entered
of the mining contract supported by evidence. into an “Operating Agreement”
9. OP issued the disputed decision by Deputy Exec. Sec. Fulgencio 5. The same mining property of Zambales Chromite became the
Factoran Jr. setting aside the orders of MNR and BMGS. subject of different agreements with two separate and distinct
10. The SC held that the decision Deputy Exec. Sec. Fulgencio operators.
Factoran Jr. reversing the decisions of MNR and BMGS cannot be 6. November 29, 1984 – Earth Minerals filed with BMGS a petition
sustained. Earth Minerals seeks the cancellation of the contract for cancellation of the contract between Zambales Chromite and
between Zambales Chromite and Philzea Mining, not as a party to
Philzea Mining, pursuant to Sec. 7, P.D. 1281:
the contract but because his rights are prejudiced by the said
contract. This is the exception to the general rule laid down in
Sec. 7. In addition to its regulatory and adjudicative functions over companies,
Article 1397 of the Civil Code as enunciated in the case of Teves v. partnerships or persons engaged in mining exploration, development and
People’s Homesite and Housing Corp: exploitation, the Bureau of Mines shall have original and exclusive jurisdiction
A person who is not obliged principally or subsidiarily in to hear and decide cases involving:
a contract may exercise an action for nullity of the contract if he is (a) a mining property subject of different agreements entered into by the
prejudiced in his rights with respect to one of the contracting claim holder thereof with several mining operators;
(b) …
Obligations and Contracts (2020) PETITIONER: Earth Minerals Exploration, Inc. 1
DIGEST AUTHOR: Princess Alvaran RESPONDENT: Deputy Executive Secretary Catalino Macaraig, Jr.,
Office of the President, Malacanang, Manila, Bureau of Mines Director
Benjamin A. Gonzales, and Philzea Mining and Dev. Corp
(c) cancellation and/or enforcement of mining contracts due to the refusal of 1. W/N Earth Minerals is a proper party to file the petition for
the claim-owner/operator to abide by the terms and conditions thereof
cancellation of the contract between Zambales Chromite and
7. Earth Minerals alleged that Philzea Mining committed grave and
Philzea Mining citing Art. 1311 of the Civil Code? YES.
serious violations of their contract with Zambales Chromite
8. December 10, 1984 – Philzea Mining filed a motion to dismiss on
IV. Holding/s
the ground that Earth Minerals is not the proper party in interest
and that the petition lacks cause of action.
Issue #1
a. This was denied by BMGS holding that that "there
YES, Earth Minerals is a proper party to the cancellation of the mining
appears some color of right" on Earth Minerals to initiate
contract between Zambales Chromite and Philzea Mining.
the petition for cancellation
*You may skip to No. 13. Bottomline: (a) Philzea Mining’s appeal to MNR decision Overall Ruling
dated Nov. 7, 1985 was filed on time. (b) Philzea Mining is guilty of forum shopping. Contracts take effect only between the parties, their assigns and heirs,
9. March 4, 1985 – Philzea Mining elevated the case to MNR. MNR except in case where the rights and obligations arising from the contract are
dismissed the appeal on April 23, 1985. not transmissible by their nature, or by stipulation or by provision of law
10. March 30, 1985, Philzea appealed to OP. OP dismissed on (Article 1311 of the Civil Code). Since a contract may be violated only by
November 4, 1985. the parties thereto as against each other, in an action upon that contract, the
11. Earth Minerals filed with MNR motion for execution. MNR issued real parties in interest, either as plaintiff or as defendant must be parties to
an order directing BMGS to conduct necessary investigation. said contract. The general rule is that an action for the annulment of
Philzea moved to consider but motion was denied. contracts can only be maintained by those who are bound either principally
12. July 23, 1985 – BMGS rendered a decision cancelling the contract. or subsidiarily by virtue thereof. (Article 1397 of the Civil Code).
BMGS found that Philzea Mining violated the terms and conditions
of the mining contract. The rule, however, admits of an exception. A person who is not obliged
a. July 29, 1985 – Philzea appealed to MNR and filed a principally or subsidiarily in a contract may exercise an action for nullity of
petition for certiorari with the CA. the contract if he is prejudiced in his rights with respect to one of the
i. November 7, 1985 – MNR dismissed the appeal. contracting parties, and can show the detriment which could positively
ii. December 26, 1985 – CA dismissed. result to him from the contract in which he had no intervention (Teves v.
b. November 18, 1985 – Philzea appealed to OP. People’s Homesite and Housing Corp).
13. Deputy Exec. Sec. Fulgencio Factoran Jr. issued a decision setting
aside the orders of MNR and BMGS. Earth Minerals seeks the cancellation of the contract between Zambales
a. Earth Minerals moved to reconsider but was denied. Chromite and Philzea Mining, not as a party to the contract but because his
14. Hence, this petition. rights are prejudiced by the said contract. The prejudice and detriment to the
rights and interest of petitioner stems from the continued existence of the
III. Issue/s contract between Zambales Chromite and Philzea Mining. Unless and until
the contract between Zambales Chromite and Philzea Mining is cancelled, exerted intimidation, violence, or undue influence, or employed fraud, or caused
Earth Mineral’s contract with Zambales Chromite involving the same mistake base their action upon these flaws of the contract.
mining area cannot be in effect and it cannot perform its own obligations
VI. Disposition
and derive benefits under its contract.
PREMISES CONSIDERED, (a) the instant petition for Certiorari and
Moreover, the record amply shows that the decision of the Director of Prohibition is hereby GRANTED; (b) the decision dated June 27, 1986 and
Mines as affirmed by the MNR was supported by substantial evidence. resolution dated May 5, 1987 of the Deputy Executive Secretary are hereby
BMGS found that Philzea Mining violated the terms and conditions of the REVERSED AND SET ASIDE; and (c) the orders of the Bureau of Mines
mining contract. The Court has uniformly held that, it is sufficient that and Geo-Sciences dated July 23, 1985 and Minister of Natural Resources
administrative findings of fact are supported by evidence. Such finding will dated November 7, 1985 are hereby REINSTATED.
not be disturbed so long as they are supported by substantial evidence, even
if not overwhelming or preponderant. VII. Additional Notes
• N/A
The decision, therefore, of Deputy Exec. Sec. Fulgencio Factoran Jr.
VII. Random Facts
reversing the decisions of the MNR and BMGS cannot be sustained.
• Ponente: Paras, J.

ART. 1311. Contracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. The heir is not
liable beyond the value of the property he received from the decedent.
If a contract should contain some 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.

ART. 1397. The action for the annulment of contract may be instituted by all who
are thereby obliged principally or subsidiarily. However, persons who are capable
cannot allege the incapacity of those with whom they contracted; nor can those who

G.R. No. L-8334 | December 28, 1957 Unenforceable Contracts
Babao v. Perez Babao v. Perez
I. Recit-ready Summary there was performance by one party of his part of the contract. SC believes that
they by doing so they failed to consider that in order that a partial performance
The plaintiff and defendant is the judicial administrators of the estates of of the contract may take the case out of the operation of the statute, it must
the late Santiago Babao and Celestina Perez, respectively. According to the appear clear that the full performance has been made by one party within one
plaintiff, Santiago Babao and Celestina Perez allegedly had a verbal agreement year.
where Santiago bound himself to improve the land of Celestina by levelling,
clearing, and planting fruits and other crops. At the same time, he was supposed The rule on this point is well stated: Contracts which by their terms are not
to act as the administrator thereof during the lifetime of Celestina, all expenses to be performed within one year, may be taken out of the statute through
and labor materials at his cost. In exchange, Celestina allegedly bound herself to performance by one party thereto. But nothing less than full performance by one
convey to Santiago or his wife ½ of the land, together with all the improvements party will suffice, and if anything remains to be done after the expiration of the
thereupon upon her death. Pursuant to said verbal agreement, Santiago fulfilled year besides the mere payment of money, the statute will apply. Thus, it is not
his part leaving out only about 50 hectares unimproved, for which the total cost correct to state that Santiago has fully complied with his part within the year
is P47,000.00. However, in violation of said agreement, Celestina, acting from the alleged contract in question.
through her power of attorney, sold about ½ of the land a few days before she
died. Thus, the plaintiff prayed for the conveyance of ½ portion of the land in This being the case, the agreement between the parties falls under the
question or, in the alternative, judgment in plaintiff’s favor for the sum of Statute of Frauds and is, therefore, unenforceable.
P47,000.00.
The defendants denied the plaintiff’s claim that a verbal agreement was
entered into between Celestina and Santiago, as well as that Santiago had 1. The plaintiff, Bienvenido Babao, is the judicial administrator of the estate
actually cleared and improved a great portion thereof at his cost. They alleged of the late Santiago Babao
that even before 1924, the land had already been cleared and cultivated for 2. The defendant, Florencio Perez, is the judicial administrator of the estate of
agricultural purposes with the exception of a potion of 50 hectares. They the late Celestina Perez
contend that it was only in 1930 that Santiago began administering the land and 3. The complaint alleges that Celestina Perez was in her lifetime the owner of
such lasted only until 1935. He was also paid for the work that he did during the parcel of land in question which was not registered either under Act 496
those years since almost all of the harvests during said years were all given to or under the Spanish Mortgage Law
him. 4. In 1924, Santiago Babao married Maria Cleofe Perez, niece of Celestina
Perez
RTC rendered judgment in favor of the plaintiff while the CA reversed in 5. Santiago and Celestina entered into a verbal agreement whereby Santiago
toto the decision and dismissed the case, eventually leading to this petition. The bound himself to improve the land by levelling and clearing all the forest
main issue in this case is W/N the alleged verbal agreement falls within the trees standing thereon and plating in lieu thereof coconuts, rice, corn, and
prohibition of the Statute of Frauds. The Court held that YES, the verbal other crops such as bananas and bamboo trees, and to act at the same time
agreement falls within the prohibition of the Statute of Frauds. as administrator thereof during the lifetime of Celestina, all expenses for
labor and materials to be at his cost
The Supreme Court found a flaw in the logic of the lower court in assuming
that Santiago fully complied with his part of the oral contract and saying that
Obligations and Contracts (2020) PETITIONER: Bienvenido Babao, etc. 1

DIGEST AUTHOR: Pam Madrigal RESPONDENT: Florencio Perez, etc.
6. In exchange, Celestina allegedly bound herself to convey to Santiago or his

wife ½ of the land, together with all the improvements thereon upon her Before the RTC and CA
death
7. Pursuant to said verbal agreement, Santiagostarted levelling and clearing 16. The RTC rendered judgment in favor of the plaintiff ordering, among
the land, leaving out only about 50 hectares unimproved, all of which others, to vest the title of ½ of the land to the plaintiff
having been administered by him from 1924 to 1946 17. The CA reversed in toto the decision and dismissed the case eventually
8. For clearing and improving the portions of land, he incurred expenses leading to this petition
amounting to P47,000.00
9. Furthermore, in violation of the aforesaid agreement, Celestina, acting Before the SC
through Leovigildo Perez, to who she extended a power of attorney to sell,
sold few days before she died about ½ hectares of the land in question in 18. While the present case was pending in the lower court, counsel for
consequence of which Santiago was deprived of the possession and defendants filed a motion to dismiss on the ground, among others, that the
administration thereof from 1945 alleged verbal agreement between Santiago and Celestina was
10. Plaintiff prayed for the conveyance of ½ portion of the land in question and unenforceable under the Statute of Frauds.
for annulment of the sales of the portion thereof for having been made 19. The court denied the above allegation holding that the Statute of Frauds
fictitiously. In the alternative, they prayed for judgment in plaintiff’s favor cannot be invoked since the “performance by one party of his part of the
for the sum of P47,000.00 representing the amount of useful and necessary contract takes the case out of the statute”
expensed incurred by Santiago in improving the land in line with the oral 20. In the present case, defendants alleged that the verbal agreement falls under
agreement paragraph (a) and (e) of Article 1403 of the Civil Code (Statute of Frauds)
11. On the other hand, defendants denied plaintiff’s claim that a verbal
agreement was entered into between Celestina and Santiago, as well as the III. Issue/s
other claim that Santiago had actually cleared and improved a great portion
thereof at his cost 1. W/N the alleged verbal agreement falls within the prohibition of the
12. They alleged that in 1924 and for year prior thereto, the land in question Statute of Frauds. YES
had already been cleared and cultivated for agricultural purposes with the
exception of a portion of 50 hectares IV. Holding/s
13. That although Santiago and Celestina’s niece were married in 1924, the
former did not have anything to do with the land in question for Esteban de Issue #1
Villa, Celestina’s husband, was then still living and actively managed the YES, the verbal agreement falls within the prohibition of the Statute of
same until he died in 1930 Frauds, and is therefore unenforceable
14. It was only in 1930 that Santiago began administering the land until 1935 Petitioner’s Arguments Court’s Rebuttals
when Celestina, disgusted with the conduct of Santiago, left the company
of Santiago and went to live with her nephew until her death in 1947
15. That for the work Santiago did from 1930 to 1935, he was more than
compensated because the proceeds of the harvests during said years were
all given to him except for a very small portion for Celestina’s maintenance

Overall Ruling provision does not apply to the present case for the reason that there was part
performance on the part of one of the parties.
The trial court previously denied the defendants’ motion to dismiss on the
ground that the alleged verbal agreement was unenforceable under the Statute of In this connection, it must be noted that the Statute of Frauds is one based
Frauds. The lower court reasoned that the Statute of Frauds cannot be invoked in on equity and is based on equitable estoppel or estoppel by conduct. It operates
the case for the reason that “performance by one party of his part of the contract only under certain specified conditions and when adequate relief at law is
takes the case out of the statute.” The Supreme Court disagreed with this and unavailable. One of those requisites that need to be present is that the agreement
ruled that the verbal agreement falls within the prohibitions of the Statute of relied on must be certain, definite, clear, unambiguous and unequivocal in its
Frauds and is, therefore, unenforceable. SC ruled in favor of the defendants. terms before the statute may operate. The alleged agreement is far from
complying with the requirements.
SC found a flaw in the logic of the lower court in assuming that Santiago
fully complied with his part of the oral contract and saying that there was The agreement between Santiago and Celestina is vague and unambiguous
performance by one party of his part of the contract. SC believes that by doing for it does not specify how many hectares was to be planted to coconuts, how
so they failed to consider that in order that a partial performance of the contract many to rice and corn, and what portion to bananas and bamboo trees. Santiago
may take the case out of the operation of the statute, it must appear clear that the could plant to his liking and still get ½ of the land for his services. This would
full performance has been made by one party within one year. The rule on this certainly be unfair since it costs much more time, money, and labor to plant
point is well stated: Contracts which by their terms are not to be performed coconut trees than to plant bananas and bamboo trees; and it also costs less to
within one year, may be taken out of the statute through performance by one convert forest land to rice and corn land than to convert it into a coconut
party thereto. But nothing less than full performance by one party will suffice, plantation. On the part of Celestina, her promise is also incapable of execution
and if anything remains to be done after the expiration of the year besides the since it is impossible for her to give and deliver ½ of the land upon her death.
mere payment of money, the statute will apply.
Finally, the terms of the alleged contract would appear more vague if the
It was clear from the complaint filed by the plaintiff that the alleged verbal testimony of Carlos Orense, who claimed to have been present at the time the
agreement is one by which by its terms is not to be performed within one year. alleged agreement was made for it does not run along the same line as the one
From the terms of the agreement stated by the plaintiff, it is not difficult to see claimed by the plaintiff, would be considered. Orense testified that Celestina
that the undertaking assumed by Santiago (which was to clear, level, and plant allegedly told Santiago that he should take care of the land since all of it would
in a 156-hectare forest land) could not be accomplished in one year. In fact, the eventually be his. This runs counter with the claim of the plaintiff. The
alleged improvements were supposedly accomplished during the lifetime of agreement being vague and ambiguous, the doctrine of part performance cannot
Celestina, which lasted over a period of 23 years, and even then, not all was therefore be invoked to take this case out of the operation of the statute.
cleared and planted. It is not, therefore, correct to state that Santiago has fully
complied with his part within the year from the alleged contract in question. Just V. Law or Doctrine Applied
basing on this, the agreement already does not fall within the exception, and
remains unenforceable under the Statute of Frauds. ARTICLE 1403 OF THE CIVIL CODE
ART. 1403. The following contracts are unenforceable, unless they are ratified:
However, assuming arguendo that the agreement in question falls also
under paragraph (a) of Article 1403, it cannot also be contended that that

1) Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers;
2) Those that do not comply with the Statute of Frauds as set forth in this number.
In the following cases an agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum, thereof, be in writing,
and subscribed by the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary evidence of
its contents:
a) An agreement that by its terms is not to be performed within a year from
the making thereof;
b) A special promise to answer for the debt, default, or miscarriage of
another;
c) An agreement made in consideration of marriage, other than a mutual
promise to marry;
d) An agreement for the sale of goods, chattels or things in action, at a price
not less than five hundred pesos, unless the buyer accept and receive part
of such goods and chattels, or the evidences, or some of them, of such
things in action or pay at the time some part of the purchase money; but
when a sale is made by auction and entry is made by the auctioneer in his
sales book, at the time of the sale, of the amount and kind of property
sold, terms of sale, price, names of the purchasers and person on whose
account the sale is made, it is a sufficient memorandum;
e) An agreement of the leasing for a longer period than one year, or for the
sale of real property or of an interest therein;
f) A representation as to the credit of a third person.
3) Those where both parties are incapable of giving consent to a contract.
VI. Disposition
Wherefore, the decision appealed from is reversed, and the case is

dismissed, with costs against appellee.
VII. Random Facts
 Ponente: Bautista Angelo, J.

G.R. No. 185945. December 5, 2012 Art 1403 (2)
Aglibot v. Santia Aglibot v. Santia

Engr. Ingersol Santia (respondent) loaned the amount of 2.5M to Pacific 1. Engr. Ingersol Santia (respondent) loaned the amount of 2.5M to
Lending and Capital Corporation (PLCC) through its manager, Fideliza Pacific Lending and Capital Corporation (PLCC) through its
Aglibot (petitioner). The loan was evidenced by a PN issued by Aglibot in manager, Fideliza Aglibot (petitioner)
behalf of PLCC. As security for the payment, Aglibot issued and delivered a. The loan was evidenced by a PN issued by Aglibot in
11 post-dated personal checks to Santia from her own account which were behalf of PLCC
doshonered upon presentment. Santia demanded payment from Aglibot and b. Aglibot is a major stockholder of PLCC
PLCC but his demand was unheeded. This led Santia to file 11 informations c. As security for the payment, Aglibot issued and delivered
for violation of BP 22 against Aglibot with the MTCC. In her counter- 11 post-dated personal checks to Santia from her own
affidavit: (1) Aglibot admitted that she obtained a loan but did so in behalf account
of PLCC, (2) The checks were given with the understanding that upon 2. The checks were dishonored upon presentment
remittance in cash of the value of the checks, Saantia would return them to a. Santia demanded payment from Aglibot and PLCC but his
her, and (3) Santia refused to return the checks and deposited them. Aglibot demand was unheeded
was acquitted. The RTC further absolved Aglibot of any civil liability. 3. Santia filed 11 informations for violation of BP 22 against Aglibot
However, the CA reversed the RTC's decision as to the civil aspect of the with the MTCC
case and held that Aglibot's acquittal; did not operate to bar Santia of any 4. In her counter-affidavit, AGlibot admitted that she obtained a loan
civil liability. In the present petition, Aglibot insists that PLCC is the but did so in behalf of PLCC
principal debtor and Santia cannot go after her subsidiary liability. She a. The checks were given with the understanding that upon
merely issued the checks in behalf of PLCC, thus she was a mere guarantor. remittance in cash of the value of the checks, Saantia
would return them to her
The court rejects Aglibot’s claim as a mere guarantor of the indebtedness of b. Santia refused to return the checks and deposited them
PLCC to Santia for want of proof in view of Art. 1403 (2) of the CC (Statute 5. Aglibot was acquitted
of Frauds). Under the provision, a guaranty agreement, which is the promise a. RTC further absolved Aglibot of any civil liability
to pay another’s debt, the law requires that it or some note or memorandum b. However, the CA reversed the RTC's decision as to the
thereof be in writing. Otherwise, it is unenforceable unless ratified. The civil aspect of the case and held that Aglibot's acquittal;
Statute of Frauds provides the method by which the contracts enumerated in did not operate to bar Santia of any civil liability
Article 1403 (2) may be proved. It does not declare them invalid. The form
6. In the present petition, Aglibot insists that PLCC is the principal
required under the Statute is for convenience or evidentiary purposes only.
debtor and Santia cannot go after her subsidiary liability
On the other hand, Art. 2055 of the CC also provides that a guaranty is not
presumed but must be express. In this case, Aglibot has not shown any a. She merely issued the checks in behalf of PLCC, thus she
proof whereby it was agreed that she would issue her personal checks to was a mere guarantor
guarantee the payment of PLCC’s debt to Santia. Nothing was shown in the
PN signed by Aglibot herself that she was a mere guarantor. There was also III. Issue/s
no showing that PLCC ratified her act of guaranteeing its indebtedness. 1. W/N AGLIBOT IS A MERE GUARANTOR OF PLCC? NO
THUS, Aglibot is personally liable and Santia need not go after PLCC first.
Obligations and Contracts (2020) PETITIONER: FIDELIZA J. AGLIBOT 1

DIGEST AUTHOR: Stephanie Co RESPONDENT: INGERSOL L. SANTIA

Generally, the liability of a guarantor is merely subsidiary and all the
Issue #1 properties of the principal debtor must first be exhausted before the
W/N AGLIBOT IS A MERE GUARANTOR OF PLCC? NO guarantor may be held liable. The creditor may go after the guarantor
after judgement has been obtained against the principal debtor and the
latter is unable to pay (Art. 2062 of CC)
HOWEVER, the Court rejects Aglibot’s claim as amere guarantor of the
• In the present petition, • The court rejects Aglibot’s indebtedness of PLCC to Santia for want of proof in view of Art. 1403
Aglibot insists that PLCC is claim as a mere guarantor of the (2) of the CC (Statute of Frauds). Under the provision, a guaranty
the principal debtor and indebtedness of PLCC to Santia agreement, which is the promise to pay another’s debt, the law requires
Santia cannot go after her for want of proof in view of Art. that it or some note or memorandum thereof be in writing. Otherwise, it
subsidiary liability 1403 (2) of the CC (Statute of is unenforceable unless ratified. The Statute of Frauds provides the
o She merely issued Frauds) method by which the contracts enumerated in Article 1403 (2) may be
the checks in behalf proved. It does not declare them invalid. The form required under the
of PLCC, thus she • A guaranty agreement, which is
the promise to pay another's Statute is for convenience or evidentiary purposes only. On the other
was a mere hand, Art. 2055 of the CC also provides that a guaranty is not presumed
guarantor debt, the law requires that it or
some note or memorandum but must be express
thereof be in writing à In this case, Aglibot has not shown any proof whereby it was agreed that
otherwise, it is unenforceable she would issue her personal checks to guarantee the payment of PLCC’s
unless ratified debt to Santia. Nothing was shown in the PN signed by Aglibot herself
• The Statute of Frauds provides that she was a mere guarantor. There was also no showing that PLCC
the method by which the ratified her act of guaranteeing its indebtedness. THUS, Aglibot is
contracts enumerated in Article personally liable and Santia need not go after PLCC first.
1403 (2) may be proved → does
not declare them invalid V. Law or Doctrine Applied
o The form required
under the Statute is for
Art. 1403. The following contracts are unenforceable, unless they are ratified:
convenience or 1. Those entered into in the name of another person by one who has been
evidentiary purposes given no authority or legal representation, or who has acted beyond his
only powers;
• Aglibot has not shown any 2. Those that do not comply with the Statute of Frauds as set forth in this
proof whereby it was agreed number. In the following cases an agreement hereafter made shall be
that she would issue her unenforceable by action, unless the same, or some note or
personal checks to guarantee the memorandum, thereof, be in writing, and subscribed by the party
payment of PLCC’s debt to charged, or by his agent; evidence, therefore, of the agreement cannot
be received without the writing, or a secondary evidence of its contents:
Santia

a. An agreement that by its terms is not to be performed within a year

from the making thereof;
b. A special promise to answer for the debt, default, or
miscarriage of another;
c. An agreement made in consideration of marriage, other than a
mutual promise to marry;
d. An agreement for the sale of goods, chattels or things in action, at a
price not less than five hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the evidences, or some of
them, of such things in action or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the sale, of
the amount and kind of property sold, terms of sale, price, names of
the purchasers and person on whose account the sale is made, it is a
sufficient memorandum;
e. An agreement of the leasing for a longer period than one year, or for
the sale of real property or of an interest therein;
f. A representation as to the credit of a third person.
3. Those where both parties are incapable of giving consent to a contract
VI. Disposition
WHEREFORE, premises considered, the Petition for Review on Certiorari

is DENIED and the Decision dated March 18, 2008 of the Court of Appeals
in CA-G.R. SP No. 100021 is hereby AFFIRMED.

VII. Random Facts

G.R. No. 168289 | March 22, 2010 Unenforceable Contracts; Art. 1403 of the Civil Code
Municipality of Hagonoy v Dumdum Municipality of Hagonoy v Dumdum
I. Recit-ready Summary were cosigned, delivered, and received by Hagonoy. However, Hagonoy
KD Surplus (Chao’s business) entered in an agreement with did not pay for the vehicles. Thus, KD Surplus complained with the trial
Municipality of Hagonoy (through Mayor Ople) for the sale of the former’s court. Upon the filing of complaint, Hagonoy’s obligation is claimed to be
vehicles. While KD Surplus was able to deliver the vehicles, the around 10 million pesos. KD Surplus also prayed for attachment.
municipality did not pay for the it. KD Surplus filed with the trial court for 3. TRIAL COURT. The trial court issued the writ of preliminary attachment
collection. The municipality sought to dismiss the action and argued that directing to attach the properties of the petitioners (Hagonoy). Respondents
(relative to Art. 1403) the action was unenforceable for there was no written (Hagonoy et al) did not answer petitioner (Chao et al)’s allegations but
contract or document. The trial court denied the motion to dismiss. The
moved to dismiss on the ground that there was no written document
Court of Appeals affirmed in toto.
evincing the agreement they made. Hence, for the respondents, the action
In cases where a party has performed their obligations, can the action was unenforceable. The respondents also argued that the writ of preliminary
still be dismissed on the ground that there is no written contract? attachment should be dissolved or discharged invoking the state’s immunity
from suit, unenforceability of the contract, and failure to substantiate fraud.
No. Art. 1403 requires for enforceability certain contracts enumerated The trial court dismissed the respondent’s petitions to dismiss the action and
therein to be evidenced by some note or memorandum. The effect of the writ of preliminary attachment.
noncompliance with the requirements that no action can be enforced under 4. COURT OF APPEALS. CA affirmed the trial court’s decision in toto.
the given contracts. It shall warrant a dismissal under Sec. 1 (i) Rule 16 of III. Issue/s
the Rules of Court UNLESS there has been total or partial performance of
the obligation on the part of either party. In the present case, there has been In cases where a party has performed their obligations, can the action
performance from KD Surplus when it delivered the vehicles to the still be dismissed on the ground that there is no written contract?
municipality. Thus, the action of KD Surplus is enforceable and cannot be
dismissed on the ground that there is no written contract. IV. Holding/s
Issue #1
No. It cannot be dismissed for the obligation of the party, herein KD
1. KD Surplus (business owned by Emily Rose Go Ko Lim Chao) entered in
Surplus, has been fulfilled (or partially fulfilled).
a contract with the Municipality of Hagonoy through its mayor, Mayor
Ople, for the sale of the former’s vehicles.
2. KD Surplus delivered the 21 vehicles worth P5,820,000. She proved the
delivery by attaching copies of the bills of lading showing that the items
Obligations and Contracts (2020) PETITIONER: Municipality of Hagonoy, Bulacan, represented by Hon. Ople 1
(Municipal Mayor) and Felix Ople (personal capacity)
DIGEST AUTHOR: Jann Amorado RESPONDENT: Hon. Dumdum, Jr. as Presiding Judge of the RTC, Branch
7, Cebu City; Hon. Clerk of Court & Ex-Officio Sheriff of the RTC of Cebu;
Hon. Clerk of Court & Ex-Officio Sheriff of the RTC of Bulacan and his
Deputies; and Emily Rose Go Ko Lim Chao, doing business under the name
and style of KD Surplus.
Petitioner’s Arguments (Hagonoy) Court’s Rebuttals could not have been a contract that the municipality sought to be bound.
• The action should be dismissed • What the petitioner said is the However, by invoking unenforceability under the statute of frauds,
for there was no written general rule. However, an petitioners are acknowledging that there is a contract, albeit unenforceable
contract. exception to the rule arises when due to some defect, in this case, the contract being unwritten.
there is partial or total
performance of the obligation on
the part of either party.
Overall Ruling
Art. 1403 of the Civil Code requires for enforceability certain contracts
enumerated therein to be evidenced by some note or memorandum. The
effect of noncompliance with the requirements that no action can be
enforced under the given contracts. However, the Statute of Frauds does not
declare the enumerated contracts in Art. 1403 invalid. Contracts are
obligatory in whatever form they may have been entered into, provided all
essential requisites for their validity are present (Art. 1353 of the Civil
Code).
Failure to meet the standard that the contract should be in writing shall
warrant a dismissal of the action under Sec. 1 (i) Rule 16 of the Rules of
Court UNLESS there has been total or partial performance of the obligation
on the part of either party. V. Law or Doctrine Applied
In the present case, there has been performance from KD Surplus when it Rules of Court
delivered the vehicles to the municipality. Thus, the action of KD Surplus is
enforceable and cannot be dismissed on the ground that there is no written RULE 16
contract.
Motion to Dismiss
In the petitioner’s effort to dismiss the case, they theorize that there
Section 1. Grounds. — Within the time for but before filing the (a) An agreement that by its terms is not to be performed within a year from
answer to the complaint or pleading asserting a claim, a motion to dismiss the making thereof;
may be made on any of the following grounds:
(b) A special promise to answer for the debt, default, or miscarriage of
XXX another;
(i) That the claim on which the action is founded is enforceable (c) An agreement made in consideration of marriage, other than a mutual
under the provisions of the statute of frauds; and promise to marry;
XXX (d) An agreement for the sale of goods, chattels or things in action, at a price
not less than five hundred pesos, unless the buyer accept and receive part of
Civil Code such goods and chattels, or the evidences, or some of them, of such things in
action or pay at the time some part of the purchase money; but when a sale
CHAPTER 8 is made by auction and entry is made by the auctioneer in his sales book, at
Unenforceable Contracts (n) the time of the sale, of the amount and kind of property sold, terms of sale,
price, names of the purchasers and person on whose account the sale is
Article 1403. The following contracts are unenforceable, unless they are made, it is a sufficient memorandum;
ratified:
(e) An agreement for the leasing for a longer period than one year, or for the
(1) Those entered into in the name of another person by one who has been sale of real property or of an interest therein;
powers; ( f ) A representation as to the credit of a third person.
(2) Those that do not comply with the Statute of Frauds as set forth in this (3) Those where both parties are incapable of giving consent to a contract.
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum, VI. Disposition
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the WHEREFORE, the Petition is GRANTED IN PART . The January 31, 2005
writing, or a secondary evidence of its contents: Decision of the Court of Appeals in CA-G.R. SP No. 81888 is AFFIRMED
insofar as it affirmed the October 20, 2003 Decision of the Regional Trial
Court of Cebu City, Branch 7 denying petitioners' motion to dismiss in Civil

Case No. CEB-28587. The assailed decision is REVERSED insofar as it
affirmed the said trial court's denial of petitioners'motion to discharge the
writ of preliminary attachment issued in that case. Accordingly,
the August 4, 2003 Writ of Preliminary Attachment issued in Civil Case No.
CEB-28587is ordered lifted.
SO ORDERED.
Corona, Velasco, Jr., Nachura and Mendoza, JJ., concur.
• The writ of attachment should be lifted for the property of the
municipality is public in nature and hence beyond the reach of
garnishment and attachment proceedings. (Traders Royal Bank v
IAC citing CPH v San Diego)
VII. Random Facts
• Peralta
G.R. No. 85240 | July 12, 1991 Unenforceable Contracts
Heirs of Claudel v. CA Heirs of Claudel v. CA
I. Recit-ready Summary etc a.k.a. Heirs of Cecilio), and on the other, the brother and sisters of Cecilio
(a.k.a Siblings of Cecilio).
Cecilio Claudel acquired from Bureau of Lands Lot No. 1230. He dutifully 5. In 1972, Heirs of Cecilio partitioned the lot among themselves and obtained
paid real estate taxes until his death. His widow, Basilia, and later her son, TCTs on their shares.
thereafter paid the taxes. The parcel of land would later become subject of 6. 4 years later, Siblings of Cecilio filed a complaint for cancellation of titles
protracted litigation 39 years after his death. Heirs of Cecilio and Siblings of and reconveyance with damages. They alleged that 46 years earlier, their
Cecilio contested ownership over the land. Later on, Heirs of Cecilio parents had purchased from Cecilio several portions of Lot 1230 for P30.
partitioned the lot among themselves and obtained corresponding TCTs. 4 7. They admitted that the transaction was verbal. However, as proof of sale,
years later, Siblings of Cecilio filed a complaint for cancellation of titles and Siblings of Cecilio presented a subdivision plan of the said land indicating the
reconveyance with damages. They alleged that 46 years earlier, their parents portions allegedly sold to Siblings of Cecilio .
had purchased from Cecilio several portions of Lot 1230 for P30.They 8. Complaint was dismissed by CFI.
admitted that the transaction was verbal. As proof of sale, Siblings of Cecilio 9. CA reversed the decision.
presented a subdivision plan of the said land indicating the portions allegedly
sold to Siblings of Cecilio .Complaint was dismissed by CFI but CA reversed III. Issue/s
the decision. Issue: W/N the contract of sale was proved? -NO. 1. W/N the contract of sale was proved? -NO
General rule is that a sale of land, once consummated, is valid regardless of IV. Holding/s
the form it may have been entered into. But in the event that a third party, as
in this case, disputes the ownership of the property, the person against Issue #1
whom that claim is brought cannot present any proof of such sale and hence NO, because in the event that a third party disputes the ownership of
has no means to enforce the contract. Statute of Frauds was devised to the property, the person against whom that claim is brought cannot
protect the parties in a contract of sale of real property so that no such present any proof of such sale; hence, he has no means to enforce the
contract is enforceable unless certain requisites, for purposes of proof, are contract.
met. Hence, except under the conditions provided by Statute of Frauds, the
existence of the contract of sale made by Cecilio with his siblings cannot be Petitioner’s Arguments Court’s Rebuttals
proved.
• Contract of sale was not SC agrees.
proved.
II. Facts of the Case (Material Facts) General rule is that sale of land, once
1. As early as Dec. 1992, Cecilio Claudel acquired from Bureau of Lands Lot consummated, is valid regardless of the
No. 1230. He dutifully paid real estate taxes until his death. form it may have been entered into. But
2. His widow, Basilia, and later her son, Jose, thereafter paid the taxes. in the event that a third party, as in this
3. The parcel of land would later become the subject of protracted litigation
case, disputes the ownership of the
39 years after his death.
4. 2 branches of Cecilio’s family contested the ownership over the land: on property, the person against whom that
one hand, the children of Cecilio (Modesto, Loreta, Jose, Benjamin, Pacita, claim is brought cannot present any
proof of such sale and hence has no
1
Obligations and Contracts (2020) PETITIONER: Heirs of Cecilio
DIGEST AUTHOR: Wischelle Gabriel RESPONDENT: Court of Appeals
means to enforce the contract. Statute of xxx xxx xxx

Frauds was precisely devised to protect
the parties in a contract of sale of real e) An agreement for the leasing for a longer period than one
property so that no such contract is year, or for the sale of real property or of an interest therein;
enforceable unless certain requisites, for
purposes of proof, are met. xxx xxx xxx
Except under the conditions provided The purpose of the Statute of Frauds is to prevent fraud and perjury in the
by Statute of Frauds, the existence of enforcement of obligations depending for their evidence upon the
the contract of sale made by Cecilio unassisted memory of witnesses by requiring certain enumerated
with his siblings cannot be proved. contracts and transactions to be evidenced in Writing.
Overall Ruling
General rule is that a sale of land, once consummated, is valid regardless Hence, except under the conditions provided by Statute of Frauds, the
of the form it may have been entered into. existence of the contract of sale made by Cecilio with his siblings cannot
be proved.
But in the event that a third party, as in this case, disputes the ownership
of the property, the person against whom that claim is brought cannot
present any proof of such sale and hence has no means to enforce the
contract. Statute of Frauds was precisely devised to protect the parties in V. Law or Doctrine Applied
a contract of sale of real property so that no such contract is enforceable
unless certain requisites, for purposes of proof, are met. Art. 1403. The following contracts are unenforceable, unless they are ratified:
xxx xxx xxx

Art. 1403 of the Civil Code provides, among others, that these contracts
are unenforceable, unless ratified: 2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases, an agreement hereafter made shall be unenforceable by action
2) Those that do not comply with the Statute of Frauds as set unless the same, or some note or memorandum thereof, be in writing, and subscribed
forth in this number. In the following cases, an agreement by the party charged, or by his agent; evidence, therefore, of the agreement cannot be
received without the writing, or a secondary evidence of its contents:
hereafter made shall be unenforceable by action unless the
same, or some note or memorandum thereof, be in writing, and xxx xxx xxx
subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the e) An agreement for the leasing for a longer period than one year, or for the sale of
writing, or a secondary evidence of its contents: real property or of an interest therein;
VI. Disposition
2
WHEREFORE, the petition is GRANTED We REVERSE and SET ASIDE

the decision rendered in CA-G.R. CV No. 04429, and we hereby
REINSTATE the decision of the then Court of First Instance of Rizal (Branch
28, Pasay City) in Civil Case No. M-5276-P which ruled for the dismissal of
the Complaint for Cancellation of Titles and Reconveyance with Damages
filed by the Heirs of Macario, Esperidiona Raymunda, and Celestina, all
surnamed CLAUDEL. Costs against the private respondents.
SO ORDERED.
Pertinent provisions of the deed:
"That for and in consideration of the sum of EIGHT HUNDRED

THOUSAND (P800,000.00) PESOS, Philippine Currency, paid by VENDEE
to VENDOR, receipt of which is hereby acknowledged by the latter to its
entire satisfaction, said VENDOR, by these presents, has SOLD, CEDED,
TRANSFERRED, and CONVEYED by way of absolute sale unto said
VENDEE, its successors and assigns, the two parcels of land above described
and any and all improvements therein;"
VII. Random Facts

• Ponente: Sarmiento, J.
3
G.R. No. 176841 | June 29, 2010 Contracts-Unenforceable
Orduña v Fuentebella Orduña v Fuentebella
I. Recit-ready Summary 1. Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot to
petitioner Antonita Orduña (Antonita), but no formal deed was
Antonita Orduña bough a parcel of land from Gabriel Sr. Although executed to document the sale.
the sale was not evidenced by any formal deed, it was clear that the 2. The contract price was apparently payable in installments as
payments were to be made on instalment basis. Antonita along with Antonita remitted from time to time and Gabriel Sr. accepted
her children commenced to occupy the land since then. partial payments.
3. As early as 1979, however, Antonita and her sons, Dennis and
Anthony Orduña, were already occupying the subject lot on the
Upon the death of Gabriel Sr, his son Gabriel Jr. continued
basis of some arrangement undisclosed in the records and even
receiving the payments. But Gabriel Jr fraudulently sold the land to constructed their house thereon.
Bernard who sold it to the Cids who sold it to Eduardo without the 4. After the death of Gabriel Sr., his son and namesake, respondent
Orduña’s knowledge. Gabriel Jr., secured TCT No. T-71499 over the subject lot and
(Gabriel Jr – Bernard – Cid’s – Eduardo) continued accepting payments from the petitioners
5. Garbriel Jr. acknowledged the receipt of 65,000 pesos leaving a
The subsequent buyers claim that they were purchasers in good balance of 60,000 pesos.
faith and that the sale of land between Antonita and Gabriel Sr. was 6. Despite all these payments, . Gabriel Jr sold the land to Bernard
unenforceable not having been evidenced by any deed. who sold it to the Cids who sold it to Eduardo without the
Orduña’s knowledge.
W/N the sale between Antonita and Gabriel Sr. was 7. As successive buyers of the subject lot, Bernard, then the Cid’s,
unenforceable? NO. and finally Eduardo, checked, so each claimed, the title of their
respective predecessors-in-interest with the Baguio Registry and
discovered said title to be free and unencumbered at the time each
The statute of frauds, making certain agreements unenforceable purchased the property.
only apply to executory contracts NOT to those executed for partially 8. Furthermore, respondent Eduardo, before buying the property, was
executed contracts. In this case, Antonita already made partial said to have inspected the same and found it unoccupied by the
payments in consideration of the sale. Orduñas.
9. Sometime in May 2000, or shortly after his purchase of the subject
Moreover, since contracts are generally obligatory in whatever lot, Eduardo, through his lawyer, sent a letter addressed to the
form they may have been entered into, provided all the essential residence of Gabriel Jr. demanding that all persons residing on or
requisites for their validity are present, the Statute simply provides the physically occupying the subject lot vacate the premises or face the
method by which the contracts enumerated in Art. 1403 (2) may be prospect of being ejected.
proved but does not declare them invalid because they are not reduced 10. Antonita filed a complaint for annulment of Title and reconveyance
to writing. In fine, the form required under the Statute is for with damages. Specifically praying that the name of Eduardo be
convenience or evidentiary purposes only. annulled. Corollary to this prayer, petitioners pleaded that Gabriel
Jr.'s title to the lot be reinstated and that petitioners be declared
II. Facts of the Case (Material Facts) entitled to acquire ownership over the land.
1. The RTC dismissed the case on the ground that Under Arts. 1356
Obligations and Contracts (2020) PETITIONER: Anthony, Dennis and Antonita Orduña 1
DIGEST AUTHOR: Tin Sumaway RESPONDENT: Eduardo Fuentebella, Marcos CID, Benjamin Cid, Bernard Banta,
Armando Gabriel Jr.
and 1358 of the Code, conveyance of real property must be in the or his agent.
proper form, else it is unenforceable. In other words, the sale
between Antonita and Gabriel Sr was unenforceable. Ergo, the sale However, where the verbal contract of sale has been partially executed
to the subsequent buyers were valid through the partial payments made by one party duly received by the
2. The CA affirmed the RTC decision. vendor, as in the present case, the contract is taken out of the scope of the
Statute.
III. Issue/s
The purpose of the Statute is to prevent fraud and perjury in the enforcement
1. W/N the sale between Antonita and Gabriel Sr. was unenforceable? of obligations depending for their evidence on the unassisted memory of
NO. witnesses, by requiring certain enumerated contracts and transactions to be
evidenced by a writing signed by the party to be charged.
IV. Holding/s
The Statute requires certain contracts to be evidenced by some note or
memorandum in order to be enforceable. The term "Statute of Frauds" is
Issue #1
descriptive of statutes that require certain classes of contracts to be in
The sale of between Antonita and Gabriel Sr. was valid. The statute of writing. The Statute does not deprive the parties of the right to contract with
frauds did not apply in this case. respect to the matters therein involved, but merely regulates the formalities
CA’s ruling Court’s Rebuttals of the contract necessary to render it enforceable.
Affirmed the RTC’s decision that The statute of frauds does not apply
the sale between Antonita and to partially executed contracts. In Since contracts are generally obligatory in whatever form they may have
Gabriel Sr. was unenforceable this case there were already partial been entered into, provided all the essential requisites for their validity are
because it was not reduced into payments made by Antonita present, the Statute simply provides the method by which the contracts
writing as required by Art 1356 and enumerated in Art. 1403 (2) may be proved but does not declare them
1358. invalid because they are not reduced to writing. In fine, the form required
Overall Ruling under the Statute is for convenience or evidentiary purposes only.
The Statute of Frauds expressed in Article 1403, par. (2), of the Civil Code Moreover, a contract that infringes the Statute of Frauds is ratified by the
applies only to executory contracts, i.e., those where no performance has yet acceptance of benefits under the contract. In this case, there was no question
been made. Stated a bit differently, the legal consequence of non- that both Gabriel Sr. and Gabriel Jr. accepted payments from Antonita.
compliance with the Statute does not come into play
where the contract in question is completed, executed, or partially
consummated.
The Statute of Frauds, in context, provides that a contract for the sale of real
property or of an interest therein shall be unenforceable unless the sale or
some note or memorandum thereof is in writing and subscribed by the party
Armando Gabriel Jr.
Article 1356. Contracts shall be obligatory, in whatever form they may have
been entered into, provided all the essential requisites for their validity are xxx
present. However, when the law requires that a contract be in some form in
order that it may be valid or enforceable, or that a contract be proved in a (2) Those that do not comply with the Statute of Frauds as set forth in this
certain way, that requirement is absolute and indispensable. In such cases, number. In the following cases an agreement hereafter made shall be
the right of the parties stated in the following article cannot be exercised. unenforceable by action, unless the same, or some note or
(1278a) memorandum, thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be
Article 1358. The following must appear in a public document: received without the writing, or a secondary evidence of its contents:
(1) Acts and contracts which have for their object the creation, (a) An agreement that by its terms is not to be performed within a
transmission, modification or extinguishment of real rights over year from the making thereof;
immovable property; sales of real property or of an interest therein
are governed by articles 1403, No. 2, and 1405; (b) A special promise to answer for the debt, default, or
miscarriage of another;
(2) The cession, repudiation or renunciation of hereditary rights or
of those of the conjugal partnership of gains; (c) An agreement made in consideration of marriage, other than a
mutual promise to marry;
(3) The power to administer property, or any other power which
has for its object an act appearing or which should appear in a (d) An agreement for the sale of goods, chattels or things in
public document, or should prejudice a third person; action, at a price not less than five hundred pesos, unless the
buyer accept and receive part of such goods and chattels, or the
(4) The cession of actions or rights proceeding from an act evidences, or some of them, of such things in action or pay at the
appearing in a public document. time some part of the purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his sales book, at the
All other contracts where the amount involved exceeds five time of the sale, of the amount and kind of property sold, terms of
hundred pesos must appear in writing, even a private one. But sales sale, price, names of the purchasers and person on whose account
of goods, chattels or things in action are governed by articles, 1403, the sale is made, it is a sufficient memorandum;
No. 2 and 1405. (1280a)
(e) An agreement for the leasing for a longer period than one year,
or for the sale of real property or of an interest therein;
( f ) A representation as to the credit of a third person.

Article 1403. The following contracts are unenforceable, unless they are
ratified:
Armando Gabriel Jr.
xxx
VI. Disposition
WHEREFORE, the petition is hereby GRANTED. The appealed December
4, 2006 Decision and the March 6, 2007 Resolution of the Court of Appeals
in CA-G.R. CV No. 79680 a􀀿rming the May 26, 2003 Decision of the
Regional Trial Court, Branch 3 in Baguio City are hereby REVERSED and
SET ASIDE. Accordingly, petitioner Antonita Orduña is hereby recognized
to have the right of ownership over subject lot covered by TCT No. T-3276
of the Baguio Registry registered in the name of Eduardo J. Fuentebella.
The Register of Deeds of Baguio City is hereby ORDERED to cancel said
TCT No. T-3276 and to issue a new one in the name of Armando Gabriel,
Jr. with the proper annotation of the conditional sale of the lot covered by
said title in favor of Antonita Orduña subject to the payment of the
PhP50,000 outstanding balance. Upon full payment of the purchase price by
Antonita Orduña, Armando Gabriel, Jr. is ORDERED to execute a Deed of
Absolute Sale for the transfer of title of subject lot to the name of Antonita
Orduña, within three (3) days from receipt of said payment.
No pronouncement as to costs.
SO ORDERED.
VII. Random Facts

Velasco, Jr., J.
Armando Gabriel Jr.
G.R. No. L-23351 | March 13, 1968 Article 1403 – Unenforceable Contracts
Paredes v. Espino Paredes v. Espino
I. Recit-ready Summary the Philippines — Although the contract is valid in itself, the same
Case is only 3 pages so the digest below is already short. J cannot be enforced by virtue of the Statute of Frauds

1. Cirilo Paredes had filed action to compel Jose L. Espino to III. Issue/s
execute a deed of sale and to pay damages. 1. Whether enforcement of the contract pleaded in the complaint
2. Paredes alleged that the Espino "had entered into the sale" of Lot is barred by the Statute of Frauds - NO
No. 67 of the Puerto Princesa Cadastre at P4.00 a square meter; a. Whether the Court a quo plainly erred in holding that
that the deal had been "closed by letter and telegram" but the it was unenforceable – YES, case is remanded to RTC
actual execution of the deed of sale and payment of the price were
deferred to the arrival of Espino at Puerto Princesa; that Espino IV. Holding/s
upon arrival had refused to execute the deed of sale although
Paredes was able and willing to pay the price, and continued to Issue #1
refuse despite written demands of Paredes; that as a result, Paredes No, the enforcement of contract pleaded in the complaint is not barred
had lost expected profits from a resale of the property, and caused by the Statute of Frauds
Paredes mental anguish and suffering, for which reason the Petitioner’s Arguments Defendant’s Rebuttals
complaint prayed for specific performance and damages. • Complaint pleads that "the deal • Defendant-appellee argues that
3. Espino filed a motion to dismiss upon the ground that the
had been closed by letter and the authenticity of the letters has
complaint stated no cause of action, and that the Paredes’ claim
telegram" and was evidently the not been established. That is not
upon which the action was founded was unenforceable under the
one copy of which was appended necessary for the purpose of
Statute of Frauds.
as Exhibit A to plaintiff's showing prima facie that the
4. Paredes opposed in writing the motion to dismiss and annexed to
opposition to the motion to contract is enforceable.
his opposition a copy of a letter purportedly signed by Espino. dismiss.
Content of the telegram:
• We have in them, therefore, all
a. Espino and his wife accepts the last offer of Four (P4.00)
the essential terms of the
pesos per square meter of the lot which contains 1826
contract, and they satisfy the
square meters and on cash basis.
requirements of the Statute of
b. Espino is going to Puerto Princesa, Palawan to be there
Frauds.
during the last week of the month and will send a
telegram when he reaches Manila before taking the boat
for Pto. Princesa.
5. Court below dismissed the complaint on the ground that there
being no written contract, under Article 1403 of the Civil Code of
Obligations and Contracts (2020) PETITIONER: Cirilo Paredes 1

DIGEST AUTHOR: Tin Dychioco RESPONDENT: Jose L. Espino
G.R. No. L-23351 | March 13, 1968 Article 1403 – Unenforceable Contracts
Paredes v. Espino Paredes v. Espino
Overall Ruling (a) An agreement that by its terms is not to be performed within a year from the
The Statute of Frauds, embodied in Article 1403, Civil Code of the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of another;
Philippines, does not require that the contract itself be in writing. The plain (c) An agreement made in consideration of marriage, other than a mutual promise to
text of Art. 1403, paragraph (2) is clear that a written note or memorandum, marry;
embodying the essentials of the contract and signed by the party charged, or (d) An agreement for the sale of goods, chattels or things in action, at a price not less
his agent, suffices to make the verbal agreement enforceable, taking it out of than five hundred pesos, unless the buyer accept and receive part of such goods and
the operation of the statute. The letter, sent by defendant-appellee marked as chattels, or the evidences, or some of them, of such things in action, or pay at the
time some part of the purchase money; but when a sale is made by auction and entry
annex "A" coupled with that one marked as appendix B, constitute an is made by the auctioneer in his sales book, at the time of the sale, of the amount and
adequate memorandum of the transaction. They are signed by the defendant- kind of property sold, terms of sale, price, names of the purchasers and person on
appellee; refer to the property sold as a lot in Puerto Princesa, Palawan, whose account the sale is made, it is a sufficient memorandum;
covered by T.C.T. No. 62; give its area as 1026 square meters and the (e) An agreement for the leasing for a longer period than one year, or for the
purchase price of four (P4) pesos per square meter payable in cash. We have sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.
in them, therefore, all the essential terms of the contract, and they satisfy the (3) Those where both parties are incapable of giving consent to a contract.
requirements of the Statute of Frauds. We have ruled that a sufficient
memorandum may be contained in two or more documents. The
establishment of the authenticity of the letters is not necessary for the VI. Disposition
purpose of showing prima facie that the contract is enforceable. Whether the
agreement is in writing or not, is a question of evidence. (Shaffer vs. Palma, WHEREFORE, the appealed order is hereby set aside, and the case
L-24115, March 1, 1968). The authenticity of the writing need not be remanded to the Court of origin for trial and decision. Costs against
established until the trial is held. If the court below entertained any doubts defendant-appellee Jose L. Espino. So Ordered.
about the existence of the written memorandum, it should have called for a
preliminary hearing on that point, and not dismissed the complaint.
VII. Random Facts
• Ponente: Reyes, J.B.L., J
ARTICLE 1403 (1) OF THE CIVIL CODE

ARTICLE 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this
unenforceable by action, unless the same, or some note or memorandum,
evidence, therefore, of the agreement cannot be received without the writing, or
a secondary evidence of its contents:
Obligations and Contracts (2020) PETITIONER: Cirilo Paredes 2

DIGEST AUTHOR: Tin Dychioco RESPONDENT: Jose L. Espino
G.R. No. 148116 | April 14, 2009 Contracts | Unenforceable contracts
Litonjua v. Fernandez Litonjua v. Fernandez
Mrs. Lourdes Alimario and Agapito Fisico who worked as brokers, The Court ruled that the verbal contract of sale covered by the Statute
offered to sell to the Litonjua (petitioners) parcels of land. The brokers of Frauds, and therefore unenforceable.
told the petitioners that they were authorized by respondent Fernandez
to offer the property for sale. The petitioners and respondent Fernandez Under Article 1403 of the Civil Code, an agreement for the sale of real
agreed that the petitioners would buy the property. property or of an interest therein, shall be unenforceable by action,
unless the same, or some note or memorandum thereof, be in writing,
However, the Deed of Absolute Sale was not issued because of the and subscribed by the party charged, or by his agent; evidence,
problems with the tenants occupying the land. therefore, of the agreement cannot be received without the writing, or
secondary evidence of its contents.
When the petitioners received no response from respondent, the
petitioners sent respondent another letter, asking that the Deed of In the case at bar, there is no documentary evidence on record that the
Absolute Sale covering the property be executed in accordance with respondents-owners specifically authorized respondent Fernandez to
their verbal agreement. The petitioners also demanded the turnover of sell their properties to another, including the petitioners. Article 1878
the subject properties to them within fifteen days from receipt of the of the New Civil Code provides that a special power of attorney is
said letter; otherwise, they would have no option but to protect their necessary to enter into any contract by which the ownership of an
interest through legal means. immovable is transmitted or acquired either gratuitously or for a
valuable consideration, or to create or convey real rights over
Fernandez rejected the claims of the petitioners and informed the immovable property, or for any other act of strict dominion. Any sale
petitioners that the properties are no longer for sale. The petitioners of real property by one purporting to be the agent of the registered
then filed the instant Complaint for specific performance with damages owner without any authority therefor in writing from the said owner is
against respondent Fernandez and the registered owners of the null and void. The declarations of the agent alone are generally
property. Fernandez, in her answer, specifically alleged that the said insufficient to establish the fact or extent of her authority.
contract to sell was unenforceable for failure to comply with the statute
of frauds. She also maintained that even assuming arguendo that she II. Facts of the Case (Material Facts)
had, indeed, made a commitment or promise to sell the property to the • Mrs. Lourdes Alimario and Agapito Fisico who worked as
petitioners, the same was not binding upon her in the absence of any brokers, offered to sell to the Litonjua (petitioners) parcels of land.
consideration distinct and separate from the price. After trial on the The brokers told the petitioners that they were authorized by
merits, the trial court rendered judgment in favor of the petitioners. respondent Fernandez to offer the property for sale. The
The appellate court promulgated its decision reversing and settling petitioners and respondent Fernandez agreed that the petitioners
aside the judgment of the trial court and dismissing the petitioners’ would buy the property and that the owners were to shoulder the
complaint, as well as the respondents’ counterclaim. capital gains tax, transfer tax and the expenses for the
The issue in this case is whether or not the verbal contract of sale was documentation of the sale.
covered by the Statute of Frauds, which renders it unenforceable.
Obligations and Contracts (2020) PETITIONER: Antonio Litonjua 1

DIGEST AUTHOR: Kerwin C. Aguilar RESPONDENT: Mary Grace Fernandez
• The petitioners and respondent Fernandez also agreed to meet to reversing and settling aside the judgment of the trial court and
finalize the sale. It was also agreed upon that on the said date, dismissing the petitioners’ complaint, as well as the respondents’
respondent would present a SPA executed by the owners of the counterclaim.
property, authorizing her to sell the property for and in their behalf III. Issues:
and to execute a deed of absolute sale thereon. The petitioners 1. Whether or not there was a perfected contract of sale? No
would also remit the purchase price to the owners, through 2. Whether or not the verbal contract falls under the coverage of
respondent Fernandez. However, only Agapito Fisico attended the the Statute of Frauds which renders it unenforceable? Yes
meeting. He informed the petitioners that respondent Fernandez
was encountering some problems with the tenants and was trying IV. Holdings
to work out a settlement with them.
• When the petitioners received no response from respondent, the 1. No, there was no perfected contract of sale
petitioners sent Fernandez another letter, asking that the Deed of Petitioners’ Arguments Court’s Rebuttals
Absolute Sale covering the property be executed in accordance • The petitioners contend that the • The letter sent by the
with their verbal agreement. The petitioners also demanded the perfection of the said contract is respondents does not constitute
turnover of the subject properties to them within fifteen days from evidenced by the January 16, agreement to the contract of
receipt of the said letter; otherwise, they would have no option but 1996 Letter of respondent sale.
to protect their interest through legal means. Fernandez.
• Fernandez rejected the claims of the petitioners and informed the • The petitioners argue that the
petitioners by letter on January 16, 1996 that the owners changed letter is a sufficient note or
their minds and that the properties are no longer for sale. The memorandum of the perfected
petitioners then filed the instant Complaint for specific contract, thus, removing it from
performance with damages against respondent Fernandez and the the coverage of the statute of
registered owners of the property. frauds. The letter specifically
• Fernandez, in her answer, specifically alleged that the said makes reference to a sale which
contract to sell was unenforceable for failure to comply with the respondent Fernandez agreed to
statute of frauds. She claimed that while the petitioners offered to initially, but which the latter
buy the property, she did not accept the offer; thus, no verbal withdrew because of the
contract to sell was ever perfected. She also maintained that even emergence of some people who
assuming arguendo that she had, indeed, made a commitment or claimed to be tenants on both
promise to sell the property to the petitioners, the same was not parcels of land.
binding upon her in the absence of any consideration distinct and
separate from the price.
• After trial on the merits, the trial court rendered judgment in favor
of the petitioners. The appellate court promulgated its decision

Overall Ruling provides that a special power of attorney is necessary to enter into any
In the case at bar, the letter dated January 16, 1996 of defendant-appellant contract by which the ownership of an immovable is transmitted or acquired
can hardly be said to constitute the note or memorandum evidencing the either gratuitously or for a valuable consideration, or to create or convey
agreement of the parties to enter into a contract of sale as it is very clear that real rights over immovable property, or for any other act of strict dominion.
defendant-appellant as seller did not accept the condition that she will be the Any sale of real property by one purporting to be the agent of the registered
one to pay the registration fees and miscellaneous expenses and therein also owner without any authority therefor in writing from the said owner is null
categorically denied she had already committed to execute the deed of sale and void. The declarations of the agent alone are generally insufficient to
as claimed by the plaintiffs-appellees. The letter, in fact, stated the reasons establish the fact or extent of her authority.
beyond the control of the defendant-appellant, why the sale could no longer
push through – because of the problem with tenants. In this case, respondent Fernandez specifically denied that she was
authorized by the respondents-owners to sell the properties, both in her
2. No, there was no perfected contract of sale answer to the complaint and when she testified. There is no evidence on
Petitioners’ Argument Court’s Rebuttals record that the respondents-owners ratified all the actuations of respondent
• The respondents-owners • Article 1403 of the Civil Code Fernandez in connection with her dealings with the petitioners. As such,
thereby ratified the said contract provides for contracts which are said letter is not binding on the respondents as owners of the subject
of sale because they did not unenforceable unless ratified. properties.
object to the testimony of • Under Article 1403 of the Civil
Antonio Litonjua when he Code, an agreement for the sale V. Law or Doctrine Applied
testified on the contract of sale. of real property or of an interest Art. 1403 of the Civil Code
therein, shall be unenforceable The following contracts are unenforceable, unless they are ratified:
by action, unless the same, or • Those that do not comply with the Statute of Frauds. In the
some note or memorandum following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or
thereof, be in writing, and
memorandum thereof, be in writing, and subscribed by the party
subscribed by the party charged,
charged, or by his agent; evidence, therefore, of the agreement
or by his agent; evidence, cannot be received without the writing, or secondary evidence of
therefore, of the agreement its contents:
cannot be received without the ▪ An agreement for the leasing for a longer period than one
writing, or secondary evidence year, or for the sale of real property or of an interest therein.
of its contents.
VI. Disposition
Overall Ruling IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The
There is no documentary evidence on record that the respondents-owners decision of the appellate court is AFFIRMED IN TOTO. Costs against
specifically authorized respondent Fernandez to sell their properties to the petitioners.
another, including the petitioners. Article 1878 of the New Civil Code


None
VII. Random Facts

• Ponente: Callejo, J.

G.R. No. 140479 | March 8, 2001 Unenforceable Contracts
Rosencor Corp. v Inquing Rosencor Corp. v Inquing
I. Recit-ready Summary offer was refused, they filed a case with the RTC. The RTC dismissed the
complaint and ruled in favor of Rosencor. The CA reversed the decision
The case was originally filed by the respondents. Originally, the action and, among others, ordered that respondents be allowed to exercise their
was for the annulment of the Deed of Absolute Sale between Rosencor and right of first refusal. Hence, this petition.
de Leon but was later amended to one for rescission of the deed of sale.
Respondents averred that they are the lessees of a two-story residential The main issue in this case W/N a right of first refusal is akin to “an
apartment owned by spouses Tiangco. The lease was not covered by any agreement for the leasing of a longer period than one year, or for the sale of
contract. According to them, the owners verbally granted the respondents real property or of an interest therein” as contemplated by Article 1403 par.
the pre-emptive right to purchase the property if ever they decided to sell the 2(e) of the Civil Code. The Court held that NO, the right of first refusal is
same. Upon the death of the spouses Tiangco, the heirs allegedly promised not akin to that provided in par. 2(e) of the Statute of Frauds.
the respondents the same pre-emptive right to purchase the property since
the former had knowledge that his right was extended by the late spouses. The Court has previously held that not all agreements affecting land
must be put into writing to attain enforceability. Thus, it was held that the
The respondents continued to stay in the same premises, however, they setting up of boundaries, the oral partition of real property, and an
received a letter from Atty. Aguila demanding that they vacate the premises agreement creating a right of way are not covered by the provisions of the
so that the demolition of the building be undertaken. The respondents statute of frauds. The reason is simply that these agreements are not among
refused to leave. In the same month of getting the letter, Eufrocina de Leon, those enumerated in Article 1403 of the Civil Code. Similarly, a right of
the representative of the Tiangco heirs, refused to accept the respondents’ first refusal is not among those listed as unenforceable under the statute of
rental payment claiming that they have run out of receipts and that a new frauds. Therefore, it should be enforceable in this case.
collector has been assigned to receive the payments. Thereafter, respondents
received a letter from de Leon offering to sell to them the property they Furthermore, the application of Art. 1403, par. 2(e) presupposes the
were leasing for P2,000,000.00. Respondents made a counteroffer of existence of a perfected, albeit unwritten, contract of sale. A right of first
P1,000,000.00 but no answer was given by de Leon. A few months after, refusal is not by any means a perfected contract of sale of real property. As
Rene Joaquin came to the leased premises introducing himself as its new such, a right of first refusal need not be written to be enforceable and may
owner; respondents again received another letter from Atty. Aguila be proven by oral evidence.
demanding that they leave the premises. A month after, respondents
received a letter from de Leon telling them that the Tiangco heirs have Facts of the Case (Material Facts)
already sold the property to Rosencor. Atty. Aguila wrote them another
letter demanding the rental payment and introducing herself as counsel for 1. The case was originally filed by Paterno Inquing, Irene Guillermo and
Rosencor. Respondents requested from de Leon why she had disregarded Federico Bantugan, herein respondents, against Rosencor Development
the pre-emptive right she and the late Tiangcos have promised them. Corporation (Rosencor), Rene Joaquin, and Eufrocina de Leon
Respondents, then, discovered that they were deceived by de Leon since the 2. Originally, the action was for the annulment of the Deed of Absolute
sale with Rosencor took place in September while they were offered the Sale between Rosencor and de Leon but was later amended to one for
property only in October. They offered to but the property, and when their rescission of the deed of sale
Obligations and Contracts (2020) PETITIONER: Rosencor Development Corporation, Rene Joaquin 1
DIGEST AUTHOR: Pam Madrigal RESPONDENT: Paterno Inquing, Irene Guillermo, Federico Bantugan, Fernando Magbanua, Lizza Tiangco
3. A complaint for intervention was thereafter filed by Fernando 16. Atty. Aguila wrote them another letter demanding the rental payment
Magbanua and Danna Lizza Tiangco and introducing herself as counsel for Rosencor/Joaquin, the new
4. Respondents (Inquing, et al.) averred that they are the lessees since owners
1971 of a two-story residential apartment owned by spouses Tiangco. 17. Respondents requested from de Leon why she had disregarded the pre-
The lease was not covered by any contract emptive right she and the late Tiangcos have promised them
5. According to the respondents, they were verbally granted by the lessors 18. Respondents also asked for a copy of the deed of sale between her and
the pre-emptive right to purchase the property if ever they decided to the new owners thereof, but de Leon refused.
sell the same 19. In the same manner, when they asked Joaquin a copy of the deed of
6. Upon the death of the spouses Tiangco, the management of the property sale, the latter turned down their request and instead Atty. Aguila wrote
was passed on to their heirs who were represented by de Leon them several letters demanding that they vacate the premises
7. The respondents were allegedly promised the same pre-emptive right by 20. Respondents offered to tender their rental payment to de Leon but she
the heirs of Tiangcos since the latter had knowledge that this right was refused to accept the same
extended to the former by the late spouses 21. The respondents discovered that they were deceived by de Leon since
8. The respondents continued to stay in the premises and allegedly spent the sale between her Joaquin/Rosencor took place in September while
their own money amounting from P50,000.00 to P100,000.00 for its de Leon made the offer to them only in October (after the sale with
upkeep. These expenses were never deducted from the rentals. Rosencor had been consummated)
9. The respondents, then, received a letter from Atty. Aguila demanding 22. Respondents also noted that the property was sold only for P726,000.00
that they vacate the premises so that the demolition of the building be 23. Respondents offered to reimburse de Leon the selling price of
undertaken. They refused to leave the premises P726,000.00 plus an additional P274,000.00 to complete their
10. In the same month, de Leon refused to accept the respondents’ rental P1,000,000.00 earlier offer
payment claiming that they have run out of receipts and that a new 24. When their offer was refused, they filed a case against
collector has been assigned to receive the payments Rosencor/Joaquin with the RTC
11. Thereafter, they received a letter from de Leon offering to sell to them
the property they were leasing for P2,000,000.00 Decision of the Court
12. The respondents made a counteroffer of P1,000,000.00 but no answer
was given by de Leon 25. The RTC dismissed the complaint and ruled in favor or
13. A few months after, Rene Joaquin came to the leased premises Rosencor/Joaquin. They court held that the right of redemption on
introducing himself as its new owner which the complaint was based was merely an oral one and as such, is
14. The respondents again received another letter from Atty. Aguila unenforceable under the law
demanding that they vacate the premises 26. The CA reversed the decision of the trial court and ordered the
15. A month after, respondents received a letter from de Leon telling them following:
that the Tiangco heirs have already sold the property to Rosencor a. Rescission of the Deed of the Absolute Sale executed between de
Leon and Rosencor/Joaquin
b. Reconveyance of the subject premises to de Leon
c. To afford the respondents 30 days within which to exercise their

right of first refusal by paying P1,000,000.00 for the subject ARTICLE 1403 OF THE CIVIL CODE
property
ART. 1403. The following contracts are unenforceable, unless they are ratified:
II. Issue/s 1) Those entered into in the name of another person by one who has been
1. W/N a right of first refusal is akin to “an agreement for the leasing powers;
of a longer period than one year, or for the sale of real property or
2) Those that do not comply with the Statute of Frauds as set forth in this
of an interest therein” as contemplated by Article 1403 par. 2(e) of number. In the following cases an agreement hereafter made shall be
the Civil Code. NO unenforceable by action, unless the same, or some note or memorandum,
III. Holding/s evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
a) An agreement that by its terms is not to be performed within a year
Issue #1 from the making thereof;
NO, the right of first refusal is not akin to that provided in par. 2(e) of b) A special promise to answer for the debt, default, or miscarriage of
the Statute of Frauds. another;
Overall Ruling c) An agreement made in consideration of marriage, other than a mutual
promise to marry;
d) An agreement for the sale of goods, chattels or things in action, at a
The Court has previously held that not all agreements affecting land price not less than five hundred pesos, unless the buyer accept and
must be put into writing to attain enforceability. Thus, it was held that the receive part of such goods and chattels, or the evidences, or some of
setting up of boundaries, the oral partition of real property, and an them, of such things in action or pay at the time some part of the
agreement creating a right of way are not covered by the provisions of the purchase money; but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the sale, of the
statute of frauds. The reason is simply that these agreements are not among
amount and kind of property sold, terms of sale, price, names of the
those enumerated in Article 1403 of the Civil Code. Similarly, a right of purchasers and person on whose account the sale is made, it is a
first refusal is not among those listed as unenforceable under the statute of sufficient memorandum;
frauds. Therefore, it should be enforceable in this case. e) An agreement of the leasing for a longer period than one year, or for
f) A representation as to the credit of a third person.
Furthermore, the application of Art. 1403, par. 2(e) presupposes the
existence of a perfected, albeit unwritten, contract of sale. A right of first 3) Those where both parties are incapable of giving consent to a contract.
refusal is not by any means a perfected contract of sale of real property. As
such, a right of first refusal need not be written to be enforceable and may V. Disposition
be proven by oral evidence.
WHEREFORE, premises considered, the decision of the Court of
IV. Law or Doctrine Applied Appeals dated June 25, 1999 is REVERSED and SET ASIDE. The Decision
dated May 13, 1996 of the Quezon City Regional Trial Court, Branch 217 is
hereby REINSTATED insofar as it dismisses the action for rescission of the
Deed of Absolute Sale dated September 4, 1990 and orders the payment of
monthly rentals of P1,000.00 per month reckoned from May 1990 up to the
time respondents leave the premises.
VI. Additional Notes
VII. Random Facts
 Ponente: Gonzaga-Reyes, J.
G.R. No. 51058 | January 27, 1992 Unenforceable Contracts
Asia Co vs. Paño Asia Co vs. Paño
I. Recit-ready Summary 3. Petitioners, relying on the good faith of respondents, issued 8 post-
Private respondents,, claiming to be owners of a building dated checks (one worth P10,000; the rest P20,000), and built a
constructed on a leased lot, offered to sell the same to petitioner for weaving factory on the leased area.
P170,000.00 Despite the assurance that they will assign the contract of lease 4. Respondents did not execute the deed of sale, nor did they assign
in favor of petitioners, the principal agreement was never reduced in writing. the lease contract in the name of petitioners.
Petitioners issued 8 post-dated checks and built a weaving factory on the 5. They cashed in the first two checks amounting to P30,000.
leased area. 6. The lot owner also refused to have the lease assigned to petitioners,
Respondents did not execute the deed of sale, nor did they assign unless they agree to either continue the lease on a higher rental rate,
the lease contract in the name of petitioners. They cashed in the first two or to purchase the land to their loss.
checks. The lot owner also refused to have the lease assigned to petitioners, 7. Petitioners stopped the payment order for the remaining checks and
unless they agree to their onerous terms (rental increase or high purchase continued with the negotiations but the respondents still failed to
price). execute the deed of sale.
Petitioners stopped the payment order for the remaining checks and 8. Petitioner had no option but to take their equipment and leave the
continued with the negotiations but the respondents still failed to execute the premises.
deed of sale. They proceeded against respondents for refund of partial 9. They proceeded against respondents for refund of partial payment.
payment. Respondent Dy filed a motion to dismiss. The Court of First 10. Respondent Dy filed a motion to dismiss, claiming that an alleged
Instance granted the motion to dismiss on the ground that the complaint is purchase of a building which is not evidenced by any writing
barred by the Statute of Frauds. cannot be proved by parol evidence in the said situation, since
The issue is W/N an action for the refund of partial payments of Article 1356 in relation to Article 1358 of the Civil Code requires
the purchase price of a building covered by an oral agreement to sell it with that such sale should be in writing.
an oral promise to assign the contract of lease on the lot where the building 11. The Court of First Instance granted the motion to dismiss on the
is constructed is barred by the Statute of Frauds? The Court held that no, the ground that the complaint is barred by the Statute of Frauds.
action is not covered by the Statute of Frauds. The statute will apply only to
executory rather than executed contracts, and the partial execution by the III. Issue/s
petitioners bars the invocation of the statute. 1. W/N an action for the refund of partial payments of the
purchase price of a building covered by an oral agreement to
II. Facts of the Case (Material Facts) sell it with an oral promise to assign the contract of lease on the
1. Private respondents Lolita Lee Le Hua and Alberto Dy, claiming to lot where the building is constructed is barred by the Statute of
be owners of a building constructed on a leased lot, offered to sell Frauds? NO.
the same to petitioner for P170,000.00
2. Despite the act of respondents assuring the petitioners to have the IV. Holding/s
contract of lease furnished to the latter, the principal agreement Issue #1
was never reduced in writing. NO, the action is not covered by the Statute of Frauds.
Obligations and Contracts (2020) PETITIONER: Asia Production Co., Inc. 1

DIGEST AUTHOR: Nikki RESPONDENT: Hon. Ernani Cruz Paño, Lolita Lee Hua, Alberto Dy
Respondent’s Arguments Court’s Rebuttals statute, because petitioners had withdrawn due to the "bad faith" of the
 The contract in this case is  The application of the statute is private respondents, the latter cannot be allowed to take shelter under the
condemned by the Statute of limited. The statute will apply statute and keep the P50,000.00 for themselves.
Frauds as it involves not merely only to executory rather than
the sale of real property (the executed contracts. We thus rule that an action by a withdrawing party to recover his partial
building), it also includes an  Partial execution is even enough payment of the consideration of a contract, which is otherwise
alleged lease agreement that to bar the application of the unenforceable under the Statute of Frauds, by reason of the failure of the
must certainly be for more than statute. other contracting party to comply with his obligation, is not covered by the
one year.  Article 1403 of the Civil Code Statute of Frauds.
 It also cannot claimed that by the
payment of the sum of V. Law or Doctrine Applied
P50,000.00 the contract was
removed from the Statute of ARTICLE 1403 OF THE CIVIL CODE
Frauds because the obligation to Article 1403. The following contracts are unenforceable, unless they are
pay P170,000.00 have not fully ratified:
complied with.
Overall Ruling (1) Those entered into in the name of another person by one who has been
The Court held that respondent Judge committed grave abuse of discretion given no authority or legal representation, or who has acted beyond his
in dismissing the complaint on the ground that the claim is barred by the powers;
Statute of Frauds.
The Statute of Frauds was designed to prevent fraud, not perpetuate it. Thus, number. In the following cases an agreement hereafter made shall be
its application is limited. As stated in Article 1403 of the Civil Code, the unenforceable by action, unless the same, or some note or memorandum,
contracts concerned are simply "unenforceable" and the requirement that thereof, be in writing, and subscribed by the party charged, or by his agent;
they be in writing refers only to the manner they are to be proved. The evidence, therefore, of the agreement cannot be received without the
statute will apply only to executory rather than executed contracts. writing, or a secondary evidence of its contents:
Partial execution is enough to bar the application of the statute.
(a) An agreement that by its terms is not to be performed within a year
In this case, petitioners merely seek to recover their partial payment for from the making thereof;
the agreed purchase price of the building. Since the action is definitely not
one for specific performance, the Statute of Frauds does not apply. Even if it (b) A special promise to answer for the debt, default, or miscarriage of
were for specific performance, partial execution by petitioners bars the another;
private respondents from invoking it. Since it is for refund of what
petitioners had paid under the agreement, originally unenforceable under the

(c) An agreement made in consideration of marriage, other than a mutual

promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a

price not less than five hundred pesos, unless the buyer accept and receive
part of such goods and chattels, or the evidences, or some of them, of such
things in action or pay at the time some part of the purchase money; but
when a sale is made by auction and entry is made by the auctioneer in his
sales book, at the time of the sale, of the amount and kind of property sold,
terms of sale, price, names of the purchasers and person on whose account
the sale is made, it is a sufficient memorandum;
(e) An agreement for the leasing for a longer period than one year, or for
( f ) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.
VI. Disposition
WHEREFORE, the petition is hereby GRANTED. The challenged Orders
of 18 April 1979 and 21 June 1979 in Civil Case No. Q-23593 of the court
below are hereby ANNULLED and SET ASIDE, and the complaint in said
case is hereby ordered REINSTATED. The default order against private
respondent Lolita Lee Le Hua shall stand and private respondent Alberto Dy
is ordered to Dle his Answer to the complaint with the court below within
ten (10) days from receipt of this decision. This decision shall be
immediately executory.

VII. Random Facts
 Ponente: Davide, Jr., J.

G.R. No. L-5028 | November 26, 1952 Unenforceable Contracts
Cabague v Auxillio Cabague v Auxillio
Felipe Cabague and his son Geronimo sued the defendant Matias Auxilio
and his daughter Socorro to recover damages resulting from defendants’ refusal to
carry out the previously agreed marriage between Socorro and Geronimo. II. Facts of the Case (Material Facts)
1. Defendants promised such marriage to plaintiffs, provided the plaintiffs
The complaint alleges that (a) defendants promised such marriage to improve the defendants’ house and spend for the wedding feast and the
plaintiffs, provided the plaintiffs improve the defendants’ house and spend for the needs of the bride
wedding feast and the needs of the bride; (b) because of such promise the plaintiffs 2. Because of such promise the plaintiffs made the improvement and spent
made the improvement and spent P700; (c) without cause defendants refuse to honor P700.
their word. 3. Without cause defendants refuse to honor their word, i.e. the promise to
marry.
Defendants argue that the contract was oral and unenforceable under the 4. Felipe Cabague and his son Geronimo sued the defendant Matias Auxilio
rule of evidence that parol evidence is not admissible to prove an agreement made and his daughter Socorro to recover damages resulting from defendants’
upon the consideration of marriage other than a mutual promise to marry. refusal to carry out the previously agreed marriage between Socorro and
Geronimo.
The justice of the peace of court of Basud, Camarines Norte dismissed the 5. Defendants argue that the contract was oral and unenforceable under the
case. The case was then again dismissed in the Court of First Instance. The case was rule of evidence that parol evidence is not admissible to prove an
then brought before the Supreme Court on appeal. agreement made upon the consideration of marriage other than a mutual
promise to marry.
The SC said that under the new rules of procedure defendant may now 6. The justice of the peace of court of Basud, Camarines Norte dismissed the
present a motion to dismiss on the ground that the contract was not in writing, even case.
if such fact is not apparent on the face of the complaint. He may prove the fact. Here, 7. The case was then again dismissed in the Court of First Instance. The case
there is no question whether that the transaction was not in writing. The only issue is was then brought before the Supreme Court on appeal
whether it may be proved in court. III. Issue/s
1. W/N the plaintiffs are entitled to damages given defendants’
The court took the view that the understanding involved two kinds of refusal to carry out the previously agreed upon marriage.
agreements. One, the agreement between Felipe and the defendants in consideration
of the marriage. On the other, a mutual promise to marry. Geronimo may sue IV. Holding/s
Socorro for damages based on the breach of the mutual promise to marry and
evidence of such mutual promise is admissible. However Felipe’s action may not Issue #1
prosper because it is to enforce an agreement in consideration of marriage. For YES, but only to the extent that Geronimo may sue Socorro for breach of the
Felipe and Matias the action can not be maintained on the theory of “mutual promise mutual promise to marry. For Felipe and Matias, the action can not be
to marry”. Neither may it be regarded as action by Felipe against Socorro “on a maintained.
mutual promise to marry”. The SC ultimately ruled that Geronimo may continue his Respondent’s Arguments Court’s Rebuttals
action against Socorro for such damages as may have resulted from her failure to • The Rules of Court provide that • The case involves two kinds of
carry out the mutual promise to marry.
Obligations and Contracts (2020) PETITIONER: FELIPE CABAGUE and GERONIMO CABAGUE 1
DIGEST AUTHOR: Ryon Rivera RESPONDENT: MATIAS AUXILIO and SOCORRO AUXILIO
G.R. No. L-5028 | November 26, 1952 Unenforceable Contracts
Cabague v Auxillio Cabague v Auxillio
parol evidence is not admissible to agreements: VI. Disposition

prove an agreement made upon the • 1. The agreement between
consideration of marriage other Felipe and the defendants in WHEREFORE, this expediente will be returned to the lower court for further
than a mutual promise to marry. consideration of the marriage. proceedings in accordance with this opinion. So ordered.
• 2. The agreement between
Geronimo and Socorro as a
mutual promise to marry. VII. Additional Notes
Overall Ruling
VII. Random Facts
For the breach of the promise to marry, Geronimo may sue Socorro and • Ponente: Bengzon, J.
evidence of such mutual promise is admissible.
However, Felipe’s action may not prosper because it seeks to enforce an

agreement made in consideration of marriage other than a mutual promise to
marry.
Article 1403. The following contracts are unenforceable, unless they are ratified:
unenforceable by action, unless the same, or some note or memorandum, thereof,
be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a
secondary evidence of its contents:
(c) An agreement made in consideration of marriage, other than a mutual

promise to marry;
Obligations and Contracts (2020) PETITIONER: FELIPE CABAGUE and GERONIMO CABAGUE 2
DIGEST AUTHOR: Ryon Rivera RESPONDENT: MATIAS AUXILIO and SOCORRO AUXILIO
G.R. No. L-55048 | May 27, 1981 Art. 1403
YUVIENCO v. DACUYCUY YUVIENCO v. DACUYCUY
I. Recit-ready Summary 4. On July 27, 1978, Atty. Gamboa sent a telegram to the respondents
stating that he would be going to Tacloban for the signing of the
Suga Sotto, Britania Sotto, and Marcelino Sotto are contracts.
owners of a parcel of land and a building situated in Tacloban City. 5. On August 1, 1978, Atty. Gamboa arrived in Tacloban with the
On July 12, 1978, petitioners, thru Atty. Gamboa, sent to contracts for the purpose of closing the transactions.
respondents a letter stating that they are giving the respondents 6. However, allegedly, without prior notice to the respondents, Atty.
until July 31, 1978 to decide whether they would buy the subject Gamboa changed the mode of payment with respect to the balance
property or not. The respondents then sent a letter stating that they of P4,500,000.00 by imposing upon plaintiffs to pay same amount
agree to buy the property. On July 27, 1978, Atty. Gamboa sent a within thirty (30) days from execution of the contract instead of the
telegram to the respondents stating that he would be going to former term of ninety (90) days as provided in their previous
Tacloban for the signing of the contracts. On August 1, 1978, Atty. agreements.
Gamboa arrived in Tacloban with the contracts for the purpose of 7. This prompted the respondents to file a complaint for specific
closing the transactions. However, allegedly, without prior notice performance against the petitioners.
to the respondents, Atty. Gamboa changed the mode of payment
with respect to the balance of P4,500,000.00 by imposing upon
plaintiffs to pay same amount within thirty (30) days from III. Issue/s
execution of the contract instead of the former term of ninety (90) 1. W/N the agreement that they would pay in installments of P2M
days as provided in their previous agreements. This prompted the down and P4.5M within ninety (90) days afterwards is
respondents to file a complaint for specific performance against the enforceable? NO.
petitioners. The issue in this case is whether or not the agreement
that they would pay in installments of P2M down and P4.5M IV. Holding/s
within ninety (90) days afterwards is enforceable. The court ruled
that it is not enforceable. Issue #1
NO, the agreement that they would pay in installments of P2M down
II. Facts of the Case (Material Facts) and P4.5M within ninety (90) days afterwards is not enforceable.
1. Suga Sotto, Britania Sotto, and Marcelino Sotto are owners of a Respondent’s Arguments Court’s Rebuttals
parcel of land and a building situated in Tacloban City.
• Petitioner and respondent • The agreement is unenforceable
2. On July 12, 1978, petitioners, thru Atty. Gamboa, sent to
already had an agreement that under the statute of fraud.
respondents a letter stating that they are giving the respondents they would pay in installments of
until July 31, 1978 to decide whether they would buy the subject
P2M down and P4.5M within
property or not.
ninety (90) days.
3. The respondents then sent a letter stating that they agree to buy the
• Petitioner violated this
property.
agreement.
Obligations and Contracts (2020) PETITIONER: Yuvienco 1

DIGEST AUTHOR: John Joves RESPONDENT: Dacuycuy
G.R. No. L-55048 | May 27, 1981 Art. 1403
YUVIENCO v. DACUYCUY YUVIENCO v. DACUYCUY
Overall Ruling
The court ruled that that the agreement is unenforceable under the VI. Disposition
Statute of Frauds. It is not alleged in the complaint that there is any
writing, memorandum, or a duly signed agreement to the effect that the ACCORDINGLY, the impugned orders of respondent judge of November
price of P6,500,000 fixed by petitioners for the real property herein 2, 1978 and August 29, 1980 are hereby set aside and private respondents'
amended complaint, Annex A of the petition, is hereby ordered dismissed
involved was agreed to be paid not in cash but in installments as alleged
and the restraining order heretofore issued by this Court on October 7, 1980
by respondents. The 90-day term for the balance of P4.5M insisted upon
is declared permanent. Costs against respondents.
by respondents does not appear in any note, writing or memorandum
signed by either the petitioners or any of them, not even by Atty.
Gamboa. The court said that in any sale of real property on installments,
the Statute of Frauds read together with the perfection requirements of
Article 1475 of the Civil Code must be understood and applied in the
sense that the idea of payment on installments must be in the requisite of
a note or memorandum.
The following contracts are unenforceable, unless they are ratified:
unenforceable by action, unless the same, or some note or memorandum,
evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
Obligations and Contracts (2020) PETITIONER: Yuvienco 2

DIGEST AUTHOR: John Joves RESPONDENT: Dacuycuy
G.R. No. 193747 | June 5, 2013 Void and Inexistent Contracts
Borromeo v Mina Borromeo v Mina
I. Recit-ready Summary 1. Respondent owned a 1.1057-hectare parcel of agricultural land in

The case involved a 1.1057-hectare parcel of land registered in the name Isabela, in which the title was registered to him based on the
of the Juan Mina (respondent) based on the emancipation patent issued by the emancipation patent issued by DAR on May 2, 1990.
Department of Agrarian Reform (DAR). Joselito Borromeo (petitioner) filed
2. Petitioner, claiming that he is the owner of the subject land, filed a
before the Provincial Agrarian Reform Office (PARO) of Isabela a petition to
cancel respondent’s title based on emancipation patent and to seek exemption petition before the PARO of Isabela to seek the cancellation of
from the coverage of the government’s Operation Land Transfer (OLT). respondent’s title based on the emancipation patent and to seek
Petitioner claimed that he is the owner of the subject land, which was evidenced exemption from the coverage of the government’s OLT program
by a notarized deed of sale, as he purchased the said lot from the previous under PD 27.
owner, Serafin Garcia. He claimed that since his total agricultural landholdings
3. Petitioner said he purchased the property from Garcia, the previous
was only 3.3635 hectares which is below the retention limits under both PD 27
and RA 6647 (Comprehensive Agrarian Reform Law of 1988) it should have owner, and presented the notarized deed of sale. Since his total
been excluded from the coverage of the OLT program. The Municipal Agrarian agricultural landholdings of 3.3635 hectare is below the retention
Reform Officer (MARO) issued a report indicating that the property was limits, it should be excluded from the coverage of the OLT
erroneously identified by the office as the property of petitioner’s father, the program under PD 27 and RA 6647 (Comprehensive Agrarian
late Cipriano Borromeo. The property was never actually owned by Cipriano,
Reform Law of 1988).
as its true owner was Garcia who later sold the same to petitioner. The MARO
recommended that the subject landholding be exempted from the coverage of 4. MARO reported that it erroneously identified that the petitioner’s
the OLT. The PARO adopted the recommendation and accordingly cancelled father, the late Cipriano Borromeo, as the owner of the property
respondent’s emancipation patent. Respondent filed an administrative appeal to and that the property was never owned by the latter, but by Garcia.
the DAR regional director, who held that the petitioner, being the true owner of 5. PARO cancelled the respondent’s emancipation patent, as
the property, had the right to impugn its coverage from the government’s OLT
recommended by MARO.
program. He declared that the subject landholding to be exempt from OLT
coverage because it is below the retention limits. This was upheld by the DAR 6. Respondent administratively appealed to the DAR regional director
Secretary. CA reversed the DAR Secretary’s ruling. The said sale must be null wherein the latte held that the petitioner, as the true owner of the
and void for being a prohibited transaction under PD 27 (see Law or Doctrine). property, had the right to impugn the subject landholding to be
The issue is whether or not the petitioner can seek exemption from the OLT and exempt from OLT coverage as the subject land did not meet the
can seek the cancellation of the emancipation patent of Mina.
retention limits. DAR Secretary upheld this ruling.
The SC upheld the decision of CA that such sale between Garcia and the
petitioner in 1982 is null and void. PD 27 prohibits the transfers or alienation of 7. CA reversed DAR Secretary’s ruling by saying that the sale was
covered agricultural lands after October 21, 1972, except to the tenant- null and void for being a prohibited transaction under PD 27 (see
beneficiaries thereof, of which petitioner was not. Notwithstanding the Law or Doctrine).
erroneous identification of the subject landholding by the MARO as owned by
Cipriano Borromeo, the fact remains that petitioner had no right to file a
III. Issue/s
petition for landholding exemption since the sale of the said property to him by
Garcia in 1982 is null and void. Thus, the issue of the total agricultural 1. W/N petitioner can seek exemption from OLT coverage and
landholdings being way below the retention limits set forth by law becomes can seek the cancellation of the emancipation patent of Mina?
irrelevant. (NO)
II. Facts of the Case (Material Facts) IV. Holding/s
Obligations and Contracts (2020) PETITIONER: Joselito C. Borromeo 1

DIGEST AUTHOR: Joses RESPONDENT: Juan T. Mina
G.R. No. 193747 | June 5, 2013 Void and Inexistent Contracts
Borromeo v Mina Borromeo v Mina

NO, PD 27 prohibits the transfer of ownership over tenanted rice and/or
corn lands after October 21, 1972 except only in favor of the actual DOCTRINE OF THE CASE
A void contract is equivalent to nothing; it produces no civil effect; and it does not
tenant-tillers thereon. The sale by Garcia to petitioner is null and void. create, modify or extinguish a juridical relation.
• There was an oral sale entered by • Petitioner changed his theory on his PRESIDENTIAL DECREE NO. 27 (based on this case)
him and Garcia in 1976 and in that appeal to the SC as he now claims PD 27 as amended, forbids the alienation or transfer of ownership over tenanted rice
same year, the petitioner had already that there was a 1976 oral sale which and/or corn lands after October 21, 1972 except only in favor of the actual tenant-
occupied, tilled and paid real estate was formalized only in 1982 by deed tillers thereon.
taxes on the subject property. of sale; and petitioner never
• Petitioner allowed respondent to mentioned in the earlier stages of the ARTICLE 1409 (1) OF THE CIVIL CODE OF THE PHILIPPINES
cultivate and possess subject proceedings about the status of the The following contracts are inexistent and void from the beginning:
respondent as tenant of the property. (1) Whose cause, object, or purpose is contrary to law, morals, good
property in 1976 out of mercy and
customs, public order, or public policy;
compassion. • Petitioner must rely on his previous
xxx
• Existing 1976 sale was formalized positions that: the basis of his
by the 1982 deed of sale which ownership on the property rests on
VI. Disposition
expressly provided that the subject the 1982 deed of sale; and, the
property was not tenanted. respondent’s status as the tenant of
WHEREFORE, the petition is DENIED. The assailed April 30, 2010
• Petitioner was denied due process of the property is undisputed.
Decision and September 13, 2010 Resolution of the Court of Appeals in
law when he was not notified of the
CA-G.R. SP No. 101185 are hereby AFFIRMED.
issuance of emancipation patent to
the respondent
SO ORDERED
Overall Ruling
PD 27 prohibits the transfer of ownership over tenanted rice and/or corn lands
VII. Random Facts
after October 21, 1972 except only in favor of the actual tenant-tillers thereon. The
sale by Garcia to petitioner is null and void. Petitioner cannot assert any right over • Ponente: Perlas-Bernabe, J.
the subject landholding, such as his present claim for landholding exemption,
because his title springs from a null and void source. A void contract is equivalent to
nothing; it produces no civil effect; and it does not create, modify or extinguish a
juridical relation. Hence, notwithstanding the erroneous identification of the subject
landholding by the MARO as owned by Cipriano Borromeo, the fact remains that
petitioner had no right to file a petition for landholding exemption since the sale of
the said property to him by Garcia in 1982 is null and void. Proceeding from this, the
finding that petitioner’s total agricultural landholdings is way below the retention
limits set forth by law thus, becomes irrelevant to his claim for landholding
exemption precisely because he has no right over the aforementioned landholding.
Obligations and Contracts (2020) PETITIONER: Joselito C. Borromeo 2

DIGEST AUTHOR: Joses RESPONDENT: Juan T. Mina
G.R. No. 195990 | August 5, 2015 Void or Inexistent Contracts
Heirs of Gozo v. Phil. Union Mission Corp. Heirs of Gozo v. Phil. Union Mission Corp.
I. Recit-ready Summary petitioners, saying such is not barred by laches and that they are the
The petitioners claim that they are the heirs of Spouses Rafael and original owners of the parcel of land. The Court of Appeals, reversed
Concepcion Gozo who, before their death, were the original owners of the same and ruled that the petitioners took 60 years to file for claims,
the parcel of land located in Lanao del Norte. The respondents claim hence, is barred by laches. The issue in this case is whether or not the
that they own 5,000 square-meter portions of the property, based on Deed of Donation executed by the donor who did not have proprietary
the February 1937 Deed of Donation made in favor of Philippine right over the parcel of land is void. The Court held that yes, the Deed
Union Mission Corporation of the Seventh Day Adventist (PUMCO). of Donation is void for lack of proprietary right over the parcel of land
They further insisted that they took possession of the property by in 1937. The Court cited the Regalian Doctrine, stating that the land
building a church and an elementary school in the said property. In remains unclassified land until it is released therefrom and rendered
1937, and on the date of the issuance of the Deed of Donation, the open to disposition. Since it was only in 1953 that the President
Gozos weren’t the registered owner of the property yet, but they were granted them such title, according to the Homestead Patent, only then
the lawful possessor of the same. It was only in October 1953 that the did the Sps. Gozo has proprietary right over the land. Since proprietary
Original Certificate of Title covering the property was issued in the rights is an essential requisite before a Deed of Donation is to become
name of Sps. Gozo, in accordance with the Homestead Patent granted valid, such issued in 1937 is void. The said Deed also falls under void
by the President in August 1953. After Rafael’s death, Concepcion and and inexistent contract under Art. 1409, under paragraph 4, “Those
their sex children caused the extrajudicial partition of the property. whose object is outside the commerce of men.”
The Register issued a new certificate under the names of the heirs in
1954. In 1992, Concepcion conducted the survey and the subdivision II. Facts of the Case (Material Facts)
of the entire property including PUMCO’s alleged 5,000 square-meter 1. The petitioners claim that they are the heirs of Spouses Rafael and
property. Only then did Concepcion find out that PUMCO owned that Concepcion Gozo who, before their death, were the original
certain portion of their land, in view of the Deed of Donation owners of the parcel of land located in Lanao del Norte.
Concepcion executed in 1937. Upon verification, the donation was not 2. The respondents claim that they own 5,000 square-meter portions
annotated in the title, prompting the petitioners not to recognize the of the property, based on the February 1937 Deed of Donation
donation claimed by PUMCO. In 2000, the petitioners filed a made in favor of Philippine Union Mission Corporation of the
Declaration of Nullity of Document, Recovery of Possession and Seventh Day Adventist (PUMCO). They further insisted that they
Ownership with Damages against PUMCO. PUMCO countered and took possession of the property by building a church and an
insisted on the validity of the donation. The RTC ruled in favor of elementary school in the said property.
1
Obligations and Contracts (2020) PETITIONER: Heir of Gozo
DIGEST AUTHOR: Alex Sulaik RESPONDENT: Philippine Union Mission COrporation of the Seventh Day
Adventist Church (PUMCO)
3. In 1937, and on the date of the issuance of the Deed of Donation, faithful devotees of the church for the pursuit of social and
the Gozos were not the registered owner of the property yet, but religious ends.
they were the lawful possessors of the same. It was only in October 9. The RTC ruled in favor of petitioners, saying such is not barred by
1953 that the Original Certificate of Title covering the property laches (because the action to recover is based on a Torrens title)
was issued in the name of Sps. Gozo, in accordance with the and that they are the original owners of the parcel of land. Further,
Homestead Patent granted by the President in August 1953. the RTC ruled that the Contract of Donation is void for lack of
4. After Rafael’s death, Concepcion and their six children caused the acceptance, action for declaration of nullity does not prescribe.
extrajudicial partition of the property. The Register issued a new 10. The Court of Appeals, reversed the same and ruled that the
certificate under the names of the heirs in 1954. petitioners took 60 years to file for claims, hence, is barred by
5. In 1992, Concepcion conducted the survey and the subdivision of laches.
the entire property including PUMCO’s alleged 5,000
square-meter property. Only then did Concepcion find out that III. Issue/s
PUMCO allegedly owned that certain portion of their land, in view Whether or not the Deed of Donation executed by the donor who did
of the Deed of Donation Concepcion executed in 1937. not have proprietary right over the parcel of land is void. YES.
6. Upon verification of the Register of Deed, the donation was not
annotated in the title, prompting the petitioners not to recognize the IV. Holding/s
donation claimed by PUMCO. Issue
7. In 2000, the petitioners filed a Declaration of Nullity of Document, YES, the Deed of Donation is void as the donors executed such lacking
Recovery of Possession and Ownership with Damages against property right over the parcel of land..
PUMCO. They further claimed that the Sps. Gozo merely tolerated Respondent's Argument Court’s Rebuttal
the respondent’s occupation of the land, the signatures of Sps.
Gozo were forged, and that the deed of donation will remain PUMCO insists on the The Court held that Sps. Gozo did
invalid due to the lack of acceptance, assuming that the signatures genuineness of the signatures of not have rights over the land in
were genuine. the Sps. Gozo, the couple having 1937, hence are devoid of the right
8. PUMCO countered and insisted on the validity of the donation. executed the Deed of Donation in to execute a Deed of Donation to
PUMCO alleges that the signatures of Sps. Gozo are genuine and 1937. They have also built a PUMCO. The Spouses only
are the donors who had voluntarily parted with their property as acquired rights over the land in
2
church and an elementary school 1953. Donation was allegedly executed, the Spouses did not have the right or
on the property. the power to execute the same.
Art. 1409 of the Civil Code states “Art. 1409. The following contracts
PUMCO also insists that the are inexistent and void from the beginning: (1) Those whose cause,
petitioner’s cause of action is object or purpose is contrary to law, morals, good customs, public order
already barred by laches. or public policy; (2) Those which are absolutely simulated or fictitious;
Overall Ruling (3) Those whose cause or object did not exist at the time of the
transaction; (4) Those whose object is outside the commerce of men;
The Court held that the Deed of Donation is void for lack of proprietary (5) Those which contemplate an impossible service; (6) Those where the
right over the parcel of land in 1937. The Court cited the Regalian intention of the parties relative to the principal object of the contract
Doctrine, stating that the land remains unclassified land until it is cannot be ascertained; (7) Those expressly prohibited or declared void by
released therefrom and rendered open to disposition. The Regalian law. These contracts cannot be ratified. Neither can the right to set up the
Doctrine also states that public lands not shown to have been reclassified defense of illegality be waived.”
or released as alienable agricultural land or alienated to a private person As a void contract, the Deed of Donation produces no legal effect. Quod
by the state, remain part of the inalienable public domain. All lands of nullum est, nullum producit effectum. That which is a nullity produces no
public domain belong to the State and the State is the source of any effect.
asserted right to ownership. Since it was only in 1953 that the President
granted them such title, according to the Homestead Patent, only then did V. Law or Doctrine Applied
the Sps. Gozo has proprietary right over the land. Since proprietary right Art. 1409. The following contracts are inexistent and void from the
is an essential requisite before a Deed of Donation is to become valid, beginning:
such issued in 1937 is void. The said Deed also falls under void and (1) Those whose cause, object or purpose is contrary to law, morals, good
inexistent contract under Art. 1409, under paragraph 4, “Those whose customs, public order or public policy;
object is outside the commerce of men.” (2) Those which are absolutely simulated or fictitious;
The subject property was part of the public domain and is outside the (3) Those whose cause or object did not exist at the time of the transaction;
commerce of men. It was only in 1953 that the Spouses acquired an (4) Those whose object is outside the commerce of men;
Original Certificate Title over this land, hence in 1937, when the Deed of (5) Those which contemplate an impossible service;
3
(6) Those where the intention of the parties relative to the principal object
of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived.
VI. Disposition
WHEREFORE, premises considered, the instant petition is hereby
GRANTED. The assailed Decision dated 10 November 2010 and
Resolution dated 14 February 2011 of the Court of Appeals in CA-G.R. CV
No. 00188 are hereby REVERSED and SET ASIDE. SO ORDERED.

● The heir’s names are Abnera, Benia, Castillo, Dilbert, Filipinas,
and Grace. (bat walang E hahaha)
VIII. Ponente: Perez, J.
4
G.R. No.161407| June 5, 2009 Void or Inexistent Contracts
Villegas vs Rural Bank of Tanjay Villegas vs Rural Bank of Tanjay
I. Recit-ready Summary 1412 of the Civil Code. Art.1412 par 1. states that “When the fault is on the
Joaquin and Emma Villegas (petitioners) obtained an agriculture loan part of both contracting parties, neither may recover what he has given by
totalling P350,000 from Rural Bank of Tanjay (respondent). The loan was virtue of the contract, or demand the performance of the other’s
secured by a mortgage. Spouses Villegas failed to pay the loan upon undertaking.” Both petitioners and respondent are in pari delicto, and
maturity, so the mortgage was extrajudicially foreclosed. Petitioners failed neither should be accorded affirmative relief as against the other.
to redeem the property within the one year redemption period. Joaquin II. Facts of the Case
Villegas entered into a “Promise to Sell” agreement with Rural Bank of 1. Spouses Joaquin and Emma Villegas obtained an agriculture loan of
Tanjay. The “Promise to Sell” agreement contained a stipulation that the P350,000 from Rural Bank of Tanjay. The loan was secured by a real
petitioners agree to pay a P250,000 downpayment, while the rest of the estate mortgage on the residential house owned by the petitioners.
balance was to be paid in yearly installments. A stipulation was also 2. Because petitioners failed to pay the loan upon maturity, the
included that states, in case of delay in any yearly installment for a period of mortgage was extrajudicially foreclosed. The property was foreclosed
90 days the sale shall become null and void, and that payments made shall for P367k.
be reimbursed. Upon signing the agreement, petitioners paid the 3. Petitioners failed to redeem the property within the one year
downpayment. Petitioners failed to pay the first yearly installment, redemption period.
prompting the respondent to consolidate its ownership over the properties. 4. Joaquin Villegas entered into a “Promise to Sell” agreement,
Spouses Villegas filed an action for declaration of nullity of loan and whereby Rural Bank of Tanjay promised to sell to the spouses the
mortgage contracts, recovery of possession of real property accounting and foreclosed properties for P713K within 5 years.
damages and, in the alternative, repurchase of real estate against the rural 5. The “Promise to Sell” agreement contained a stipulation that the
bank. The RTC dismissed the action filed by petitioners. Upon appeal, the petitioners agree to pay a P250k downpayment, while the remaining
CA affirmed the RTC decision. Hence, the present petition. The issues in balance was to be paid in yearly installments. A stipulation was also
the case at bar are - W/N the petitioners may recover possession of the included that states, in case of delay in any yearly installment for a
mortgaged properties and W/N the contract is void for being a simulated period of 90 days the sale shall become null and void, and that
contract. The Supreme Court ruled in the negative for the first issue and in payments made shall be reimbursed.
the positive for the second. All the essential requisites of a contract were 6. Upon signing the agreement Spouses Villegas paid the P250k down
present. However, the purpose thereof is illicit, intended to circumvent the payment.
Rural Banks Act requirement in the procurement of loans. The loans were 7. Spouses Villegas failed to pay the first yearly installment, prompting
made to appear as P50,000 loans even if they are not, just so the bank can the Rural Bank of Tanjay to consolidate its ownership over the
approve the same pursuant to the Rural Banks act.Consequently, while the properties. Hence the action by Spouses Villegas of declaration of
parties intended to be bound thereby, the agreement is void and inexistent nullity of loan and mortgage contracts, recovery of possession of real
under Article 1409 of the Civil Code. Both parties were at fault therefore property, accounting and damages and, in the alternative, repurchase
neither party can maintain an action against the other, as provided in Article of real estate against the rural bank commenced.
1
Obligations and Contracts (2020) PETITIONER: Joaquin Villegas and Emma Villegas
DIGEST AUTHOR: Reynaldo Reveche RESPONDENT:Rural Bank of Tanjay Inc.
8. The RTC dismissed the complaint. Overall Ruling

9. Upon appeal, the CA affirmed the RTC decision. The loan and mortgage contracts were concealed and made to appear as
10. Hence the present petition. sugar crop loans to make them fall within the purview of the Rural Banks
III. Issue/s Act, all the essential requisites of a contract were present. However, the
1. W/N the petitioners may recover possession of the mortgaged purpose thereof is illicit, intended to circumvent the Rural Banks Act
properties? - No. requirement in the procurement of loans. Consequently, while the parties
2. W/N the contract is void for being a simulated contract? Yes intended to be bound thereby, the agreement is void and inexistent under
IV. Holding/s Article 1409 of the Civil Code.
Issue #1 The Court ruled that both parties are at fault. Accordingly, neither party can
NO, the petitioners may not recover possession of the mortgaged maintain an action against the other, as provided in Article 1412 of the Civil
properties. Code. Art.1412 par 1. states that “When the fault is on the part of both
Petitioner’s Arguments Court’s Rebuttals contracting parties, neither may recover what he has given by virtue of the
● Petitioners insist on the nullity of the ● Petitioners are precluded contract, or demand the performance of the other’s undertaking.”
loan and mortgage contracts. from seeking a declaration
Petitioners admit that the loan of nullity of the loan and Petitioners did not come to court with clean hands. They admit that they
contracts were made to appear as mortgage contracts; they never planted sugarcane on any property, much less on the mortgaged
several crop loans not exceeding P50k are likewise barred from property, but they accepted the proceeds of the simulated loans. Petitioners
each- just so the respondent bank could recovering possession of readily participated in the ploy dividing their P350,000.00 into small
grant the loans pursuant to the Rural the subject property. separate loans not exceeding P50,000.00 each, just to comply with the
Banks Act. ● Parties are in pari delicto. requirements of the law. Clearly, both petitioners and respondent are in pari
● Petitioners aver that the sugar crop ● Public policy requiring delicto, and neither should be accorded affirmative relief as against the
loans were merely simulated contracts rural banks to give other.
and, therefore, without any force and preference to small farmers
effect. in the granting of loans The public policy requiring rural banks to give preference to small farmers
● Petitioners impute all fault to will not be served if they in the grant of loans will not be served if a party, such as petitioners, who
respondent. allow the petitioners to had equal guilt in the circumvention of the Rural Banks Act, will be allowed
● Respondent cant invoke the pari recover the subject to recover the subject property.
delicto doctrine, because of the obiter property.
in Yuchngco v Velayo. Under the void loan and mortgage contracts, the parties, being in pari
delicto, cannot recover what they each have given by virtue of the contract.
2
Neither can the parties demand performance of the contract. No remedy or accordance with the Rural Banks
affirmative relief can be afforded the parties because of their presumptive act.
knowledge that the transaction was tainted with illegality. The courts will ● Contracts were merely simulated
not aid either party to an illegal agreement and will instead leave the parties contracts.
where they find them. Overall Ruling
In the case at bar the sugar crop loans were relatively simulated contracts
The parties having no cause of action against the other based on a void and that both parties intended to be bound thereby. There are two juridical
contract, and possession and ownership of the subject property being acts involved in relative simulation — the ostensible act and the hidden act.
ultimately vested in respondent, the latter can enter into a separate and In order for the actual agreement between the parties to be enforceable the
distinct contract for its alienation. Petitioners recognized respondent's concealed or hidden act should be lawful and the essential requisites of a
ownership of the subject property by entering into a Promise to Sell. The valid contract are present. In this case, the juridical act which binds the
Promise to Sell, an independent contract, did not ratify the void loan and parties are the loan and mortgage contracts, i.e., petitioners' procurement of
mortgage contracts. a loan from respondent. Although these loan and mortgage contracts were
concealed and made to appear as sugar crop loans to make them fall within
CA did not commit any error in not ratifying a void contract. Court affirms the purview of the Rural Banks Act, all the essential requisites of a contract
the CA ruling, ordering respondents to reimburse petitioners for their P250k were present. However, the purpose of the contract is illicit, intended to
downy payment. circumvent the Rural Banks Act requirement in the procurement of loans.
While the parties intended to be bound by the contract, the agreement is
void and inexistent under Article 1409 of the Civil Code.
The petitioner’s imputation that all the fault is on the respondent deserves
Issue #2 scant consideration. The petitioner had knowledge and voluntarily took part
The contract is void for being a simulated contract. in the scheme. The court finds that the fault for the nullity of the contract
Petitioner’s Arguments Court’s decision does not lie at respondent's feet alone, but at petitioners' as well. Neither of
● Petitioners admit that the loan ● Based on the facts, the sugar crop the two parties can maintain an action against the other pursuant to Article
was made to appear as several loans were relatively simulated 1412 of the Civil Code.
loans worth only P50,000 each, contracts and that both parties
even if they are not. This scheme intended to be bound thereby.
was done so that the rural bank
could grant the loans in
3
ART. 1409 OF THE CIVIL CODE WHEREFORE, premises considered, the petition is herebyDENIED. The
The following contracts are inexistent and void from the beginning: Decision of the Court of Appeals in CA-G.R. CV No. 40613 is hereby
(1) Those whose cause, object, or purpose is contrary to law, morals, AFFIRMED. Costs against petitioners.
good customs, public order, or public policy; SO ORDERED.
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the VII. Additional Notes
transaction;
(4) Those whose object is outside the commerce of men; VIII. Random Facts
(5) Those which contemplate an impossible service; ● Ponente: Nachura, J.
(6) Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained;
These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived.
ART. 1412 OF THE CIVIL CODE

If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may
recover what he has given by virtue of the contract, or demand the
performance of the other's undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover
what he has given by reason of the contract, or ask for the fulfillment of
what has been promised him. The other, who is not at fault, may demand the
return of what he has given without any obligation to comply with his
promise.
VI. Disposition
4
G.R. No. 192602 | January 18, 2017 Art. 1347
Sps. Villaluz v. LBP Sps. Villaluz v. LBP
● Recit-ready Summary object is impossible of existing at the time of transaction, to give effect to
Arts 1347, 1461, 1462. The cause in this case is NOT inexistent/impossible
Paula Agbisit, mom of petitioner May Villaluz, requested her daughter to because the cause of the real estate mortgage is the LOAN to be obtained by
provide her with collateral for a loan. Sps Villaluz allowed Agbisit to use Milflores Cooperative. The consideration/cause is not an impossible one,
their land as collateral. Sps Villaluz executed an SPA in favor of Agbisit because Land Bank was capable of granting the 3M loan. Land Bank even
released ⅓ of the loan a few days after the real estate mortgage was
which authorized Agsbit to negotiate the sale of the mortgage or other forms
executed. There was a perfected contract of loan. In the case at bar, the Real
of disposition of the land, and sign in behalf of the spouses all documents Estate Mortgage is a security contract, which is conditioned on the release
related to such. Agbisit then executed her own SPA, appointing Milflores of the loan amount. This suspensive condition was satisfied when Land
Cooperative as atto-in-fact in obtaining a loan from and executing a real Bank released the ⅓ of the loan, which consequently gave raise to the Sps
estate mortgage in favor of Land Bank. Milflores Cooperative executed a Villaluz’s obligations under the mortgage
Real Estate Mortgage in favor of Land Bank in consideration of the loan to
be extended by Land Bank. Land Bank partially released ⅓ of the total loan ● Facts of the Case (Material Facts)
amount, and then a few months later released the remaining amount. ● Paula Agbisit, mom of petitioner May Villaluz, requested her
Milflores was unable to pay so Lang Bank extra-judicially foreclosed the daughter to provide her with collateral for a loan
mortgaged property. Sps. Villaluz filed a complaint seeking to annul the ● Sps Villaluz allowed Agbisit to use their land as collateral
foreclosure sale. RTC and CA ruled in favor of Land Bank. Sps. Villaluz ○ Sps Villaluz executed an SPA in favor of Agbisit
argue that the Real Estate Mortgage should be void because the cause (the ○ This SPA authorized her to negotiate for the sale,
loan) was not yet existent when the mortgage was executed, pursuant to Art. mortgage, or other forms of disposition a parcel of land
1409 (3) AND to sign in our behalf all documents relating to the
sale, loan, or mortgage, or other disposition of the
W/N the real estate mortgage is void? NO aforementioned property
○ BUT the SPA did not specify the conditions under which
The Real Estate Mortgage must be interpreted in light of Art. 1409 (3) and the special powers may be exercised nor stated the
its related provisions. A literal interpretation of the phrase “did not exist at amounts for which the subject land may be sold or
the time of the transaction” would defeat the intent and purpose of Arts mortgaged
1347, 1461, 1462. THUS, the phrase should be interpreted as “could not
come into existence” because the object may legally be a future thing. Art
1409 (3) must be interpreted as referring to the contracts whose cause or
1
Obligations and Contracts (2020) PETITIONER: SPOUSES MAY S. VILLALUZ and JOHNNY VILLALUZ,
JR.
DIGEST AUTHOR: Mikhail Macasaet RESPONDENT: LAND BANK OF THE PHILIPPINES and the REGISTER
OF DEEDS FOR DAVAO CITY,
G.R. No. 192602 | January 18, 2017 Art. 1347
● Agbisit then executed her own SPA, appointing Milflores

Cooperative as atto-in-fact in obtaining a loan from and IV. Holding/s
executing a real estate mortgage in favor of Land Bank
● Milflores Cooperative, in a representative capacity, executed a Issue #1
Real Estate Mortgage in favor of Land Bank in consideration
of the loan to be extended by Land Bank No, the mortgage is not void.
● Land Bank partially released ⅓ of the total loan amount, and
then a few months later released the remaining amount Petitioner’s Arguments Court’s Rebuttals
● The Real Estate Mortgage ● The Real Estate Mortgage
● Milflores Cooperative was unable to pay its obligations to
is invalid must be interpreted in light of
Land Bank
Art. 1409 (3) and its related
○ Land Bank filed a petition for extra-judicial foreclosure provisions
sale ● phrase “did not exist at the
○ Land Bank was the highest bidder time of the transaction”
● Sps Villaluz filed a complaint seeking the annulment of the should be interpreted as
foreclosure sale “could not come into
● RTC and CA both ruled in favor of Land Bank and Agbisit existence”
● Sps Villaluz now come to the SC arguing that they now seek
to invalidate the Real Estate Mortgage for want of
consideration
○ positing that the mortgage was void because the loan was
not yet existent when the mortgage was executed
○ June 21, 1996 = mortgage was executed
○ June 25, 1996 = loan was released
III. Issue/s: W/N the mortgage is void? NO
2
JR.
G.R. No. 192602 | January 18, 2017 Art. 1347
Overall Ruling released ⅓ of the loan a few days after the real estate
mortgage was executed
● The Real Estate Mortgage must be interpreted in light of Art. 1409 (3) ○ Although the validity of the Real Estate Mortgage is
and its related provisions dependent on the validity of the loan, WHAT IS
○ Art 1347: all things which are not outside the commerce of ESSENTIAL is that the loan contract intended to be secured
men, including future things, may be the object of a contract is ACTUALLY PERFECTED
○ Arts 1461-1462: things having a potential existence and ● There was a perfected contract of loan
‘future goods’ i.e. those that are yet to be manufactured, ○ In the case at bar, the Real Estate Mortgage is a security
raised, or acquired may be the objects of contracts of sale contract, which is conditioned on the release of the loan
○ Art 1409: (void and inexistent) those whose cause or object amount
did not exist at the time of transaction ○ This suspensive condition was satisfied w hen Land Bank
■ A literal interpretation of the phrase “did not exist at released the ⅓ of the loan, which consequently gave raise to
the time of the transaction” would defeat the intent the Sps Villaluz’s obligations under the mortgage
and purpose of Arts 1347, 1461, 1462 ○ THUS, the only remedy afforded by the Civil Code to the
○ THUS, the phrase should be interpreted as “could not come Sps Villaluz is to proceed against the agent and substitute in
into existence” because the object may legally be a future accordance with Arts 1892-93 → they cannot assail the SPA
thing they executed in favor of Agbisit or the Real Estate
■ The court adopts this interpretation Mortgage
■ Art 1409 (3) must be interpreted as referring to the
contracts whose cause or object is impossible of
existing at the time of transaction, to give effect ● Law or Doctrine Applied
to Arts 1347, 1461, 1462
● The cause in this case is NOT inexistent/impossible ART. 1409 (3)
○ the cause of the real estate mortgage is the LOAN to be
obtained by Milflores Cooperative The following contracts are inexistent and void from the beginning:
○ the SC found this to be clear from the terms of the mortgage
document (3) Those whose cause or object did not exist at the time of the transaction
○ THUS the consideration is not an impossible one, because
Land Bank was capable of granting the 3M loan → LBP Art. 1347
3
JR.
G.R. No. 192602 | January 18, 2017 Art. 1347
All things which are not outside the commerce of men, including future things, may
be the object of a contract. All rights which are not intransmissible may also be the ● Disposition
object of contracts. WHEREFORE, the petition is DENIED. The Decision dated September 22,
2009 and Resolution dated May 26, 2010 of the Court of Appeals in
No contract may be entered into upon future inheritance except in cases expressly CA-G.R. CV No. 01307 are AFFIRMED.
authorized by law.
All services which are not contrary to law, morals, good customs, public order or ● Additional Notes
public policy may likewise be the object of a contract.
VII. Random Facts

● Ponente: Jardeleza, J.:
Art. 1461
Things having a potential existence may be the object of the contract of sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject to the
condition that the thing will come into existence.
The sale of a vain hope or expectancy is void.
Art. 1462
The goods which form the subject of a contract of sale may be either existing goods,
owned or possessed by the seller, or goods to be manufactured, raised, or acquired
by the seller after the perfection of the contract of sale, in this Title called “future
goods.”
There may be a contract of sale of goods, whose acquisition by the seller depends
upon a contingency which may or may not happen.
4
JR.
G.R. No. L-47986 and L-49018| July 16, 1984 Article 1378 and Article 1409
Marin v Adil Marin v Adil
I. Recit-ready Summary the Armadas in Cotobato and other properties in the provinces they expected
Aquilina Marin assigned to the Armadas (cousins) her share in the to inherit from their uncle.
estate of her deceased mother in Ilo-Ilo in exchange for the lots of the 2. In 1963, the estate of Proceso Pacificar (uncle of the Armadas and who
Armadas. However, in 1963, the expected inheritance of the Armadas from the Armadas expected to inherit from) had been adjudicated to Soledad
their uncle was adjudicated to Marin’s sister (Soledad) for which the Provido, Mrs Marin’s sister, who claimed to be Procesos only heir. The
Armadas sued. The litigation ended with a compromise agreement in 1976 Armadas then sued Soledad.
were the Armadas were given the lots they expected. Marin never owned 3. In 1976, it ended with a compromise agreement when the Armadas were
the aforementioned lots of the Armadas as they were supposed to be awarded lots in General Santos of a total of 8124 sqm. Mrs. Marin never
exchanged with her share in her parents estate. But Marin never inherited possessed these lots. They were supposed to be exchanged for a proindiviso
from her parents as she chose to forget the deed and her conduct also share in her parent’s estate.
showed that she did not consider herself to be bound by such deed. She 4. Mrs. Marin never actually inherited from her parents. She choose to
actually conveyed her share to her sister (Aurora) in payment of Marin’s forget the deeds and her conduct shows that she considered herself not
obligation. Armadas then filed the recissory action. The trial court only bound by it. 5 years after the deed, she conveyed to her Aurora (sister) her
resolved the issue on prescription as the action of the Armadas had not two lots in Ilo-Ilo in payment of her obligation of 1,700 pesos.
prescribed. Judge Adil then rescinded the exchange. Marin then appealed to 5. In 1977 during the extrajudicial partition of the estate of Mrs. Marin’s
the Supreme Court. The main issue in the case is whether or not the deed of parents, her share, which was supposed to be exchanged with the lots of the
exchange is void or in-existent. The Supreme Court ruled that it is void. The Armadas, was formally adjudicated to Aurora.
court reasoned that it evident from the deed of exchange that the intention of 6. The Armadas filed the instant rescissory action against Mrs. Marin on
the parties relative to the lots, which are the objects of the exchange, cannot 1976, overlooking the fact that Ariston was not bound by the deed since it
be definitely ascertained, therefore it is void. This is according to Article was Manuel who signed for him having no authority to do so.
1378 and 1409 of the Civil Code. Paragraphs 7 and 8 are irreconcilable 7. There was no trial and the case was submitted on the pleading. The trial
because the former contemplates that the properties are still to be awarded court resolved only the issue on prescription since the action of the Armadas
or adjudicated to the parties whereas the latter contemplates a situation had not prescribed as thier right to rescind accrued only in 1976 when they
where the parties have already control and possession. A perusal of the deed discovered that Mrs. Marin could not perform the obligation.
gives the impression that it involves many properties even it if actually 8. Judge Adil rescinded the exchange and ordered Marin to pay damages.
refers to 8,124 sqm of land the Armadas would inherit and Mrs. Marin 9,000 9. Marin appealed to the Supreme Court.
sqm share in parent’s estate. Mrs. Marin rendered impossible the III. Issue/s
performance of her obligation under the deed which allows the Armadas to 1. W/N the deed of exchange is void or in-existent. (YES)
rescind extrajudically the deed. IV. Holding/s
II. Facts of the Case (Material Facts) Issue #1
1. Aquilina Marin assigned to the Armada brothers her hereditary share in The deed of exchange is void or in-existent
the testate estate of her deceased mother in Ilo-ilo in exchange for land of
Petitioner’s Arguments Court’s Rebuttal
Obligations and Contracts (2020) PETITIONER: Aquilina and Antonio Marin 1

DIGEST AUTHOR: Himerio Garcia RESPONDENT: Judge Midpantao Adil, Provincial Sheriff, Register of
Deeds, Manuel Armada, and Ariston Armada.
 The deed of exchange is not  It is void for since it is evident

void that the intention of the parties
 She can convey her properties cannot be definitely
to her sister when the Armadas ascertained.
should be adjudged to be  Her defense was not found as a V. Law or Doctrine Applied
without rights or interests to qualification in her agreement
Art. 1378.
any properties in General with her sister.
When it is absolutely impossible to settle doubts by the rules established in
Santos. the preceding articles, and the doubts refer to incidental circumstances of a
Overall Ruling gratuitous contract, the least transmission of rights and interests shall prevail.
If the contract is onerous, the doubt shall be settled in favor of the greatest
It is evident from the deed of exchange that the intention of the parties reciprocity of interests.
relative to the lots, which are the objects of the exchange, cannot be
definitely ascertained. The Court holds that this circumstance renders the If the doubts are cast upon the principal object of the contract in such a
exchange void or in-existent according to Article 1378 and 1409 of the Civil way that it cannot be known what may have been the intention or will
Code. of the parties, the contract shall be null and void.
It is provided in Par 7 of the deed that it construed as an acknowledgment by Art. 1409.

the Armadas and Mrs. Marin that they are entitled to the properties involved The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good
therein and that it was executed "in anticipation of a declaration of" their
customs, public order or public policy;
rights to the properties. It is also said in Par 8 of the deed that the parties
should take possession and make use of the properties involved in the deed. (2) Those which are absolutely simulated or fictitious;
These two paragraphs are irreconcilable because the former contemplates
that the properties are still to be awarded or adjudicated to the parties (3) Those whose cause or object did not exist at the time of the transaction;
whereas the latter contemplates a situation where the parties have already
control and possession. (4) Those whose object is outside the commerce of men;
The properties covered by the deed should have been specified and
described. A perusal of the deed gives the impression that it involves many (5) Those which contemplate an impossible service;
properties even it if actually refers to 8,124 sqm of land the Armadas would
inherit and Mrs. Marin 9,000 sqm share in parent’s estate. Mrs. Marin (6) Those where the intention of the parties relative to the principal
rendered impossible the performance of her obligation under the deed which object of the contract cannot be ascertained;
allows the Armadas to rescind extrajudically the deed. Marin is precluded to
sue the Aramadas because it is her who did not perform her part in the
agreement.

These contracts cannot be ratified. Neither can the right to set up the defense
of illegality be waived.
Art. 1410.
The action or defense for the declaration of the inexistence of a contract
does not prescribe.
VI. Disposition
WHEREFORE, the trial court's judgment and the order of execution

pending appeal are set aside. The deed of exchange is hereby declared
void and inexistent. The annotation thereof on TCT Nos. 10833 and
10834 should be cancelled. The Armadas' claim for damages and
attorney's fees is denied. Aquilina Provido-Marin's counterclaim is
dismissed. No costs.
SO ORDERED.

Relevant Stipulations of the Deed of Exchange with Quitclaim
7. That it is specifically understood and agreed that the execution of this
document by the parties hereto shall in no way be construed as an
acknowledgment on his or her part that the other is or are entitled in the
properties heretofore quitclaimed but only in anticipation of a declaration of
said right;
8. That the parties hereto shall take possession of and make use of the
properties subject of this DEED OF EXCHANGE AND QUITCLAIM upon
the signing of the same;
VII. Random Facts

 Ponente: Aquino, J.

G.R. No. 164584 | June 22, 2009 Void and Inexistent Contracts (Counter-example)
Matthews vs. Taylor Matthews vs. Taylor
I. Recit-ready Summary 5. However, Joselyn leased the Boracay property to petitioner Philip
Respondent Joselyn Taylor (Filipina) purchased a Boracay property and Matthews in an Agreement of Lease. The lease was for 25 years with
improved it for use as a tourist resort. The purchase and improvements were an annual rental of P12,000. Matthews took possession of the
financed by her husband co-respondent Benjamin Taylor (British). The two property.
had a falling out. Subsequently, Joselyn leased the Boracay property to 6. Benjamin filed for Declaration of Nullity of Agreement of Lease
petitioner Philip Matthews in an Agreement of Lease. with Damages against Joselyn and Matthews, alleging that he did
Benjamin filed for Declaration of Nullity of Agreement of Lease with not consent to the agreement.
Damages, claiming that he consent was not obtained for the lease. The RTC
7. The RTC declared the agreement void. It rendered the judgment in
ruled for Benjamin, declared the lease agreement void, and ordered Joselyn
default as there was no answer filed.
and Matthews to pay damages. The CA affirmed. Matthews appealed to the
SC. 8. The CA set aside the decision and ordered the RTC to take
The issue is whether or not the Agreement of Lease is void because Matthews’ answer and proceed with the case.
Benjamin did not consent to it. The SC ruled that no, the Agreement of Lease 9. The RTC ruled for Benjamin, declared the lease agreement void, and
is not void absent Benjamin’s consent. ordered Matthews and Joselyn to pay damages to Benjamin for
Benjamin, an alien, is constitutionally prohibited from acquiring public and unrealized income on the property.
private Philippine land. No implied trust is created in his favor when Joselyn 10. The CA affirmed, adding that Joselyn already executed the SPA in
bought the Boracay property, which cannot be part of their community favor of Benjamin.
property. Joselyn acquired sole ownership of the Boracay property. Benjamin 11. Matthews appeals to the SC in the present case.
has no right to question, much less ask for the nullification of the lease of the
Boracay property, over which he has no ownership rights. The Agreement of III. Issue/s
Lease cannot be nullified for the grounds raised by Benjamin, and so the 1. W/N the Agreement of Lease is void for not having the consent
Court upholds its validity. of Benjamin, the British husband? NO.
IV. Holding/s
1. Respondents Benjamin Taylor (British) and Joselyn Taylor Issue #1
(Filipina) married on June 30, 1988. NO, the Agreement of Lease is not void for not having Benjamin’s
2. Joselyn bought a 1,294 square-meter property in Boracay for consent.
P129,000 allegedly financed by Benjamin. It was improved and Respondent’s Arguments Court’s Rebuttals
transformed into a tourist resort, also at Benjamin’s expense.  Respondent Benjamin argues  Benjamin, an alien, is absolutely
3. Benjamin and Joselyn had a falling out. that it was his funds used in prohibited from acquiring
4. Joselyn executed a Special Power of Attorney (SPA) in favor of purchasing and adding private and public lands in the
Benjamin, who is now authorized to enter into contracts with third improvements to the Boracay Philippines even if he pays for it.
parties over the Boracay property. property.
1
Obligations and Contracts (2020) PETITIONER: Philip Matthews
DIGEST AUTHOR: Kara Nazario RESPONDENT:Benjamin Taylor & Joselyn Taylor
G.R. No. 164584 | June 22, 2009 Void and Inexistent Contracts (Counter-example)
Matthews vs. Taylor Matthews vs. Taylor
 He also contends that the  No implied trust was created in

Boracay property is part of his Benjamin’s favor when Joselyn ART. XIII SEC. 7 1987 CONSTITUTION: ALIENS CANNOT OWN PUBLIC
OR PRIVATE PH LAND
and Joselyn’s absolute bought the Boracay property.
Save in cases of hereditary succession, no private lands shall be transferred
community property. Thus, his The property cannot be part of
or conveyed except to individuals, corporations, or associations qualified to
consent was necessary in the spouses’ community acquire or hold lands of the public domain.
transactions involving the property. Joselyn acquired sole
property. Since his consent was ownership over it. Aliens, whether individuals or corporations, have been disqualified from
not obtained for the Agreement  If the property were to be acquiring lands of the public domain. Hence, by virtue of the aforecited
of Lease, such agreement is declared conjugal, this would constitutional provision they are also disqualified from acquiring private
void. accord the alien husband a lands.
substantial interest and right over
the land. This is prohibited by the NO IMPLIED TRUST OVER PH LAND (MULLER V MULLER)
Constitution. No implied trust over Philippine land is created by operation of law for
foreign spouses. There is a clear constitutional prohibition of foreigners
 Benjamin has no right to
owning PH land.
question nor nullify the
Agreement of Lease between ILLEGAL CONTRACT: FOREIGNER OBTAINS PH LAND (FRENZEL V
Joselyn and Matthews CATITO)
 The lease cannot be nullified on A foreign citizen acquired real property using the name of his Filipino mistress. He
cannot recover these properties through court action because the contract of sales were
the grounds advanced by
illegal, and his objective was illegal.
Benjamin. The Court upholds its
validity. VI. Disposition
Overall Ruling
WHEREFORE, premises considered, the December 19, 2003 Decision and July 14,
Benjamin, an alien, is absolutely prohibited from acquiring private and 2004 Resolution of the Court of Appeals in CA-G.R. CV No. 59573, are
public lands in the Philippines. He does not have an implied trust over the REVERSED and SET ASIDE and a new one is entered DISMISSING the complaint
Boracay property, and it is not part of the community property of his against petitioner Philip Matthews.
marriage. His Filipina spouse obtained sole ownership of the property.
Benjamin has no capacity to question, much less ask for the nullification VII. Additional Notes
of the Agreement of Lease. That he did not consent to it is of no moment.
The Agreement of Lease cannot be nullified for the grounds raised by VII. Random Facts
Benjamin, and so the Court upholds its validity.  Ponente: Nachura, J.

2
Obligations and Contracts (2020) PETITIONER: Philip Matthews
DIGEST AUTHOR: Kara Nazario RESPONDENT:Benjamin Taylor & Joselyn Taylor
Heirs of Donton v. Stier Heirs of Donton v. Stier
I. Recit-ready Summary oClaimed that Stier was an American citizen and a non-
resident alien who is not allowed by law to own any real
When Donton was in the US, he discovered that Stier and Maggay took property in the Philippines
possession of his property through fraudulent means – they were able to IV. RTC ruled in favor of respondents
transfer ownership of the subject property in their names. Upon his return to o Donton failed to prove that that Stier was an American
the PH, Donton filed a complaint for the annulment of title and conveyance citizen
of property. He claimed that Stier was an American citizen and a non- V. CA affirmed the RTC decision
resident alien who is not allowed by law to own any real property in the
Philippines. RTC ruled in respondents’ favor and the CA affirmed. I. Issue/s
The issue in this case is: W/N STIER IS AN AMERICAN CITIZEN, W/N STIER IS AN AMERICAN CITIZEN, THEREBY RENDERING THE
THEREBY RENDERING THE SALE OF THE SUBJECT PROPERTY VOID SALE OF THE SUBJECT PROPERTY VOID AS TO HIM? YES!
AS TO HIM? YES!
II. Holding/s
The SC held that Stier is an American citizen, so the sale of the property to
him is void. The Certification issued by the Bureau of Immigration clearly Issue #1
states that Stier is an American citizen. Further, it is stated in Sec.7 Art. 12 YES, HE IS AN AMERICAN CITIZEN
of the Constitution that foreigners are prohibited from acquiring real
property in the Philippines. The Court then explained that a contract that
violates the constitution and law is null and void, vests no rights, and creates Petitioner’s Arguments Court’s Rebuttals
no obligations. Since Stier is an American citizen, the deed of sale is void • That Stier is an American citizen, • no rebuttals, the court agreed
on his part. HOWEVER, the sale of the property to Maggay remains valid so the sale of the property to him
up to the extent of her undivided ½ share (in connection with Art. 1420.) is void
I. Donton was in the US when he discovered that respondents, Stier

and Maggay, had taken possession of his property
II. Donton was forced to return to the Philippines
o Donton eventually learned that respondents, through
fraudulent means, were able to transfer ownership of the
subject property in their names
III. Donton filed a complaint for the annulment of title and conveyance
of property
Obligations and Contracts (2020) PETITIONER: Heirs of Donton 1

DIGEST AUTHOR: Julianna Soberano RESPONDENT: Stier
Heirs of Donton v. Stier Heirs of Donton v. Stier
Overall Ruling
In case of a divisible contract, if the illegal terms can be separated from the
• The SC held the lower courts erred in ruling that Stier’s American legal ones, the latter may be enforced.
citizenship was not proven
o The Certification issued by the Bureau of Immigration IV. Disposition
clearly states that Stier is an American citizen
Records contain other documents that validate WHEREFORE, the petition is PARTLY GRANTED PARTLY GRANTED.
this information The Decision dated June 13, 2014 and the Resolution dated January 21, 2015
of the Court of Appeals in CA-G.R. CV No. 97138, which a rmed the
• In light of Sec.7 Art. 12 of the Constitution, foreigners are
dismissal of the complaint led by petitioners on the ground of insufficiency
prohibited from acquiring real property in the Philippines
of evidence, are hereby REVERSED and SET ASIDE SET ASIDE, and a
o Aliens are disqualified from acquiring lands of public
NEW ONE NEW ONE is entered: (1) annulling the Deed of Absolute Sale
domain and private lands
dated July 16, 2001 insofar as respondent Duane Stier is concerned; (2)
• A contract that violates the constitution and law is null and void,
annulling Transfer Certificate of Title No. N-225996 insofar as respondent
vests no rights, and creates no obligations
Duane Stier is concerned; and (3) directing the Registry of Deeds of Quezon
o It produces NO legal effect at all
City to issue a new title in the name of Peter Donton and Emily Maggay, all
• Not mentioned: Art. 1409 (1) without prejudice to the rights of any subsequent purchasers for value of the
o Contracts whose cause, object, or purpose is contrary to subject property.
law, morals, good customs, public order or public policy
are inexistent and void from the beginning V. Additional Notes
• Since Stier is an American citizen, the deed of sale is void on his
part VII. Random Facts
o Stier is barred from recovering any amount that he paid
for the subject property
• The sale of the property to Maggay remains valid up to the extent
of her undivided ½ share
o Court held that no fraudulent means were employed
Donton failed to prove that he was physically
absent when the Deed of Sale was executed
Donton failed to prove there was forgery
** SC DID NOT MENTION THIS BUT I THINK ART. 1420 APPLIES (in
relation to oblicon)
Obligations and Contracts (2020) PETITIONER: Heirs of Donton 2

DIGEST AUTHOR: Julianna Soberano RESPONDENT: Stier
G.R. No. 211425 | November 19, 2018 Void or Inexistent Contracts (Article 1410)
Heirs of Arao v Heirs of Eclipse Heirs of Arao v Heirs of Eclipse
I. Recit-ready Summary 3. The subject controversy of this case is the 5,587 sqm land in
This case is about the claim of the successors-in-interest of spouses Tuguegarao City, Cagayan owned by Policarpio Eclipse
Policarpio Eclipse and Cecilia Errera (spouses Eclipse), herein respondents, (Policarpio), married to Cecilia Errera (spouses Eclipse), and
of a property from the heirs of Tomas Arao (Tomas) herein petitioners. The covered by Original Certificate of Title (OCT) No. 1546.
subject land is a 5,587 sqm land located in Tuguegarao City, Cagayan. 4. In sum, there are four Deeds of Absolute Sale involved (according
The said land was originally owned by the spouses Eclipse which was to how it was presented in the case):
allegedly sold to Tomas Arao as evidenced by the 1969 Deed of Sale. It was a. 1969: From registered owners Policarpio to Tomas who was
subsequently sold by Tomas to his children. However, in 1994, respondents married granted in favor of Tomasa Balubal
argued that said deed was forged claiming that before 1969, spouses Eclipse b. 1977: From Tomas granted in favor of his children (Eulalia,
had already died. Proceso and Felipa Arao)
On the counterclaim, petitioners claimed that their ownership is based c. 1940: From children of Eclipse (Pedro, Eufemia, Honorato and
on the 1940 Deed of Sale which intended to transfer ownership from the Maria Eclipse) granted in favor of Paulino Arao who died
children of spouses Eclipse to Paulino Arao whose heir was Tomas. Further, intestate whose only heir was Tomas Arao (Tomas)
they claimed good faith by stating that even if they knew that the 1969 deed d. 1949: From Gavino Arao (who happened to be Paulino)
was fraudulent, they did not do it to acquire ownership but to expedite granted in favor of Tomas
transfer of ownerships. 5. It was only in 1994 that the respondents discovered that the land in
RTC held that the 1969 Deed of Sale was forged and that laches had question had been subject of a Deed of Absolute Sale in 1969 by
set in. CA upheld the forgery of said deed but reversed the application of which the registered owner, Policarpio, sold the land in question to
laches and granted reconveyance of said land to respondents. Tomas Arao.
The Court resolved the following issues: 1) W/N said 1969 Deed of 6. CLAIM: Respondents in this case averred that the Deed of
Absolute Sale is null and void despite the good faith claimed by the Absolute Sale executed in 1969 was a forgery because at the time
petitioners; 2) W/N the laches are applicable in this case - barring the of the execution, Policarpio and Cecilia died on November 21,
cancellation of said contracts And 3) W/N reconveyance may be granted 1936 and Jun 3, 1925, respectively. Hence, the 1977 sale was also
in favor of respondents. void.
It held that: 1) YES, because of the settled rule that death terminates 7. Respondents filed their present action for Nullity of a Deed of
contractual capacity, hence, it conveys no title and their good faith is of no Absolute Sale and Reconveyance of Lot No. 1667, Recovery of
defense; 2) NO as it was void ab initio, and even if it was not, Ownership and Possession with Damages
cancellation of title based on nullity of the deed of conveyance is 8. COUNTERCLAIM: Petitioners in this case first moved for the
imprescriptible; and 3) NO, as respondents merely argued lack of dismissal of the complaint on the grounds of prescription – which
registration of the 1940 Deed of Sale which an element to acquiring was denied. Next, they presented the 1940 and 1949 Deeds of
ownership – hence, failing to prove that they are the rightful owners. Absolute Sale to prove that there was indeed a transfer of
ownership from Eclipse’s to Arao’s.
II. Facts of the Case (Material Facts) 9. RTC: Dismissed the complaint and the counterclaim
1. Petitioners in this case are the heirs of Eulalia, Proceso and Felipa a. 1969 Deed of Sale was a forgery – it conferred no right in
Arao who are the children of Tomas Arao. favor of Tomas’ heirs
2. Respondents in this case are the spouses Eclipse’s successors-in- b. Laches had set in – the when the 1969 Deed of Sale was
interest. registered, it served as a constructive notice to the Eclipse’s,
Obligations and Contracts (2020) PETITIONER: Heirs of Tomas Arao et. al 1

DIGEST AUTHOR: Leslie Castillo RESPONDENT: Heirs of Pedro Eclipse et. al
however, instead of acting annulling the title and recovering faith is debunked by their
the land, they slept on their rights for 32 years, 1 month and 4 knowledge that the registration of
days the subject land in favor of their
10. CA: Upheld that there was forgery but directed the reconveyance predecessor is procured on the
of the property to Eclipse’s as laches are not applicable because the basis of a fraudulent deed.
cause of action is imprescriptible
Overall Ruling
III. Issue/s Since the Deed of Absolute Sale dated September 5, 1969 is null and void, it
1. W/N said 1969 Deed of Absolute Sale is null and void despite the follows then that all the TCTs which were issued by virtue of the said
good faith claimed by the petitioners? YES. spurious and forged document are also null and void. It is important to note
2. W/N the laches are applicable in this case - barring the that the subsequent titles did not cure the forgery.
cancellation of said contracts? NO. In relation to good faith, the Court then set the directive the parties to
3. W/N reconveyance may be granted in favor of respondents? NO. execute all necessary documents as required by law to effect the smooth
issuance of the new Certificate of Title based on the 1940 Deed of Sale
IV. Holding/s
(which effected the intent to transfer the ownership over the subject land)
similar to what they held in the case of Spouses Aguinaldo v. Torres, Jr.
Issue #1
Note that the Court also made mention that the 1949 Deed of Sale was of no
Yes, because of the settled rule that death terminates contractual capacity,
bearing as it was hard to determine the real intention of said document –
hence, it conveys no title and their good faith is of no defense.
with or without it, the intent to transfer ownership was already determined
Petitioner’s Arguments Court’s Rebuttals from the 1940 Deed.
• They admitted that the 1969 • By the very reason that one party
Deed of Absolute Sale was to a supposed contract was Issue # 2
forged but justified because it already dead at the time of its No as it was void ab initio, and even if it was not, cancellation of title
was made to cut short the execution, such contract is based on nullity of the deed of conveyance is imprescriptible.
circuitous process of transferring undoubtedly simulated and false, Petitioner’s Arguments Court’s Rebuttals
the title of the property early as and, therefore, null and void. This • Respondents are barred by laches • Laches [see Notes] do not apply as
1940. Deed of Sale is is forged. from pursuing their cause of action the action to declare action to
• Further, they argued that even if • They cannot argue that by good given their inaction for more than declare the inexistence of a void
it was indeed fraudulent, they faith is a valid source of legal 30 years, despite being fully aware contract does not prescribe
still acquired a valid right and rights. Good faith consists in the of the petitioners' adverse pursuant to Article 1410 of the
legal title being buyers in good belief of the possessors that the possession and claim over the Civil Code.
faith and for value pursuant to persons from whom they received subject property. • The Court applied its ruling the
the settled rule that a forged deed the thing are rightful owners who case of Fil-Estate Golf and
of sale may be a valid source of could convey their Development Inc. v Navarro.
legal rights. title. Petitioners' claim of good


The positive mandate of Art. 1410 of the New Civil Code conferring ARTICLE 1410, NEW CIVIL CODE
ARTICLE 1410. The action or defense for the declaration of the inexistence of a contract does
imprescriptibility to actions for declaration of the inexistence of a contract not prescribe.
should pre-empt and prevail over all abstract arguments based only on
equity. FIL-ESTATE GOLF and DEVELOPMENT INC v NAVARRO
The Court held that a complaint for cancellation of title based on the nullity of the deed of
conveyance does not prescribe.
Issue #3
SPOUSES AGUINALDO v TORRES JR.
No, as respondents merely argued lack of registration of the 1940 Deed of To be sure, the directive to execute a registrable deed of conveyance in respondent's favor -
Sale which an element to acquiring ownership – hence, failing to prove that albeit not specifically prayed for in respondent's Answer with Counterclaim - is but a necessary
they are the rightful owners. consequence of the judgment upholding the validity of the sale to him, and an essential measure
to put in proper place the title to and ownership of the subject properties and to preclude further
Petitioner’s Arguments Court’s Rebuttals contentions thereon. As aptly explained by the CA, "to leave the 1991 deed of sale as a private
• Respondents did not prove that • Respondents failed to prove that one would not necessarily serve the intent of the country's land registration laws, and resorting
they are the owners of the lot in they are the rightful owners of to another action merely to compel the petitioners to execute a registrable deed of sale would
unnecessarily prolong the resolution of this case, especially when the end goal would be the
litigation and that petitioners' the lot in question. same." (As mentioned in the instant case, it states that a judgment should be complete by itself;
registration of the property is • The only attempt to invalidate hence, the courts are to dispose finally of the litigation so as to preclude further litigation
erroneous, fraudulent and the 1940 Deed of Sale that the between the parties on the same subject matter, thereby avoiding a multiplicity of suits between
respondents did was argue that the parties and their privies and successors-in-interests.)
wrongful. They argued that even
assuming that reconveyance is said Deed of Sale was not
registered in the Registry of VI. Disposition
proper, the 10-year prescriptive WHEREFORE, the petition is PARTLY GRANTED. The assailed Decision dated June 7,
Deeds. 2013 of the Court of Appeals, in CA-G.R. CV No. 93660, is AFFIRMED with
period to institute the same had
• While it is true that the deed MODIFICATION, to read as follows:
long prescribed. was not registered, it was, 1. Declaring as NULL and VOID the Deed of Absolute Sale dated September 5, 1969
however, notarized. It bears to for being fictitious, inexistent and without any legal force and effect.
2. Consequently, Transfer Certificates of Title No. T-13798 and T-39071 are likewise
stress that non-registration of a declared NULL and VOID for being issued based on the aforesaid forged and
Deed of Sale is not sufficient to fictitious Deed of Sale dated September 5, 1969.
nullify the agreement of the 3. Declaring as VALID the Deed of Sale dated June 25, 1940.
parties embodied therein, 4. Declaring petitioners to be the LAWFUL owners and possessors of the subject Lot
No. 1667 by virtue of the valid Deed of Sale dated June 25, 1940.
especially if the same is 5. Directing the parties to EXECUTE pertinent documents required by law to effect
acknowledged before a Notary the issuance of a new Transfer Certificate of Title in favor of petitioners, heirs of
Public. Tomas Arao represented by Proceso Arao, Eulalia Arao-Maggay, Gabriel Arao and
Felipa A. Delelis.
Overall Ruling
They are valid and binding between the parties thereto even if said deeds of
sale were not registered with the Register of Deeds, since registration is not
a requirement for validity of the contract as between the parties as it serves • Aequetas nunguam contravenit legis. Laches is a doctrine in equity
chiefly to bind third persons. and our courts are basically courts of law and not courts of equity.
Equity, which has been aptly described as "justice outside legality,"

should be applied only in the absence of, and never against,

statutory law. Certainly, laches cannot be set up to resist the
enforcement of an imprescriptible legal right, and petitioners can
validly vindicate their inheritance despite the lapse of time.
• Nullity is susceptible to collateral and direct attack.
• The general rule is that if the conveyance is not registered, it is not
valid against any person. But there are recognized exceptions. The
conveyance is still valid as to (1) the grantor; (2) the grantor's heirs
and devisees; and (3) third persons having actual notice or
knowledge thereof.
VIII. Random Facts
• Ponente: J. Reyes Jr.,J.

G.R. No. 165088 | March 17, 2006 Void or Inexistent Contracts: Art. 1412 v. 1411 & Object v. Cause
Ramirez v Ramirez Ramirez v Ramirez
I. Recit-ready Summary II. Facts of the Case

Potenciano Ramirez (father of Cecilia) led a complaint against Ma. 1. On October 8, 1996, Potenciano Ramirez (father of Cecilia) led a
Cecilia Ramirez (daughter of Potenciano) for annulment of: (1) a Deed of complaint against Ma. Cecilia Ramirez (daughter of Potenciano) for
Donation, (2) Waiver of Possessory Rights, (3) Transfer Certificates of Title annulment of:
Nos. T-5618 and T-5617. The Deed of Donation and Waiver of Possessory 1) a Deed of Donation
Rights were allegedly executed by Potenciano and his wife, Dolores 2) Waiver of Possessory Rights
Ramirez, on January 29, 1993 and October 24, 1995, respectively. BUT 3) Transfer Certificates of Title Nos. T-5618 and T-5617
Dolores died on April 5, 1991 which meant she could not have executed the 2. Potenciano claimed that Cecilia allegedly
assailed documents. Potenciano repudiated the other signatures appearing on • caused the execution of the Deed of Donation and Waiver of
the two documents that were purportedly his and insisted that he did not Possessory Rights to acquire ownership over the land and
intend to transfer the properties to respondent. Cecilia then claimed that her improvements then covered by TCT Nos. T-4575 and T- 4576
father, Potenciano, would not have led the case were it not for the fact that • succeeded, using the Deed of Donation, in having TCT Nos. T-
he remarried despite his age of 84 years, and that it was her father's idea to 4575 and T-4576 cancelled and TCT Nos. T-5618 and T-5617
cause the preparation of the Deed of Donation and Waiver of Possessory issued in her name
Rights to save on expenses for publication and inheritance taxes. RTC and • with the Waiver of Possessory Rights, she was able to cause the
CA both ruled that the parties were in pari delicto. Office of the City Assessor to transfer to her name the tax
declarations on the improvements in the land
The issue for this case is W/N petitioner and respondent are in pari
3. The Deed of Donation and Waiver of Possessory Rights were allegedly
delicto? The SC ruled YES, the parties are in pari delicto, however, not
based on Art. 1412, as ruled by the CA and RTC, but rather under Art. executed by Potenciano and his wife, Dolores Ramirez, on January 29, 1993
1411 of the CC, where the act involved constitutes a criminal offense, and October 24, 1995, respectively.
since forgery is found to be a criminal offense. Article 1412 of the Civil 4. BUT based on Dolores’ death certificate she died on April 5, 1991 which
Code refers to a situation where the cause of the contract is unlawful or meant she could not have executed the assailed documents.
forbidden but, unlike Art. 1411, does not constitute a violation of the 5. Potenciano repudiated the other signatures appearing on the two
criminal laws. Petitioner tries to prove that Art. 1411 does not apply to this documents that were purportedly his and insisted that he did not intend to
case, but does not succeed for failing to recognize the difference between transfer the properties to respondent.
“cause” and “object.” The SC differentiates that “object” refers to the 6. Cecilia then claimed that her father, Potenciano,
subject matter of the donation, whereas, “cause” refers to the essential • would not have led the case were it not for the fact that he
reason which moves the parties to enter into the transaction. Although remarried despite his age of 84 years.
Potenciano is correct in stating that the object of the donation is legal, his
• it was her father's idea to cause the preparation of the Deed of
argument misses the point insofar as the cause is concerned. The cause
which moved the parties to execute the Deed of Donation and the Waiver of Donation and Waiver of Possessory Rights to save on expenses for
Possessory Rights, the motive behind the forgery, is the desire to evade the publication and inheritance taxes
payment of publication expenses and inheritance taxes, which became due RTC – forgery only on the Deed of Donation
upon the death of Dolores. Hence, the Deed of Donation and the Waiver of CA – forgery on both the Deed of Donation and Waiver of Possessory
Possessory Rights were executed for an illegal cause, and consequently Rights
completing all the requisites for the application of Article 1411. RTC and CA both ruled that the parties were in pari delicto.
Obligations and Contracts (2020) PETITIONER: Potenciano Ramirez 1

DIGEST AUTHOR: Steph Naval RESPONDENT: Ma. Cecilia Ramirez
Overall Ruling
III. Issue/s The Court agrees with the rulings of the CA and the RTC that petitioner and
1. W/N petitioner and respondent are in pari delicto? YES. But not respondent are in pari delicto. Nevertheless, both courts erred on the
based on Art. 1412, but rather under Art. 1411 of the CC, where applicable law. Article 1412 of the Civil Code, which they applied, refers to
the act involved constitutes a criminal offense. (Refer to Law a situation where the cause of the contract is unlawful or forbidden but does
Applied for the difference of the articles) not constitute a violation of the criminal laws.
IV. Holding/s Although Potenciano is correct in stating that the object of the donation is
Issue #1 legal, his argument misses the point insofar as the cause is concerned. The
YES, the parties are in pari delicto, however, not based on Art. 1412, as cause which moved the parties to execute the Deed of Donation and the
ruled by the CA and RTC, but rather under Art. 1411 of the CC, where Waiver of Possessory Rights, the motive behind the forgery, is the desire to
the act involved constitutes a criminal offense. evade the payment of publication expenses and inheritance taxes, which
Court’s Rebuttals Petitioner’s Arguments became due upon the death of Dolores. Undeniably, the Deed of Donation
• Under Art. 1411, it must be shown that the • Tries to prove that Art. and the Waiver of Possessory Rights were executed for an illegal cause, thus
nullity of the contract proceeds from (1) 1411 does not apply to completing all the requisites for the application of Article 1411.
an illegal cause or object, and (2) the act this case
of executing said contract constitutes a • claims that the "object
Both petitioner and respondent are, therefore, in pari delicto. Neither one
criminal offense (for this case, forgery, or cause" (of the Deed
which already has been proven to be a may expect positive relief from the courts from their illegal acts and
of Donation and of the
criminal offense under Section 4, Title IV Waiver of Possessory transactions. Consequently, they will be left as they were at the time the
of the Revised Penal Code) Rights) is the transferred case was filed.
• Refer to Petitioner’s Arguments real properties and that
• Object and cause are two separate there is nothing illegal V. Law or Doctrine Applied
elements of a donation and the illegality about that
of either element gives rise to the • the illegality instead IN PARI DELCTO
application of the doctrine of pari delicto. stems from the act of Latin for “in equal fault”
• Object – the subject matter of the forgery which pertains
DONATIONS INTER VIOS
donation to consent, which is not As one of the modes of acquiring ownership, donations are governed by Title 3,
• Cause – the essential reason which moves material to the Book III, of the Civil Code. Donations inter vivos are additionally governed by the
the parties to enter into the transaction. application of Article general provisions on obligations and contracts in all that is not determined by the
1411. title governing donations. Hence, the rule on pari delicto under the general
provisions of contracts is applicable to the present case.
ARTICLE 1412 OF THE CC

If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may
recover what he has given by virtue of the contract, or demand the performance of
the other's undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover
what he has given by reason of the contract, or ask for the fulfillment of what has
been promised him. The other, who is not at fault, may demand the return of what he
has given without any obligation to comply with his promise.
ARTICLE 1411 OF THE CC

When the nullity proceeds from the illegality of the cause or object of the
contract, and the act constitutes a criminal offense, both parties being in pari delicto,
they shall have no action against each other, and both shall be prosecuted. Moreover,
the provisions of the Penal Code relative to the disposal of effects or instruments of a
crime shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the
innocent one may claim what he has given, and shall not be bound to comply with
his promise.
FORGING A PERSON’S SIGNATURE

Forging a person's signature corresponds to the felony of falsification under Section
4, Title IV of the Revised Penal Code. Hence, the act of forging Dolores's signature
constitutes a criminal offense under the terms of Article 1411 of the Civil Code.
VI. Disposition
WHEREFORE, the petition is DENIED. No pronouncement as to costs. SO

ORDERED.
VII. Random Facts

• Ponente: Azcuna, J.

G.R. No. L-40203| August 21, 1990 Void or Inexistent Contracts
Ouano v. CA Ouano v. CA
I. Recit-ready Summary period for the action to declare the contract’s inexistence. In addition,
The Rehabilitation Finance Corporation, known today as the Development Article 1411 requires for the forfeiture of the proceeds of the crime. In this
Bank of the Philippines owns a parcel of land which is identified as Lot No. case, The agreement therefore being criminal in character, the parties not
3-A-1. Adjoining the said lot are the lands of petitioner Paterno Ouano and only have no action against each other but are both liable to prosecution and
respondent Francisco Eschavez. RFC offered to sell Lot No. 3-A-1 in a the things and price of their agreement subject to disposal according to the
public bidding. Prior to this, Ouano and Eschavez had an oral agreement provisions of the criminal code.
that only Eschavez will bid, and if it gets accepted, they will divide the
property in proportion to their adjoining properties. Also, in order to ensure II. Facts of the Case (Material Facts)
the agreement’s success, they induced the group of Mrs. Bonsucan, the only 1. The Rehabilitation Finance Corporation (RFC), known today as
interested party, to desist and withdraw from the bid. In effect, Mrs. Development Bank of the Philippines, owns a parcel of land,
Bonsucan withdrew from the sale and received P2K as reimbursement of identified as Philippine Railway Lot No. 3-A-1, located in Cebu
expenses from Ouano’s wife. Eschavez became the highest bidder who with an area of 3,710 square meters. Adjoining Lot No. 3-A-1 are
offered P27, 826 for the land and paid P5,565 which served as the 20% lands belonging to petitioner Paterno J. Ouano and private
deposit. The following weeks after the public bidding, Ouano received letter respondent Francisco B. Eschavez.
from Eschavez to inform the former that he will be given 250sqm right in 2. Lot No. 3-A-1 was offered for sale in a public bidding by RFC (see
front of his house in payment of the P2K he has advanced and to inform him notes). Prior to the said lot’s public sale, both
Ouano and Eschavez
of his share in the expenses which totaled to P1,724.70. With this, Ouano orally agreed that only the latter would make a bid , and if the bid
made several payments to Eschavez. RFC never approved of the sharing was to be accepted, they would divide the property in proportion to
agreement, but only approved the sale to Eschavez, provided that it be paid their adjoining properties. Also, in order to ensure that Eschavez
in cash. It took four years for Eschavez to acquire Lot 3-A-1’s title. Ouano will be the only bidder, they agreed to induce Mrs. Bonsucan’s
also caused the DBP either to implement the agreement or to allow him to group , the only interested party in the property,
to desist in making
pay the lot’s full price in Eschavez’s behalf. He also filed a suit for specific a bid. In effect, Mrs. Bonsucan did withdraw from the sale, and
performance and reconveyance for Eschavez to execute a public document thus Ouano’s wife paid her P2K for reimbursement of expenses
for registration of the land under his name. The RTC held that the sharing made.
agreement was unenforceable due to the absence of RFC’s consent and to its 3. Eschavez indeed became the highest bidder who offered P27,826
unlawful cause. In addition to the RTC’s decision, Ouano and Eschavez for the land. With this, he paid for the 20% deposit in the amount
were held to have committed machination in public auctions under Article of P5,565. After a week, the former sent a letter to Ouano stating
185 of the RPC. The CA affirmed the RTC’s decision. The issue in this case that the latter will be given 250 sq. meters in front of his house in
is W/N the sharing agreement between Ouano and Eschavez is valid? exchange for the P2K payment made by Ouano’s wife. Both parties
The Court held that the sharing agreement was void. Under Article 1409 had also executed and signed the “Agreement”. After this,
the Civil Code provides that a contract is declared void if its purpose is Eschavez sent in writing the computation of the latter’s share of
contrary to law, while Article 1410 provides that there is no prescription
1
Obligations and Contracts (2020) PETITIONER: Paterno J. Ouano
DIGEST AUTHOR: Steven Rivera RESPONDENT: Court of Appeals and Francisco B. Echavez
expenses in the amount of P1,724.70. Ouano and/or his wife Petitioner’s Arguments Court’s Rebuttals
delivered sums of money, which in total of P1,725, to Eschavez. ● He claimed that their oral ● The Court held that the acts of
4. RFC never approved the sharing agreement between the parties, agreement to acquire and share Ouano and Eschavez prior to the
instead it only approved the sale to Eschavez on the condition that the land was a perfected public bidding of Lot No. 3-A-1
the purchase price will be paid in cash, but the latter had consensual contract. Hence, he is constitute a crime.
difficulties in complying with the condition because it took him 4 entitled to compel Eschavez to
years, including his patient negotiations and efforts, to acquire the execute a public document for
title specifically on December 9, 1963. the registration in his name for
5. Within the four year period of trying to acquire a title, Ouano also his share in the land.
tried to have DBP either to implement the sharing agreement or to Overall Ruling
allow him to pay the full price of the lot in Eschavez’s behalf. Prior The Court held that under Article 1409 of the Civil Code, the law declares
to the execution of the deed of absolute sale in Eschavez’s favor, contracts whose cause, object, or purpose is contrary to law, morals, good
Ouano filed a suit for “specific performance and reconveyance” customs, public order, public policy, or expressly prohibited by law as
against DBP and Eschavez before the CFI of Cebu. inexistent and void from the beginning , while article 1410 provides that the
6. The RTC held that the sharing agreement between the parties is action or defense for the declaration of the inexistent does not prescribe. In
unenforceable due to absence of RFC’s consent and that the addition, Article 1411 requires for the forfeiture of the proceeds of the
agreement had an unlawful cause because it involved a felony crime and the instruments or tools with which it was committed. In this
under Article 185 of the RPC. The RTC also held that the actions case, the sharing agreement between the parties was criminal in character
of Ouano and Eschavez constituted the felony of machinations in since the purpose was to induce Mrs. Bonsucan’s group to desist from
public auctions under Article 185 of the RPC. On appeal, the CA presenting a bid in order to ensure that Eschavez will be the only bidder.
affirmed the RTC’s decision. Hence, both parties not only have no action against each other but are both
liable to prosecution, and the things and price of their agreement subject to
III. Issue/s disposal according to the provisions of the criminal code (pari delicto) .
1. W/N the sharing agreement between Ouano and Eschavez is
valid; NO V. Law or Doctrine Applied
IV. Holding/s The following contracts are inexistent and void from the beginning:
Issue #1 (1) Those whose cause, object or purpose is contrary to law, morals, good
NO, the sharing agreement between the parties is void. customs, public order or public policy;
2
The action or defense for the declaration of the inexistence of a contract

does not prescribe.

When the nullity proceeds from the illegality of the cause or object of the
contract, and the act constitutes a criminal offense, both parties being in pari
delicto, they shall have no action against each other, and both shall be
prosecuted. Moreover, the provisions of the Penal Code relative to the
disposal of effects or instruments of a crime shall be applicable to the things
or the price of the contract.This rule shall be applicable when only one of
the parties is guilty; but the innocent one may claim what he has given, and
shall not be bound to comply with his promise. (1305)
VI. Disposition
WHEREFORE, the appealed decision of the Court of Appeals is
MODIFIED, so that in addition to affirming the Trial Court's judgment
dismissing Ouano's complaint and Echavez's counterclaim in Civil Case No.
R-8011, Lot No. 3-A-1 subject of said case is ordered FORFEITED in its
entirety in favor of the Government of the Philippines. No pronouncement
as to costs. Let a copy of this Decision be furnished to the Solicitor General.

● Lot No. 3-A-1 was offered for sale in a public bidding twice - the
first was nullified when Ouano protested against its sale, while the
second was the instance in the case.
VII. Random Facts

● Ponente: Narvasa, J.
3
G.R. No. 153201 | January 26, 2005 Void or Inexistent Contracts
Menchavez v. Teves Jr. Menchavez v. Teves Jr.
A “Contract of Lease” was executed by Jose Menchavez, et. al., as II. Facts of the Case (Material Facts)
lessors; and Florentino Teves Jr. as lessee. RTC Sheriffs demolished the 1. A "Contract of Lease" was executed by Jose Menchavez, et. al, as
fishpond dikes constructed by Teves Jr. and delivered possession of the lessors; and Florentino Teves Jr. as lessee.
subject property to other parties. Teves Jr. then filed a Complaint for a. “the LESSORS are the absolute and lawful co-owners of that
damages with application for preliminary attachment against Menchavez et. area covered by FISHPOND APPLICATION No. VI-1076…”
al. The RTC ruled that the lease contract is a patent nullity because of Pres. b. "4. The LESSORS hereby warrant and assure to maintain the
Decree No. 704 and the public policy of the State under the Regalian LESSEE in the peaceful and adequate enjoyment of the lease
Doctrine. The RTC also ruled that the parties we in pari delicto. The CA, on
for the entire duration of the contract;
the other hand, disagreed with the RTC’s findings that the parties were in
c. "7. Any violation of the terms and conditions herein provided,
pari delicto and awarded liquidated damages in the amount of P50,000,
notwithstanding the nullity of the Contract. more particularly the warranties above-mentioned, the parties
Since there is no dispute that the Contract of Lease is void, the main of this Contract responsible thereof shall pay liquidated
issues to be resolved then are whether or not the parties were in pari delicto damages in the amount of not less than P50,000.00 to the
and in the affirmative, the effects of such rule in void contracts. offended party of this Contract; in case the LESSORS violated
The Court ruled that the parties were in pari delicto. Petitioners leased therefor, they bound themselves jointly and severally liable to
out property that did not belong to them, one that they had no authority to the LESSEE;"
sublease. They still had a pending lease application with the State at the time 2. RTC Sheriffs demolished the fishpond dikes constructed by Teves
they entered into the Contract with respondent. Respondent, on the other Jr. and delivered possession of the subject property to other parties.
hand, knowingly entered into the Contract with the risk that the application 3. Teves Jr. filed a Complaint for damages with application for
might be disapproved. The existence of a fishpond lease application preliminary attachment against Menchavez et al.
necessarily contradicts a claim of ownership. That respondent did not know 4. In his Complaint, he alleged that the lessors had violated their
of petitioners' lack of ownership is therefore incredible.
Contract of Lease, specifically the peaceful and adequate
A void contract is equivalent to nothing; it produces no civil effect. It
does not create, modify or extinguish a juridical relation. Parties to a void enjoyment of the property for the entire duration of the Contract.
agreement cannot expect the aid of the law; the courts leave them as 5. He claimed consequential damages for the demolition of the
they are, because they are deemed in pari delicto or "in equal fault." As fishpond dikes, unearned income, and an amount for rentals paid.
both parties are equally at fault, neither may recover against the other. 6. He further asserted that the lessors had withheld from him the
It was stipulated that the party responsible for the violation of the terms, findings of the trial court in a case involving the same property,
conditions and warranties of the Contract would pay not less than P50,000 subject of the lease, where the Menchavez spouses were ordered to
as liquidated damages. However, since the principal obligation was void, remove the dikes illegally constructed and to pay damages and
there was no contract that could have been breached by petitioners; attorney's fees.
thus, the stipulation on liquidated damages was inexistent.
Obligations and Contracts (2020) PETITIONERS: Jose Menchavez, Juan Menchavez Jr., Simeon Menchavez, 1
Rodolfo Menchavez, Cesar Menchavez, Reynaldo Menchavez, Alma
Menchavez, Elma Menchavez, Charito M. Maga, Fe M. Potot, Thelma M.
Reroma, Myrna M. Ybañez, and Sarah M. Villaber
DIGEST AUTHOR: Allyzza Tanhueco RESPONDENT: Florentino Teves Jr.
7. The RTC ruled that the lease contract between Florentino Teves, Jr. a. While there was negligence on the part of respondent for
and Juan Menchavez Sr. and his family is a patent nullity because failing to verify the ownership of the subject property, there
of Pres. Decree No. 704 and the declared public policy of the State was no evidence that he had knowledge of petitioners' lack of
under the Regalian Doctrine. ownership.
a. “Lease of fishponds-Public lands available for fishpond b. The CA also awarded liquidated damages in the amount of
development including those earmarked for family-size P50,000, notwithstanding the nullity of the Contract.
fishponds and not yet leased prior to November 9, 1972 shall
be leased only to qualified persons, associations, cooperatives III. Issue/s
or corporations…” 1. W/N the parties are in pari delicto? YES.
b. Sec. 2 & 3, Art. XII of the 1987 Constitution 2. W/N the award of liquidated damages as stated in the contract
c. Consequently, the lessors could not give any rights to was proper? NO.
Florentino Teves, Jr. under the principle: 'NEMO DAT QUOD
NON HABET' — meaning ONE CANNOT GIVE WHAT HE IV. Holding/s
DOES NOT HAVE, considering that this property in litigation
belongs to the State Issue #1
8. The RTC also ruled that the parties are in pari delicto. YES, the parties are in pari delicto.
a. The lessors should have known that they cannot lease what
does not belong to them for as a matter of fact, they Overall Ruling
themselves are still applying for a lease of the same property The parties do not dispute the finding that the Contract of Lease was
under litigation from the government void. The RTC correctly held that it was the State, not petitioners, that
b. On the other hand, Florentino Teves, being fully aware that the owned the fishpond. The 1987 Constitution specifically declares that all
lessors were not yet the owner[s], had assumed the risks and lands of the public domain, waters, fisheries and other natural resources
under the principle of VOLENTI NON FIT INJURIA belong to the State. Included here are fishponds, which may not be alienated
NEQUES DOLUS — He who voluntarily assumes a risk, does but only leased. Possession thereof, no matter how long, cannot ripen into
not suffer damage[s] thereby. As a consequence, when Teves ownership.
Jr. leased the fishpond area from the lessors — who were mere Being merely applicants for the lease of the fishponds, petitioners had
holders or possessors thereof, he took the risk that it may turn no transferable right over them. And even if the State were to grant their
out later that his application for lease may not be approved application, the law expressly disallowed sublease of the fishponds to
9. The CA disagreed with the RTC's finding that the parties were in respondent. Void are all contracts in which the cause, object or purpose is
pari delicto. contrary to law, public order or public policy.
A void contract is equivalent to nothing; it produces no civil effect. It to the parties' meeting of minds, further debunks his claim of lack of
does not create, modify or extinguish a juridical relation. Parties to a void knowledge. Lawyers are expected to know that fishponds belong to the
agreement cannot expect the aid of the law; the courts leave them as State and are inalienable. It was reasonably expected of the counsel herein
they are, because they are deemed in pari delicto or "in equal fault." To to advise his client regarding the matter of ownership.
this rule, however, there are exceptions that permit the return of that which The evidence presented by respondent demonstrates the contradictory
may have been given under a void contract. (Art. 1412 of the Civil Code) claims of petitioners regarding their alleged ownership of the fishpond. On
The issue of whether respondent was at fault or whether the parties the one hand, they claimed ownership and, on the other, they assured him
were in pari delicto is a question of fact not normally taken up in a petition that their fishpond lease application would be approved. This circumstance
for review on certiorari under Rule 45 of the Rules of Court. The present should have been sufficient to place him on notice. It should have compelled
case, however, falls under two recognized exceptions to this rule: the CA's him to determine their right over the fishpond, including their right to lease
factual findings are (1) contrary to those of the trial court; and (2) premised it.
on an absence of evidence, a presumption that is contradicted by the The Contract itself stated that the area was still covered by a fishpond
evidence on record. application. Nonetheless, although petitioners declared in the Contract that
Petitioners leased out property that did not belong to them, one that they co-owned the property, their erroneous declaration should not be used
they had no authority to sublease. They still had a pending lease application against them. A cursory examination of the Contract suggests that it was
with the State at the time they entered into the Contract with respondent. drafted to favor the lessee. It can readily be presumed that it was he or his
Respondent, on the other hand, claims that petitioners misled him into counsel who prepared it — a matter supported by petitioners' evidence. The
executing the Contract. He insists that he relied on their assertions regarding ambiguity should therefore be resolved against him, being the one who
their ownership of the property. His own evidence, however, rebuts his primarily caused it.
contention that he did not know that they lacked ownership. At the very The CA erred in finding that petitioners had failed to prove actual
least, he had notice of their doubtful ownership of the fishpond. knowledge of respondent of the ownership status of the property that had
Respondent himself admitted that he was aware that the petitioners' been leased to him. On the contrary, as the party alleging the fact, it was he
lease application for the fishpond had not yet been approved. Thus, he who had the burden of proving — through a preponderance of evidence —
knowingly entered into the Contract with the risk that the application might that they misled him regarding the ownership of the fishpond. His evidence
be disapproved. Noteworthy is the fact that the existence of a fishpond lease fails to support this contention. Instead, it reveals his fault in entering into a
application necessarily contradicts a claim of ownership. That respondent void Contract. As both parties are equally at fault, neither may recover
did not know of petitioners' lack of ownership is therefore incredible. against the other.
The evidence of respondent himself shows that he negotiated the lease
of the fishpond with both Juan Menchavez Sr. and Juan Menchavez Jr. in
the office of his lawyer. His counsel's presence during the negotiations, prior

NO, the award of liquidated damages was not proper.
Overall Ruling
Art. 1412. If the act in which the unlawful or forbidden cause consists does not
The CA erred in awarding liquidated damages, notwithstanding its constitute a criminal offense, the following rules shall be observed:
finding that the Contract of Lease was void. Even if it was assumed that (1) When the fault is on the part of both contracting parties, neither may
respondent was entitled to reimbursement as provided under paragraph 1 of recover what he has given by virtue of the contract, or demand the
Article 1412 of the Civil Code, the award of liquidated damages was performance of the other's undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what
contrary to established legal principles.
he has given by reason of the contract, or ask for the fulfillment of what
Liquidated damages are those agreed upon by the parties to a contract, has been promised him. The other, who is not at fault, may demand the
to be paid in case of a breach thereof. Liquidated damages are identical to return of what he has given without any obligation to comply with his
penalty insofar as legal results are concerned. Intended to ensure the promise.
performance of the principal obligation, such damages are accessory and
subsidiary obligations. In the present case, it was stipulated that the party VI. Disposition
responsible for the violation of the terms, conditions and warranties of the
Contract would pay not less than P50,000 as liquidated damages. Since the WHEREFORE, the Petition is GRANTED and the assailed Decision and
Resolution SET ASIDE. The Decision of the trial court is hereby
principal obligation was void, there was no contract that could have
REINSTATED.
been breached by petitioners; thus, the stipulation on liquidated
No pronouncement as to costs.
damages was inexistent. The nullity of the principal obligation carried with SO ORDERED.
it the nullity of the accessory obligation of liquidated damages.
The applicable law in the present factual milieu is Art. 1412 of the Civil VII. Random Facts
Code. This law merely allows innocent parties to recover what they have • Ponente: Panganiban, J.
given without any obligation to comply with their prestation. No damages
may be recovered on the basis of a void contract; being nonexistent, the
agreement produces no juridical tie between the parties involved. Since
there is no contract, the injured party may only recover through other
sources of obligations such as a law or a quasi-contract. A party recovering
through these other sources of obligations may not claim liquidated
damages, which is an obligation arising from a contract.
G.R. No. 181508. October 2, 2013 in pari delicto
Constantino v. Heirs of Constatino, Jr. Constantino v. Heirs of Constatino, Jr
I. Recit-ready Summary delicto situations involve the parties in one contract who are both at fault,
Pedro Sr., who owned several parcels of land, had 6 children. Respondents such that neither can recover nor have any action
(heirs of Pedro Constantino Jr.) filed a complaint against petitioners against the other.
claiming that petitioners asserted their claim over the whole land owned by In this case, the two separate deeds came into being out of an identical
Pedro Sr., to the exclusion of respondents who were occupying a portion of intention of the signatories in both to exclude their co- heirs of their rightful
the land. According to them, they learned that tax declaration 1 in the name share in the property of Pedro Sr. It was an assignment of specific portions
of Oscar and Maxima was unlawfully issued, which in effect cancelled tax of the estate of Pedro Sr. without resorting to lawful partition of estate as
declaration 2 in the name of their (respondents) ancestor Pedro Sr. The both sets of heirs intended to exclude the other heirs. This violates the
issuance of tax declaration 1 was allegedly due to the execution of a mandatory provision of the law on legitimes. If in pari delicto is applied, it
simulated, fabricated, and fictitious document entitled "Pagmamana sa would result in the validation of both deeds instead of their nullification as
Labas ng Hukuman", wherein petitioners misrepresented themselves as the necessitated by their illegality. The underlying agreement in the execution
sole heirs of Pedro Sr. They sought to annul the "Pagmamana sa Labas ng of the deeds is a void agreement pursuant to Art. 1409 (1). The deeds will be
Hukuman" and the tax declarations validated because the parties will be left as they were if in pari delicto is
In their answer, petitioners argued that the "Pagmamana sa Labas ng applied. There would be a violation of the law if the contracts are NOT
Hukuman" was legal. They added that respondents had no cause of action declared void. Corollarily, given the character and nature of the deeds as
because respondents' share over the estate had already been transferred in a being void and inexistent, it has no force and effect from the beginning. It
Deed of Extrajudicial Settlement with Waiver executed by the mother of cannot be validated either by time or ratification. Therefore, the doctrine of
respondents and other people, all heirs of Pedro Jr. In this deed, respondents in pari delicto does not apply and the contracts must be declared void.
adjudicated themselves to the exclusion of petitioners by misrepresenting
that they were the only legitimate heirs of Pedro Sr. Because of this, II. Facts of the Case (Material Facts)
petitioners and the other heirs of Pedro Sr. agreed that respondents would no 1. Pedro Sr., who owned several parcels of land, had 6 children:
longer acquire any share from the lot covered by "Pagmamana sa Labas ng a. Pedro Jr. - grandfather of respondents
Hukuman". b. Bruno - one of his children was Casimira
The RTC ruled that both respondents and petitioners were in pari delicto, so c. Santiago - one of his children was Oscar
the law leaves them as they are. The CA held that the parties were NOT in d. three others
pari delicto. In the present petition, petitoners argue that the CA erred in not 2. Respondents filed a complaint against petitioners
applying the doctrine of in pari delicto. a. Respondents claim that petitioners asserted their claim
The SC does not dispute that the parties, through the Deeds they separately over the whole land owned by Pedro Sr., to the exclusion
executed, deprived each other of their rightful shares in the two lots subject of respondents who were occupying a portion of the land
of the separate contracts. However, the doctrine of in pari delicto does not b. Respondents learned that tax declaration 1 in the name of
apply in this case. It applies to contracts which are void for illegality of Oscar and Maxima was unlawfully issued, which in effect
subject matter and NOT to contracts rendered void for being simulated, or cancelled tax declaration 2 in the name of their
those which the parties do not really intend to be bound thereby. In pari (respondents) ancestor Pedro Sr.
Obligations and Contracts (2020) PETITIONER: Oscar and Maxima Constantino, Casimira Maturingan 1
DIGEST AUTHOR: Stephanie Co RESPONDENT: Heirs of Pedro Constantino Jr.
c. The issuance of tax declaration 1 was allegedly due to the Issue #1

execution of a simulated, fabricated, and fictitious W/N the doctrine of in pari delicto applies? NO.
document entitled "Pagmamana sa Labas ng Hukuman",
wherein petitioners misrepresented themselves as the sole Petitioner’s Arguments Court’s Rebuttals
heirs of Pedro Sr. • •
d. That the subject land was equally divided by petitioners
e. Respondents sought to annul the "Pagmamana sa Labas
ng Hukuman" and the tax declarations
3. In their answer, petitioners argued that the "Pagmamana sa Labas
ng Hukuman" was legal Overall Ruling
a. they added that respondents had no cause of action The doctrine of in pari delicto connotes that two or more people are at
because respondents' share over the estate had already fault or are guilty of a crime. Since the parties to a controversy are
been transferred in a Deed of Extrajudicial Settlement equally culpable, they shall have no action against each other, and it shall
with Waiver executed by the mother of respondents and leave them as they are. The courts will not grant relief to the parties
other people, all heirs of Pedro Jr. when an illegal agreement has been made and both parties are in pari
b. In this deed, respondents adjudicated themselves to the delicto. The doctrine of in pari delicto is principally governed by articles
exclusion of petitioners by misrepresenting that they were 1411(1) and 1412 (subpar. 1).
the only legitimate heirs of Pedro Sr. The petition at bench does not speak of an illegal cause of contract
c. Because of this, petitioners and the other heirs of Pedro constituting a criminal offense under articles 1411 and 1412. The SC
Sr. agreed that respondents would no longer acquire any does not dispute that the parties, through the Deeds they separately
share from the lot covered by "Pagmamana sa Labas ng executed, deprived each other of their rightful shares in the two lots
Hukuman" subject of the separate contracts. However, the doctrine of in pari delicto
4. RTC ruled that both respondents and petitioners were in pari does not apply in this case. It applies to contracts which are void for
delicto, so the law leaves them as they are illegality of subject matter and NOT to contracts rendered void for being
5. CA held that the parties were NOT in pari delicto simulated, or those which the parties do not really intend to be bound
6. In the present petition, petitoners argue that the CA erred in not thereby. In pari delicto situations involve the parties in one contract who
applying the doctrine of in pari delicto are both at fault, such that neither can recover nor have any action
against the other.
III. Issue/s In this case, the two separate deeds came into being out of an identical
1. W/N the doctrine of in pari delicto applies? NO. intention of the signatories in both to exclude their co- heirs of their
rightful share in the property of Pedro Sr. It was an assignment of
IV. Holding/s specific portions of the estate of Pedro Sr. without resorting to lawful
partition of estate as both sets of heirs intended to exclude the other heirs.
This violates the mandatory provision of the law on legitimes. If in pari This rule shall be applicable when only one of the parties is guilty; but the innocent
delicto is applied, it would result in the validation of both deeds instead one may claim what he has given, and shall not be bound to comply with his
promise. (1305)
of their nullification as necessitated by their illegality. The underlying
agreement in the execution of the deeds is a void agreement pursuant to ARTICLE 1412 OF THE CIVIL CODE
Art. 1409 (1). The deeds will be validated because the parties will be left If the act in which the unlawful or forbidden cause consists does not constitute a
as they were if in pari delicto is applied. There would be a violation of criminal offense, the following rules shall be observed:
the law if the contracts are NOT declared void. Corollarily, given the
(1) When the fault is on the part of both contracting parties, neither may recover
character and nature of the deeds as being void and inexistent, it has no what he has given by virtue of the contract, or demand the performance of the other's
force and effect from the beginning. It cannot be validated either by time undertaking;
or ratification. Therefore, the doctrine of in pari delicto does not apply (2) When only one of the contracting parties is at fault, he cannot recover what he
and the contracts must be declared void. has given by reason of the contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may demand the return of what he has
given without any obligation to comply his promise. (1306)
VI. Disposition
The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, WHEREFORE, the 31 May 2007 Decision of the Court of Appeals in CA-
public order or public policy; G.R. CV No. 81329 is hereby REVERSED. The Pagmamana sa Labas ng
(2) Those which are absolutely simulated or fictitious; Hukuman and Extrajudicial Settlement with Waiver are hereby declared
(3) Those whose cause or object did not exist at the time of the transaction; void without prejudice to the partition of the estate of Pedro Constantino Sr.
(4) Those whose object is outside the commerce of men; with the full participation of all the latter's heirs.
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the VII. Additional Notes
contract cannot be ascertained;
VII. Random Facts
These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived.

When the nullity proceeds from the illegality of the cause or object of the contract,
and the act constitutes a criminal offense, both parties being in pari delicto, they
shall have no action against each other, and both shall be prosecuted. Moreover, the
provisions of the Penal Code relative to the disposal of effects or instruments of a
crime shall be applicable to the things or the price of the contract.
G.R. No.190846 | February 3, 2016 Void or Inexistent Contracts
Tan, Jr. v Hosana Tan, Jr. v Hosana
Jose G. Hosana and Milagros C. Hosana married and bought a II. Facts of the Case (Material Facts)
house and lot. Milagros executed a deed of sale to Tomas Tan, Jr. This was 1. Jose G. Hosana and Milagros Hosana are married.
done by virtue of a Special Power of Attorney signed and executed by Jose 2. They bought a house and lot
in Milagros’ favor.The deed of sale stated that the purchase price of the lot 3. Milagros, as the attorney-in-fact of Jose sold the property to Tomas
was PHP 200,000.00 Tan, Jr.
Jose filed a Complaint for Annulment of Sale/Cancellation of 4. The deed of sale stated that the purchase price of the lot was PHP
Title/Reconveyance and Damages against Milagros, Tomas, and the 200,000.00
Register of Deeds as he was working in Japan and did not consent or have 5. Bonifacio, the brother of Jose, found out about the sale from
knowledge of the sale, and that his signature was forged in the SPA. Tomas Milagros’ son and knew that Jose was not in the Philippines.
claimed that he was a buyer and good faith and filed a cross-claim against 6. Jose filed a Complaint for Annulment of Sale/Cancellation of
Milagros. Title/Reconveyance and Damages against Milagros, Tomas, and
During trial, Bonifacio, the brother of Jose, testified that he found the Register of Deeds as he was working in Japan and did not
out about the sale from Milagros’ son. Bonifacio also knew that Jose was consent or have knowledge of the sale, and that his signature was
not in the Philippines. Tomas claimed that he paid two payments of PHP forged in the SPA.
350,000 each. As to why the payment was smaller than the consideration on 7. Tomas claimed that he was a buyer and good faith and filed a
the contract, Milagros told him that it was to save on taxes. cross-claim against Milagros.
The RTC ruled in favor of Jose. It declared that the deed of sale 8. Tomas claimed that he paid two payments of PHP 350,000 each.
was void. The CA affirmed the decision with modifications. It directed Jose As to why the payment was smaller than the consideration on the
and Milagros to reimburse Tomas PHP 200,000 (the amount stated on the contract, Milagros told him that it was to save on taxes.
deed of sale) with interest under the principle of unjust enrichment. This is 9. The RTC ruled in favor of Jose. The CA affirmed the decision but
despite Tomas’ claim that he paid PHP 700,000 for the lot. Tomas appealed directed Jose and Milagros to reimburse Tomas PHP 200,000 with
on the basis that the reimbursement was insufficient. Tomas also argues that interest under the principle of unjust enrichment. This is despite
the deed of sale cannot be admitted as evidence as it is void. Tomas’ claim that he paid PHP 700,000 for the lot.
The issue in the case is W/N the deed of sale can be used as the 10. Tomas appealed on the basis that the reimbursement was
basis for the amount of consideration paid? insufficient
The SC answered in the positive. The purpose for introducing the
deed of sale as evidence is not to enforce the terms but to determine matters III. Issue/s
that occured in the execution of the contract. While the deed of sale has 1. W/N the deed of sale can be used as the basis for the amount of
no force and effect as a contract, it remains prima facie evidence of consideration paid? YES.
the actual consideration paid as it is a public document. Tomas simply IV. Holding/s
failed to adduce sufficient evidence to rebut this.
1
Obligations and Contracts (2020) PETITIONER: Tomas P. Tan, Jr.
DIGEST AUTHOR: Alfonso Fernandez RESPONDENT: Jose G. Hosana.
Issue #1 contract but it remains prima facie evidence of the actual consideration paid
W/N the deed of sale can be used as the basis for the amount of in this case.
consideration paid? YES.
Respondents’ Arguments Court’s Rebuttals VI. Disposition
● A null and void contract cannot ● While the terms and provisions WHEREFORE, we hereby DENY the petition for review on certiorari.
be used as evidence of a void contract cannot be The decision dated August 28, 2009 and the resolution dated
November 17, 2009, of the Court of Appeals in CA-G.R. CV No.
enforced, it does not preclude the
88645 is AFFIRMED. Costs against the petitioner.
admissibility of the as evidence
to prove matters that occurred in
the course of executing the ●
contract.
VII. Random Facts
The deed of sale as documentary evidence may be used as a means ● Ponente: Brion, J.
to ascertain the truthfulness of the consideration stated. The purpose for
introducing the deed of sale as evidence is not to enforce the terms but to
determine matters that occured in the execution of the contract.
The deed of sale was declared null and void by a positive
provision of law requiring the consent of both spouses for the sale of
conjugal property. There is, however, no question on the presence of
the consideration of the sale, except with respect to the actual amount
paid. While the deed of sale has no force and effect as a contract, it
remains prima facie evidence of the actual consideration paid. Tomas
simply failed to adduce sufficient evidence to rebut this.

Evidentiary Value of a Void Deed of Sale
The purpose of introducing the deed of sale into evidence is not to
enforce the terms written in it but, rather, it is used as a means to determine
matters that occured in the execution of a contract. Further, a notarized deed
of sale is a public document and is prima facie evidence of the truth of the
facts stated on it. A void deed of sale may have no force and effect as a
2
Jose G. Hosana and Milagros C. Hosana married and bought a II. Facts of the Case (Material Facts)
house and lot. Milagros executed a deed of sale to Tomas Tan, Jr. This was 1. Jose G. Hosana and Milagros Hosana are married.
done by virtue of a Special Power of Attorney signed and executed by Jose 2. They bought a house and lot
in Milagros’ favor.The deed of sale stated that the purchase price of the lot 3. Milagros, as the attorney-in-fact of Jose sold the property to Tomas
was PHP 200,000.00 Tan, Jr. This was based on an allegedly forged SPA
Jose filed a Complaint for Annulment of Sale/Cancellation of 4. The deed of sale stated that the purchase price of the lot was PHP
Title/Reconveyance and Damages against Milagros, Tomas, and the 200,000.00
Register of Deeds as he was working in Japan and did not consent or have 5. Bonifacio, the brother of Jose, found out about the sale from
knowledge of the sale, and that his signature was forged in the SPA. Tomas Milagros’ son and knew that Jose was not in the Philippines.
claimed that he was a buyer and good faith and filed a cross-claim against 6. Jose filed a Complaint for Annulment of Sale/Cancellation of
Milagros. Title/Reconveyance and Damages against Milagros, Tomas, and
During trial, Bonifacio, the brother of Jose, testified that he found the Register of Deeds as he was working in Japan and did not
out about the sale from Milagros’ son. Bonifacio also knew that Jose was consent or have knowledge of the sale, and that his signature was
not in the Philippines. Tomas claimed that he paid two payments of PHP forged in the SPA.
350,000 each. As to why the payment was smaller than the consideration on 7. Tomas claimed that he was a buyer and good faith and filed a
the contract, Milagros told him that it was to save on taxes. cross-claim against Milagros.
The RTC ruled in favor of Jose. It declared that the deed of sale 8. Tomas claimed that he paid two payments of PHP 350,000 each.
was void. The CA affirmed the decision with modifications. It directed Jose As to why the payment was smaller than the consideration on the
and Milagros to reimburse Tomas PHP 200,000 (the amount stated on the contract, Milagros told him that it was to save on taxes.
deed of sale) with interest under the principle of unjust enrichment. This is 9. The RTC ruled in favor of Jose and mentioned that there is no
despite Tomas’ claim that he paid PHP 700,000 for the lot. Tomas appealed question that the deed of sale was void. The CA affirmed the
on the basis that the reimbursement was insufficient. Tomas also argues that decision but directed Jose and Milagros to reimburse Tomas PHP
the deed of sale cannot be admitted as evidence as it is void. 200,000 with interest under the principle of unjust enrichment. This
The issue in the case is W/N the deed of sale can be used as the is despite Tomas’ claim that he paid PHP 700,000 for the lot.
basis for the amount of consideration paid? 10. Tomas appealed on the basis that the reimbursement was
The SC answered in the positive. The purpose for introducing the insufficient
deed of sale as evidence is not to enforce the terms but to determine matters
that occured in the execution of the contract. While the deed of sale has III. Issue/s
no force and effect as a contract, it remains prima facie evidence of 1. W/N the deed of sale can be used as the basis for the amount of
the actual consideration paid as it is a public document. Tomas simply consideration paid? YES.
failed to adduce sufficient evidence to rebut this. IV. Holding/s
1
Issue #1 Tan for the purpose of preventing unjust enrichment. This is consistent with
W/N the deed of sale can be used as the basis for the amount of liberal policy of the court to admit evidence which appears to be relevant in
consideration paid? YES. resolving an issue.
Respondents’ Arguments Court’s Rebuttals Further, a notarized deed of sale is a public document and is prima
● A null and void contract cannot ● While the terms and provisions facie evidence of the truth of the facts stated on it. A void deed of sale may
be used as evidence of a void contract cannot be have no force and effect as a contract but it remains prima facie evidence of
enforced, it does not preclude the the actual consideration paid in this case. This was simply not rebutted by
admissibility of the as evidence Tan’s mere allegation. Thus, the spouses Hosana were ordered to return
to prove matters that occurred in PHP200,000 instead of PHP 700,000.
the course of executing the
contract. VI. Disposition
WHEREFORE, we hereby DENY the petition for review on certiorari.
The decision dated August 28, 2009 and the resolution dated
The deed of sale as documentary evidence may be used as a means
November 17, 2009, of the Court of Appeals in CA-G.R. CV No.
to ascertain the truthfulness of the consideration stated. The purpose for
88645 is AFFIRMED. Costs against the petitioner.
introducing the deed of sale as evidence is not to enforce the terms but to
determine matters that occured in the execution of the contract. VII. Additional Notes
The deed of sale was declared null and void by a positive ●
provision of law requiring the consent of both spouses for the sale of
conjugal property. There is, however, no question on the presence of VII. Random Facts
the consideration of the sale, except with respect to the actual amount ● Ponente: Brion, J.
paid. While the deed of sale has no force and effect as a contract, it
remains prima facie evidence of the actual consideration paid. Tomas
simply failed to adduce sufficient evidence to rebut this.

Evidentiary Value of a Void Deed of Sale
The purpose of introducing the deed of sale into evidence is not to
enforce the terms written in it but, rather, it is used as a means to determine
matters that occured in the execution of a contract. The fact that the deed of
sale was declared null and void does not prevent the court from relying on
the consideration stated in the deed to determine the actual amount paid by
2
G.R. No. L-33048 | April 16, 1982 Article 1409-1422 - Void or Inexistent Contracts
Epifania Vda. De Barsobia & Pacita Vallar vs Cuenco Epifania Vda. De Barsobia & Pacita Vallar vs Cuenco
I. Recit-ready Summary 4. As such, the Respondent Cuenco filed a Complaint for recovery of
Petitioner Epifania sold a parcel of coconut land to Ong (Chinese possession and ownership of the questioned land against the
national). Then, Ong sold the property to the present Respondent Cuenco. petitioners
After that, Epifania “usurped” the property, sold half of the property, and 5. However, the Petitioners insisted that they were the owners of the
claimed that it was not her intention to sell the land to Ong, and that she land; and that the deed of sale to Ong was void SINCE it was only
only signed the Deed of Sale to evidence her indebtedness to Ong. As such, to evidence Epifania’s indebtedness to Ong
the Respondent filed an action for Recovery and Possession of the land. The 6. The Trial Court ruled in favor of the Petitioners
7. Upon appeal, the CA Reversed the Trial Court’s Decision, and
Trial Court ruled in favor of the Petitioners. Upon appeal, the CA Reversed
ruled in favor of the Respondent
the lower court’s Decision and ruled in favor of the Respondent. Hence, the
present petition before the SC. The issue in this case is w/n the Deed of Sale
executed by Epifania to Ong was Void. The SC ruled in the Affirmative.
III. Issue/s
The Court stated that the sale of land by Epifania to Ong was against a
● W/N the Deed of Sale executed by the Petitioner Epifania to
provision in the 1935 Constitution (which refers to a public policy
Ong was Void or Inexistent? YES
conserving land for Filipinos). However, the Court stated that since the land
was no longer owned by Ong but by the Respondent Cuenco (naturalized
IV. Holding/s
Filipino), the Respondent was constitutionally qualified to own the said
land. Moreover, by Epifania’s inexcusable neglect of her rights over the
Issue #1
land for 26 years, she should be barred by Laches from claiming the same.
YES, the sale of the questioned land by the Petitioner Epifania to Ong
Thus, the Respondent is the rightful owner of the questioned property.
was Inexistent or Void from the beginning
II. Facts of the Case (Material Facts) Respondent's Arguments Court’s Rebuttals
1. In the present case, the Petitioner Epifania sold a parcel of coconut ● The Court stated that there
land (questioned property in this case) to a Chinese national named ● N/A should be no question that
the sale of the land in
Ong for the sum of P1,050
question in 1936 by
2. Eventually, Ong sold the same property to the present Respondent
Epifania to Ong (a Chinese
Cuenco (a naturalized Filipino) for the sum of P5,000
national) was inexistent
3. After that transaction, the Petitioner Epifania “usurped” the and void from the
questioned property and, through her only daughter, she sold half beginning (Art. 1409, Civil
of the property to Pacita (other petitioner). The Petitioner Epifania Code) because it was a
claimed that it was not her intention to sell the land to Ong, and contract executed against
that she only signed the Deed of Sale to evidence her indebtedness the mandatory provision of
to Ong the 1935 Constitution,
1
Obligations and Contracts (2020) PETITIONER: Epifania Sarsosa Vda. De Barsobia & Pacita Vallar
DIGEST AUTHOR: Larry Abucay RESPONDENT: Victoriano T. Cuenco
G.R. No. L-33048 | April 16, 1982 Article 1409-1422 - Void or Inexistent Contracts
Epifania Vda. De Barsobia & Pacita Vallar vs Cuenco Epifania Vda. De Barsobia & Pacita Vallar vs Cuenco
which is an expression of V. Law or Doctrine Applied

public policy to conserve
lands for the Filipinos. Article 1409 - The following contracts are inexistent and void from the
● IN OTHER WORDS, the beginning:
1935 Constitution 1) Those whose cause, object or purpose is contrary to law, morals,
prohibited foreigners/aliens good customs, public order or public policy;
to own lands in the 2) Those which are absolutely simulated or fictitious;
Philippines 3) Those whose cause or object did not exist at the time of the
transaction;
Overall Ruling 4) Those whose object is outside the commerce of men;
5) Those which contemplate an impossible service;
The SC stated, however, that the factual set-up of the present case has 6) Those where the intention of the parties relative to the principal
changed since the questioned property was no longer owned by Ong (a object of the contract cannot be ascertained;
Chinese national), rather by the Respondent Cuenco (a naturalized Filipino). 7) Those expressly prohibited or declared void by law
As such, the Respondent was constitutionally qualified to own the said
LACHES - “Laches has been de ned as the failure or neglect, for an
property. The public policy which voided the Deed of Sale executed by
unreasonable and unexplained length of time, to do that which by exercising
Epifania to Ong is no longer operative to Cuenco’s case, him being a
due diligence could or should have been done earlier; it is negligence or
naturalized Filipino.
omission to assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either has abandoned it or
Moreover, the Court stated that even though Ong (the respondent’s vendor) declined to assert it.
had no rights of ownership to transmit the said property, it is a fact that
Epifania neglected her rights over the property for 26 years. By her long VI. Disposition
inaction and inexcusable neglect, she should be barred by Laches from
asserting her claim over the questioned property. Thus, the Respondent WHEREFORE, except for that portion holding petitioner, Pacita W. Vallar,
Cuenco must be declared the rightful owner of the property. (Laches, see also liable for damages of P10,000.00, the appealed judgment is hereby
Law or Doctrine Applied) affirmed.
VII. Random Facts

● Ponente: Melecio-Herrera, J.
2
Obligations and Contracts (2020) PETITIONER: Epifania Sarsosa Vda. De Barsobia & Pacita Vallar
DIGEST AUTHOR: Larry Abucay RESPONDENT: Victoriano T. Cuenco
G.R. No. L-31606 | March 28, 1983 Void or Inexistent Contracts
Yap vs Grageda Yap vs Grageda
I. Recit-ready Summary 4. After the 15 years, Yap was admitted as a Filipino citizen and
allowed to take his oath of allegiance to the Republic of the
Maximino Rico sold Lot 339 and a portion of Lot 327 to Donato Reyes Philippines. He was, thereafter, issued Certificate of Naturalization.
Yap who was THEN a Chinese National. 15 years later, Yap was admitted 5. On December 1, 1967, Yap ceded he major portion of the Lot No.
as a Filipino citizen by naturalization. Yap has been in possession of the lots 327 covering 1,078 sq. m to his son, Felix Yap.
since 1939, openly, publicly, continuously, and adversely in the concept of 6. Lourdes Rico, aunt and co-heir of Jose A. Rico, sold the remaining
owner until the present time. portions of Lot 327 to Yap.
In a suit 30 years after the sale, the respondent court declared as 7. Yap has been in possession of the lots since 1939, openly, publicly,
absolutely null and void the sale of the lots and ordered its reconveyance to
continuously, and adversely in the concept of owner until the
Rico (vendor) on the ground that it was a contract executed against the
present time.
mandatory provision of the 1935 Constitution which prohibits aliens from
acquiring private agricultural lands. 8. The respondent court considered Sec. 5, Article XII of the 1935
The SC reversed and set aside the ruling of the respondent court. The Constitution that "no private agricultural land shall be transferred
SC held that in 1939, there is no question that the sale of the land was or assigned except to individuals, corporations, or associations
inexistent and void from the beginning (Art. 1409) because it was a contract qualified to acquire or hold lands of the public domain in the
executed against the mandatory provision of the 1935 Constitution. This is Philippines"
an expression of public policy to conserve lands for the Filipinos. a. The respondent court ruled that a conveyance contrary to
BUT the factual set-up has changed. The litigated property is now in this provision would not be validated nor its void nature
the hands of a naturalized Filipino. It is no longer owned by a disqualified altered by the subsequent naturalization of the vendee.
vendee. Yap, as a naturalized citizen, was constitutionally qualified to own b. The respondent declared the Contract of Sale null and
the subject property. There would be no more public policy to be served in void ab initio and without any legal force and effect.
allowing respondent Rico to recover the land (Art. 1416) as it is already in c. The respondent court ordered the reconveyance of the lots
the hands of a qualified person.
to Rico.
II. Facts of the Case (Material Facts) 9. Hence, this petition.
1. On April 12, 1939, Maximino Rico executed a Deed of Sale over III. Issue/s
Lot 339 and a portion of Lot 327 in favor of Donato Reyes Yap
(Petitioner) who was THEN a Chinese national. 1. W/N the disqualification, based on Sec. 5, Article XIII of the
2. Jose A. Rico (Respondent) is the oldest son of Maximino Rico. 1935 Constitution, ceases once the alien becomes a Filipino
3. Yap, as vendee, caused the registration of the instrument of sale citizen by naturalization? YES.
and the cancellation of the Original Certificates of Title Nos. 29332
and 29410 and the consequent issuance of Transfer Certificate Title IV. Holding/s
No. T-2433 covering the 2 lots subject matter of the Contract of
Sale in his favor. Issue #1
YES, the disqualification ceased upon Yap’s naturalization.
Obligations and Contracts (2020) PETITIONER: Donato Reyes Yap and Melitona Maravillas 1
DIGEST AUTHOR: Princess Alvaran RESPONDENT: Hon. Ezekiel S. Grageda, Judge of CFI and Jose A. Rico
G.R. No. L-31606 | March 28, 1983 Void or Inexistent Contracts
Yap vs Grageda Yap vs Grageda
Overall Ruling ARTICLE 1416 OF THE CIVIL CODE

In sustaining Yap’s contentions, the court cited Vasquez v. Li Seng Giap et Art. 1416. When the agreement is not illegal per se but is merely prohibited, and the
prohibition by the law is designed for the protection of the plaintiff, he may, if public
al. and Sarosa Vda. De Bersabia v. Cuenco. policy is thereby enhanced, recover what he has paid or delivered.
In Sarosa Vda. De Bersabia: VI. Disposition

The court held that the sale of the land was inexistent and void (Art.
1409 of the CC) from the beginning because it was a contract executed WHEREFORE, the amended judgment of the respondent court is hereby
against the mandatory provision of the 1935 Constitution (Sec. 5, Art. XIII REVERSED and SET ASIDE. The complaint is DISMISSED.
of 1935 Const.) which reads:
Sec. 5. Save in cases of hereditary succession, no private agricultural VII. Additional Notes
land shall be transferred or assigned except to individuals, corporations, • N/A
or associations qualified to acquire or hold lands of the public domain in
the Philippines. VII. Random Facts
This is an expression of public policy to conserve lands for the Filipinos. • Ponente: Gutierrez, Jr., J.
BUT the factual set-up has changed. The litigated property is now in the • Yap has 1 surviving son by his first marriage to a Filipino wife and
hands of a naturalized Filipino. It is no longer owned by a disqualified he has 5 children by his second marriage also to Filipina wife and
vendee. Yap, as a naturalized citizen, was constitutionally qualified to own has a total of 23 grandchildren all of whom are Filipino citizen.
the subject property. There would be no more public policy to be served in
allowing respondent Rico to recover the land as it is already in the hands of a
qualified person (Art. 1416 of the CC).
Applying by analogy the ruling in Vasquez vs. Li Seng Giap:

If the ban on aliens from acquiring not only agricultural but also urban
lands, as construed by this Court in the Krivenko case, is to preserve the
nation's lands for future generations of Filipinos, that aim or purpose would
not be thwarted but achieved by making lawful the acquisition of real estate
by aliens who became Filipino citizens by naturalization.
ARTICLE 1409(7) OF THE CIVIL CODE

Art. 1409. The following contracts are inexistent and void from the beginning:
Obligations and Contracts (2020) PETITIONER: Donato Reyes Yap and Melitona Maravillas 2
DIGEST AUTHOR: Princess Alvaran RESPONDENT: Hon. Ezekiel S. Grageda, Judge of CFI and Jose A. Rico
G.R. No. 182349 | July 24, 2013 Void or inexistent contracts; Articles 1874 & 1878 of the Civil Code
O379 - Recio v Heirs of Sps. Altamirano O379 - Recio v Heirs of Sps. Altamirano
Nena Recio leased a parcel of land from the five Altamirano heirs,
1. In the 1950’s, Nena Recio (Nena), the mother of Reman who then offered to sell the property to her for
₱500,000.00. Nena
Recio (petitioner), leased from the five Altamirano heirs accepted the offer and the Altamiranos waived the
rentals. However, through the Altamiranos fault, the sale did not occur, and the heirs’ lands were consolidated
then subdivided into three lots. Petitioner Reman Recio (Recio) and his family remained in peaceful possession
of Lot No. 3. Recio later renewed Nena’s option to buy the property, and negotiated with Alejandro
Altamirano, an heir who claimed he represented his co-heirs. Recio made two partial payments that were
acknowledged by Alejandro, but the latter started avoiding Recio even as he tried to deliver the remaining
balance. Recio then filed a complaint for Specific Performance with Damages, seeking the execution of
a Deed of Absolute Sale in exchange
Obligations and Contracts (2020) PETITIONER: Reman Recio
DIGEST AUTHOR: Vito Castañeda RESPONDENT: Heirs Of The Spouses Altamirano, and Spouses Lauro
And
Marcelina Lajarca.
(respondents) a parcel of land with improvements, situated at No. 39 10 de Julio Street (now Esteban Mayo
Street), Lipa City, Batangas. 2. The petitioner claimed that in 1988, the Altamiranos offered to sell the subject
property to Nena for Five Hundred Thousand Pesos (₱500,000.00), 3. Nena accepted such offer, and the
Altamiranos waived the
rentals for the subject property. 4. Through the Altamiranos’ fault, the sale did not materialize, for the full
payment of the agreed price.
but, Nena continued to occupy and use the property with the While the summons to the Altamiranos was
pending, the heirs later
consent of the heirs. sold the property to the Spouses Lajarca. The RTC ruled in favor of
5. Meanwhile, the Altamiranos consolidated the two (2) parcels petitioner, ordering the Altamiranos to deliver
the entire subject lot
of land, which were eventually subdivided into three (3) contemplated in the contract. The CA later modified this
decision, stating that Alejandro Altamirano did not have the authority to dispose of more than his own
share of the land, and the sale to Recio is only valid with regards to that particular share.
Recio petitioned the Supreme Court, seeking the reversal of the CA decision so he could obtain the entire lot and
not just Alejandro’s share. The Supreme Court upheld the CA decision, citing Articles 1874 & 1878 of the Civil
Code. These laws provide that sales of land through an agent require a written authorization to be valid
(Art. 1874), and that contracts regarding transmission of ownership over immovables require a special
parcels of land (Lots 1, 2, and 3). 6. The petitioner and his family remained in peaceful possession
of Lot No. 3. 7. In 1994, the petitioner renewed Nena’s option to buy the subject property, negotiating with
respondent Alejandro who introduced himself as representing the other heirs. 8. The Altamiranos through
Alejandro entered into an oral
contract of sale with the petitioner over the subject property. 9. Petitioner made two partial payments to the
Altamiranos in power of attorney (Art. 1878). There was no evidence presented that
the total amount of (₱160,000.00), which Alejandro duly showed Alejandro was authorized to sell the entire lot
on behalf of his co-
received and acknowledged with receipts. heirs. The Court held that it did not matter that the heirs knew of
the
10. Petitioner then made several offers to pay the remaining sale, since the written requirement was
indispensable. Absent the
balance (₱340,000.00), but Alejandro kept on avoiding him consent of Alejandro’s co-owners, the Court holds
that the sale between the other Altamiranos and the petitioner is null and void.
11. Because of this, the petitioner demanded from the Altamiranos, through Alejandro, the execution of a Deed
of
1
Absolute Sale in exchange for the full payment of the agreed
IV. Holding/s price. 12. Petitioner filed a complaint for Specific Performance with
Issue #1 Damages, but as the summons to the Altamirano heirs was
NO, Petitioner is only entitled to the share of Alejandro in the plot of pending, the petitioner discovered
that the subject property
land, as the latter is only authorized to dispose of his own share. has been subsequently sold to
respondents Lauro and
Petitioner’s Arguments Marcelina Lajarca (Spouses Lajarca), whom petitioner then impleaded as additional
defendants. 13. The RTC ruled in favor of petitioner.
a. The sale to the Spouses Lajarca was declared null
and void
• Alejandro Altamirano claimed he represented the other heirs and could validly sell the entire plot of land.
b. The Altamiranos were directed to execute a Deed of Absolute Sale in favor of plaintiff covering the entire
parcel of land together with all improvements upon payment of the remaining balance. 14. The Spouses
Lajarca appealed to the CA, which affirmed with modification the RTC decision, stating that the contract of
sale between Alejandro Altamirano and Reman Recio is VALID only with respect to the aliquot share of
Alejandro Altamirano in the lot, and not the entire parcel of land inherited by the heirs. 15. Aggrieved, the
petitioner appealed to the Supreme Court
(praying that he be allowed to acquire the entire lot).
III. Issue/s
1. W/N petitioner is entitled to the entire plot of land
contemplated in the original contract: NO.
And
Marcelina Lajarca.
Court’s Rebuttals
• The CA reversed the RTC decision when it found that it was only Alejandro who agreed to the sale. There
is no evidence to show that the other co-owners consented to Alejandro’s sale transaction with the
petitioner.
• Applicable rules are Articles 1874 of the Civil Code, which requires that sales of land through an agent
require authorization in writing to be valid, and 1878, which dictates that special powers of attorney are
required to enter any contract that transmits ownership of immovables.
• Alejandro therefor could only sell his aliquot share of the subject property to the petitioner.
2
Overall Ruling
SO ORDERED. The petitioner’s contentions are untenable. Given the expressed requirement under the
Articles 1874 and 1878 of the Civil Code that there must be a written authority to sell an immovable
property, the
Sereno, C.J., (Chairperson), Leonardo-De Castro, Bersamin, and Villarama, Jr., JJ., concur.
petitioner’s arguments must fail. The petitioner asserts that since the contained a notice of lis pendens, the
Altamiranos very well knew of the earlier sale to him by Alejandro. While this may be true, it does not negate
the fact that Alejandro did not have any special power of attorney (SPA). It was a finding that need not be
disturbed that Alejandro had no authority from his co-owners to sell the subject property.
VII. Random Facts
• Ponente: Reyes, J.
Day 60 of Quarantine
It’s been 2 months since I last set foot in ALS. Staying at home for that long tends to mess with your sense of
time. Hours, days, weeks all blend into one When a sale of a piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing; otherwise, the sale shall be void.
another and become hard to distinguish. Recent events feel like the happened an eternity ago, but the
cancellation of classes can sometimes feel like it happened just last week. It’s Friday, May 8 today. That means
the ARTICLE 1878 of the CIVIL CODE.
Consti II midterm was a week ago, but it feels like it happened yesterday. The assignments are rolling in now,
and we’re readjusting the to the fact Special powers of attorney are necessary in the following:
that we have deadlines again. A week-long period for a task can suddenly disappear if you’re not vigilant. xxxxx
(Btw, for around 2 months I didn’t bother shaving facial hair because no par. (5) - To enter into any contract by
which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable
one’s leaving the house to interact with anyone else anyway. But after a while that got too uncomfortable so it
had to go.) consideration;
One of the main concern now is how Finals will be conducted online. The VI. Disposition
Consti II midterm was a test run of how things will go, and frankly it did not go so well. Internet connectivity is a
real issue. I hope the professors take WHEREFORE, the petition is DENIED. The Decision of the Court of
into account the time it takes to actually scan and upload submissions. Appeals dated November 29, 2007 in
CA-G.R. CV No. 86001 is AFFIRMED.
Seems like this is my last oblicon digest for the sem? We’ll see.
And
Marcelina Lajarca.
3
Nena Recio leased a parcel of land from the five Altamirano heirs, 1. In the 1950’s, Nena Recio (Nena), the mother of Reman
who then offered to sell the property to her for ₱500,000.00. Nena Recio (petitioner), leased from the five Altamirano heirs
accepted the offer and the Altamiranos waived the rentals. However, (respondents) a parcel of land with improvements, situated at
through the Altamiranos fault, the sale did not occur, and the heirs’ lands No. 39 10 de Julio Street (now Esteban Mayo Street), Lipa
were consolidated then subdivided into three lots. Petitioner Reman Recio City, Batangas.
(Recio) and his family remained in peaceful possession of Lot No. 3. Recio 2. The petitioner claimed that in 1988, the Altamiranos offered
later renewed Nena’s option to buy the property, and negotiated with
to sell the subject property to Nena for Five Hundred
Alejandro Altamirano, an heir who claimed he represented his co-heirs.
Thousand Pesos (₱500,000.00),
Recio made two partial payments that were acknowledged by Alejandro, but
the latter started avoiding Recio even as he tried to deliver the remaining 3. Nena accepted such offer, and the Altamiranos waived the
balance. Recio then filed a complaint for Specific Performance with rentals for the subject property.
Damages, seeking the execution of a Deed of Absolute Sale in exchange 4. Through the Altamiranos’ fault, the sale did not materialize,
for the full payment of the agreed price. but, Nena continued to occupy and use the property with the
While the summons to the Altamiranos was pending, the heirs later consent of the heirs.
sold the property to the Spouses Lajarca. The RTC ruled in favor of 5. Meanwhile, the Altamiranos consolidated the two (2) parcels
petitioner, ordering the Altamiranos to deliver the entire subject lot of land, which were eventually subdivided into three (3)
contemplated in the contract. The CA later modified this decision, stating parcels of land (Lots 1, 2, and 3).
that Alejandro Altamirano did not have the authority to dispose of more 6. The petitioner and his family remained in peaceful possession
than his own share of the land, and the sale to Recio is only valid with of Lot No. 3.
regards to that particular share. 7. In 1994, the petitioner renewed Nena’s option to buy the
Recio petitioned the Supreme Court, seeking the reversal of the CA
subject property, negotiating with respondent Alejandro who
decision so he could obtain the entire lot and not just Alejandro’s share. The
Supreme Court upheld the CA decision, citing Articles 1874 & 1878 of the introduced himself as representing the other heirs.
Civil Code. These laws provide that sales of land through an agent 8. The Altamiranos through Alejandro entered into an oral
require a written authorization to be valid (Art. 1874), and that contracts contract of sale with the petitioner over the subject property.
regarding transmission of ownership over immovables require a special 9. Petitioner made two partial payments to the Altamiranos in
power of attorney (Art. 1878). There was no evidence presented that the total amount of (₱160,000.00), which Alejandro duly
showed Alejandro was authorized to sell the entire lot on behalf of his co- received and acknowledged with receipts.
heirs. The Court held that it did not matter that the heirs knew of the 10. Petitioner then made several offers to pay the remaining
sale, since the written requirement was indispensable. Absent the balance (₱340,000.00), but Alejandro kept on avoiding him
consent of Alejandro’s co-owners, the Court holds that the sale between 11. Because of this, the petitioner demanded from the
the other Altamiranos and the petitioner is null and void. Altamiranos, through Alejandro, the execution of a Deed of
Obligations and Contracts (2020) PETITIONER: Reman Recio 1

DIGEST AUTHOR: Vito Castañeda RESPONDENT: Heirs Of The Spouses Altamirano, and Spouses Lauro And
Marcelina Lajarca.
Absolute Sale in exchange for the full payment of the agreed IV. Holding/s
price.
12. Petitioner filed a complaint for Specific Performance with Issue #1
Damages, but as the summons to the Altamirano heirs was NO, Petitioner is only entitled to the share of Alejandro in the plot of
pending, the petitioner discovered that the subject property land, as the latter is only authorized to dispose of his own share.
has been subsequently sold to respondents Lauro and Petitioner’s Arguments Court’s Rebuttals
Marcelina Lajarca (Spouses Lajarca), whom petitioner then • Alejandro Altamirano claimed • The CA reversed the RTC
impleaded as additional defendants. he represented the other heirs decision when it found that it was
13. The RTC ruled in favor of petitioner. and could validly sell the entire only Alejandro who agreed to
a. The sale to the Spouses Lajarca was declared null plot of land. the sale. There is no evidence to
and void show that the other co-owners
b. The Altamiranos were directed to execute a Deed of consented to Alejandro’s sale
Absolute Sale in favor of plaintiff covering the transaction with the petitioner.
entire parcel of land together with all • Applicable rules are Articles
improvements upon payment of the remaining 1874 of the Civil Code, which
balance. requires that sales of land
14. The Spouses Lajarca appealed to the CA, which affirmed with through an agent require
modification the RTC decision, stating that the contract of authorization in writing to be
sale between Alejandro Altamirano and Reman Recio is valid, and 1878, which dictates
VALID only with respect to the aliquot share of Alejandro that special powers of attorney
Altamirano in the lot, and not the entire parcel of land are required to enter any
inherited by the heirs. contract that transmits
15. Aggrieved, the petitioner appealed to the Supreme Court ownership of immovables.
(praying that he be allowed to acquire the entire lot). • Alejandro therefor could only sell
his aliquot share of the subject
III. Issue/s property to the petitioner.
1. W/N petitioner is entitled to the entire plot of land
contemplated in the original contract: NO.

Marcelina Lajarca.
Overall Ruling
SO ORDERED.
The petitioner’s contentions are untenable. Given the expressed
requirement under the Articles 1874 and 1878 of the Civil Code that Sereno, C.J., (Chairperson), Leonardo-De Castro, Bersamin,
there must be a written authority to sell an immovable property, the and Villarama, Jr., JJ., concur.
petitioner’s arguments must fail. The petitioner asserts that since the
contained a notice of lis pendens, the Altamiranos very well knew of the
earlier sale to him by Alejandro. While this may be true, it does not negate
the fact that Alejandro did not have any special power of attorney
(SPA). It was a finding that need not be disturbed that Alejandro had no VII. Random Facts
authority from his co-owners to sell the subject property. • Ponente: Reyes, J.
V. Law or Doctrine Applied Day 60 of Quarantine
ARTICLE 1874 OF THE CIVIL CODE It’s been 2 months since I last set foot in ALS. Staying at home for that long
tends to mess with your sense of time. Hours, days, weeks all blend into one
When a sale of a piece of land or any interest therein is through an agent, the another and become hard to distinguish. Recent events feel like the
authority of the latter shall be in writing; otherwise, the sale shall be void. happened an eternity ago, but the cancellation of classes can sometimes feel
like it happened just last week. It’s Friday, May 8 today. That means the
ARTICLE 1878 of the CIVIL CODE. Consti II midterm was a week ago, but it feels like it happened yesterday.
The assignments are rolling in now, and we’re readjusting the to the fact
Special powers of attorney are necessary in the following: that we have deadlines again. A week-long period for a task can suddenly
disappear if you’re not vigilant.
xxxxx
(Btw, for around 2 months I didn’t bother shaving facial hair because no
par. (5) - To enter into any contract by which the ownership of an one’s leaving the house to interact with anyone else anyway. But after a
immovable is transmitted or acquired either gratuitously or for a valuable while that got too uncomfortable so it had to go.)
consideration;
One of the main concern now is how Finals will be conducted online. The
VI. Disposition Consti II midterm was a test run of how things will go, and frankly it did not
go so well. Internet connectivity is a real issue. I hope the professors take
WHEREFORE, the petition is DENIED. The Decision of the Court of into account the time it takes to actually scan and upload submissions.
Appeals dated November 29, 2007 in CA-G.R. CV No. 86001
is AFFIRMED. Seems like this is my last oblicon digest for the sem? We’ll see.

Marcelina Lajarca.
G.R. No. L-66696 | July 14, 1986 Void / Inexistent Contracts
Arsenal v. IAC Arsenal v. IAC
I. Recit-ready Summary Citing jurisprudence, the SC said that the execution of a formal deed after
Spouses Filomeno Palaos and Mahina Ligwas owned a homestead land, 4 the expiration of the prohibitory period did not and could not legalize a
hectares of which they sold to Torcuato Suralta some time in 1957. Ten contract that was void from its inception. The law prohibiting any transfer or
years later, they sold the remaining 3 hectares to spouses Arsenal. The deed alienation of homestead land within five years from the issuance of the
of sale, however, covered the entirety of the lot including the 4 hectares patent does not distinguish between executory and consummated sales; and
previously sold to Suralta, unbeknownst to him. In 1973, Suralta saw for the it would hardly be in keeping with the prohibition’s goal of preserving and
first time the Deed of Sale embracing the whole Lot 81 signed by Palaos in keeping in the family of the homesteader the piece of land that the State had
favor of Arsenal, and he asked Palaos for explanation but Palaos told him he gratuitously given to them, to hold valid a homestead sale actually
only sold 3 hectares to Arsenal. Suralta approached Arsenal for a perfected during the period of prohibition but with the execution of the
satisfactory arrangement but the latter insisted on abiding by her contract. formal deed of conveyance and the delivery of possession of the land sold to
Francisca Arsenal registered her Deed of Sale and obtained Transfer the buyer deferred until after the expiration of the prohibitory period,
Certificate of Title for the entire Lot 81 without the knowledge of Suralta. purposely to circumvent the law prohibiting such.
Thereafter, Suralta sent a telegram to the Secretary of Agriculture and
Natural Resources requesting suspensions of the approval of the sale II. Facts of the Case (Material Facts)
executed by Palaos in favor of Arsenal, not knowing that the latter had
1. On January 7, 1954, Filomeno Palaos secured OCT No. P-290 for
already secured a transfer certificate of title from the Register of Deeds.
Lot 81, Pls-112, consisting of 87,829 sq. m. by virtue of
Failing to reach a settlement with Arsenal, Suralta filed a case against
Homestead Patent No. V-23602 granted to him.
Palaos, Lagwas, and the spouses Arsenal and sought to annul the Transfer
Certificate of Title issued to the Arsenals insofar as it covers the 4 hectare 2. On September 10, 1957, Palaos and his wife Mahina Lagwas sold
portion previously sold to him. to Torcuato Suralta 4 hectares of the land.
3. Suralta immediately took possession of the four-hectare portion of
The main issue in this case is W/N the lower courts erred in declaring
Lot 81 openly, continuously and peacefully up to the present time
Suralta to be the legitimate owner of the disputed land. (Stated otherwise,
in concept of owner thereof.
who among the two alleged purchasers of the 4-hectare portion of land
granted in homestead has acquired a valid title thereto.) 4. Ten years later, Palaos sold the remaining 3 hectares to spouses
Arsenal.
The Court held that yes, the lower courts erred because neither the Arsenals
nor Suralta own the land. It is still the spouses Palaos’, as the sale between 5. The deed of sale, however, covered the entirety of the lot including
them and Suralta was void ab initio pursuant to the Public Land Act which the 4 hectares previously sold to Suralta, unbeknownst to him.
prohibits a homestead land from being sold within the five-year prohibitive 6. The deed of sale was presented to the Office of the Commission
period. Following Art. 1409 of the Civil Code, a contract expressly on National Integration at Malaybalay for approval because Palaos
prohibited or declared void by law is inexistent from the beginning. It and his wife belong to the cultural minorities and unlettered
cannot be ratified, and neither can the right to set up the defense of its
illegality be waived. A contract which purports of alienate, transfer, convey 7. The Arsenals took possession of the three-hectare portion of Lot
or encumber any homestead within the prohibitory period of five years from 81 after their purchase but they never disturbed Suralta’s
the date of the issuance of the patent is void from its execution. possession over the four-hectare portion that he had purchased in
1957.
Obligations and Contracts (2020) PETITIONER: Francisca & Remedio Arsenal 1

DIGEST AUTHOR: Pia Casano RESPONDENT: Heirs of Torcuato Suralta, Spouses Filomeno Palaos & Mahina Lagwas
8. On July 11, 1973, Suralta presented his Sales Contract in the III. Issue/s
Office of the Register of Deeds but it was refused registration for 1. W/N the lower courts erred in declaring Suralta to be the
having been executed within the prohibitive period of five years legitimate owner of the disputed land – YES
from the issuance of the patent. In order to cure the defect, he
caused Palaos to sign a new Sales Contract in his favor covering IV. Holding/s
the same four-hectare portion of Lot 81.
Issue #1
9. In December 1973, Suralta saw for the first time the Deed of Sale
embracing the whole Lot 81 signed by Palaos in favor of Arsenal,
Yes, the lower courts erred. The disputed land is neither the Arsenals nor
and he asked Palaos for explanation but Palaos told him he only
Suralta own the land. It is still the spouses Palaos’.
sold 3 hectares to Arsenal.
10. Suralta approached Arsenal for a satisfactory arrangement but the Petitioner’s Arguments Court’s Rebuttals
latter insisted on abiding by her contract.
11. Arsenal registered her Deed of Sale and obtained Transfer
Relies on the nullity of the contract • Contract agreed that the
of sale executed in 1957 between the contract of sale is void.
Certificate of Title for the entire Lot 81 without the knowledge of
respondents Palaos and Suralta.
Suralta.
They allege that because the
12. Thereafter, Suralta sent a telegram to the Secretary of Agriculture previous sale was void from the
and Natural Resources requesting suspensions of the approval of beginning, it cannot be ratified and
the sale executed by Filomeno Palaos in favor of Arsenal, not "No amount of bad faith on the part
knowing that the latter had already secured a transfer certificate of of the petitioners could make it valid
title from the Register of Deeds. and enforceable in the courts of
law."
13. Failing to reach a settlement with Arsenal, Suralta filed a case
against Palaos, Lagwas, and the spouses Arsenal and sought to
Overall Ruling
annul the Transfer Certificate of Title issued to the Arsenals
insofar as it covers the 4 hectare portion previously
Neither the Arsenals nor Suralta own the land. It is still the spouses Palaos’,
14. The trial court rendered judgment in favor of Suralta. It imputed as the sale between them and Suralta was void ab initio pursuant to the
bad faith to the Arsenals and declared them disqualified to avail of Public Land Act which prohibits a homestead land from being sold within
the protection afforded by the provisions of the Civil Code to the five-year prohibitive period. Following Art. 1409 of the Civil Code, a
innocent purchasers although they registered their purchase ahead contract expressly prohibited or declared void by law is inexistent from the
of Suralta. beginning. It cannot be ratified, and neither can the right to set up the
defense of its illegality be waived. A contract which purports of alienate,
15. On appeal to the Intermediate Appellate Court affirmed the trial
transfer, convey or encumber any homestead within the prohibitory period
court’s decision.
of five years from the date of the issuance of the patent is void from its
execution.

Citing jurisprudence, the SC said that the execution of a formal deed after WHEREFORE, the decision of the Intermediate Appellate Court is
the expiration of the prohibitory period did not and could not legalize a REVERSED and SET ASIDE. Judgment is hereby rendered:
contract that was void from its inception. The law prohibiting any transfer or
alienation of homestead land within five years from the issuance of the (a) Declaring null and void the sale of the four-hectare portion of the
patent does not distinguish between executory and consummated sales; and homestead to respondent Torcuato Suralta and his heirs;
it would hardly be in keeping with the prohibition’s goal of preserving and
keeping in the family of the homesteader the piece of land that the State had (b) Declaring null and void the sale of the same portion of land to the
gratuitously given to them, to hold valid a homestead sale actually petitioners Francisca Arsenal and Remedio Arsenal:
perfected during the period of prohibition but with the execution of the
formal deed of conveyance and the delivery of possession of the land sold to
the buyer deferred until after the expiration of the prohibitory period, (c) Ordering the Register of Deeds of Bukidnon to cancel Transfer
purposely to circumvent the law prohibiting such. Certificate of Title No. T-7879 as to the disputed four-hectare portion and to
reissue an Original Certificate of Title for the portion designated as Lot 81-
A of the Subdivision Plan LRC-PLD-198451 prepared by Geodetic
Engineer Benito P. Balbuena and approved by the Commission on Land
Registration, in favor of the respondents Filomeno Palaos and Mahina
Lagwas;
(d) Ordering the respondents Filomeno Palaos and Mahina Lagwas to
The following contracts are inexistent and void from the beginning: reimburse the heirs of the respondent Torcuato Suralta the sum of EIGHT
HUNDRED NINETY PESOS (P890.00), the price of the sale. The value of
(1) Those whose cause, object or purpose is contrary to law, morals, good any improvements made on the land and the interests on the purchase price
customs, public order or public policy; are compensated by the fruits the respondent Suralta and his heirs received
(2) Those which are absolutely simulated or fictitious; from their long possession of the homestead.
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men; This judgment is without prejudice to any appropriate action the
(5) Those which contemplate an impossible service; Government may take against the respondents Filomeno Palaos and Mahina
(6) Those where the intention of the parties relative to the principal object of Lagwas pursuant to Section 124 of Commonwealth Act No. 141, as
the contract cannot be ascertained; amended.
SO ORDERED.
of illegality be waived. VII. Additional Notes
• Ponente: GUTIERREZ, JR., J

G.R. No. 116635 | July 24, 1997 Void or Unenforceable Contracts
Nool v CA Nool v CA
Conchita Nool and her husband bought two parcels of land from II.Facts of the Case (Material Facts)
her brothers. In dire need of money, they obtained a loan from DBP by ● There are 2 parcels of land in dispute and litigated here
securing it via real estate mortgage over the parcels of land. Unfortunately, ○ one parcel was owned by Victorino Nool
she failed to pay for the said loans, leading to the foreclosure of the ○ the other parcel was owned by Francisco Nool
mortgaged parcels. In a bid to recover them, she enlisted Anacleto Nool to ● Conchita Nool and her husband, Gaudenico Almojera, allegedly
redeem the parcels from DBP, in which they had two agreements (Ex. C and bought the two parcels of land from her two brothers (Victorino
D), with the first one (C) being a contract of sale by Conchita to Anacleto, and Francisco)
and the other one (D) being a contract of repurchase by Conchita for the ● In dire need of money, they obtained a loan from DBP, securing it
same. However, Anacleto found out that Conchita lost the right to redeem with a real estate mortgage over the said parcels of land, which
the said parcels, and thus had to purchase it from DBP through a negotiated were still registered in the names of her two brothers.
sale. Conchita tried to recover the parcels from Anacleto, based on their ● Unfortunately, the petitioners failed to pay for the loan (P56k
agreements, to no avail, leading to her going to court for relief. The lower total), leading to the foreclosure of the mortgage by DBP
court and the CA both held that the agreements were void and ● Within the period of redemption, they contacted Anacleto Nool to
unenforceable, leading to the current petition. redeem the foreclosed properties from DBP
The main issue here is W/N the two agreements were valid and ○ they had an arrangement (Exhibit C) in which Anacleto
enforceable, as opposed to what the lower courts have held. The SC sided agreed to buy from Conchita the parcels of land, for the
with the lower courts and held that the two agreements were not valid and total price of P100k, with P30k was already paid to
enforceable. Jurisprudence has consistently held that a sale in which the Conchita.
seller is not the owner and unauthorized by the real owner, is void. In the ○ they had another arrangement (Exhibit D) in which
case, it was clear that upon the foreclosure of the parcels by DBP, Conchita Anacleto agreed to return to Conchita the lands in
lost ownership of the said parcels, and since she was not even authorized by question, upon her payment
DBP to sell it, the contract of sale in Ex. C should be void. While the law ● Unfortunately, when Conchita tried to redeem the lands from
does not necessarily consider a sale contract as void, on the ground that the Anacleto, it was rendered futile, despite the barangay captain’s
seller does not own it (and can even be authorized by the owner itself to sell intervention, as he refused to return the parcels to her, leading to
it), what makes the contract void in the end was the fact that since Anacleto her coming to court for relief
already acquired the lands from the owner (DBP) itself, the sale in Ex. C is ○ Apparently, according to Anacleto, he found out that
rendered impossible to comply, by the virtue of Art 1409(5). And since Ex. Conchita mislead him when they made the agreements,
D is dependent on the validity of Ex. C, and is actually a direct result of it, it when she told him that she still had the right to redeem,
should also follow that the repurchase contract of Ex. D is to be rendered when in fact, he had to acquire/purchase the lands from
void as well, by virtue of Art 1422. DBP itself through a negotiated sale, implying that
Conchita lost that right.
1
Obligations and Contracts (2020) PETITIONER: Conchita Nool, Gaudencio Almojera
DIGEST AUTHOR: Jayvee Ala RESPONDENT: Court of Appeals, Anacleto Nool, Emilia Nebre
Nool v CA Nool v CA
● The lower court ruled that the second arrangement (Exhibit D) was o Exhibit C: the lost the title to
an option to sell, not binding upon Anacleto, who considered the petitioners will sell the the parcels of
same validly withdrawn for want of consideration. lands to Anacleto land, thus they
○ The moment that the mortgage for the parcels were o Exhibit D: the cannot sell the
foreclosed, the DBP was able to consolidate its ownership petitioners can lands to Anacleto
over them. repurchase the lands, validly
■ It was noted that Conchita never exercised her upon payment ● Art 1370 only applies to
right within the 1y redemption period, which in ● They invoke Art 1370, which valid and enforceable
turn made the DBP the absolute owner of the mandates that “if the terms of a contracts
parcels of land. contract are clear and leave no
○ Since Anacleto had to negotiate with DBP in buying the doubt upon the intention of the
lands, by virtue of such sale, the ownership of the lands contracting parties, the literal
were transferred to Anacleto. meaning of its stipulations shall
● The CA affirmed the lower court’s ruling, leading to the current control
petition. Overall Ruling (RELEVANT)
III. Issue/s The SC affirms the lower court and CA’s ruling that the two agreements
1. W/N the two agreements (Exhibits C and D) were valid and are not valid and enforceable. As impliedly held in Dignos v CA, t he sale is
enforceable; NO null and void since the sellers here were no longer the owners of the
a. W/N the petitioners can still exercise their right to property in question (though the absence of ownership was not the main
repurchase (assuming arguendo that Exhibit D is separate basis for the ruling, as it will be explained later by law). In this case, it was
and unaffected by Exhibit C’s nullity); NO clear that Conchita no longer had the title of the lands upon its mortgages’
IV. Holding/s foreclosure, making Exhibit C’s sale void, and since Exhibit D’s
repurchase is dependent on the validity of C, it should also follow that D is
Main Issue void, by virtue of Art 1422. While the law provides that a sale is not
NO, the two agreements (C and D) were actually void and automatically void even if the seller was not the owner, in which Art 1409
unenforceable does not include this factor as one of the grounds for void contracts and
Petitioners’ Arguments Court’s Rebuttals that the Civil Code itself recognizes the validity of such a sale provided
● They plead for the enforcement ● The agreements are not that he acquires title over the property later on, yet, in the case however, it
of their two agreements and seek valid and enforceable is clear that Conchita could no longer deliver the lands to Anacleto, as the
damages from Anacleto’s ○ it was clear that latter already acquired it from the owner, DBP, depriving Conchita of the
alleged breach the petitioners opportunity to deliver the object to Anacleto. In such, the contract is
2
Nool v CA Nool v CA
deemed inoperative by virtue of Art 1409(5) which also considers those (1) Those whose cause, object or purpose is contrary to law, morals, good
which contemplate an impossible service. Due to Conchita’s predicament, customs, public order or public policy;
the supposed sale has become impossible, and thus inoperative. (2) Those which are absolutely simulated or fictitious;
In turn, the voidness of Exhibit C makes Exhibit D void as well since, the (3) Those whose cause or object did not exist at the time of the transaction;
law (Art 1505) and jurisprudence tells us that the seller can only sell what (4) Those whose object is outside the commerce of men;
he owns or authorized to sell, and absent those qualifiers, the sale is not (5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of
valid. In this case, there was no allegation that the DBP authorized
the contract cannot be ascertained;
Conchita to sell the lands. Since it has been established that Exhibit C’s
sale is impossible, there was nothing to repurchase anymore, making
Exhibit D inoperative as well. of illegality be waived.
Other Point of the case: Art 1422.

Exhibit D’s validity, if assuming that Exhibit C’s voidness should not A contract which is the direct result of a previous illegal contract, is also
affect Exhibit D’s repurhcase void and inexistent.
Even under that assumption, Conchita could still not acquire the right to
repurchase. In that scenario, Exhibit D becomes either a separate contract Art. 1505.
to sell, or an unilateral promise to sell instead. If it is a contract to sell, Subject to the provisions of this Title, where goods are sold by a person who
based on jurisprudence, unless there is stipulation that would reserve such, is not the owner thereof, and who does not sell them under authority or with
the vendor cannot claim a right to repurchase since the purchaser already the consent of the owner, the buyer acquires no better title to the goods than
acquired full ownership of the thing already, so in essence, it is a new the seller had, unless the owner of the goods is by his conduct precluded
contract to sell/option to buy entered into by the purchaser. Obviously, from denying the seller's authority to sell…...
there was no stipulation that reserves Conchita’s right to repurchase. If it is
a promise to sell, Art 1479 would rule, and based on that law, such a
VI. Disposition
promise/contract would only be binding if the promise is supported by a
consideration distinct from price. In this case, Exhibit D was bereft of any
WHEREFORE, the petition is DENIED and the assailed Decision of the
consideration distinct from the price, which only proves the point that Court of Appeals affirming that of the trial court is hereby AFFIRMED.
Exhibit D is VOID
SO ORDERED.
Art 1409. VII. Additional Notes
The following contracts are inexistent and void from the beginning:
VII. Random Facts
3
Nool v CA Nool v CA
● Ponente: Panganiban, J.
4
G.R. No. 134559 | 9 Dec. 1999 Art. 1422: Void or Inexistent Contract
Torres v. CA Torres v. CA
I. Recit-ready Summary company (Universal Umbrella Company) instead of for the

Petitioners and respondent entered into a joint venture agreement for development of the land.
the development of a parcel land into a subdivision. Pursuant to the contract, 6. RESPONDENT: He used the loan to survey and subdivide the
petitioners executed a deed of sale covering the said parcel of land in favor lots, and advertised the project in the Lapu Lapu City local
of the respondent. Thereafter, respondent mortgaged the property in the newspaper. He caused the construction of roads, curbs, and gutters,
bank, and according to the joint agreement, the money obtained amounting and entered into a contract to construct low-cost housing units on
to P40,000 was to be used for the development of the subdivision. However, the property.
the project did not push through, and the land foreclosed. Because of this,
7. RESPONDENT: He contends that the reason the project failed
petitioners filed a civil case before the RTC, which was dismissed. On
was because petitioners and their relatives had caused the
appeal, the CA affirmed the decision of the trial court. The appellate court
held that the petitioner and respondent had formed a partnership for the annotations of adverse claims on the title to the land, which scared
development of the subdivision. Thus, they must bear the loss suffered by off potential buyers.
the partnership in the same proportion as their share in the profits stipulated 8. Petitioners then filed this civil case. The lower courts ruled that
in the contract. Aggrieved by the decision, petitioner filed the instant petitioners and respondent had formed a partnership, and that they
petition contending that the Court of Appeals erred in concluding that the must bear the loss in the same proportion as their share in the
transaction between the petitioners and respondent was that of a joint profits stipulated in the contract.
venture/partnership, because the contract was void according to Art. 1422. III. Issue/s
The Supreme Court found the petition bereft of merit. A reading of the 1. W/N Petitioners and Respondent have a partnership. (YES.)
terms of the Joint Venture Agreement indubitably showed the existence of a 2. W/N the Joint Venture Agreement is void. (NO.)
partnership pursuant to Article 1767 of the Civil Code. Art. 1422 also IV. Holding/s
cannot be applied in this case, because the cause of the Deed of Sale was the
expectation of profit from the subdivision profit, and the contract is not
Issue #1
void. The Court ruled that petitioners are not entitled to damages.
II. Facts of the Case (Material Facts) YES, petitioners formed a partnership with respondent.
1. Petitioner sisters Antonia Torres and Emeteria Baring entered into
a Joint Venture Agreement with respondent Manuel Torres, for the Petitioner’s Arguments Court’s Rebuttals
development of a parcel of land into a subdivision. • There is no partnership. • A reading of the Joint Venture
2. Petitioners executed a deed of sale covering the parcel of land in • Respondent is liable under the Agreement clearly shows the
favor of Manuel. contract for his failure to existence of a partnership,
3. Manuel mortgaged the property and obtained a loan of P40,000 implement the project. Since the pursuant to Art. 1767 of the Civil
from Equitable Bank. This was to be used for the development of agreement entitled them to 60% Code.
the subdivision, in accordance with the Joint Venture Agreement. of the profits, respondent should • Petitioners cannot deny a contract
4. The project did not push through, and the bank foreclosed the land. pay them damages equal to 60% in one breath, then recognize it in
5. PETITIONERS: the project failed because of respondent’s lack of of the value of the property. another.
funds or means and skills. He also used the loan for his own
Obligations and Contracts (2020) PETITIONER: Antonia Torres (assisted by her husband Angelo Torres) and 1
Emeteria Baring
DIGEST AUTHOR: Maxi Asuncion RESPONDENT: Court of Appeals and Manuel Torres
G.R. No. 134559 | 9 Dec. 1999 Art. 1422: Void or Inexistent Contract
Torres v. CA Torres v. CA
Overall Ruling Overall Ruling

Art. 1767 of the Civil Code states that a partnership is formed when two Petitioners cannot invoke the allegedly void contract as basis for their
or more persons bind themselves to contribute money, property or industry claim that respondent should pay them 60% of the value of the property.
to a common fund, with the intention of dividing the profits among They cannot in one breath deny the contract, and in another recognize it.
themselves. Under the Agreement, petitioners would contribute property, Petitioners claim that the Joint Venture Agreement is void Art. 1422,
the land to be developed into a subdivision. Meanwhile respondent would because it is the direct result of an earlier illegal contract (the sale of the
give his industry, and money for general expenses and other costs. Income land without valid consideration/cause). This is without merit. The
from the project would be divided according to the stipulated percentage Agreement states that the consideration for the sale was the expectation of
among them. profits from the subdivision project, and it recognizes that petitioners did
not actually receive money payment for the parcel of land sold to
Issue #2 respondent. Cause can take different forms, such as the promise of a thing
NO, the Joint Venture Agreement is NOT VOID. or service by another. Here, the cause of the contract of sale consisted in the
expectation of profits from the subdivision project. As explained by the trial
Petitioner’s Arguments Court’s Rebuttals court, "the land was in effect given to the partnership as [petitioner's]
• The Agreement is void under • Art. 1773 was intended to protect participation therein. There was therefore a consideration for the sale, the
Art. 1773. third persons. No third persons [petitioners] acting in the expectation that, should the venture come into
• It is also void under Art. 1422. are involved in this case. fruition, they [would] get sixty percent of the net profits."
Petitioners did not receive • Cause can take different forms. In
payment for the parcel of land this case, the cause of the contract V. Law or Doctrine Applied
sold to respondent. was the expectation of profits Art. 1422
from the subdivision project. A contract which is the direct result of a previous illegal contract, is also
void and inexistent.
VI. Disposition
WHEREFORE, the Petition is hereby DENIED and the challenged Decision
AFFIRMED. Costs against petitioners.

Art. 1771
A partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public
instrument shall be necessary.
VII. Random Facts
• Ponente: Panganiban, J.
Obligations and Contracts (2020) PETITIONER: Antonia Torres (assisted by her husband Angelo Torres) and 2
Emeteria Baring
DIGEST AUTHOR: Maxi Asuncion RESPONDENT: Court of Appeals and Manuel Torres

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G.R. No. 205703 | 7 March 2016 Art.

1306: No Contrary Stipulations

I. Recit-ready Summary 5. RESPONDENT: Arriola filed a complaint for illegal dismissal

I. Recit-ready Summary 7. Petitioners refused.

Obligations and Contracts (2020) PETITIONER: Heirs of Cirilo Leal 1

VII. Separate Opinions

VIII. Additional Notes

• Ireneo Leal, Jose Leal, Catalina Leal, Bernabela Leal, Vicente

• These incidents were not resolved until the then Court of

VII. Random Facts

Obligations and Contracts (2020) PETITIONER: Heirs of Cirilo Leal 3

Tiu v Platinum Plans Tiu v Platinum Plans

DIGEST AUTHOR: Himerio Garcia RESPONDENT: Platinum Plans Philippines Inc.

Tiu v Platinum Plans Tiu v Platinum Plans

Obligations and Contracts (2020) PETITIONER: Daisy Tiu 2

DIGEST AUTHOR: Himerio Garcia RESPONDENT: Platinum Plans Philippines Inc.

Tiu v Platinum Plans Tiu v Platinum Plans

The contracting parties may establish such stipulations, clauses, terms

WHEREFORE, the petition is DENIED for lack of merit. The Decision

VII. Additional Notes

NON INVOLVEMENT PROVISION

The EMPLOYEE further undertakes that during his/her engagement with

DIGEST AUTHOR: Himerio Garcia RESPONDENT: Platinum Plans Philippines Inc.

I. Recit-ready Summary Additionally, under Section 22 of the Property Registration Decree,

Hence, the substitution by respondent of petitioners as applicant in the land

V. Law or Doctrine Applied

ARTICLE 1307 OF THE CIVIL CODE

ARTICLE 1458 OF THE CIVIL CODE

ARTICLE 1498 OF THE CIVIL CODE

WHEREFORE, the assailed decision of the Court of Appeals is REVERSED and

VII. Additional Notes

VII. Random Facts

Taylor v. Uy Tieng Piao Taylor v. Uy Tieng Piao

I. Recit-ready Summary II. Facts of the Case (Material Facts)

DIGEST AUTHOR: Regina Alzaga RESPONDENTS: Uy Tieng Piao

Taylor v. Uy Tieng Piao Taylor v. Uy Tieng Piao

Petitioner/Trial Court’s Court’s Rebuttals V. Law or Doctrine Applied

DIGEST AUTHOR: Regina Alzaga RESPONDENTS: Uy Tieng Piao

Taylor v. Uy Tieng Piao Taylor v. Uy Tieng Piao

affirmed with interest from November 4, 1919, as provided in section 510 of

VII. Additional Notes

VII. Random Facts

DIGEST AUTHOR: Regina Alzaga RESPONDENTS: Uy Tieng Piao

I. Recit-ready Summary 2. Under their contract, Valenzona would receive P 35,000.00

Obligations and Contracts (2020) PETITIONER: GF Equity, Inc. 1

IV. Holding/s ARTICLE 1308, CIVIL CODE OF THE PHILIPPINES

V. Law or Doctrine Applied

Obligations and Contracts (2020) PETITIONER: GF Equity, Inc. 2

Issue #1 • The 2 promissory notes signed by petitioners

• Valid because: o Evidently, the point of difference in the cited escalation

• Sereno’s Concurring Opinion

I. Recit-ready Summary long-time lessee of a portion of the property, paying a monthly

remedy to prevent this continuing violation of the

VII. Random Facts

Obligations and Contracts (2020) PETITIONER: Security Bank Corporation 1

Obligations and Contracts (2020) PETITIONER: Security Bank Corporation 2

Obligations and Contracts (2020) PETITIONER: Security Bank Corporation 3

IV. Law or Doctrine Applied

ARTICLE 1308 OF THE CIVIL CODE

WHEREFORE, the petitions are DENIED. Accordingly, the Court of

Obligations and Contracts (2020) PETITIONER: Security Bank Corporation 4

I. Recit-ready Summary II. Facts of the Case (Material Facts)

Obligations and Contracts (2020) PETITIONER: Allied Banking Corporation 1

V. Law or Doctrine Applied.

VII. Random Facts: Ponente:Quisumbing, J.