HERNAEZ V DELOS ANGELES

REYES; April 30, 1969

NATURE
Petition for a writ of certiorari to set aside certain orders of the Court of First Instance of
Quezon City (Branch IV), in its Civil Case No. Q-10288, dismissing a complaint for
breach of contract and damages, denying reconsideration, refusing to admit an
amended complaint, and declaring the dismissal final and unappealable.

FACTS
- Petitioner Marlene Dauden Hernaez, a motion picture actress, filed a complaint
against Hollywood Far East Productions, Inc., and its President and General Manager,
Ramon Valenzuela, to recover P14,700.00 representing a balance allegedly due for her
services as leading actress in two motion pictures produced by the company, and to
recover damages.
- CFI QC (Judge Walfrido delos Angeles, presiding) ordered the complaint dismissed,
mainly because the "claim of plaintiff was not evidenced by any written document, either
public or private" and the complaint "was defective on its face" for violating Articles 1356
and 1358 of the Civil Code of the Philippines, and for containing defective allegations.
- Plaintiff sought reconsideration of the dismissal and for admission of an amended
complaint. The court denied reconsideration and the leave to amend. A second motion
for reconsideration was filed, which the court also denied for being pro forma, as its
allegations "are, more or less, the same as the first motion," and for not being
accompanied by an affidavit of merits, and further declared the dismissal final and
unappealable.
- respondent lower court argues that the proposed amended complaint did not vary in
any material respect from the original complaint except in minor details, and suffers
from the same vital defect of the original complaint, which is the violation of Article 1356
of the Civil Code, in that the contract sued upon was not alleged to be in writing; that by
Article 1358 the writing was absolute and indispensable, because the amount involved
exceeds five hundred pesos; and that the second motion for reconsideration did not
interrupt the period for appeal, because it was not served on three days notice.

ISSUES
1. WON lower court erred in denying plaintiffs motions for reconsideration and leave to
amend
2. WON lower court abused its discretion in ruling that a contract for personal services
involving more than P500.00 was either invalid or unenforceable under the last
paragraph of Article 1358 of the Civil Code of the Philippines

HELD
1. YES
When a court sustains a demurrer or motion to dismiss it is error for the court to dismiss
the complaint without giving the party plaintiff an opportunity to amend his complaint if
he so chooses. Insofar as the first order of dismissal did not provide that the same was
without prejudice to amendment of the complaint, or reserve to the plaintiff the right to

1
amend his complaint, the said order was erroneous; and this error was compounded
when the motion to accept the amended complaint was denied in the subsequent order
of 3 October 1966. Petitioner-plaintiff was within her rights in filing her so-called second
motion for reconsideration, which was actually a first motion against the refusal to admit
the amended complaint.
- The second motion for reconsideration was addressed to the court's refusal to allow an
amendment to the original complaint, and this was a ground not invoked in the first
motion for reconsideration. Thus, the second motion to reconsider was really not pro
forma, as it was based on a different ground, even if in its first part it set forth in greater
detail the arguments against the correctness of the first order to dismiss. As to the lack
of 3 days notice, the record shows that respondent-appellees had filed their opposition
to the second motion to reconsider; so that even if it were true that respondents were
not given the full 3 days' notice, they were not deprived of any substantial right.
Therefore, the claim that the first order of dismissal had become final and unappealable
must be overruled.
2. YES
The ruling contested betrays a basic and lamentable misunderstanding of the role of the
written form in contracts, as ordained in the Civil Code. In general, contracts are valid
and binding from their perfection regardless of form, whether they be oral or written.
This is plain from Articles 1315 and 1356 of the Civil Code.
"ART. 1315. Contracts are perfected by mere consent, and from that moment the parties
are bound not only to the fulfillment of what has been expressly stipulated but also to all
the consequences which, according to their nature, may be in keeping with good faith,
usage and law."
"ART. 1356. Contracts shall be obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are present.. . ."
- These essential requisites referred to in Art 1356 CC are normally (1) consent, (2)
proper subject matter, and (3) consideration or causa for the obligation assumed (Article
1318). Once the three elements exist, the contract is generally valid and obligatory,
regardless of the form, whether oral or written, in which they are couched.
- To this general rule, the Code admits exceptions, set forth in the second portion of
Article 1356:
"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 certain way, that requirement is
absolute and indispensable .
- There are thus two exceptions to the general rule: (a) Contracts for which the law itself
requires that they be in some particular form (writing) in order to make them valid and
enforceable (solemn contracts). (b) Contracts that the law requires to be proved by
some writing (memorandum) of its terms. Their existence not being provable by mere
oral testimony (unless wholly or partly executed), these contracts are exceptional in
requiring a writing embodying the terms thereof for their enforceability by action in court.
- The contract sued upon by petitioner, i.e. compensation for services, does not come
under either exception. It is true that it appears included in Article 1358, last clause,
providing that "all other contracts where the amount involved exceeds five hundred
pesos must appear in writing, even a private one." But Article 1358 nowhere provides
that the absence of written form in this case will make the agreement invalid or

2
unenforceable. On the contrary, Article 1357 clearly indicates that contracts covered by
Article 1358 are binding and enforceable by action or suit despite the absence of
writing.
"ART. 1357. If the law requires a document or other special form, as in the acts and
contracts enumerated in the following article, the contracting parties may compel each
other to observe that form, once the contract has been perfected. This right may be
exercised simultaneously with the action upon the contract.
- NOTE: It is not enough that the law should require that the contract be in writing, as it
does in Article 1358. The law must further prescribe that without the writing the contract
is not valid or not enforceable by action.
Disposition The order dismissing the complaint is set aside, and the case is ordered
remanded to the court of origin for further proceedings not at variance with the decision.
Costs to be solidarily paid by private respondents Hollywood Far East Productions, Inc.,
and Ramon Valenzuela.

BORROMEO V COURT OF APPEALS

FERNANDO; September 28, 1972

NATURE
PETITION for review by certiorari of a decision of the Court of Appeals

FACTS
- Before 1933, defendant [Jose A. Villamor] was a distributor of lumber belonging to Mr.
Miller who was the agent of the Insular Lumber Company in Cebu City. Defendant being
a friend and former classmate of plaintiff [Canuto O. Borromeo] used to borrow from the
latter certain amounts from time to time.
- On one occasion, defendant borrowed from plaintiff a large sum of money for which he
mortgaged his land and house in Cebu City to pay some pressing obligation with Mr.
Miller.
- Mr. Miller filed a civil action against the defendant and attached his properties including
those mortgaged to plaintiff, inasmuch as the deed of mortgage in favor of plaintiff could
not be registered because not properly drawn up.
- Plaintiff then pressed the defendant for settlement of his obligation, but defendant
instead offered to execute a document promising to pay his indebtedness even after the
lapse of ten years. Liquidation was made and defendant was found to be indebted to
plaintiff in the sum of P7,220.00, for which defendant signed a promissory note therefor
on November 29, 1933 with interest at the rate of 12% per annum, agreeing to pay as
soon as I have money'.
- The note further stipulates that defendant 'hereby relinguish, renounce, or otherwise
waive my rights to the prescriptions established by our Code of Civil Procedure for the
collection or recovery of the above sum of P7,220.00. * * * at any time even after the
lapse of ten years from the date of this intrument'.
- After the execution of the document, plaintiff limited himself to verbally requesting
defendant to settle his indebtedness from time to time. Plaintiff did not file any complaint
against the defendant within ten years from the execution of the document as there was
no property registered in defendant's name, who furthermore assured him that he could

3
collect even after the lapse of ten years. After the last war, plaintiff made various oral
demands, but defendants failed to settle his account
- CFI: Villamor ordered to pay Borromeo (represented by his heirs) the sum of
P7,220.00 within ninety days from the date of the receipt of such decision with interest
at the rate of 12% per annum from the expiration of such ninety-day period.
- CA: reversed CFI ruling

ISSUE
WON the CA erred in reversing the ruling of the CFI in finding the lack of validity of the
stipulation amounting to a waiver in line with the principle "that a person cannot
renounce future prescription"

HELD
YES
Ratio Between two possible interpretations, that which saves rather than destroys is to
be preferred. It is a fundamental principle in the interpretation of contracts that while
ordinarily the literal sense of the words employed is to be followed, such is not the case
where they "appear to be contrary to the evident intention of the contracting parties,"
which "intention shall prevail." The terms, clauses and conditions contrary to law, morals
and public order (in this case the contested stipulation) should be separated from the
valid and legal contract when such separation can be made because they are
independent of the valid contract which expresses the will of the contracting parties.
Reasoning There is nothing implausible in the view that such language renouncing the
debtor's right to the prescription established by the Code of Civil Procedure should be
given the meaning, as noted in the preceding sentence of the decision of respondent
Court, that the debtor could be trusted to pay even after the termination of the ten-year
prescriptive period. (so CA should have interpreted the stipulation based on the context
of the friendship between the two parties)
- 'Where an agreement founded on a legal consideration contains several promises, or
a promise to do several things, and a part only of the things to be done are illegal, the
promises which, can be separated, or the promise, so far as it can be separated, from
the illegality, may be valid. The rule is that a lawful promise made for a lawful
consideration is not invalid merely because an unlawful promise was made at the same
time and for the same consideration, and this rule applies, although the invalidity is due
to violation of a statutory provision, unless the statute expressly or by necessary
implication declares the entire contract void.
- The first ten years after November 29, 1933 should not be counted in determining
when the action of creditor, now represented by petitioners, could be filed. From the
joint record on appeal, it is undoubted that the complaint was filed on January 7, 1953. If
the first ten-year period was to be excluded, the creditor had until November 29, 1953 to
start judicial proceedings. After deducting the first tenyear period which expired on
November 29, 1943, there was the additional period of still another ten years.29 Nor
could there be any legal objection to the complaint by the creditor Borromeo of January
7, 1953 embodying not merely the fixing of the period within which the debtor Villamor
was to pay but likewise the collection of the amount that until then was not paid.

4
Disposition Wherefore, the decision of respondent Court of Appeals of March 7, 1964
is reversed, thus giving full force and effect to the decision of the lower court of
November 15, 1956. With costs against private respondents.

KASILAG V RODRIGUEZ
IMPERIAL; December 7, 1939

NATURE
Appeal from the decision of the Court of Appeals

FACTS
- On May 16, 1932, Emiliana Ambrosio and Marcial Kasilag executed a public deed
(Exhibit 1) saying that Kasilag bought Lot no. 285 (6.7540 hectares) under Homestead
Certificate Title No. 325, with the assessed value of P940, from Ambrosio for the sum of
P1000. Other stipulations are as follows:
> that Ambrosio encumbers and hypothecates by way of mortgage the land
improvements, consisting of 4 mango trees, 110 hills of bamboo trees, 1 tamarind and 6
boga trees, of which Ambrosio is the absolute owner. The condition of said mortgage is
such that if the party of Ambrosio shall pay, Kasilag, his heirs, assigns, or executors, on
or before the 16th day of November, 1936, or 4 years after date of the execution of the
instrument, the sum of P1,000 with interest at 12 per cent per annum, then the
mortgage shall become null and void; otherwise the same shall remain in full force and
effect, and subject to foreclosure in the manner and form provided by law for the
amount due thereunder, with costs and also attorney's fees in the event of such
foreclosure.
(Art VI) Ambrosio shall also pay all taxes and assessments which are or may become
due on the land and improvements during the term of the agreement
(Art VII) Within 30 days after execution of agreement, Ambrosio shall file a motion
before the Court of First Instance at Balanga, Bataan, P. I., requesting cancellation of
Homestead Certificate of Title No. 325, in lieu thereof, of a certificate of title under the
provisions of Land Registration Act No. 496, as amended by Act 3901.
(Art VIII) If upon the expiration of the period of time 4 years stipulated in this mortgage,
the mortgagor should fail to redeem this mortgage, she would execute a deed of
absolute sale of the property herein described for the same amount as this mortgage,
including all unpaid interests at the rate of 12 per cent per annum, in favor of the
mortgagee.
(Art IX) In the event the land transfer is not approved by the Court, the foregoing
contract of sale shall automatically become null and void, and the mortgage stipulated
shall remain in full force and effect
- In 1933, Ambrosio was unable to pay the stipulated interests as well as the tax on the
land and its improvements. For this reason, she and the Kasilag entered into another
verbal contract whereby she conveyed to the latter the possession of the land on
condition that the latter would not collect the interest on the loan, would attend to the
payment of the land tax, would benefit by the fruits of the land, and would introduce
improvements thereon. By virtue of this verbal contract, the petitioner entered upon the
possession of the land, gathered the products thereof, did not collect the interest on the

5
loan, introduced improvements upon the land valued at P5,000, according to him and
on May 22, 1934 the tax declaration was transferred in his name and on March 6, 1936
the assessed value of the land was increased from P1,020 to P2,180.
- The children and heirs of the deceased Ambrosio, commenced this civil case to
recover from Kasilag the possession of the land and its improvements; that the
petitioner pay to them the sum of P650 being the approximate value of the fruits which
he received from the land; that the petitioner sign all the necessary documents to
transfer the land and its possession to the respondents; that the petitioner be restrained,
during the pendency of the case, from conveying or encumbering the land and its
improvements; that the registrar of deeds of Bataan cancel certificate of title No. 325
and issue in lieu thereof another in favor of the respondents, and that the petitioner pay
the costs of suit
- The CA held that the contract is entirely null and void and without effect; that the heirs
of Ambrosio, are the owners of the disputed land, with its improvements, in common
ownership with their brother Gavino Rodriguez; that Kasilag acted in bad faith and
should yield possession of the land in their favor, with all the improvements; that the
plaintiffs-respondents jointly and severally pay to the defendant-petitioner the sum of
P1,000 with interest at 6 percent per annum from the date of the decision. It also
ordered the registrar of deeds of Bataan to to issue another certificate of title in favor of
the plaintiffs-respondents and their brother Gavino Rodriguez, as undivided owners in
equal parts, free of all liens and incumbrances except those expressly provided by law,
without special pronouncement as to the cost.

ISSUES
1. WON the contract entered into between the parties was one of absolute sale of the
land and its improvements and that the agreement is null and void
2. WON petitioner acted in bad faith in taking possession of the land

HELD
1. NO
Ratio In the interpretation of contracts, the intention of the contracting parties should
always prevail because their will has the force of law between them. Furthermore,
terms, clauses and conditions contrary to law, morals and public order should be
separated from the valid and legal contract and when such separation can be made
because they are independent of the valid contract which expresses the will of the
contracting parties.
Reasoning Art 1281 of the Civil Code: if the terms of a contract are clear and leave no
doubt as to the intention of the contracting parties, the literal sense of its stipulations
shall be followed; and if the words appear to be contrary to the evident intention of the
contracting parties, the intention shall prevail. Where an agreement founded on a legal
consideration contains several promises, or a promise to do several things, and a part
only of the things to be done are illegal, the promises which can be separated, or the
promise, so far as it can be separated, from the illegality, may be valid. The rule is that a
lawful promise made for a lawful consideration is not invalid merely because an unlawful
promise was made at the same time and for the same consideration, and this rule
applies, although the invalidity is due to violation of a statutory provision, unless the

6
statute expressly or by necessary implication declares the entire contract void. The
contract set out in the agreement should be interpreted in accordance with these rules.
- As the terms thereof are clear and leave no room for doubt, it should be interpreted
according to the literal meaning of its clauses. The parties entered into a contract of
mortgage of the improvements on the land acquired as homestead, to secure the
payment of the indebtedness for P1,000 and the stipulated interest thereon. The
principal contract is that of loan and the accessory that of mortgage of the
improvements upon the land acquired as a homestead. There is no question that the
first of this contract is valid as it is not against the law. The second, or the mortgage of
the improvements, is expressly authorized by section 116 of Act No. 2874, as amended
by section 23 of Act No. 3517.
- The subsequent verbal pacts made by the parties independently were calculated to
alter the mortgage a contract clearly entered into, converting the latter into a contract of
antichresis. (Article 1881 of the Civil Code.) The contract of antichresis, being a real
encumbrance burdening the land, is illegal and void as expressly prohibited by section
116 of Act No. 2874.
2. NO
Ratio Gross and inexcusable ignorance of law may not be the basis of good faith, but
possible, excusable ignorance may be such basis.
Reasoning The Civil Code does not expressly define what is meant by bad faith, but
section 433 provides that "Every person who is unaware of any flaw in his title, or in the
manner of its acquisition, by which it is invalidated, shall be deemed a possessor in
good faith"; and provides further, that "Possessors aware of such flaw are deemed
possessors in bad faith". It is a fact that the petitioner is not conversant with the laws
because he is not a lawyer. In accepting the mortgage of the improvements he
proceeded on the well-grounded belief that he was not violating the prohibition
regarding the alienation of the land. In taking possession thereof and in consenting to
receive its fruits, he did not know, as clearly as a jurist does, that the possession and
enjoyment of the fruits are attributes of the contract of antichresis and that the latter, as
a lien, was prohibited by section 116. These considerations again bring us to the
conclusion that, as to the petitioner, his ignorance of the provisions of section 116 is
excusable and may, therefore, be the basis of his good faith.
Disposition The appealed decision is reversed, and we hereby adjudge: (1) that the
contract of mortgage of the improvements, set out in Exhibit 1, is valid and binding; (2)
that the contract of antichresis agreed upon verbally by the parties is a real
incumbrance which burdens the land and, as such, is a null and without effect; (3) that
the petitioner is a possessor in good faith; (4) that the respondents may elect to have
the improvements introduced by the petitioner by paying the latter the value thereof,
P3,000, or to compel the petitioner to buy and have the land where the improvements or
plants are found, by paying them its market value to be filed by the court of origin, upon
hearing the parties; (5) that the respondents have a right to the possession of the land
and to enjoy the mortgaged improvements; and (6) that the respondents may redeem
the mortgage of the improvements by paying to the petitioner within three months the
amount of P1,000, without interest, as that stipulated is set off by the value of the fruits
of the mortgaged improvements which petitioner received, and in default thereof the

7
petitioner may ask for the public sale of said improvements for the purpose of applying
the proceeds thereof to the payment of his said credit.

SEPARATE OPINION

VILLA-REAL [concur & dissent]

-The obligation contracted by said mortgagor was no more than a conditional promise to
sell. Now, then, is this a promise to sell valid? Like any other onerous, consensual and
mutually binding contract, that of promise to sell requires for its legal existence and
validity the concurrence of consent, consideration and subject-matter. The contract
before us dos not show what is the cause or consideration for such promise to sell.
Assuming that it was the economic impotence of the mortgagor to redeem the
mortgaged improvements, before she could be compelled to comply with her obligation
to sell, there is need to wait until she should fail of funds or to abandonment. The cause
will come into being only upon the happening of said event after the four and half years
and only then will the said contract of promise to sell have juridical existence. The
P1,000 and its interest, should the mortgagor fail to redeem the improvements upon the
maturity of the indebtedness, would be the consideration of the sale; because the
promise to sell is a contract different and distinct from that of sale and each requires a
consideration for its existence and validity
- The terms of the contract are clear and explicit and do not leave room for doubt that
the intention of the contracting parties was to constitute a mortgage on the
improvements of the land in litigation to secure the payment of the loan for P1,000,
within interest thereon at 12 per cent per annum. It cannot be said that this contract is
simulated because the assessed value of the improvements is P860 only. It is well
known that rural properties are valued for assessment purposes not less than half of
their market value
- The fact that after one year the contracting parties had novated the contract of loan
secured by a mortgagee, converting the same into a contract of anti-chresis because of
the mortgagor's failure to pay the accrued interest, does not show that they intended to
enter into a contract of sale, because the conversion in this case of the contract of loan
secured by a mortgage into one of antichresis was accidental, due to the mortgagor's
default in the payment of unpaid interest for the first year. If the parties' intention from
the beginning had been to sell the property, the mortgagee would have immediately
entered upon the possession of the land instead of waiting until after the expiration of
one year.
- The verbal contract of antichresis, entered into by the petitioner Marcial Kasilag and
Emiliana Ambrosio, being null and void ab initio and without any legal effect because it
is in violation of the express prohibition of section 116 of Act No. 2874 as amended by
section 23 of Act No. 3517, (article 4 of the Civil Code), the contracting parties should
restore to each other the things which have been the subject-matter of the contract,
together with their fruits, and the price paid therefor, together with interest, pursuant to
Article 1303 of the same Code
- As to the improvements introduced upon the land by the petitioner, having done so
with the knowledge and consent of its owner Emiliana Ambrosio, the former acted in
good faith, and under article 361 of the Civil Code, the owner of the land may have the

8
said improvements upon paying the indemnity provided in articles 453 and 454, or may
compel the said Marcial Kasilag, who introduced the said improvements, to pay the
price of the land. If the herein respondents, as heirs of Emiliana Ambrosio, do not wish
or are unable to pay for said improvements, and Marcial Kasilag does not wish or is
unable to pay the land, said petitioner would lose his right of intention over the same
provided that he may remove the improvements which he had introduced in good faith
- As a result of the nullity of the contract of antichresis the petitioner should return to the
respondents the products of the mortgaged improvements, and the latter should pay to
the petitioner the amount of the loan plus interest due and unpaid at the rate of 12 per
cent per annum from the date of the contract until fully paid

LAUREL [concur in the result]

- It is, evident that the projected sale has and may never come into being, because
under Article IX of Exhibit 1, it became automatically null and void. This view,
incidentally, precludes further consideration of the validity or invalidity of the sale clause
of Exhibit 1, as it will purely academic to dwell upon the nature and effect of a contract
that has passed out of existence in the contemplation of the parties
- Exhibit 1 is essentially and fundamentally a mortgage upon the improvements found
on the questioned homestead, with a conditional clause for the future sale of said
homestead and improvements which has become a "dead twig" still attached to a living
tree because the condition has never been performed
- The question next at hand is whether or not the mortgage constituted upon the
improvement's of the homestead is valid. It is, under express provisions of section 116
of the Public Land Act, before and after its amendment, reading pertinently that "the
improvements or crops on the land may be mortgaged or pledged to qualified persons,
associations, or corporations." I find no occasion to dispute this legislative policy
however mistaken it may be. It is sufficient to observe that what the law permits may be
done. Upon the other hand, I find no occasion to test the legality of the sale provisions
of Exhibit 1, as I have heretofore said, this question is, in my opinion, moot. Moreover,
the petitioner, technically, is barred from raising this question, as he did not appeal from
and, therefore, abided by the decision of the trial court which outlawed this sale clause
as violative of the provisions of section 116 of the Public Land Act.
- We may concede, as assumed by the appealed decision, that the petitioner was
cognizant of said section 116, but this is not saying that petitioner knew that his
possession came under the phrase "incumbrance or alienation" prohibited by law, and
that the petitioner, therefore, knew that his possession was illegal. The import of the
phrase "incumbrance or alienation" is a subject upon which "men of reason may
reasonably differ," in the same way that we ourselves have differed in the deliberation of
this case. It is not correct to assume that the petitioner had knowledge of the illegality of
his possession. The contrary assumption, namely, that petitioner had no idea of such
illegality, would have been more in accord with the experience of everyday, for petitioner
would not have invested money and labor in the land and assumed obligations
incumbent upon the homesteader if he had even the least suspicion that all his efforts
would count for nothing and would in the end entangle him in a mild scandal. As
possession in bad faith does not necessarily mean possession illegal under the law, it

9
being necessary that the possessor be aware of such illegality, it follows that the
petitioner's possession of the homestead of the respondents was in good faith.

CONCEPCION [dissent]
- I believe that the contract which the parties intended to execute is a promise to sell the
land, for which reason Ambrosio retained the right of ownership of the land and its
improvements while the deed of the promised sale had not been executed.
- Under these circumstances, the conclusion of law that Kasilag acted in bad faith is not
supported by the established facts
- Wherefore, the plaintiffs are bound to comply with the contract as heirs of Ambrosio,
by executing in favor of Kasilag the deed of sale of the land, but should the sale, for any
reason, be not approved, Kasilag may collect the amount of P1,000 with all the interest
thereon, and may execute the judgment obtained by him upon the land and all its
improvements, deducting, however, in his favor the value of the improvements which he
introduced upon the land in good faith

MORAN [dissent]
- Although the document Exhibit 1 states that it is a mortgage of the improvements, with
a stipulation regarding a future sale of the land in case of failure to comply with the
mortgage obligations, in reality the true contract between the parties is one of absolute
sale in the light of the circumstances of the case
- The Homestead Act has been enacted for the welfare and protection of the poor. The
law gives a needy citizen a piece of land where he may build a modest house for
himself and family and plant what is necessary for subsistence and for the satisfaction
of life's other needs. The right of the citizens to their homes and to the things necessary
for their subsistence is as vital as the right to life itself. They have a right to live with a
certain degree of comfort as become human beings, and the State which looks after the
welfare of the people's happiness is under a duty to safeguard the satisfaction of this
vital right. Moreover, a man with a home and a means of subsistence is a lover of peace
and order and will profess affection for his country, whereas one without a home and in
penury is not only a social parasite but also a dangerous element in the social order.
The Homestead Act at once aims at the promotion of wholesome and happy citizenship
and the wiping out of the germs of social discontent found everywhere. Considering the
social and economic ends of the Homestead Act, the courts should exercise supreme
care and strict vigilance towards faithful compliance with all its benign provisions and
against the defeat, directly or indirectly, of its highly commendable purposes. And it is
my firm conviction that where, as in the present case, a rich and clever man attempts to
wrest a homestead granted to a poor and ignorant woman, the slightest tokens of
illegality should be enough to move the courts to apply the strong arm of the law

AVANCEA [dissent]
I concur in this dissenting opinion of Justice Moran.

10
 Santi vs. Court of Appeals
227 SCRA 541

FACTS:
-Esperanza Jose, a registered owner of a parcel of land, leased a portion of her
property in Cavite to spouses Eugenio Vitan and Beatriz Francisco for a period of 20
years automatically extended for another 20 years. Spouses, in turn, sold all their rights
and interest to Augusto Reyes where a new lease contract was entered with Jose. In
the interim, Jose sold all his rights to plaintiff Vicente Santi, with a rental of 20 years
extendable for another 20 years. After Reyes expiration of lease, plaintiff Santi wrote to
Reyes heirs demanding recover of possession. Defendants refused on the contention
that there was automatic 20 years extension, and tendered to plaintiff the payment
which the latter refused to accept. Plaintiff filed a complaint against Reyes which the
trial court ruled in his favor. CA reversed the lower courts decision.

ISSUE:
Whether the contract of lease contained automatic extension of lease

HELD:
-NO. The phrase, automatically extended did not appear and was not used in the
lease contract subsequently entered by Jose and Reyes since the lessor did not want to
be bound by the stipulation of automatic extension as provided in the previous contract.
It clearly shows that Jose did not intend to automatically extend the lease contract but to
ponder whether to do so. If the intention provided for an automatic extension, they could
have easily provided a 40 years contract instead to 20.

Kasilag vs. Rodriguez

Facts:
Responds, Rafaela Rodriguez, et al., children and heirs of the deceased Emiliana
Ambrosio, commenced a civil case to recover from the petitioner the possession of the
land and its improvements granted by way of homestead to Emiliana Ambrosio (EA).
The parties entered into a contract of mortgage of the improvements on the land
acquired as homestead to secure the payment of the indebtedness for P1,000 plus
interest. In clause V, the parties stipulated that EA was to pay, w/in 4 1/2 yrs, the debt w/
interest thereon, in w/c event the mortgage would not have any effect; in clause VI, the
parties agreed that the tax on the land and its improvements, during the existence of the
mortgage, should be paid by the owner of the land; in clause VII, it was covenanted that
w/in 30 days from the date of the contract, the owner of the land would file a motion in
the CFI of Bataan asking that cert. of title no. 325 be cancelled and that in lieu thereof
another be issued under the provisions of RA 496; in clause VIII the parties agreed that
should EA fail to redeem the mortgage w/in the stipulated period of 4 1/2 yrs, she would
execute an absolute deed of sale of the land in favor of the mortgagee, the petitioner,
for the same amount of the loan including unpaid interest; and in clause IX it was
stipulated that in case the motion to be presented under clause VII should be
disapproved by the CFI-Bataan, the contract of sale of sale would automatically become

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void and the mortgage would subsist in all its force.

One year after the execution of the mortgage deed, it came to pass that EA was unable
to pay the stipulated interest as well as the tax on the land and its improvements. For
this reason, she and the petitioner entered into another verbal contract whereby she
conveyed to the latter the possession of the land on condition that the latter would not
collect the interest on the loan, would attend to the payment of the land tax, would
benefit by the fruits of the land, and would introduce improvements thereon.

HELD:
The possession by the petitioner and his receipts of the fruits of the land, considered as
integral elements of the contract of antichresis, are illegal and void agreements,
because the such contract is a lien and as such is expressly prohibited by Sec 116 of
Act No. 2874, as amended. The CA held that petitioner acted In BF in taking possession
of the land because he knew that the contract he made w/ EA was an absolute sale,
and further, that the latter could not sell the land because it is prohibited by Sec. 116 of
Act 2874.
xxx [A] person is deemed a possessor in BF when he knows that there is a flaw in his
title or in the manner of its acquisition, by w/c it is invalidated.

The question to be answered is w/n the petitioner should be deemed a possessor in GF

bec. he was unaware of any flaw in his title or in the manner of its acquisition by w/c it is
invalidated. Ignorance of the flaw is the keynote of the rule. From the facts as found by
the CA, we can neither deduce nor presume that the petitioner was aware of a flaw in
his title or in the manner of its acquisition, aside from the prohibition contained in Sec.
116. This being the case, the question is w/n GF may be premised upon ignorance of
the laws.

Gross and inexcusable ignorance of the law may not be the basis of GF but excusable
ignorance may be such basis (if it is based upon ignorance of a fact.) It is a fact that the
petitioner is not conversant w/ the laws because he is not a lawyer. In accepting the
mortgage of the improvements he proceeded on the well-grounded belief that he was
not violating the prohibition regarding the alienation of the land. In taking possession
thereof and in consenting to receive its fruits, he did not know, as clearly as a jurist
does, that the possession and enjoyment of the fruits are attributes of the contract of
antichresis and that the latter, as a lien, was prohibited by Sec. 116. Thus, as to the
petitioner, his ignorance of the provisions of sec. 116 is excusable and may be the basis
of GF.
The petitioners being in GF, the respondents may elect to have the improvements
introduced by the petitioner by paying the latter the value thereof, P3,000, or to compel
the petitioner to buy and have the land where the improvements or plants are found, by
paying them its market value to be fixed by the court of origin, upon hearing the parties.

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 Rapanut v. CA

Summary:
Rapanut (before balding) and Susan Flunker entered into a contract of sale with
mortgage. Flunker (even if she fails all the time) decided to sell her property in Pasay. It
was to be paid on installments. Rapanut has been paying the 500 per month
installments until a letter was received was sent to him by Flunkers counsel informing
him that for his failure to pay the monthly installments plus 10% per annum interest on
the balance and rescinding the contract. RTC and CA ruled in favor of Flunker. The trial
court and the appellate court agreed with private respondent's theory that the above
payments should be applied to the unpaid accrued interest (10% per annum on the
balance) for the years 1986 to 1989 totaling P10,966.18, pursuant to Article 1253 of the
Civil Code of the Philippines.
W/N this is correct. Nope.

A liberal interpretation of the contracts in question is that at the end of each year, all
payments made shall be deducted from the principal obligation. The 10% interest on the
balance is then added to whatever remains of the principal. Thereafter, petitioner shall
pay the monthly installments on the stipulated dates. In other words, the interest due
are added to and paid like the remaining balance of the principal. Thus, we must rule
that the parties intended that petitioner pay the monthly installments at predetermined
dates, until the full amount, consisting of the purchase price and the interests on the
balance, is paid.

Significant is the fact that private respondent accepted the payments petitioner
religiously made for four years. Private respondent cannot rely on the clause in the
contract stating that no demand is necessary to explain her silence for four years as to
the 10% interest, as such clause refers to the P500.00 monthly installments.

After pondering on the meaning of Article 1253, we reach the conclusion that in a
contract involving installment payments with interest chargeable against the remaining
balance of the obligation, it is the duty of the creditor to inform of the amount of interest
that falls due and that he is applying the installment payments to cover said interest.
Otherwise, the creditor cannot apply the payments to the interest and then hold the
debtor in default for non-payment of installments on the principal.

FACTS (A2014)

On November 29, 1985, petitioner and private respondent executed a Deed of

Conditional Sale with Mortgage. Under the contract, private respondent agreed to sell to
petitioner a parcel of land in San Rafael, Pasay City, payable in monthly installments of
P500.00 to be paid not later than the fifth day of every month and in semi-annual
installments of P1,000.00 to be paid on June 30 and December 31 of every year, "with
an interest of 10% per annum on the remaining balance until the full amount is paid"

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In April 1986, petitioner and private respondent entered into a Supplemental Agreement
with the following stipulations:

WHEREAS, the VENDOR/MORTGAGEE is willing to sell said portion of her lots to the
VENDEE/MORTGAGOR for a total price of P37,485.00 payable in monthly
installments of P500.00 with an interest of 10% per annum on the remaining
balance until the full amount is paid.

Payments of the monthly installments of P500.00 shall be made not later than the fifth
day of every month without need of demand starting January, 1986. Failure to pay any
of the monthly installments when due for three months, shall be sufficient cause for
rescission of this contract and all payments made shall be applied as corresponding
rentals.

Petitioner, thus, had been making the P500.00 monthly installment payments until he
received a letter dated February 13, 1990 from private respondent' s counsel informing
him that for his failure to pay the monthly installments plus 10% per annum interest on
the balance, the Deed of Conditional Sale with Mortgage and the Supplemental
Agreement were rescinded "as of receipt hereof," and that payments made were
considered rentals. The letter further demanded that petitioner vacate the premises
within 15 days from receipt thereof.

Respondent filed a complaint against petitioner in the Regional Trial Court of Pasay City
for rescission of the Deed of Conditional Sale with Mortgage and Supplemental
Agreement which the court granted.

The controversial provision in the Supplemental Agreement reads: ". . . the

VENDOR/MORTGAGEE is willing to sell said portion of her lot to the
VENDEE/MORTGAGOR for a total price of P37,485.00 payable in monthly installments
of P500.00 with an interest of 10% per annum on the remaining balance until the full
amount is paid"
Private respondent's view is that the 10% interest must be paid every year and posits
that the P500.00 monthly installments include the 10% interest.

Issue:
W/N the 10% interest must be paid every year and the P500.00 paid by petitioner
monthly includes the 10% interest.

Held:
After pondering on the meaning of Article 1253, we reach the conclusion that in a
contract involving installment payments with interest chargeable against the remaining
balance of the obligation, it is the duty of the creditor to inform of the amount of interest
that falls due and that he is applying the installment payments to cover said interest.
Otherwise, the creditor cannot apply the payments to the interest and then hold the
debtor in default for non-payment of installments on the principal.

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A liberal interpretation of the contracts in question is that at the end of each year, all
payments made shall be deducted from the principal obligation. The 10% interest on
the balance is then added to whatever remains of the principal. Thereafter,
petitioner shall pay the monthly installments on the stipulated dates. In other words, the
interest due are added to and paid like the remaining balance of the principal.
Thus, we must rule that the parties intended that petitioner pay the monthly installments
at predetermined dates, until the full amount, consisting of the purchase price and the
interests on the balance, is paid.

Significant is the fact that private respondent accepted the payments petitioner
religiously made for four years. Private respondent cannot rely on the clause in the
contract stating that no demand is necessary to explain her silence for four years as to
the 10% interest, as such clause refers to the P500.00 monthly installments.

Even granting as acceptable private respondent's theory that the monthly amortizations
shall first be applied to the payment of the interests, we must still rule for petitioner.

The contracts provided for private respondent's right of rescission which may be
exercised upon petitioner's failure to pay installments for three months. Private
respondent's failure to exercise her right of rescission after petitioner's alleged default
constitutes a waiver of such right. Her continued acceptance of the installment
payments places her in estoppel.

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