Professional Documents
Culture Documents
Oblicon Digests PDF
Oblicon Digests PDF
Prof. Labitag
BARREDO V GARCIA e.g. contravention of ordinances, violation of game laws, infraction of rules of traffic
BOCOBO; July 8, 1942 when nobody is hurt
4) crime – guilt beyond reasonable doubt; civil – mere preponderance of evidence
NATURE - Presumptions:
Petition for review on certiorari 1) injury is caused by servant or employee, there instantly arises presumption of
negligence of master or employer in selection, in supervision or both
FACTS 2) presumption is juris tantum not juris et de jure TF may be rebutted by proving
- from CA, holding Fausto Barredo liable for damages for death pf Faustino Garcia exercise of diligence of a good father of the family
caused by negligence of Pedro Fontanilla, a taxi driver employed by Fausto Barredo - basis of civil law liability: not respondent superior bu the relationship of pater
- May 3, 1936 – in road between Malabon and Navotas, head-on collision between familias
taxi of Malate Taxicab and carretela guided by Pedro Dimapilis thereby causing - motor accidents – need of stressing and accentuating the responsibility of owners
overturning of the carretela and the eventual death of Garcia, 16-yo boy and one of of motor vehicles
the passengers MENDOZA V ARRIETA
- Fontanilla convicted in CFI and affirmed by CA and separate civil action is reserved MELENCIO-HERRERA; June 29, 1979
- Parents of Garcia filed action against Barredo as sole proprietor of Malate Taxicab
as employer of Fontanilla NATURE
- CFI and CA awarded damages bec Fontanilla’s negligence apparent as he was Petition for review on Certiorari of the Orders of CFI Manila dismissing petitioner’s
driving on the wrong side of the road and at a high speed Complaint for Damages based on quasi-delict
> no proof he exercised diligence of a good father of the family as Barredo is
careless in employing (selection and supervision) Fontanilla who had been caught FACTS
several times for violation of Automobile Law and speeding - Three-way vehicular accident occurred along Mac-Arthur Highway, Marilao,
> CA applied A1903CC that makes inapplicable civil liability arising from crime bec Bulacan involving (1) Mercedes Benz, owned and driven by petitioner MENDOZA; (2)
this is under obligations arising from wrongful act or negligent acts or omissions private jeep owned and driven by respondent SALAZAR; (3) gravel and sand truck
punishable by law owned by respondent TIBOL and driven by MONTOYA.
- Barredo’s defense is that his liability rests on RPC TF liability only subsidiary and - Mendoza’s and Montoya’s version: After jeep driver overtook the truck, it swerved
bec no civil action against Fontanilla TF he too cannot be held responsible to the left going towards Marilao, and hit car which was bound for Manila. Before
impact, Salazar jumped from the jeep, Mendoza unaware that jeep was bumped
ISSUE from behind by truck
WON parents of Garcia may bring separate civil action against Barredo making him - Salazar’s version: After overtaking truck, he flashed a signal indicating his
primarily liable and directly responsible under A1903CC as employer of Fontanilla intention to turn left towards Marilao but was stopped at intersection by a
policeman directing traffic. While at stop position, his jeep was bumped at rear by
HELD truck causing him to be thrown out of jeep. Jeep then swerved to left and hit the
Yes. There are two actions available for parents of Garcia. One is under the car.
A100RPC wherein the employer is only subsidiarily liable for the damages arising - Oct. 22, 1969. In CFI Bulacan, two separate informations for Reckless Imprudence
from the crime thereby first exhausting the properties of Fontanilla. The other Causing Damage to Proprety were filed against SALAZAR (damage to Mendoza) and
action is under A1903CC (quasi-delict or culpa aquiliana) wherein as the negligent MONTOYA (damage to Salazar)
employer of Fontanilla, Barredo is held primarily liable subject to proving that he - Salazar was acquitted; Motoya found guilty beyond reasonable doubt
exercising diligence of a good father of the family. The parents simply took the - Aug. 22, 1970. In CFI Manila, Mendoza filed a civil case against Salazar and Timbol
action under the Civil Code as it is more practical to get damages from the either in alternative or in solidum.
employer bec he has more money to give than Fontanilla who is yet to serve his - Timbol filed Motion to Dismiss on grounds that complaint is barred by prior
sentence. judgement; CFI Manila dismissed Complaint against Timbol
Obiter - Salazar filed Motion to Dismiss; CFI Mla also dismissed Complaint against him on
Difference bet Crime and Quasi-delict grounds that New Rules of Court rewuires an express reservation of civil action to
1) crimes – public interest; quasi-delict – only private interest be made in the criminal action
2) Penal code punishes or corrects criminal acts; Civil Code by means of
indemnification merely repairs the damage ISSUES
3) delicts are not as broad as quasi-delicts; crimes are only punished if there is a 1. WON Mendoza can file an independent civil case against Timbol
penal law; quasi-delicts include any kind of fault or negligence intervenes a) Is the civil suit barred by prior judgment in the criminal case?
NOTE: not all violations of penal law produce civil responsibility b) Is the civil suit barred by failure to make a reservation in the criminal action of
right to file an independent civil action (as required in Sec.2 of Rule 111)?
Obligations and Contracts A2010 page 2
Prof. Labitag
2. WON Mendoza can file an independent civil case against Salazar - Defendants (now petitioners) sought to have the suit dismissed alleging that since
they are presumably sued under Art. 2180 of the Civil Code, the complaint states no
HELD cause of action against them since academic institutions, like PSBA, are beyond the
1. Yes. ambit of that rule.
a) No, not all requisites of Res Judicata are present. - Respondent Trial court denied the motion to dismiss. And the MFR was similarly
Ratio There is no identity of cause of action between the dismissed criminal case dealt with. Petitioners the assailed the trial court’s dispositions before the
and the new civil case. respondent appellate court which affirmed the trial court’s ruling.
Reasoning In the criminal case, cause of action was enforcement of civil liability
arising from criminal negligence. In the civil case, it was quasi-delict. The two ISSUES
factors a cause of action must consist of are: (1) plaintiff’s primary right – Mendoza WON respondent court is correct in denying dismissal of the case.
as owner of the car; (2) defendant’s delict or wrongful act or omission which
violated the primary right – negligence or lack of skill, either of Salazar or of HELD
Montoya. Ratio Although a school may not be liable under Art. 2180 on quasi-delicts, it may
b) No, right to file an independent civil action need not be reserved. still be liable under the law on contracts.
Ratio Sec. 2 of Rule 111, Rules of Court is inoperative because it is an Reasoning The case should be tried on its merits. But respondent court’s premise
unauthorized amendment of substantive law, and it cannot stand because of its is incorrect. It is expressly mentioned in Art. 2180 that the liability arises from acts
inconsistency with Art.2177. done by pupils or students of the institution. In this sense, PSBA is not liable. But
Reasoning Art.2176 and 2177 of Civil Code create a civil liability distinct and when an academic institution accepts students for enrollment, the school makes
different from the civil action arising from the offense of negligence under the RPC. itself responsible in providing their students with an atmosphere that is conducive
2. No. for learning. Certainly, no student can absorb the intricacies of physics or explore
Ratio Civil action had extinguished because “the fact from which civil liability the realm of arts when bullets are flying or where there looms around the school
might arise did not exist.” (Sec 3c, Rule 111, Rules of Court) Under the facts of the premises a constant threat to life and limb.
case, Salazar cannot be held liable. Disposition WHEREFORE, the foregoing premises considered, the petition is
Reasoning The offended party has an option between action for enforcement of DENIED. The Court of origin is hereby ordered to continue proceedings consistent
civil liability based on culpa CRIMINAL (RPC, Art.100) or action for recovery of wit this ruling of the Court. Costs against the petitioners.
damages based on culpa AQUILIANA (CC, Art.2177). First option was deemed Voting Melencio-Herrera (Chairman), Paras, Regalado and Nocon, JJ., concur.
simultaneously instituted with the criminal action unless expressly waived or
reserved of separate application. It can be concluded that Mendoza opted to base
his cause of action on culpa criminal, as evidenced by his active participation in the
prosecution of criminal suit against Salazar. AMADORA V CA
Disposition CRUZ; April 15, 1988
Order dismissing Civil Case against Timbol is set aside and trial court to proceed
with hearing on merits; orders dismissing complaint in Civil Case against Salazar are NATURE
upheld. Petition for certiorari to review the decision of Court of Appeals.
ISSUES
1. WON plaintiff falsely represented that he had an exclusive franchise to bottle
Mission beverages
2. WON false representation, if it existed, annuls the agreement to form the
partnership
HELD GERALDEZ V CA
1. Yes. Plaintiff did make false representations and this can be seen through his REGALADO; February 23, 1994
letters to Mission Dry Corporation asking for the latter to grant him temporary
franchise so that he could settle the agreement with defendant. The trial court NATURE
reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the - Petition for review on Certiorari
agreement "to secure the Mission Dry franchise for and in behalf of the proposed - This is an action for damages by reason of contractual breach filed by Lydia
partnership." The existence of this provision in the final agreement does not militate Geraldez against Kenstar Travel Corporation.
against plaintiff having represented that he had the exclusive franchise; it rather
strengthens belief that he did actually make the representation. defendant FACTS
believed, or was made to believe, that plaintiff was the grantee of an exclusive - Lydia came to know about the respondent through advertisements about tours in
franchise. Thus it is that it was also agreed upon that the franchise was to be Europe and eventually availed of one of the packages they offered.
transferred to the name of the partnership, and that, upon its dissolution or
termination, the same shall be reassigned to the plaintiff.
Obligations and Contracts A2010 page 6
Prof. Labitag
- The package was “VOLARE 3” which covered 22-day tour of Europe for 190,000 - Clearly, KTC’s choice of Zapanta as tour guide is a manifest disregard of its
Php which she paid for herself and her sister. specific assurances to the tour group, resulting in agitation and anxiety on their
- Her disappointments (because it was contrary to what was in the brochure) during part, and which is contrary to the elementary rules of good faith and fair play.
the trip were: - On the European Tour Manager
• There was no European tour manager for their group of KTC: the euro tour manager refers to an organization and not to an individual;
tourists Geraldez didn’t attend the pre-departure briefing, wherein we explained the
• The hotels which she and the group were billeted were not concept of the euro tour manager
first- class SC: the advertisement reveals that the contemplated tour manager contemplated is
• The UGC Leather Factory, which was a highlight of the tour, a natural person not a juridical one as KTC asserts. Furthermore, the obligation to
was not visited provide not only a European tour manager, but with local European tour guides
• The Filipino lady tour guide was performing said job for the were likewise never made available. Zapanta couldn’t even remember the name of
first time. the European guide with her supposedly.
- RTC: granted a writ of preliminary attachment against private respondent on the From the advertisement, it is beyond cavil that the import of the “he” is a natural
ground respondent committed fraud in contracting an obligation (as per and not a juridical person (in reference to the euro tour guide). There is no need for
petitioner’s motion) but said writ was also lifted upon filing a counterbond of Php further interpretation when the wordings are clear. The meaning that will
990k determine the legal effect of a contract is that which is arrived at by
- Lydia also filed other complaints at the Department of Tourism and the Securities objective standards; One is bound not by what he subjectively intends,
and Exchange Commission which fined the respondent Php 5k and Php 10k but by what he leads others reasonably to think he intends.
respectively. KTC relies in the delimitation of its responsibility printed on the face of its brochure.
- RTC awarded moral damages, nominal damages, exemplary damages, and for (see page 330)
attorney’s fees to Lydia Geraldez worth Php 500k, Php 200k, Php 300k and Php 50k SC:
respectively. Respondent also had to pay for the costs of the suit. * CONTRACT OF ADHESION: contracts drafted by only one party (i.e.
- CA modified the RTC’s decision since they found no malice could be imputed corporations); the only participation of the other party is the affixing of
against Kenstar Travel Corporation. his signature or his “adhesion” thereto. Such a contract must be strictly
construed against the one who drafted the same, especially where there
ISSUE are stipulations that are printed in fine letters and are hardly legible.
WON private respondent acted in bad faith or with gross negligence in discharging SC: Private respondents cannot rely on its defense of “substantial compliance” with
its obligations under the contract. the contract.
HELD
Yes, Kenstar Travel Corporation did commit fraudulent misrepresentations - On the First Class Hotels
amounting to bad faith to the prejudice of Lydia Geraldez and the members of the The respondents likewise committed a grave misrepresentation when it assured
tour group. in its Volare 3 tour package that the hotels it had chosen would provide the tourists
Reasoning complete amenities and were conveniently located along the way for the daily
- On respondent’s choice of tour guide itineraries. It turned out that some of the hotels were not sufficiently equipped with
By providing the Volare 3 tourist group with an inexperienced and a first even the basic facilities and were at a distance from the cities covered by the
timer tour escort, KTC manifested its indifference to the convenience, projected tour.
satisfaction and peace of mind of its clients during the trip. Respondent - Even assuming arguendo that there is indeed a difference in classifications , it
should have selected an experienced European tour guide, or it could have allowed cannot be denied that a first-class hotel could at the very least provide basic
Zapanta (the lady guide) to go as an understudy under the guidance, control, and necessities and sanitary accommodations.
supervision of an experienced and competent European or Filipino tour guide who - if it could not provide the tour participants with first-class lodgings on the basis of
could’ve given her training. the amount that they paid, it could and should have instead increased the price to
- The inability of the group to visit the leather factory is likewise reflective of the enable it to arrange for the promised first-class accommodations.
neglect and ineptness of Zapanta in attentively following the itinerary for the day. - Damages
This incompetence must necessarily be traced to the lack of due diligence Moral damages may be awarded in breaches of contract where the obligor acted
on the part of KTC in the selection of its employees. The UGC leather factory fraudulently or in bad faith.
was one of the highlights of the tour and it was incumbent upon the organizers of - The fraud or dolo which is present or employed at the time of birth or
the tour to take special efforts to ensure the same. perfection of a contract may either be dolo causante or dolo incidente.
- Dolo Causante – causal fraud , referred to in Art. 1338,
- are those deceptions or misrepresentations of a serious character employed by
one party
Obligations and Contracts A2010 page 7
Prof. Labitag
- without which the other party would NOT have entered into the contract ISSUE
- essential cause of the consent What are the liabilities of the owners and drivers of the vehicles involved in the
- effects: nullity of the contract and indemnification of damages collision
- Dolo Incidente – incidental fraud, referred to in Art. 1334,
- are those which are not serious in character HELD
-without which the other party would still have entered into the contract - BG was an incompetent chauffer as he was driving in an excessive speed. The
- some particular or accident of the obligation guarantee the father gave at the time the son was granted a license to operate
- effects: damages motor vehicles gave the father responsible for the acts of his son.
- SC: KTC is responsible for damages whether it has committed either dolo - SCor and AV’s liability is based on the contract. The position of the truck on the
causante or incidente. bridge and the speed in operating the machine and the lack of care employed
- Lydia joined the tour with the belief of a euro tour guide accompanying them; she reached such conclusion. The fact that 2 drivers were approaching a narrow bridge,
suffered serious anxiety and distress when the group was unable to visit the leather neither willing to slow up and give right of way inevitably resulted to the collision
factory and when she didn’t receive first-class accommodations in their lodgings. and the accident.
These entitle her to moral damages. - The contention that there was contributory negligence as the plaintiff kept his foot
- Exemplary damages are imposed by way of example or correction for the public outside the truck was not pleaded and was dismissed as speculative.
good, in addition to moral, temperate, liquidated or compensatory damages. Ratio
According to the Code Commission, exemplary damages are required by public In the US it is uniformly held that the head of the house, the owner of the vehicle,
policy, for wanton acts must be suppressed. who maintains it for the general use of his family is liable for its negligent operation
- Under the present state of law, extraordinary diligence is not required in travel or by one of his children, whom he designates or permits to run it, where the car is
tour contracts, such as that in the case at bar, the travel agency acting as tour occupied and being used for the pleasure of the other members of the family, other
operator must nevertheless be held to strict accounting for contracted services, than the child driving it.
considering the public interest in tourism, whether in the local or in the international
scene. VAZQUEZ V DE BORJA
Disposition MORAL DAMAGES –Php 100k, EXEMPLARY DAMAGES – Php 50k, OZAETA; February 23, 1944
ATTY’S FEES –Php 20k and costs against the respondent KTC. Award for nominal
damages is deleted. NATURE
Note Nominal damages are awarded when there the complainant suffered actual PETITION to review on certiorari a decision of te Court of Appeals
or substantial damage from the breach of contract.
FACTS
GUTERREZ V GUTIERREZ - de Borja entered into a contract with Natividad-Vazquez Sabani Development to
MALCOLM; September 23, 1931 purchased 4,000 sack of palay at P2.10 per sack for a total consideration of P 8,400
which was paid by de Borja. Vazquez and Busuego represented the Company in the
NATURE transaction as acting manager and treasurer, respectively. In addition, de Borja
Appeal from the judgment of the CFI of Manila delivered to the defendants a total of 4,000 empty sacks which presumealy were to
be used in the delivery of the palay.
FACTS - Defendants only deliverd to de Borja a total of 2,488 cavans of palay with a value
- On Feb 2, 1930, a passenger truck and a private automobile collided while of P5,224.80 and have since refused to deliver the balance.
attempting to pass each other on the Talon bridge on the Manila South Rd in Las - Action was commenced by Francisco de Borja in the Court of First Instance of
Pinas. The truck was driven by the chauffer Abelardo Velasco (AV) and was owned Manila against Antonio Vazquez and Fernando Busuego to recover from them jointly
by Saturnino Cortez (SCor). The auto was being operated by Bonifacio Gutierrez and severally the total amount of P4,702.70 arising out of the non delivery of 1,512
(BG), 18 y/o, and was owned by his parents Mr./Mrs. Manuel Gutierrez (MG). cavans of rice and 1,510 empty sacks.
- At the time of the collision, BG was with his mother and several other members of - Vazquez denied entering into the contract in his individual and personal capacity.
the family. MG was not in the car. The contract was between plaintiff and Natividad-Vazquez Sabani Development Co.,
- A passenger of the autobus, Narciso Gutierrez (NG) was en route from San Pablo Inc., a corporation which the defendant Vazquez represented as its acting manager.
to Manila. The collision resulted in NG suffering a fractured right leg requiring him Vazquez filed a counterclaim for P1,000 as damages.
medical assistance. - Trial court found in favor of the plaintiff and ordered Vazquez to pay the total sum
- The collision was caused by negligence. While the plaintiff blames both sets of of P3,552.70. It also absolved Busuego from the complaint.
defendants, the owner of the passenger truck blames the automobile and vice - Vazquez appealed to the CA and it modified the judgement by reducing the
versa. amount to P 3,314.78 plus interest and costs. On motion for reconsideration, the CA
Obligations and Contracts A2010 page 8
Prof. Labitag
set aside its judgment and ordered the case remanded to the court of origin for received the full payment. Hence the CFI and Ca are both correct in holding the
further proceedings. failure to deliver was the result of Vazquez’s fault or negligence.
- Hence the two petitions from both plaintiff and defendant to the Supreme court for - While it is true that the contract is between de Borja and the company, it was
certiorari. proven during the trial that it was Vazquez who prevented the performance of the
contract and also of negligence bordering on fraud which caused damage to de
ISSUES Borja. Hence the technicality of a procedural error should not be hindrance to the
1.WON de Borja entered into the contract with Vazquez in his personal capacity or rendition.
as manager of the Natividad-Vazquez Sabani Development - The suit be considered as based on fault and negligence of Vazquez and to
2. WON Vazquez is entitled to counter damages arising out of the erroneous suit sentence defendant accordingly.
HELD ISSUE
1. NO WON Chavez should be entitled to greater damages than what was awarded to him
- The loan agreement implied reciprocal obligations. When one party is willing and in the trial court
ready to perform, the other party not ready nor willing incurs in delay. When
Tolentino executed real estate mortgage, he signified willingness to pay. That time, HELD
the bank’s obligation to furnish the P80K loan accrued. Now, the Central Bank YES
resolution made it impossible for the bank to furnish the P63K balance. - Art. 1197 cannot be raised as a defense.
- The prohibition on the bank to make new loans is irrelevant bec it did not prohibit a. Art. 1197 states that the petitioner should have first filed for a
the bank fr releasing the balance of loans previously contracted. petition from the Court, fixing the period.
- Insolvency of debtor is not an excuse for non-fulfillment of obligation but is a b. This is not applicable because the time for compliance has
breach of contract. already expired, the defendant not having worked on the typewriter and
- The bank’s asking for advance interest for the loan is improper considering that returning it to the owner unrepaired.
the total loan hasn’t been released. A person can’t be charged interest for non- - Gonzales is liable under Art. 1165 because of his non-performance.
existing debt. c. He is liable for the cost of executing the obligation in the proper
- The alleged discovery by the bank of overvaluation of the loan collateral is not an manner.
issue. The bank officials should have been more responsible and the bank bears d. He is also liable for the missing parts.
risk in case the collateral turned out to be overvalued. Furthermore, this was not e. But the moral damages and attorney’s fees should not be
raised in the pleadings so this issue can’t be raised. awarded because they were not alleged in the complaint.
- The bank was in default and Tolentino may choose bet specific performance or
Obligations and Contracts A2010 page 17
Prof. Labitag
and the award of P1,000.00 to each of the private respondents as exemplary
damages. The award of P20,000.00 as moral damages to each - Sofia C. Crouch,
Ignacio Castro, Jr. and Esmeralda C. Floro was also reduced to P10,000. 00 for
each.]
TELEFAST COMMUNICATIONS / PHILIPPINE WIRELESS, INC. - Petitioner appeals from the judgment of the appellate court contending that the
V CASTRO award of moral damages should be eliminated as defendant's negligent act was not
PADILLA; February 29, 1988 motivated by "fraud, malice or recklessness." Under its theory, it can only be held
liable for P 31.92, the fee or charges paid by Sofia C. Crouch for the telegram that
NATURE was never sent to the addressee thereof.
Petition for Review on Certiorari of the decision of the Intermediate Appellate Court
dated 11 February 1986, in “Castro, Sr. vs Telefast Communication/Philippine ISSUE
Wireless, Inc.” WON petitioner can be henld liable for moral damages.
FACTS
- On November 2, 1956, Consolacion Bravo-Castro, wife of plaintiff Ignacio Castro, HELD
Sr. and mother of the other plaintiffs, passed away in Lingayen, Pangasinan. On the Yes. Art. 1170 of the Civil Code provides that "those who in the performance of their
same day, her daughter Sofia Crouch, who was then in the Philippines, addressed a obligations are guilty of fraud, negligence or delay, and those who in any manner
telegram to plaintiff Ignacio Castro, Sr. at 685 Wanda, Scottsburg, Indiana, U.S.A., contravene the tenor thereof, are liable for damages." Art. 2176 also provides that
47170 announcing Consolacion's death. The telegram was accepted by the "whoever, by act or omission, causes damage to another, there being fault or
defendant in its Dagupan office, for transmission, after payment of the required negligence, is obliged to pay for the damage done."
fees or charges. However, the telegram never reached its addressee. Consolacion Petitioner and Sofia Crouch entered into a contract whereby, for a fee, petitioner
was interred with only her daughter Sofia in attendance. Neither the husband nor undertook to send said private respondent's message overseas by telegram. This,
any of the other children of the deceased, then all residing in the United States, petitioner did not do, despite performance by Crouch of her obligation by paying the
returned for the burial. required charges. Petitioner was, therefore, guilty of contravening its obligation to
- When Sofia returned to the United States, she discovered that the wire she had said private respondent and is thus liable for damages.
caused the defendant to send had not been received. She and the other plaintiffs - This liability is not limited to actual or quantified damages. To sustain petitioner's
thereupon brought action for damages arising from defendant's breach of contract. contrary position in this regard would result in an inequitous situation where
The only defense of the defendant was that it was unable to transmit the telegram petitioner will only be held liable for the actual cost of a telegram fixed thirty [30]
because of "technical and atmospheric factors beyond its control." No evidence years ago.
appears on record that defendant ever made any attempt to advise the plaintiff Art. 2217 of the Civil Code is applicable to this case. It states: "Moral damages
Sofia C. Crouch as to why it could not transmit the telegram. include physical suffering, mental anguish, fright, serious anxiety, besmirched
- The CFI of Pangasinan, after trial, ordered the defendant to pay the plaintiffs reputation, wounded feelings, moral shock, social humiliation and similar injury.
damages as follows, with interest at 6% per annum: Though incapable of pecuniary computation, moral damages may be recovered if
1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory damages and they are the proximate results of the defendant's wrongful act or omission."
P20,000.00, as moral damages. - Petitioner's act or omission which amounted to gross negligence, was precisely the
2. Ignacio Castro Sr., P20,000.00 as moral damages. cause of the suffering private respondents had to undergo.
3. Ignacio Castro Jr., P20,000.00 as moral damages. - As the appellate court properly observed:
4. Aurora Castro, P10,000.00 moral damages. Who can seriously dispute the shock, the mental anguish and the sorrow that the
5. Salvador Castro, P10,000.00 moral damages. overseas children must have suffered upon learning of the death of their mother
6. Mario Castro, P10,000.00 moral damages. after she had already been interred, without being given the opportunity to even
7. Conrado Castro, P10,000 moral damages. make a choice on whether they wanted to pay her their last respects? There is no
8. Esmeralda C. Floro, P20,000.00 moral damages. doubt that these emotional sufferings were proximately caused by appellant's
9. Agerico Castro, P10,000.00 moral damages. omission and substantive law provides for the justification for the award of moral
10. Rolando Castro, P10,000.00 moral damages. damages.
11. Virgilio Castro, P10,000.00 moral damages. - The trial court's award of P16,000.00 as compensatory damages to Sofia C. Crouch
12. Gloria Castro, P10,000.00 moral damages. representing the expenses she incurred when she came to the Philippines from the
- Defendant is also ordered to pay P5,000.00 attorney's fees, exemplary damages in United States to testify before the trial court is sustained. Had petitioner not been
the amount of P1,000.00 to each of the plaintiffs and costs. remiss in performing its obligation, there would have been no need for this suit or
- On appeal by petitioner, the Court of Appeals affirmed the trial court's decision but for Mrs. Crouch's testimony.
eliminated the award of P16,000.00 as compensatory damages to Sofia C. Crouch - The award of exemplary damages by the trial court is likewise justified and,
therefore, sustained in the amount of P1,000.00 for each of the private
Obligations and Contracts A2010 page 18
Prof. Labitag
respondents, as a warning to all telegram companies to observe due diligence in credit, the cancellation of the allocation and the confiscation of the 5% deposit were
transmitting the messages of their customers. not effected until August 20. 1952, or, a full half month after the expiration of the
Disposition Petition is DENIED. The Decision appealed from is modified so that deadline. And yet, even with that 15-day grace, appellant corporation was unable to
petitioner is held liable to private respondents in the following amounts: make good its commitment to open the disputed letter of credit.
[1] P10,000.00 as moral damages, to each of private respondents; - The appellee endeavored, but failed, to restore the cancelled Burmese rice
[2] P1,000.00 as exemplary damages, to each of private respondents; allocation. When the futility of reinstating the same became apparent, she offered
[3] P16,000.00 as compensatory damages, to private respondent Sofia C. Crouch; to substitute Thailand rice instead to the defendant NARIC, communicating at the
[4] P5,000.00 as attorney's fees; and same time that the offer was "a solution which should be beneficial to the NARIC
[5] Costs of suit. and to us at the same time." This offer for substitution, however, was rejected by
the appellant in a resolution dated November 15, 1952. Appellee sent a letter to the
ARRIETA V NATIONAL RICE AND CORN CORP appellant, demanding compensation for the damages caused her in the sum of
REGALA; January 31, 1964 $286,000.00, U.S. currency, representing unrealized profit. The demand having
been rejected, she instituted this case now on appeal.
NATURE
Appeal of the defendant-appellant NARIC from the decision of the trial court dated ISSUE
February 20, 1958, awarding to the plaintiffs-appellees the amount of $286,000.00 WON the lower court erred in holding NARIC liable for damages for breach of
as damages for breach of contract and dismissing the counterclaim and third party contract
complaint of the defendant-appellant NARIC.
HELD
FACTS - YES. We do not think the appellant corporation can refute the fact that had it
- On May 19, 1952, plaintiff-appellee participated and won in the public bidding been able to put up the 50 c/o marginal cash deposit demanded by the bank, then
called by the NARIC for the supply of 20,000 metric tons of Burmese rice. the letter of credit would have been approved, opened and released as early as
Accordingly, on July 1, 1952, plaintiff-appellee Paz P. Arrieta and the appellant August 4, 1952. The letter of the Philippine National Bank to the NARIC was plain
corporation entered into a Contract of Sale of Rice, under the terms of which the and explicit that as of the said date, appellant's it "application for a letter of
former obligated herself to deliver to the latter 20,000 metric tons of Burmese Rice credit . . . has been approved by the Board of Directors with the condition that 50%
at $203.00 per metric ton, CIF Manila. In turn, the defendant Corporation committed marginal cash deposit be paid and that drafts are to be paid upon presentment."
itself to pay for the imported rice "by means of an irrevocable, confirmed and The liability of the appellant, however, stems not alone from this failure or inability
assignable letter of credit in U.S. currency in favor of the plaintiff-appellee and/or to satisfy the requirements of the bank. Its culpability arises from its willful and
supplier in Burma, immediately." deliberate assumption of contractual obligations even as it was well aware of its
- Despite the commitment to pay immediately "by means of an irrevocable, financial incapacity to undertake the presentation.
confirmed and assignable Letter of Credit," however, it was only on July 30, 1952, or - A number of logical inferences may be drawn from NARIC’s admission. First, that
a full month from the execution of the contract, that the defendant corporation, thru the appellant knew the bank requirements for opening letters of credit; second, that
its general manager, took the first step to open a letter of credit by forwarding to appellant also knew it could not meet those requirements. When, therefore, despite
the Philippine National Bank its Application for Commercial Letter of Credit. On the this awareness that it was financially incompetent to open a letter of credit
same day, July 30, 1952, Mrs. Paz P. Arrieta, thru counsel, advised the appellant immediately, appellant agreed in paragraph 8 of the contract to pay immediately
corporation of the extreme necessity for the immediate opening of the letter of "by means of an irrevocable, confirmed and assignable letter of credit," it must be
credit since she had by then made a tender to her supplier in Rangoon, Burma similarly be held to have bound itself too answer for all and every consequences
"equivalent to 5% of the F.O.B. price of 20,000 tons at $180.70 and in compliance that would result from the representation.
with the regulations in Rangoon this 5% will be confiscated if the required letter of - In relation to the aforequoted observation of the trial court, We would like to make
credit is not received by them before August 4, 1952." reference also to Article 1170 of the Civil Code which provides:
- It turned out however, the appellant corporation was not in any financial position "Those who in the performance of their obligation are guilty of fraud,
to meet the condition, which it candidly admitted in a communication with PNB. negligence, or delay, and those who in any manner contravene the tenor
Consequently, the credit instrument applied for was opened only on September 8, thereof, are liable in damages.
1952 "in favor of Thiri Setkya, Rangoon, Burma, and/or assignee for $3,614,000.00," - Under this provision, not only debtors guilty of fraud, negligence or default in the
(which is more than two months from the execution of the contract) the party performance of obligations are decreed liable: in general, every debtor who fails in
named by the appellee as beneficiary of the letter of credit. As a result of the delay, the performance of his obligations is bound to indemnify for the losses and
the allocation of appellee's supplier in Rangoon was cancelled and the 5% deposit, damages caused thereby. The phrase "in any manner contravene the tenor" of the
amounting to 524,000 kyats or approximately P200,000.00 was forfeited. In this obligation includes any illicit act which impairs the strict and faithful fulfillment of
connection, it must be made of record that although the Burmese authorities had the obligation, or every kind of defective performance. (IV Tolentino, Civil Code of
set August 4, 1952 as the deadline for the remittance of the required letter of the Philippines, citing authorities, p. 103.)
Obligations and Contracts A2010 page 19
Prof. Labitag
- The NARIC would also have this Court hold that the subsequent offer to substitute the defendant to be delivered sixty to ninety days after receipt of advice from the
Thailand rice for the originally contracted Burmese rice amounted to a waiver by defendant of the radio frequency assigned to the defendant by the proper
the appellee of whatever rights she might have derived from the breach of the authorities
contract. We disagree. Waivers are not presumed, but must be clearly and - Plaintiff received notice of the fact that the defendant accepted plaintiff's offer to
convincingly shown, either by express stipulation or acts admitting no other sell to the defendant the items as well as the terms and conditions of said offer, as
reasonable explanation. (Ramirez vs. Court of Appeals, 98 Phil., 225; 52 Off. Gaz. shown by the signed conformity of the defendant which was duly delivered by the
779). In the case at bar, no such intent to waive has been established. defendant's agent to the plaintiff, whereupon all that the plaintiff had to do was to
- In the premises, however, a minor modification must be effected in the disposition await advice from the defendant as, to the radio frequency to be assigned by the
portion of the decision appealed from insofar as it expresses the amount of proper authorities to the defendant
damages in U.S. currency and not in Philippine Peso. Republic Act 529 specifically - In his letter dated October 6, 1972, the defendant advised his agent that the U.S.
requires the discharge of obligations only "in any coin or currency which at the time Navy provided him with the radio frequency of 34.2 MHZ [Megaherzt] and
of payment is legal tender for public and private debts." In view of that law, requested his said agent to proceed with his order placed with the plaintiff, which
therefore, the award should be converted into and expressed in Philippine Peso. fact was duly communicated to the plaintiff
Disposition UPON ALL THE FOREGOING, the decision appealed from is hereby - By his letter dated October 7, 1972 addressed to the plaintiff by the defendant's
affirmed, with the sole modification that the award should be converted into the agent, defendant's agent qualified defendant's instructions that plaintiff should
Philippine peso at the rate of exchange prevailing at the time the obligation was proceed to fulfill defendant's order only upon receipt by the plaintiff of the
incurred or on July 1, 1952 when the contract was executed. The appellee insurance defendant's letter of credit
company, in the light of this judgment, is relieved of any liability under this suit. - Plaintiff awaited the opening of such a letter of credit by the defendant
No pronouncement as to costs. - Defendant and his agent have repeatedly assured plaintiff of the defendant's
financial capabilities to pay for the goods and in fact he accomplished the necessary
MAGAT V MEDIALDEA application for a letter of credit with his banker, but he subsequently instructed his
ESCOLIN; April 20, 1983 banker not to give due course to his application for a letter of credit and that for
reasons only known to the defendant, he fails and refuses to open the necessary
NATURE letter of credit to cover payment of the goods
Petition for review on certiorari to determine the sufficiency of the averments - It came to the knowledge of the plaintiff that the defendant has been operating his
contained in the complaint for alleged breach of contract filed by petitioner taxicabs without the required radio transceivers and when the U.S. Navy Authorities
Victorino D. Magat against respondent Santiago A. Guerrero of the CFI of Rizal, of Subic Bay, Philippines, were pressing defendant for compliance with his
presided by respondent Judge Leo D. Medialdea, now Deputy Judicial Administrator, commitments with respect to the installations of radio transceivers on his taxicabs
which complaint was dismissed for failure to state a cause of action. he impliedly laid the blame for the delay upon the plaintiff thus destroying the
reputation of the plaintiff with the mid Naval Authorities with whom plaintiff
FACTS transacts business
- Defendant entered into a contract with the U.S. Navy Exchange, Subic Bay, - On March 27, 1973, plaintiff wrote a letter thru his counsel to ascertain from the
Philippines, for the operation of a fleet of taxicabs, each taxicab to be provided with defendant as to whether it is his intention to fulfill his pan of the agreement with the
the necessary taximeter and a radio transceiver for receiving and sending of plaintiff or whether he desired to have the contract between them definitely
massage from mobile taxicab to fixed base stations within the Naval Base cancelled, but defendant did not even have the courtesy to answer plaintiff's
- Because of the experience of the plaintiff in connection with his various contracts demand
with the U.S. Navy and his goodwill already established with the Naval personnel, Petitioner’s Claims The defendant entered into a contract with the plaintiff
Isidro Q. Aligada, acting as agent of the defendant approached the plaintiff and without the least intention of faithfully complying with his obligations, but he did so
proposed to import from Japan thru the plaintiff or thru plaintiff's Japanese business only in order to obtain the concession from the U.S. Navy Exchange. of operating a
associates, all taximeters and radio transceivers needed by the defendant fleet of taxicabs inside the U.S. Naval Base to his financial benefit and at the
- Defendant and his agent were able to import from Japan with the assistance of the expense and prejudice of third parties such as the plaintiff. That in view of the
plaintiff and his Japanese business associates the necessary taximeters for defendant's failure to fulfill his contractual obligations with the plaintiff, the plaintiff
defendant's taxicabs in partial fulfillment of defendant's commitments with the U.S. will suffer several damages
Navy Exchange, the plaintiff's assistance in this matter having been given to the Respondent’s Arguments Respondent Guerrero filed a motion to dismiss
defendant gratis et amore complaint for lack of cause of action. He alleged that plaintiff was merely
- Isidro Q. Aligada, acting as agent of the defendant, made representations with the anticipating his loss or damage, which might result from the alleged failure of
plaintiff that defendant desired to procure from Japan thru the plaintiff the needed defendant to comply with the terms of the alleged contract. Plaintiff's right of
radio transceivers and to this end, Isidro Q. Aligada secured a firm offer in writing recovery under his cause of action is premised not on any loss or damage actually
dated September 25, 1972, wherein the plaintiff quoted in his offer a total price of suffered by him but on a non-existing loss or damage which he is expecting to incur
$77,620.59 FOB Yokohama, the goods or articles offered for sale by the plaintiff to in the near future. Plaintiff's right therefore under his cause of action is not yet fixed
or vested.
Obligations and Contracts A2010 page 20
Prof. Labitag
- The respondent judge, over petitioner's opposition, issued a minute order NATURE
dismissing the complaint Petition for review on certiorari of CA decision
ISSUE FACTS
WON there is sufficient cause of action -April 1987: petitioner Jacinto M. Tanguilig doing business under the name and style
J.M.T. Engineering and General Merchandising proposed to respondent Vicente
HELD Herce Jr. to construct a windmill system for him. After some negotiations they
YES. agreed on the construction of the windmill for a consideration of P60,000.00 with a
Ratio The essential elements of a cause of action are: [1] the existence of a legal one-year guaranty from the date of completion and acceptance by respondent
right of the plaintiff; [2] a correlative duty of the defendant and [3] an act or Herce Jr. of the project. Pursuant to the agreement respondent paid petitioner a
omission of the defendant in violation of the plaintiff's right, with consequent injury down payment of P30,000.00 and an installment payment of P15,000.00, leaving a
or damage to the latter for which he may maintain an action for recovery of balance of P15,000.00.
damages or other appropriate relief. -14 March 1988: due to the refusal and failure of respondent to pay the balance,
- Article 1170 Of the Civil Code provides: petitioner filed a complaint to collect the amount.
"Those who in the performance of their obligation are guilty of fraud. negligence, or Respondents' Comments
delay, and those who in any manner contravene the tenor thereof are liable for -Since the deep well formed part of the system, the P15,000 he tendered to San
damages." Pedro General Merchandising Inc. (SPGMI) should be credited to his account by
The phrase "in any manner contravene the tenor" of the obligation includes any petitioner.
illicit act or omission which impairs the strict and faithful fulfillment of the obligation -Assuming that he owed petitioner a balance of P15,000.00, this should be offset by
and every kind of defective performance. the defects in the windmill system which caused the structure to collapse after a
- The damages which the obligor is liable for includes not only the value of the loss strong wind hit their place.
suffered by the obligee [daño emergense] but also the profits which the latter failed Petitioners' Counterclaim
to obtain [lucro cesante]. If the obligor acted in good faith, he shall be liable for -The construction of a deep well was not included in the agreement to build the
those damages that are the natural and probable consequences of the breach of windmill system. The contract price of P60,000.00 was solely for the windmill
the obligation and which the parties have foreseen or could have reasonably assembly and its installation, exclusive of other incidental materials needed for the
foreseen at the time the obligation was constituted; and in case of fraud, bad faith, project.
malice or wanton attitude, he shall be liable for all damages which may be -He also disowned any obligation to repair or reconstruct the system and insisted
reasonably attributed to the nonperformance of the obligation. The same is true that he delivered it in good and working condition to respondent who accepted the
with respect to moral and exemplary damages. The applicable legal provisions on same without protest. He claims that the collapse was attributable to a typhoon, a
the matter, Articles 2220 and 2232 of the Civil Code, allow the award of such force majeure, which relieved him of any liability.
damages in breaches of contract where the defendant acted in bad faith. Lower Court’s Ruling
Reasoning The complaint recites the circumstances that led to the perfection of -RTC ruled in favor of plaintiff-petitioner: that the construction of the deep well was
the contract entered into by the parties. It further avers that while petitioner had not part of the windmill project & that there is no clear and convincing proof that
fulfilled his part of the bargain, private respondent failed to comply with his the windmill system fell down due to the defect of the construction.
correlative obligation by refusing to open a letter of credit to cover payment of the -CA reversed; it ruled that the construction of the deep well was included in the
goods ordered by him, and that consequently, petitioner suffered not only loss of agreement of the parties because the term "deep well" was mentioned in both
his expected profits, but moral and exemplary damages as well. From these proposals. But it rejected petitioner's claim of force majeure and ordered the latter
allegations, the essential elements of a cause of action are present. to reconstruct the windmill in accordance with the stipulated one-year guaranty.
- Indisputably, the parties, both businessmen, entered into the aforesaid contract MFR was also denied.
with the evident intention of deriving some profits therefrom. Upon breach of the
contract by either of them, the other would necessarily suffer loss of his expected ISSUES
profits. Since the loss comes into being at the very moment of breach, such loss is 1. WON the agreement to construct the windmill system included the installation of
real, "fixed and vested" and, therefore, recoverable under the law. The complaint a deep well.
sufficiently alleges bad faith on the part of the defendant. 2. WON respondent can claim that Pili of SPGMI accepted his payment on behalf of
Disposition The questioned order of dismissal was set aside and the case was petitioner.
ordered remanded to the court of origin for further proceedings. No costs. 3. WON petitioner is under obligation to reconstruct the windmill after it collapsed.
4. WON private respondent is already in default in the payment of his outstanding
TANGUILIG V COURT OF APPEALS balance.
BELLOSILLO; January 2, 1997 5. Who should bear the costs of the reconstruction?
HELD
Obligations and Contracts A2010 page 21
Prof. Labitag
1. Ratio NO. Where the terms of the instruments are clear and leave no doubt as to KHE HONG CHENG V COURT OF APPEAL
their meaning, they should not be disturbed. In interpreting contracts, the intention KAPUNAN; March 28, 2001
of the parties shall be accorded primordial consideration and, in case of doubt, their
contemporaneous & subsequent acts shall be principally considered. NATURE
Reasoning The words "deep well" preceded by the prepositions "for" and "suitable Petition for Review on Certiorari under Rule 45, seeking to set aside the decision of
for" were meant only to convey the idea that the proposed windmill would be the Court of Appeals dated April 10, 2000 and its resolution dated July 11, 2000
appropriate for a deep well pump with a diameter of 2 to 3 inches. denying the motion for reconsideration of the aforesaid decision.
-The claim of Guillermo Pili of SPGMI that Herce Jr. wrote him a letter asking him to
build a deep well pump as part of the price/contract Herce had with Tanguilig is FACTS
unsubstantiated. The alleged letter was never presented in court. - Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines.
-If indeed the deep well were part of the windmill project, the contract for its - The Philippine Agricultural Trading Corporation shipped on board the vessel M/V
installation would have been strictly a matter between petitioner and Pili himself PRINCE ERIC, owned by petitioner Khe Hong Cheng, 3,400 bags of copra at
with the former assuming the obligation to pay the price. Masbate, Masbate, for delivery to Dipolog City, Zamboanga del Norte.
-If the price of P60,000.00 included the deep well, the obligation of respondent was - The said shipment of copra was covered by a marine insurance policy issued by
to pay the entire amount to petitioner without prejudice to any action that American Home Insurance Company (respondent Philam's assured).
Guillermo Pili or SPGMI may take, if any, against the latter. - M/V PRINCE ERIC sank somewhere between Negros Island and Northeastern
2. Ratio NO. Civil Code provisions on "payments made by a third person” do not Mindanao, resulting in the total loss of the shipment. Because of the loss, the
apply in the instant case as no creditor-debtor relationship has been established insurer, American Home, paid the amount of P354,000.00 (the value of the copra)
between the parties. to the consignee.
Reasoning There was no contract between Pili and Tanguilig for the construction of - Having been subrogated into the rights of the consignee, American Home
Herce’s deep well. If SPGMI was really commissioned by petitioner to construct the instituted a civil case to recover the money paid to the consignee, based on breach
deep well, an agreement particularly to this effect should have been entered into. of contract of carriage.
3. Ratio YES. He can not claim exemption by reason of force majeure. In order for a - While the case was still pending, or on December 20, 1989, petitioner Khe Hong
party to claim exemption from liability by reason of fortuitous event under Art. 1174 Cheng executed deeds of donations of parcels of land in favor of his children, herein
of the Civil Code the event should be the sole and proximate cause of the loss or co-petitioners Sandra Joy and Ray Steven.
destruction of the object of the contract. Four requisites must concur: (a) the cause - The trial court rendered judgment against petitioner in the civil case on December
of the breach of the obligation must be independent of the will of the debtor; (b) the 29, 1993, four years after the donations were made and the TCTs were registered in
event must be either unforeseeable or unavoidable; (c) the event must be such as the donees’ names ordering him to pay herein respondents.
to render it impossible for the debtor to fulfill his obligation in a normal manner; - After the said decision became final and executory, a writ of execution was
and, (d) the debtor must be free from any participation in or aggravation of the forthwith. Said writ of execution, however, was not served. An alias writ of
injury to the creditor. (Nakpil v CA) execution was, thereafter, applied for and granted.
Reasoning Petitioner failed to show that the collapse of the windmill was due - Despite earnest efforts, the sheriff found no property under the name of Butuan
solely to a fortuitous event. A strong wind in this case cannot be fortuitous — Shipping Lines and/or petitioner Khe Hong Cheng to levy or garnish for the
unforeseeable nor unavoidable. On the contrary, a strong wind should be present in satisfaction of the trial court's decision. When the sheriff, accompanied by counsel
places where windmills are constructed, otherwise the windmills will not turn. of respondent Philam, went to Butuan City on January 17, 1997, to enforce the alias
-The presumption that "things have happened according to the ordinary course of writ of execution, they discovered that petitioner Khe Hong Cheng no longer had
nature and the ordinary habits of life" has not been rebutted by petitioner. any property and that he had conveyed the subject properties to his children.
4. Ratio NO. Art. 1169, CC: In reciprocal obligations, neither party incurs in delay if - Respondent Philam filed a complaint for the rescission of the deeds of donation
the other does not comply or is not ready to comply in a proper manner with what is executed by petitioner Khe Hong Cheng in favor of his children and for the
incumbent upon him. nullification of their titles. Respondent Philam alleged, that petitioner executed the
Reasoning Tanguilig has not complied with his obligation to repair the windmill aforesaid deeds in fraud of his creditors, including respondent Philam.
system. Petitioners’ Claim Petitioners moved for its dismissal on the ground that the
5. Ratio TANGUILIG. Art. 1167, CC: if a person obliged to do something fails to do it, action had already prescribed. They posited that the registration of the deeds of
the same shall be executed at his cost. donation on December 27, 1989 constituted constructive notice and since the
Reasoning When the windmill failed to function properly it became incumbent complaint a quo was filed only on February 25, 1997, or more than four (4) years
upon petitioner to institute the proper repairs in accordance with the guaranty after said registration, the action was already barred by prescription.
stated in the contract. - The trial court denied the motion to dismiss. It held that respondent Philam's
Disposition Judgment modified. Herce, Jr directed to pay balance of P15,000 with complaint had not yet prescribed. According to the trial court, the prescriptive
interest. Tanguilig ordered to reconstruct subject defective windmill system, in period began to run only from December 29, 1993, the date of the decision of the
accordance with the one-year guaranty, within 3mos. from the finality of decision. trial court in Civil Case No. 13357.
Obligations and Contracts A2010 page 22
Prof. Labitag
- On appeal by petitioners, the CA affirmed the trial court's decision in favor of antedates that of the fraudulent alienation by the debtor of his property. After all,
respondent Philam. The CA declared that the action to rescind the donations had the decision of the trial court against the debtor will retroact to the time when the
not yet prescribed. Citing Articles 1381 and 1383 of the Civil Code, the CA ruled debtor became indebted to the creditor.
that the four year period to institute the action for rescission began to run only in Reasoning Petitioners argument that the Civil Code must yield to the Mortgage
January 1997, and not when the decision in the civil case became final and and Registration Laws is misplaced, for in no way does this imply that the specific
executory on December 29, 1993. The CA reckoned the accrual of respondent provisions of the former may be all together ignored. To count the four year
Philam's cause of action on January 1997, the time when it first learned that the prescriptive period to rescind an allegedly fraudulent contract from the date of
judgment award could not be satisfied because the judgment creditor, petitioner registration of the conveyance with the Register of Deeds, as alleged by the
Khe Hong Cheng, had no more properties in his name. Prior thereto, respondent petitioners, would run counter to Article 1383 of the Civil Code as well as settled
Philam had not yet exhausted all legal means for the satisfaction of the decision in jurisprudence. It would likewise violate the third requisite to file an action for
its favor, as prescribed under Article 1383 of the Civil Code. rescission of an allegedly fraudulent conveyance of property, i.e., the creditor has
- Petitioners’ motion for reconsideration was likewise dismissed in the appellate no other legal remedy to satisfy his claim.
court's resolution dated July 11, 2000. - Even if respondent Philam was aware, as of December 27, 1989, that petitioner
Khe Hong Cheng had executed the deeds of donation in favor of his children, the
ISSUE complaint against Butuan Shipping Lines and/or petitioner Khe Hong Cheng was still
1. WON the action to rescind the donations has already prescribed. pending before the trial court. Respondent Philam had no inkling, at the time, that
2. When did the four (4) year prescriptive period as provided for in Article 1389 of the trial court's judgment would be in its favor and further, that such judgment
the Civil Code for respondent Philam to file its action for rescission of the subject would not be satisfied due to the deeds of donation executed by petitioner Khe
deeds of donation commence to run? Hong Cheng during the pendency of the case. Had respondent Philam filed his
complaint on December 27, 1989, such complaint would have been dismissed for
HELD being premature. Not only were all other legal remedies for the enforcement of
1. NO. The action to rescind the donations has already prescribed. respondent Philam’s claims not yet exhausted at the time the deeds of donation
Ratio Article 1389 of the Civil Code simply provides that, “The action to claim were executed and registered. Respondent Philam would also not have been able to
rescission must be commenced within four years.” Since this provision of law is prove then that petitioner Khe Hong Chneg had no more property other than those
silent as to when the prescriptive period would commence, the general rule, i.e, covered by the subject deeds to satisfy a favorable judgment by the trial court.
from the moment the cause of action accrues, therefore, applies. It bears stressing that petitioner Khe Hong Cheng even expressly declared and
- Art. 1150. The time for prescription for all kinds of actions, when there is no represented that he had reserved to himself property sufficient to answer for his
special provision which ordains otherwise, shall be counted from the day they may debts.
be brought. - Respondent Philam only learned about the unlawful conveyances made by
petitioner Khe Hong Cheng in January 1997 when its counsel accompanied the
2. The Court enunciated the principle that it is the legal possibility of bringing the sheriff to Butuan City to attach the properties of petitioner Khe Hong Cheng. There
action which determines the starting point for the computation of the prescriptive they found that he no longer had any properties in his name. It was only then that
period for the action. respondent Philam's action for rescission of the deeds of donation accrued because
- Art. 1383. An action for rescission is subsidiary; it cannot be instituted except then it could be said that respondent Philam had exhausted all legal means to
when the party suffering damage has no other legal means to obtain reparation for satisfy the trial court's judgment in its favor. Since respondent Philam filed its
the same. complaint for accion pauliana against petitioners on February 25, 1997, barely a
- An action to rescind or an accion pauliana must be of last resort, availed of only month from its discovery that petitioner Khe Hong Cheng had no other property to
after all other legal remedies have been exhausted and have been proven futile. For satisfy the judgment award against him, its action for rescission of the subject
an accion pauliana to accrue, the following requisites must concur: deeds clearly had not yet prescribed.
1) That the plaintiff asking for rescission has a credit prior to the alienation, Disposition The petition was DENIED for lack of merit.
although demandable later; 2) That the debtor has made a subsequent contract
conveying a patrimonial benefit to a third person; 3) That the creditor has no other SIGUAN V LIM
legal remedy to satisfy his claim, but would benefit by rescission of the conveyance DAVIDE; November 19, 1999
to the third person; 4) That the act being impugned is fraudulent; 5) That the third
person who received the property conveyed, if by onerous title, has been an NATURE
accomplice in the fraud. This is a petition for review on certiorari of a decision of the Court of Appeals.
- An accion pauliana thus presupposes the following: 1) A judgment; 2) the issuance
by the trial court of a writ of execution for the satisfaction of the judgment, and 3) FACTS
the failure of the sheriff to enforce and satisfy the judgment of the court. It requires - On 25 and 26 August 1990 LIM issued two Metrobank checks in the sums of P300K
that the creditor has exhausted the property of the debtor. The date of the decision and P241,668, respectively, payable to “cash”. Upon presentment by petitioner with
of the trial court is immaterial. What is important is that the credit of the plaintiff
Obligations and Contracts A2010 page 23
Prof. Labitag
the drawee bank, the checks were dishonored for the reason that the account was
already “closed.” Demands to make good the checks proved futile.
• debtor has made a subsequent contract conveying a patrimonial benefit to
- A criminal case for violation of Batas Pambansa Blg. 22 was filed against LIM. On a 3rd party;
29 December 1992 the RTC of Cebu City a quo convicted LIM as charged. • creditor has no other legal remedy to satisfy his claim;
- LIM was also convicted of estafa by the RTC of Quezon City filed Victoria Suarez. • act impugned is fraudulent;
This was affirmed by CA. However the Supreme Court acquitted LIM but found her • the 3rd person who received the property conveyed (if by onerous title),
civilly liable in the amount of P169K. has been an accomplice in the fraud.
- On 2 July 1991 a Deed of Donation conveying parcels of land and purportedly GENERAL RULE: rescission requires existence of creditors at the time of the
executed by LIM on 10 August 1989 in favor of her children, was registered with the alleged fraud, and this must be proved as one of the bases of the judicial
Register of Deeds of Cebu. New transfer certificates of title were thereafter issued pronouncement setting aside the contract. W/O any prior existing debt, there can
in the names of the donees. neither be no injury nor fraud.
- On 31 December 1994, trial court ordered the rescission of the - The Deed of Donation executed is a public document, having been acknowledged
questioned deed of donation; 2) declared null and void the transfer certificates before a notary public. It is evidence of the fact which gave rise to its execution and
of title issued in the name of LIM’s children; 3) ordered Registered of Deeds of Cebu of its date (Sec. 23, Rule 132, Rules of Court) Court is not convinced that it was
to cancel said titles and to reinstate the previous titles in the name of LIM; 4) antedated.
directed the LIMs to pay the petitioner jointly and severally, the sum of P10K moral SEC. 23. Public documents as evidence. – xxx All other public documents are
damages, P10K attorney’s fees, P5K as expenses of litigation. evidence, even against a third person, of the fact which gave rise to their execution
- 20 February 1998 CA reversed RTC’s decision and dismissed petitioer’s accion and of the date of the latter. This includes “Documents acknowledged before a
pauliana, because two requisites for said action was absent: notary public except last wills and testaments…”
1. there must be a credit existing prior to the celebration of the contract; - Contracts entered in fraud may be rescinded only when the creditors
2. there must be a fraud, or the intent to commit the fraud. cannot in any manner collect the claims due them. Action for rescission is a
subsidiary remedy only. The petitioner was not able to prove that she had
Petitioner’s Claim exhausted other legal means to obtain reparation for the same.
- On 23 June 1993 petitioner filed an accion pauliana against LIM and her children. Subsidiary remedy – the exhaustion of all remedies by the prejudiced creditor to
Petitioner claimed therein that sometime in July 1991 LIM, through a Deed of collect claims due him before rescission is resorted to.
Donation, fraudulently transferred all her real property to her children in bad faith - Fourth requisite for accion pauliana not present either. Art. 759 of Civil Code
and in fraud of creditor, including her; that LIM conspired and confederated with her states that donation is always presumed to be in fraud of creditors when the donor
children in antedating the questioned Deed. did not reserve sufficient property to pay his debts prior to donation. Petitioner’s
accion pauliana – action to rescind contracts in fraud of creditors. alleged credit existed only a year after the deed of donation was executed. She
Respondents’ Comment cannot be said to have been prejudiced or defrauded by such alienation. In addition,
- LIM denied any liability to petitioner. She claimed that her convictions in criminal when the Deed was executed, LIM had properties such as farming lands, a house
cases 22127-28 were erroneous, which was the reason she appealed to the CA. and lot, residential lots which were sufficient to cover the debts.
- As regards the questioned Deed of Donation, she asserted that it was not - In an attempt to support the case for rescission, petitioner brought up the criminal
antedated but was made in good faith at a time when she had sufficient property. case involving Victoria Suarez. However, Suarez, albeit a creditor prior to the
The Deed was registered only 2 July 1991 because she was seriously ill. alienation, is not a party to the accion pauliana. Only the creditor who brought the
action for rescission can benefit from the rescission (Art. 1384, Civil Code). The
revocation is only to the extent of the plaintiff creditor’s unsatisfied credit; as to the
ISSUE excess, alienation is maintained.
WON the Deed of Donation executed by respondent Rosa LIM in favor of her - As for the awards of moral damages, etc., the trial court made these awards
children was made in fraud of Petitioner and, therefore, rescissible without stating any justification in their ratio decidendi.
HELD JUAN NAKPIL & SONS V COURT OF APPEALS
Ratio No, the Deed of Donation made by LIM in favor of her children was not PARAS; October 3, 1986
executed in fraud, and is therefore not rescissible.
Reasoning The facts of the RTC and the CA regarding the execution of the Deed
NATURE
are conflicting, therefore the Court has jurisdiction to review errors of fact of the
Petitions for certiorari to review the decision of the Court of Appeals
case.
- For accion pauliana to prosper, the following must be present:
FACTS
• plaintiff asking for rescission has a credit prior to the alienation; - Philippine Bar Association (PBA) decided to construct an office building on its 840
square meter lot located at the corner of Aduana and Arzobispo Streets, Intramuros,
Obligations and Contracts A2010 page 24
Prof. Labitag
Manila. The contractor was United Construction Inc. and the architect was Juan F. or care, reasonably to have been expected, could have been prevented. To exempt
Nakpil & Sons. The building was completed in June, 1966. In the early morning of the obligor from liability under art.1174 of the new Civil Code for a breach of
August 2, 1968 an unusually strong earthquake (7.3 magnitude) hit Manila and the obligation due to an act of God, the ff must concur: a) the cause of the breach of
building in question sustained major damage. The front columns of the building obligation must be independent of the will of the debtor; b) the event must be
buckled, causing the building to tilt forward dangerously. As a temporary remedial unforeseeable or unavoidable; c) the event must be such as to render it impossible
measure, the building was shored up by United Construction at the cost of P13, for the debtor to fulfill his obligation in a normal manner; and d) the debtor must be
661.28. free of any participation in, or aggravation of the injury to the creditor.
- November 29, 1968 PBA commenced action or the recovery of damages arising - Thus if upon the happening of a fortuitous event or an act of God, there concurs a
from the partial collapse of the building. PBA claims that the collapse was due to corresponding fraud, negligence, delay or violation or contravention in any manner
defects in the construction, the failure of contractors to follow plans and of the tenor of the obligation which results in loss or damage, the obligor cannot
specifications and violations by the defendants of the terms of the contract. On the escape liability. Thus it has been held that when the negligence of a person concurs
other hand, United Construction Inc. filed a third-party complaint against the with an act of God in producing a loss, such person is not exempt from liability by
architects Nakpil alleging that the collapse was due to the defects in the said plans showing that the immediate cause of the damage was the act of God. To be
and specifications. A pre-trial was conducted during which, among others, the exempt, he must be free from any previous negligence or misconduct.
parties agreed to refer the technical issues involved in the case to a Commissioner, - The negligence of the contractor and the architect was established beyond dispute
Mr. Andres Hizon. Technical issues involve question regarding the design and in both the trial court and the CA. UCCI was found to have made substantial
construction of the building. deviations from the plans and specifications, and to have failed to observe the
- during the pendency of the case, three more earthquakes occurred and with the requisite workmanship in the construction as well as to exercise the requisite
PBA’s request, the building was demolished at their expense. amount of supervision. Nakpil on the other hand were found to have defects in the
- The Commissioner submitted his report which stated that the damage sustained plans and specifications prepared by them. As correctly assessed by both courts,
by the PBA building was directly caused by the earthquake and was also caused by the defects in the construction and in the plans and specifications were the
the defects in the plans and specifications prepared by the architects, deviations proximate causes that rendered the PBA building unable to withstand the
from said plans and specifications by the contractor and failure of the contractor to earthquake.
observe the requisite workmanship in the construction of the building. The trial
court agreed with the findings of the Commissioner. All parties involved appealed REPUBLIC V LUZON STEVEDORING CORPORATION
and the CA affirmed the decision of the trial court but modified the decision by REYES; September 29, 1967
granting PBA an additional P200,000 to be paid by the contractor and architects
jointly. NATURE
- The parties appealed from the decision of the CA and thus this petition. The United APPEAL from a decision of the Court of First Instance of Manila.
Architects of the Philippines and The Philippine Institute of Architects intervened as
amicus curiae and submitted a position paper which said that the plans and FACTS
specifications of the Nakpils were not defective. When asked by the Court to - In the early afternoon of August 17, 1960, barge L-1892, owned by Luzon
comment, the Commissioner reiterated his findings and said that there were Stevedoring Corporation was being towed down the Pasig river by tugboats
deficiencies in the design of the architects which contributed to the collapse of the “Bangus” and “Barbero” also belonging to the same corporation, when the barge
building. rammed against one of the wooden piles of the Nagtahan bailey bridge, smashing
Petitioners Nakpil and UCCI on the other hand claimed that it was an act of God that the posts and causing the bridge to list. The river, at that time, was swollen and the
caused the failure of the building which should exempt them from responsibility. current swift, on account of the heavy downpour of Manila and the surrounding
provinces on August 15 and 16, 1960.
ISSUE - Republic of the Philippines sued for actual and consequential damage caused by
WON an act of God- an unusually strong earthquake- which caused the failure of the the said company’s employees amounting to 200,000. Defendant company
building, exempts from liability, parties who are otherwise liable because of their disclaimed liability on the grounds that it was brought about by force majeure as
negligence they exercised due diligence in the selection and supervision of its employees and
that the Nagtahan Bailey Bridge is an obstruction to navigation. Defendant claims
HELD that got the strongest tugboats, and the more competent and experienced among
- No. applicable law is Art.1723 of the New Civil Code which holds the architects its patrons.
liable for damages on the building due to defects in the design, and contractors for - Trial court found said company liable. It filed before the Supreme Court.
damages due to defects in the construction. On the other hand, the general rule is
that no person shall be responsible for events which could not be foreseen or which ISSUES
though foreseen, were inevitable. 1. WON the collision of appellant’s barge with the supports or piers of the Nagtahan
- An act of God has been defined as an accident, due directly and exclusively to bridge was in law caused by fortuitous event or force majeure, and
natural causes without human intervention which by no amount of foresight, pains
Obligations and Contracts A2010 page 25
Prof. Labitag
2. WON it was error for the Court to have permitted the plaintiff-appellee to General Rule: No person shall be responsible for those events which could not be,
introduce additional evidence of damages after said party had rested its case. foreseen, or which, though foreseen were inevitable.
Obiter
HELD Exception: Except in cases expressly specified by the law, or when it is otherwise
1. No. For caso fortuito or force majeure (which in law are identical in so far as they declared by stipulation, or when the nature of the obligation requires the
exempt an obligor from liability) by definition, are extraordinary events not assumption of risk
foreseeable or avoidable, “events that could not be foreseen, or which, though - What is contemplated in the exception is resulting liability even if caused by a
foreseen, were inevitable” (Art. 1174,CC). It is not therefore enough that the event fortuitous event where the party charged may be considered as having assumed
should not have foreseen or anticipated as is commonly believed, but it must be the risk incident in the nature of the obligation to be performed.
one impossible to foresee or to avoid. The mere difficulty to foresee the happening - Force Majeure or Caso Fortuito are extraordinary events not foreseeable or
is not impossibility to foresee the same. The very measures adopted by said unavoidable (events that though foreseen, are inevitable)
company prove that the possibility of danger was not only foreseeable. But actually - Republic v. Luzon Stevedoring Corp – The mere difficulty to foresee the happening
foreseen, and was not caso foruito. is not impossibility to foresee the same. The very precautions adopted by appellant
- Luzon Stevedoring Corporation, knowing and appreciating the perils posed by the prove that the possibility of danger was not only foreseeable, but actually foreseen,
swollen stream and its swift current, voluntarily entered into a situation involving and was not caso fortuito." In that case then, the risk was quite evident and the
obvious danger. The appellant company, whose barges and tugs travel up and down nature of the obligation such that a party could rightfully be deemed as having
the river everyday, could not safely ignore the danger posed by these allegedly assumed it
improper constructions that had been erected and, in place, for years. Disposition Wherefore the decision of the lower court assigning liability to
2. This is up to the sound discretion of the trial Judge. Defendant is Reversed; Affirmed insofar as it dismissed the case against the two
Disposition AFFIRMED. other defendants
HELD FACTS
1. Yes. - On Jan. 19, 1985, the Coronels executed a document entitled “Receipt of Down
Ratio In the interpretation of contracts, if some stipulation should admit of several Payment” in favor of Ramona Patricia Alcaraz containing the following conditions
meanings, it shall be understood as bearing that import most adequate to render it appurtenant to the sale of their house and lot:
effectual. Considering the antecedents of the ownership of the disputed lot, 1. Ramona will make a down payment of P50,000 upon execution of the
Gonzales’ interpretation that par.9 is a condition precedent to the purchase of the document aforestated.
property renders it most effectual. 2. The Coronels will cause the transfer in their names of the title of their
Reasoning Both RTC and CA interpreted par.9 to mean that respondents obliged property registered in the name of their deceased father, Constancio P.
themselves to obtain a TCT in the name of petitioner. But petitioner maintains that Coronel, upon receipt of the P50,000 down payment.
respondents were obligated to obtain a TCT in their names.
Obligations and Contracts A2010 page 40
Prof. Labitag
3. Upon the transfer in their names of the subject property, the Coronels will Art. 1475. The contract of sale is perfected at the moment there is a
execute the deed of absolute sale in favor of Ramona and the latter will meeting of minds upon the thing which is the object of the contract and
pay the former the whole balance of P1,190,000. upon the price.
- On the same date, Concepcion Alcaraz, mother of Ramona, paid the down
payment of P50,000. On Feb. 6, 1985, the property originally registered in the name From that moment, the parties may reciprocally demand performance,
of the Coronels’ father was transferred in their names under TCT No. 327043. subject to the provisions of the law governing the form of contracts.
Subsequently, the Coronels sold the property covered by TCT No. 327043 to
intervenor-appellant Mabanag for P1,580,000 after the latter paid P300,000. For this Art. 1181. In conditional obligations, the acquisition of rights, as well as the
reason, the Coronels canceled and rescinded the contract with Ramona by extinguishment of loss of those already acquired, shall depend upon the
depositing the down payment paid by Concepcion in the bank in trust for Ramona happening of the event which constitutes the condition.
Patricia Alcaraz. A few days later, Concepcion, et al., filed a complaint for specific - Since the condition contemplated by the parties which is the issuance of a
performance against the Coronels and caused the annotation of a notice of lis certificate of title in petitioners’ names was fulfilled on Feb. 6, 1985, the respective
pendens at the back of TCT No. 327403. Mabanag then caused the annotation of a obligations of the parties under the contract of sale became mutually demandable,
notice of adverse claim covering the same property with the Registry of Deeds of that is, petitioners, as sellers, were obliged to present the transfer certificate of title
Quezon City. The Coronels executed a Deed of Absolute Sale over the subject already in their names to private respondent Ramona Alcaraz, the buyer, and to
property in favor of Mabanag. A new title on the subject property was issued in the immediately execute the said deed of absolute sale, while the buyer on her part,
name of Mabanag under TCT No. 351582. was obliged to forthwith pay the balance of the purchase price amounting to
- The lower court rendered judgment for specific performance ordering the Coronels P1,190,000.
to execute in favor of Concepcion, et al., a deed of absolute sale covering that - It is also significant to note that in the first paragraph in page 9 of their petition,
parcel of land embraced in and covered by TCT No. 327403 (now TCT No. 331582) petitioners conclusively admitted that:
of the Registry of Deeds for Quezon City, together with all the improvements
existing thereon free from all liens and encumbrances and once accomplished, to 3. The petitioners-sellers Coronel bound themselves “to effect the transfer
immediately deliver the said document of sale to Concepcion, et al. Upon receipt in our names from our deceased father Constancio P. Coronel, the transfer
thereof, Concepcion, et al., were ordered to pay the Coronels the whole balance of certificate of title immediately upon receipt of the downpayment above-
the purchase price amounting to P1,190,000 in cash. TCT No. 331582 in the name stated.” The sale was still subject to this suspensive condition.
of Mabanag was canceled and delivered to be without force and effect. Further, the - Petitioners themselves recognized that they entered into a contract of sale subject
Coronels, Mabanag, and all other persons claiming under them were ordered to to a suspensive condition. Only, they contend, continuing in the same paragraph,
vacate the subject property and deliver possession thereof to Concepcion, et al. The that:
claim for damages and attorney’s fees filed by Concepcion, et al., as well as the
counterclaims by the Coronels and intervenors were dismissed. On appeal, the … Had petitioners-sellers not complied with this condition of first
Court fully agreed to the decision of the trial court. transferring the title to the property under their names, there could be no
perfected contract of sale.
ISSUE not aware that they have set their own trap for themselves, for Art. 1186 of the Civil
WON petitioners and private respondents entered into a conditional contract of sale Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor
HELD voluntarily prevents its fulfillment.
- Yes. What is clearly established by the plain language of the subject document is - Besides, it should be stressed and emphasized that what is more controlling than
that when the said “Receipt of Down Payment” was prepared and signed by the these mere hypothetical arguments is the fact that the condition herein referred to
Coronels, the parties had agreed to a conditional contract of sale, consummation of was actually and indisputably fulfilled on Feb. 6, 1985, when a new title was issued
which is subject only to the successful transfer of the certificate of title from the in the names of petitioners as evidenced by TCT No. 327403.
name of petitioners’ father, Constancio P. Coronel, to their names. The Court - The inevitable conclusion is that on Jan. 19, 1985, as evidenced by the document
significantly notes that this suspensive condition was, in fact, fulfilled on February 6, denominated as “Receipt of Down Payment”, the parties entered into a contract of
1985. Thus, on said date, the conditional contract of sale between petitioners and sale subject only to the suspensive condition that the sellers shall effect the
private respondent Ramona became obligatory, the only act required for the issuance of new certificate title from that of their father’s name to their names and
consummation thereof being the delivery of the property by means of the execution that, on Feb. 6, 1985, this condition was fulfilled.
of the deed of absolute sale in a public instrument, which petitioners unequivocally - We, therefore, hold that in accordance with Art. 1187 which pertinently provides —
committed themselves to do as evidenced by the “Receipt of Down Payment.” Art. 1187. The effects of conditional obligations to give, once the condition
- Art. 1475, in correlation with Art. 1181, both of the Civil Code, plainly applies to has been fulfilled, shall retroact to the day of the constitution of the
the case at bench. Thus: obligation…
Obligations and Contracts A2010 page 41
Prof. Labitag
In obligations to do or not to do, the courts shall determine, in each case, - The donation was accepted by Mr. Santiago de Jesus, as municipal president, in
the retroactive effect of the condition that has been complied with. the same document on behalf of the municipal council of Tarlac. The parcel thus
- the rights and obligations of the parties with respect to the perfected contract of donated was later registered in the name of the donee, the municipality of Tarlac.
sale became mutually due and demandable as of the time of fulfillment or - Jan 15, 1921, Concepcion Cirer and James Hill sold this parcel to plaintiff George L.
occurrence of the suspensive condition on Feb. 6, 1985. As of that point in time, Parks.
reciprocal obligations of both seller and buyer arose. - Aug 24, 1923, the municipality of Tarlac transferred the parcel to Province of
- When the sellers declared in the “Receipt of Down Payment” that they received an Tarlac. The Province of Tarlac, by reason of the transfer, applied for and obtained
amount as purchase price for their house and lot without any reservation of title the registration of the land in its name, the corresponding certificate of title having
until full payment of the entire purchase price, the natural and ordinary idea been issued to it.
conveyed is that they sold their property. When the “Receipt of Down Payment” is - Lower court dismissed the complaint.
considered in its entirety, it becomes more manifest that there was a clear intent on Petitioners' Claim
the part of petitioners to transfer title to the buyer, but since the transfer certificate - The plaintiff alleges that the conditions of the donation had not been complied
of title was still in the name of petitioners’ father, they could not fully effect such with, and invokes the sale of the parcel of land made by Concepcion Cirer and
transfer although the buyer was then willing and able to immediately pay the James Hill in his favor.
purchase price. a) Appellant contends that a condition precedent having been imposed in the
- The parties did not merely enter into a contract to sell where the sellers, after donation and the same not having been complied with, the donation never became
compliance by the buyer with certain terms and conditions, promised to sell the effective. This “condition precedent” according to appellant, refers to the condition
property to the latter. What may be perceived form the respective undertakings of imposed that one of the parcels donated was to be used absolutely and exclusively
the parties to the contract is that petitioners had already agreed to sell the house for the erection of a central school and the other for a public park, the work to
and lot they inherited from their father, completely willing to transfer full ownership commence in both cases within the period of six months from the date of the
of the subject house and lot to the buyer if the documents were then in order. It just ratification by the parties of the document evidencing the donation.
so happened, however, that the transfer certificate of title was then still in the name b) Appellant also contends that, in any event, the condition not having been
of their father. It was more expedient to first effect the change in the certificate of complied with, even supposing that it was not a condition precedent but
title so as to bear their names. That is why they undertook to cause the issuance of subsequent, the noncompliance thereof is sufficient cause for the revocation of the
a new transfer of the certificate of title in their names upon receipt of the down donation.
payment in the amount of P50,000. As soon as the new certificate of title is issued
in their names, petitioners were committed to immediately execute the deed of ISSUE
absolute sale. Only then will the obligation of the buyer to pay the remainder of the WON plaintiff has right of action
purchase price arise.
HELD
- The plaintiff has no right of action. The sale made by Cirer and Hill to Parks cannot
have any effect. The parcel having been donated by Cirer and Hill to the
municipality of Tarlac, which donation was accepted by the latter, the title to the
property was transferred to the municipality of Tarlac. The donation was not
PARKS V PROVINCE OF TARLAC revoked when Cirer and Hill made the sale to the plaintiff. In order to consider it
AVENCENA; July 13, 1926 revoked, it is necessary either: 1) that the revocation had been consented to by the
donee, the municipality of Tarlac, or 2) that it had been judicially decreed. None of
NATURE these circumstances existed when Cirer and Hill sold the parcel to the plaintiff.
APPEAL from a judgment of the Court of First Instance of Tarlac Consequently, when the sale was made, Cirer and Hill were no longer the owners of
this parcel and could not have sold it to the plaintiff, nor could Parks have acquired
FACTS it from them.
- Plaintiff-appelant brought this action against the Province of Tarlac, the a) with regard to the “condition precedent”, it is true that the condition has not
municipality of Tarlac, Concepcion Cirer and James Hill and prayed that he be been complied with. But the allegation that it is a condition precedent is erroneous.
declared the absolute owner entitled to the possession of the parcel of land, that The characteristic of a condition precedent is that the acquisition of the right is not
the transfer of the same by the municipality of Tarlac to the Province of Tarlac be effected while said condition is not complied with or is not deemed complied with.
annulled, and the transfer certificate issued to the Province of Tarlac cancelled. Meanwhile nothing is acquired and there is only an expectancy of right.
- Oct 18, 1910, Concepcion Cirer and James Hill, the owners of parcel of land No. 2, Consequently, when a condition is imposed, the compliance of which cannot be
donated it perpetually to the municipality of Tarlac, Province of Tarlac, under effected except when the right is deemed acquired, such condition cannot be a
certain conditions specified in the public document in which they made the condition precedent. In the present case the condition that a public school be
donation. erected and a public park made of the donated land could not be complied with
except after giving effect to the donation.
Obligations and Contracts A2010 page 42
Prof. Labitag
b) Although the appellant’s contention that noncompliance of the condition of the could not be considered as having failed to comply with its part of the bargain,
donation is sufficient ground for revocation, the period for bringing an action for the thus, it remanded the case to the court of origin for the determination of the time
revocation of the donation has prescribed. Under the laws in force (sec. 43, Code of within which the petitioner should comply with the first condition annotated in the
Civ. Proc.), the period of prescription of this class of action is ten years. The action certificate of title
for the revocation of the donation for this cause arose or April 19, 1911, that is, six
months after the ratification of the instrument of donation of October 18, 1910. The ISSUES
complaint in this action was presented July 5, 1924, more than ten years after this 1. WON the quoted annotations are onerous obligations and resolutory conditions
cause accrued. 2. WON the right of the respondents to initiate an action has already prescribed
Disposition The judgment appealed from is affirmed, with costs against the 3. WON the Court may fix a period within which petitioner would establish a medical
appellant. college
NATURE
Petition for certiorari
BOYSAW V INTERPHIL PROMOTIONS
FACTS FERNAN; March 20, 1987
- Leviste had obtained a loan from the GSIS. As security therefore, Leviste
mortgaged two (2) lots, one located at Paranaque and the other at Buendia with the NATURE
3-storey building thereon. Appeal from the decision of the court of first instance of Rizal, Br. V.
- Leviste sold to Petitoner Herrera the Buendia Property on the conditions that
petitioner would (1) pay Leviste; (2) assume Leviste’s indebtedness to the GSIS and
(3) substitute the Paranaque property with his own within a period of six months. It
was also stipulated in the Contract of Sell that “failure to comply with any of the FACTS
conditions contained therein, particularly the payment of the scheduled - On May 1, 1961, Boysaw and manager Ketchum signed with Interphil
amortizations on the dates herein specified shall render this contract automatically (represented by Sarreal) a contract to engage Flash Elorde in a boxing match at
cancelled and any and all payments made shall be forfeited in favor of the vendor Rizal Memorial Stadium on Sept 30, 1961 or not later than 30 days shld a
and deemed as rental and/or liquidated damages.” postponement be mutually agreed upon. Boysaw, accdg to contract, shld not
- Leviste then undertook to arrange for the conformity of the GSIS to petitioner’s engage in other bouts prior to the contest.
assumption of the obligation. - Interphil signed Elorde to a similar agreement.
- Herrera took possession of the Buendia property, earned from it, but failed to fully - Boysaw fought and defeated Louis Avila in Nevada.
settle its obligation in the GSIS. Due to Herrera’s default, his property was - Ketchum assigned to Amado Araneta his managerial rights, who later transferred
foreclosed and auctioned in favor of GSIS, the highest bidder. the rights to Alfredo Yulo.
- Leviste assigned its right to redeem both foreclosed properties to Marcelo. - Sarreal wrote to Games and Amusement Board (GAB) regarding this switch of
Marcelo redeemed the properties and later the properties were turned over by managers bec they weren’t notified.
Marcelo to Leviste upon payment of the latter. - GAB called for conferences and decided to schedule the Elorde-Boysaw bout on
- Herrera’s request to GSIS to allow him redeem his property in installments was Nov 4, 1961. USA National Boxing Assoc approved.
apparently disapproved, thus this petition. - Sarreal offered to move the fight to Oct 28 for it to be w/in the 30 day allowable
postponement in the contract. Yulo refused. He was willing to approve the fight on
ISSUE Nov 4 provided it will be promoted by a certain Mamerto Besa.
WON the assigning of Leviste of his right to redeem the foreclosed property to - The fight contemplated in the May 1 contract never materialized. Boysaw and
Marcelo result in unjust enrichment of Leviste and patent injustice on the part of Yulo sued Interphil, Sarreal and Nieto.
Herrera as he would not only forfeit the Buendia property to Marcelo but would also - Boysaw was abroad when he was scheduled to take the witness stand. Lower
lose the amount he paid to Leviste and the GSIS court reset the trial. Boysaw was still absent on the later date. Court reset. On the
third instance, a motion for postponement was denied.
HELD - Boysaw and Yulo moved for a new trial, but it was denied. Hence, this appeal.
NO.
Reasoning: ISSUES
1. Neither the GSIS, Marcelo nor Leviste benefited in any way at the expense of 1. WON there was a violation of the May 1 contract and if so, who was guilty
Herrera. They paid and received what is due them. 2. WON there was legal ground for postponement of the fight
2. Though Herrera actually suffered loss (amount he paid to Leviste, payment to 3. WON lower court erred in refusing postponement of the trial for 3rd time
GSIS less rentals received), but this loss are attributable to his fault in: (a) not being 4. WON lower court erred in denying new trial
able to submit collateral to GSIS in substitution of Paranaque property, (b) not 5. WON lower court erred in awarding appellees damages
paying off the mortgage debt, and (c)not making earnest effort to redeem the
property as possible redemptioner. HELD
Disposition DENIED 1. Boysaw violated the contract when he fought with Avila. Civil Code provides, the
power to rescind obligations is implied, in reciprocal ones, (as in this case) in case
one of the obligors shld not comply w/ what is incumbent upon him.
Another violation was made in the transfers of managerial rights. These were in
fact novations which, to be valid, must be consented to by Interphil. When a
Obligations and Contracts A2010 page 52
Prof. Labitag
contract is unlawfully novated, the aggrieved creditor may not deal with the - Before the preliminary injunction was granted, UP already conducted a bidding
substitute. and eventually awarded the concession to Sta. Clara Lumber. The contract with
2. The appellees could have opted to rescind or refuse to recognize the new Santa Clara was signed on Feb. 16, 1966.
manager, but all they wanted was to postpone the fight owing to an injury Elorde - Feb. 25, 1966 – ALUMCO obtained an order which enjoined UP from awarding
sustained. The desire to postpone the fight is lawful and reasonable. logging rights to a different concessionaire.
The GAB did not act arbitrarily in acceding to the request to reset the date of the - April 12, 1966 – UP declared in contempt of court and Sta. Clara was told to stop
fight and Yulo himself agreed to abide by the GAB ruling. the logging activities.
The appellees offered to move the fight w/in the 30 day period for postponement Respondents’ Comments:
but this was refused by the appellants, notwithstanding the fact that by virtue of - Respondents blame their former manager for their financial turmoil because he
the appellants’ violations, they have forfeited any right to the enforcement of the did not turn over the company to ALUMCO.
contract. - It was unable to comply with the manner of payments stated in the
3. The issue of denial of postponement of trial was raised in another petition for “Acknowledgement” because the logs they harvested were rotten.
certiorari and prohibition. It can’t be resurrected in this case. - It is only upon a judicial declaration that the contract can be considered rescinded.
4. The court was correct in denying new trial. The alleged newly discovered
evidence are merely clearances fr clerk of court, which can’t alter the result of the ISSUE
trial. WON UP can treat the contract with ALUMCO as rescinded without any judicial
5. Because the appellants willfully refused to participate in the final hearing and pronouncement
refused to present documentary evidence, they prevented themselves fr objecting
to or presenting proof contrary to those adduced by the appellees. HELD
Yes, UP can treat the contract with ALUMCO as rescinded without any judicial
UP V DE LOS ANGELES pronouncement.
REYES; September 29, 1970 Ratio The party who deems the contract violated may consider it resolved or
rescinded, and act accordingly, without previous court action, but it proceeds at its
NATURE own risk. It is only the final judgment of the corresponding court that will and finally
Petition for certiorari and prohibition settle whether the action taken was or was not correct in law.
Reasoning
FACTS - The “Acknowledgement ” already indicated that should ALUMCO fail to pay its
- Nov. 2, 1960 – UP entered into a logging agreement with ALUMCO wherein dues on time, the contract would be rescinded.
ALUMCO was granted the exclusive authority to cut, collect and remove timber from - But since the decision finding UP in contempt is on appeal in the CA, the SC
the Land Grant. The said logging agreement began on the date of agreement to decided not to make any comment.
Dec. 31, 1965, extendible for a period of five years.
- Dec. 8, 1964 – ALUMCO accumulated unpaid dues of P219,362.94 which it failed to DE ERQUIAGA V CA
pay despite repeated demands. GRIÑO-AQUINO, September 27,1989
- UP sent a notice to ALUMCO, saying that the former would terminate/rescind the
contract. ALUMCO then drew up an “Acknowledgment of Debt and Proposed NATURE
Mariner of Payments” dated Dec. 9, 1964 and was approved by the UP president. PETITION to review the decision of the Court of Appeals.
- ALUMCO should pay its outstanding balance to UP on or before June 30,
1965 FACTS
- If ALUMCO fails to do that, UP will have the right to rescind the contract - This is a case that began in the CFI of Sorsogon in 1970. Although the decision
without the necessity of a judicial suit and UP shall have the right to dated September 30, 1972 of the trial court became final and executory because
P50,000 in damages. none of the parties appealed, its execution has taken all of the past seventeen (17)
- ALUMCO continued the logging concession but once more incurred an outstanding years with the end nowhere in sight. The delay in writing finis to this case is
balance of P61,133.74 from Dec. 9, 1964 to July 15, 1965 on top of its existing attributable to several factors, not the least of which is the intransigents of the
outstanding obligation. defeated party.
- July 19, 1965 – UP rescinded the contract and filed a civil suit against ALUMCO on - Santiago de Erquiaga was the owner of 100% or 3,100 paid-up shares of stock of
September 7 of the same year. the Erquiaga Development Corporation (EDC) which owns the Hacienda San Jose in
- Sept. 30, 1965 – UP obtained an order which prevented ALUMCO from continuing Irosin, Sorsogon.
its logging activities. - On November 4,1968, he entered into an Agreement with Jose L. Reynoso to sell
to the latter his 3,100 shares of EDC for P900,000 payable in installments on
definite dates fixed in the contract but not later than November 30, 1968. Because
Obligations and Contracts A2010 page 53
Prof. Labitag
Reynoso failed to pay the second and third installments on time, the total price of defendant Jose Reynoso are one and the same persons as far as the obligation to
the sale was later increased to P971,371.70 payable on or before December 17, account for the products of the hacienda is concerned,
1969. The difference of P71,371.70 represented brokers' commission and interest - In the same Order, the CFI of Sorsogon appointed a receiver upon the filing of a
- As of December 17, 1968, Reynoso was able to pay the total sum of P410,000 to bond in the amount of P100,000.00 because Erquiaga has shown sufficient and
Erquiaga who thereupon transferred all his shares (3,100 paid up shares) in EDC to justifiable ground for the appointment of a receiver' in order to preserve the
Reynoso, as well as the possession of the Hacienda San Jose, the only asset of the Hacienda which has obviously been mismanaged by the defendant to a point where
corporation. However, as provided in paragraph 3, subparagraph (c) of the contract the amortization of the loan with the DBP has been neglected and the arrears in
to sell, Reynoso pledged 1,500 shares in favor of Erquiaga as security for the payments have risen to the amount of P503,510.70 as of October 19,1972, and
balance of his obligation. Reynoso failed to pay the balance of P561,321.70 on or there is danger that the DBP may institute foreclosure proceedings to the damage
before December 17, 1969, as provided in the promissory notes he delivered to and prejudice of the plaintiff.
Erquiaga. So, on March 2, 1970, Erquiaga, through counsel, formally informed - On April 26, 1973, defendant Reynoso died and he was substituted by his
Reynoso that he was rescinding the sale of his shares in the Erquiaga. Development surviving spouse Valdez Vda. de Reynoso and children, who filed a petition for
Corporation. certiorari with a prayer for a writ of preliminary injunction seeking the annulment of
- On September 30 1972, upon the complaint filed by de Erquiaga, the CFI of the aforementioned.
Sorsogon, rendered judgment in favor of the de Erquiaga, rescinding the sale of - On February 12, 1975, upon motion of Erquiaga, the CFl of Sorsogon issued an
3,100 paid up shares of stock of the EDC to Reynoso, and ordering: order, dissolving the receivership and ordering the delivery of the possession of the
a) the defendant to return and reconvey to the plaintiff the 3,100 paid up Hacienda San Jose to Erquiaga, the filing of bond by said Erquiaga in the amount of
shares of stock of the EDC which now stand in his name in the books of the P410,000.00 conditioned to the payment of whatever may be due to the substituted
corporation; heirs of deceased defendant Reynoso after the approval of the accounting report
b) the defendant to render a full accounting of the fruits he received by virtue submitted by Reynoso.
of said 3,100 paid up shares of stock of the EDC, as well as to return said fruits -On March 3, 1975, the CFI of Sorsogon approved the P410,000.00 bond submitted
received by him to plaintiff ; by Erquiaga and the possession, management and control of the hacienda were
c) the plaintiff to return to the defendant the amount of P100,000.00 plus legal turned over to Erquiaga. Reynosos filed their motion for reconsideration which the
interest from November 4,1968, and the amount of P310,000.00 plus legal CFI of Sorsogon but was denied
interest from December 17, 1968, until paid; - On October 9, 1975, the CFI of Sorsogon issued an order directing defendants to
d) the defendant to pay the plaintiff as actual damages the amount of deliver to the plaintiff or his counsel within five (5) days from receipt of this order
P12,000.00; P50,000.00 as attorney's fees; and to pay the costs of this suit and the 1,600 shares of stock of the EDC which are in their possession. Should the
expenses of litigation. defendants refuse or delay in delivering such shares of stock, as prayed for, the
- The parties did not appeal therefrom and it became final and executory. plaintiff is authorized:
- On March 21, 1973, the CFI of Sorsogon issued an Order, stating that, although the a) To call and hold a special meeting of the stockholders of the EDC to elect the
decision has become final and executory, the payment to the defendant of the total members of the Board of Directors;
sum ofP410,000.00 plus the interest, damages and attorney’s fees, should be held b) In the said meeting the plaintiff is authorized to vote not only the 1,500
in abeyance pending rendition of the accounting by the defendant of the fruits shares of stock in his name but also the 1,600 shares in the name and
received by him on account of the 3,100 shares of the capital stock of EDC. Indeed possession of the defendants;
it is reasonable to suppose that when such accounting is made (not only to the c) The question as to who shall be elected members of the Board of Directors
dividends due from the shares of stock but to the products of the hacienda which is and officers of the board is left to the discretion of the plaintiff;
the only asset of the EDC) certain sums may be found due to the plaintiff from the d) The members of the board and the officers who are elected are authorized to
defendant which may partially or entirely off set the amount adjudged against him execute any and a contracts or agreements under such conditions as may be
in the decision. required by the DBP for the purpose of restructuring the loan of the EDC with
- The court also held that the fruits referred to in the decision include not only the the said bank.
dividends received, if any, on the 3,100 shares of stocks but more particularly the - Hence, the present petition for certiorari, prohibition and mandamus with the CA
products received by the defendant from the hacienda. The hacienda and the instituted by the substitute defendants.
products thereon produced constitute the physical assets of the EDC represented - On May 31, 1976, with a view of putting an end to a much protracted litigation and
by the shares of stock and it would be absurd to suppose that any accounting could for the best interests of the parties, the CA issued a writ of mandamus,
be made by the defendant without necessarily taking into account the products commanding the respondent Judge to order (1) the Clerk of Court of the CFI of
received which could be the only basis for determining whether dividends are due Sorsogon to execute the necessary deed of conveyance to effect the transfer of
or not on account of the investment. The hacienda and its natural fruits as ownership of the entire 3,100 shares of stock of the EDC to Erquiaga in case of
represented by the shares of stock which the defendant received as manager and failure of petitioners to comply with the Order of October 9, 1975 insofar as the
controlling stockholder of the EDC can not be divorced from the certificates of stock delivery of the 1,600 shares of stock to private respondent is concerned, within five
in order to determine whether the defendant has correctly reported the income of (5) days from receipt hereof; and (2) upon delivery by petitioners or transfer by the
the corporation or concealed part of it for his personal advantage. The EDC and Clerk of Court of said shares of stock to private respondent, as the case may be, to
Obligations and Contracts A2010 page 54
Prof. Labitag
issue a writ of execution ordering private respondent to pay petitioners the amount - The Hacienda San Jose and 1,500 shares of stock have already been returned to
of P410,000.00 plus interests, setting-off therewith the amount of P62,000.00 Erquiaga. Therefore, upon the conveyance to him of the remaining 1,600 shares,
adjudged in favor of private respondent, and against petitioners' predecessor-in- Erquiaga (or his heirs) should return to Reynoso the price of P410,000 which the
interest, Jose L. Reynoso, in the same decision, as damages and attorney's fees. latter paid for those shares. Pursuant to the rescission decreed in the final
- As of the time the Court of Appeals rendered its decision on May 31, 1976,only the judgment, there should be simultaneous mutual restitution of the principal object of
following have been done by the parties in compliance with the final judgment in the contract to sell (3,100 shares) and of the consideration paid (P410,000). This
the main case: should not await the mutual restitution of the fruits, namely: the legal interest
1. The Hacienda San Jose was returned to Erquiaga on March 3, 1975 upon earned by Reynoso's P410,000 while in the possession of Erquiaga, and its
approval of Erquiaga's surety bond of P410,000 in favor of Reynoso; counterpart: the fruits of Hacienda San Jose which Reynoso received from the time
2. Reynoso has returned to Erquiaga only the pledged 1,500 shares of stock of the hacienda was delivered to him on November 4, 1968 until it was placed under
the Erquiaga Development Corporation, instead of 3,100 shares, as ordered in receivership by the court on March 3, 1975.
paragraph (a) of the final judgment. - However, since Reynoso has not yet given an accounting of those fruits, it is only
- What the parties have not done yet are: fair that Erquiaga's obligation to deliver to Reynosa the legal interest earned by his
1. Reynoso has not returned 1,600 shares of stock to Erquiaga as ordered in money, should await the rendition and approval of his accounting. To this extent,
paragraph (a) of the decision; the decision of the Court of Appeals should be modified. For it would be inequitable
2. Reynoso has riot rendered a full accounting of the fruits he has received and oppressive to require Erquiaga to pay the legal interest earned by Reynosa's
from Hacienda San Jose by virtue of the 3,100 shares of stock of the Erquiaga P410,000 since 1968 or for the past 20 years (amounting to over P400,000 by this
Development Corporation delivered to him under the sale, as ordered in time) without first requiring Reynoso to account for the fruits of Erquiaga's hacienda
paragraph (b) of the decision; which he allegedly squandered while it was in his possession from November 1968
3. Erquiaga. has not returned the sum of P100,000 paid by Reynoso on the up to March 3,1975.
sale, with legal interest from November 4,1968 and P31 0,000 plus legal - The payment of legal interest by Erquiaga to Reynoso on the price of P410,000
interest from December 17,1968, until paid (total: P410,000) as ordered in paid by Reynoso for Erquiaga's 3,100 shares of stock of the EDC should be
paragraph (c) of the decision; computed up to September 30,1972, the date of said judgment. Since Reynoso's
4. Reynoso has not paid the judgment of P12,000 as actual damages in favor of judgment liability to Erquiaga for attorney's fees and damages in the total sum of
Erquiaga, under paragraph (d) of the judgment; P62,000 should be set off against the price of P410,000 that Erquiaga is obligated to
5. Reynoso has not paid the sum of P50,000 as attorney's fees to Erquiaga return to Reynoso, the balance of the judgment in favor of Reynoso would be only
under paragraph (e) of the judgment; and P348,000 which should earn legal rate of interest after September 30, 1972, the
6. Reynoso has not paid the costs of suit and expenses of litigation as ordered date of the judgment. However, the payment of said interest by Erquiaga should
in paragraph (f) of the final judgment. await Reynoso's accounting of the fruits received by him from the Hacienda San
Jose. Upon payment of P348,000 by Erquiaga to Reynoso, Erquiaga's P410,000
ISSUE surety bond shall be deemed cancelled. In all other respects, the decision of the
WON the decision of the Court of Appeals requiring the petitioner to pay the private Court of Appeals in CA is affirmed.
respondents the sum of P410,000 plus interest, without first awaiting Reynoso's
accounting of the fruits of the Hacienda San Jose, violates Article 1385 of the Civil ANGELES V CALASANZ
Code GUTIERREZ; March 18, 1985
HELD
NO. The order of respondent Court directing Erquiaga to return the sum of P410,000 NATURE
(or net P348,000 after deducting P62,000 due from Reynoso under the decision) as Appeal from the decision of the Court of First Instance of Rizal, Seventh Judicial
the price paid by Reynoso for the shares of stock, with legal rate of interest, and the District, Branch X, declaring the contract to sell as not having been validly cancelled
return by Reynoso of Erquiaga's 3,100 shares with the fruits (construed to mean not and ordering the defendants-appellants to execute a final deed of sale in favor of
only dividends but also fruits of the corporation's Hacienda San Jose) is in full accord the plaintiffs-appellees, to pay P500.00 attorneys fees and costs.
with Art. 1385 of the Civil Code which provides:
"ART. 1385. Rescission creates the obligation to return the things which were the FACTS
object of the contract, together with their fruits, and the price with its interest; - On December 19, 1957, defendants-appellants Ursula Torres Calasanz and Tomas
consequently, it can be carried out only when he who demands rescission can Calasanz and plaintiffs-appellees Buenaventura Angeles and Teofila Juani entered
return whatever he may be obliged to restore. into a contract to sell a piece of land located in Cainta, Rizal for the amount of
"Neither shall rescission take place when the things which are the object of the P3,920.00 plus 7% interest per annum. The plaintiffs-appellees made a
contract are legally in the possession of third persons who did not act in bad faith. downpayment of P392.00 upon the execution of the contract. They promised to pay
"In this case, indemnity for damages may be demanded from the person causing the balance in monthly installments of P41.20 until fully paid, the installments being
the loss."
Obligations and Contracts A2010 page 55
Prof. Labitag
due and payable on the 19th day of each month. The plaintiffs appellees paid the times as he wishes. The defendants-appellants' contention is without merit. We
monthly installments until July 1966, when their aggregate payment already agree with the plaintiffs-appellees that when the defendants-appellants, instead of
amounted to P4,533.38. On numerous occasions, the defendants-appellants availing of their alleged right to rescind, have accepted and received delayed
accepted and received delayed installment payments from the plaintiffs-appellees. payments of installments, though the plaintiffs-appellees have been in arrears
- On December 7, 1966, the defendants-appellants wrote the plaintiffs-appellees a beyond the grace period mentioned in paragraph 6 of the contract, the defendants-
letter requesting the remittance of past due accounts. On January 28, 1967, the appellants have waived and are now estopped from exercising their alleged right of
defendants-appellants cancelled the said contract because the plaintiffs-appellees rescission.
failed to meet subsequent payments. The plaintiffs' letter with their plea for
reconsideration, of the said cancellation was denied by the defendants-appellants. 2. YES. We agree with the plaintiffs-appellees. The contract to sell entered into by
The plaintiffs-appellees filed Civil Case No. 8943 with the Court of First Instance of the parties has some characteristics of a contract of adhesion. The defendants-
Rizal, Seventh Judicial District Branch X to compel the defendants-appellants to appellants drafted and prepared the contract. The plaintiffs-appellees, eager to
execute in their favor the final deed of sale alleging inter alia that after computing acquire a lot upon which they could build a home, affixed their signatures and
all subsequent payments for the land in question, they found out that they have assented to the terms and conditions of the contract. They had no opportunity to
already paid the total amount of P4,533.38 including interests, realty taxes and question nor change any of the terms of the agreement. It was offered to them on a
incidental expenses for the registration and transfer of the land. CFI rendered a "take it or leave it" basis. "x x x (W)hile generally, stipulations in a contract come
ruling favor of the plaintiffs-appellees prompting Calasanz spouses to appeal. about after deliberate drafting by the parties thereto, . . . there are certain
contracts almost all the provisions of which have been drafted only by one party,
ISSUES usually a corporation. Such contracts are called contracts of adhesion, because the
1. WON the contract to sell has been automatically and validly cancelled by the only participation of the party is the signing of his signature or his 'adhesion'
defendants-appellants Calasanz spouses thereto. Insurance contracts, bills of lading, contracts of sale of lots on the
2. WON the contract partakes of a contract of adhesion and therefore must be installment plan fall into this category. '(Paras, Civil Code of the Philippines, Seventh
strictly construed against the one who drafted it (defendants-appellants) ed., Vol. 1, p. 80.)" (Italics supplied)
- While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees
HELD to pay the defendants-appellants the sum of P3,920.00 plus 7% interest per annum,
1. NO. "The general rule is that rescission of a contract will not be permitted for a it is likewise true that under paragraph 12 the seller is obligated to transfer the title
slight or casual breach, but only for such substantial and fundamental breach as to the buyer upon payment of the P3,920.00 price sale. The contract to sell, being a
would defeat the very object of the parties in making the agreement. (Song Fo & contract of adhesion, must be construed against the party causing it. We agree with
Co. v. Hawaiian-Philippine Co., 47 Phil. 821, 827) The question of whether a breach the observation of the plaintiffs-appellees to the effect that "the terms of a contract
of a contract is substantial depends upon the attendant circumstances. must be interpreted against the party who drafted the same, especially where such
- The breach of the contract adverted to by the defendants-appellants is so slight interpretation will help effect justice to buyers who, after having invested a big
and casual when we consider that apart from the initial downpayment of P392.00 amount of money, are now sought to be deprived of the same thru the prayed
the plaintiffs-appellees had already paid the monthly installments for a period of application of a contract clever in its phraseology, condemnable in its lopsidedness
almost nine (9) years. In other words, in only a short time, the entire obligation and injurious in its effect which, in essence, and in its entirety is most unfair to the
would have been paid. Furthermore, although the principal obligation was only buyers."
P3,920.00 excluding the 7 percent interests, the plaintiffs-appellees had already Disposition Thus, since the principal obligation under the contract is only
paid an aggregate amount of P4,533.38. To sanction the rescission made by the P3,920.00 and the plaintiffs-appellees have already paid an aggregate amount of
defendants-appellants will work injustice to the plaintiffs-appellees. (See J.M. Tuazon P4,533.38, the courts should only order the payment of the few remaining
and Co., Inc. v. Javier, 31 SCRA 829) It would unjustly enrich the defendants- installments but not uphold the cancellation of the contract. Upon payment of the
appellants. balance of P671.67 without any interests thereon, the defendants-appellants must
- Article 1234 of the Civil Code which provides that: immediately execute the final deed of sale in favor of the plaintiffs-appellees and
“If the obligation has been substantially performed in good faith, the obligor may execute the necessary transfer documents as provided in paragraph 12 of the
recovers though there had been a strict and complete fulfillment, less damages contract. The attorney's fees are justified.
suffered by the obligee."
- Also militates against the unilateral act of the defendants-appellants in cancelling WHEREFORE, the instant petition is DENIED for lack of merit. The decision appealed
the contract. We agree with the observation of the lower court to the effect that: from is AFFIRMED with the modification that the plaintiffs-appellees should pay the
"Although the primary object of selling subdivided lots is business, yet, it cannot be balance of SIX HUNDRED SEVENTY-ONE PESOS AND SIXTY-SEVEN CENTAVOS
denied that this subdivision is likewise purposely done to afford those landless, low (P671.67) without any interests.
income group people of realizing their dream of a little parcel of land which they
can really call their own." ONG V COURT OF APPEALS
- The defendants-appellants argue that paragraph nine of the contract clearly allows YNARES-SANTIAGO; July 6, 1999
the seller to waive the observance of paragraph 6 not merely once, but for as many
Obligations and Contracts A2010 page 56
Prof. Labitag
NATURE
Petition for review on certiorari from the judgment rendered by the Court of Appeals ISSUES
which, except as to the award of exemplary damages, affirmed the decision of the 1. WON the contract entered into by the parties may be validly rescinded under
Regional Trial Court of Lucena City, Branch 60, setting aside the "Agreement of Article 1191 of the New Civil Code
Purchase and Sale" entered into by herein petitioner and private respondent 2. WON the parties had novated their original contract as to the time and manner of
spouses payment
FACTS
- Petitioner Jaime Ong and respondent spouses Miguel K. Robles and Alejandra HELD
Robles, executed an "Agreement of Purchase and Sale" respecting two parcels of 1. NO.
land situated at Barrio Puri, San Antonio, Quezon. - Article 1191 of the New Civil Code refers to rescission applicable to reciprocal
- Petitioner Ong took possession of the subject parcels of land together with the obligations. Rescission of reciprocal obligations under Article 1191 of the New Civil
piggery, building, ricemill, residential house and other improvements thereon. Code should be distinguished from rescission of contracts under Article 1383.
- Pursuant to the contract they executed, petitioner paid respondent spouses the - While Article 1191 uses the term “rescission,” the original term which was used in
sum of P103,499.91 by depositing it with the United Coconut Planters Bank. the old Civil Code, from which the article was based, was “resolution.” Resolution is
Subsequently, petitioner deposited sums of money with the Bank of Philippine a principal action which is based on breach of a party, while rescission under Article
Islands (BPI), in accordance with their stipulation that petitioner pay the loan of 1383 is a subsidiary action limited to cases of rescission for lesion under Article
respondents with BPI. 1381 of the New Civil Code, which expressly enumerates the rescissible contracts.
- To answer for his balance of P1,400,000.00 petitioner issued four (4) post-dated - The contract entered into by the parties in the case at bar does not fall under any
Metro Bank checks payable to respondent spouses. When presented for payment, of those mentioned by Article 1381. Consequently, Article 1383 is inapplicable.
however, the checks were dishonored due to insufficient funds. - The "Agreement of Purchase and Sale" shows that it is in the nature of a contract
- Petitioner promised to replace the checks but failed to do so. To make matters to sell, as distinguished from a contract of sale. In a contract of sale, the title to the
worse, out of the P496,500.00 loan of respondent spouses with the Bank of the property passes to the vendee upon the delivery of the thing sold; while in a
Philippine Islands, which petitioner, should have paid, petitioner only managed to contract to sell, ownership is, by agreement, reserved in the vendor and is not to
dole out no more than P393,679.60. pass to the vendee until full payment of the purchase price. In a contract to sell, the
- When the bank threatened to foreclose the respondent spouses' mortgage, they payment of the purchase price is a positive suspensive condition, the failure of
sold three transformers of the rice mill worth P51,411.00 to pay off their which is not a breach, casual or serious, but a situation that prevents the obligation
outstanding obligation with said bank, with the knowledge and conformity of of the vendor to convey title from acquiring an obligatory force.
petitioner. - Respondents in the case at bar bound themselves to deliver a deed of absolute
- Petitioner, in return, voluntarily gave the spouses authority to operate the rice sale and clean title covering the two parcels of land upon full payment by the buyer
mill. He, however, continued to be in possession of the two parcels of land while of the purchase price of P2,000,000.00. This promise to sell was subject to the
private respondents were forced to use the rice mill for residential purposes. fulfillment of the suspensive condition of full payment of the purchase price by the
- Respondent spouses, sent petitioner a demand letter asking for the return of the petitioner. Petitioner, however, failed to complete payment of the purchase price.
properties. Their demand was left unheeded, so, on September 2, 1985, they filed a The non-fulfillment of the condition of full payment rendered the contract to sell
complaint for rescission of contract and recovery of properties with damages. ineffective and without force and effect. It must be stressed that the breach
- Later, while the case was still pending with the trial court, petitioner introduced contemplated in Article 1191 of the New Civil Code is the obligor's failure to comply
major improvements on the subject properties by constructing a complete fence with an obligation. Failure to pay, in this instance, is not even a breach but merely
made of hollow blocks and expanding the piggery. These prompted the respondent an event which prevents the vendor's obligation to convey title from acquiring
spouses to ask for a writ of preliminary injunction. The trial court granted the binding force. Hence, the agreement of the parties may be set aside, but not
application and enjoined petitioner from introducing improvements on the because of a breach on the part of petitioner for failure to complete payment of the
properties except for repairs. purchase price. Rather, his failure to do so brought about a situation which
- The trial court rendered a decision, ordering that the contract entered into by prevented the obligation of respondent spouses to convey title from acquiring an
plaintiff spouses and the defendant, Jaime Ong be set aside obligatory force.
- Petitioner appealed to the Court of Appeals, which affirmed the decision of the RTC 2. NO.
but deleted the award of exemplary damages. In affirming the decision of the trial - Novation is never presumed, it must be proven as a fact either by express
court, the Court of Appeals noted that the failure of petitioner to completely pay the stipulation of the parties or by implication derived from an irreconcilable
purchase price is a substantial breach of his obligation which entitles the private incompatibility between the old and the new obligation. Contrary to petitioner's
respondents to rescind their contract under Article 1191 of the New Civil Code. claim, records show that the parties never even intended to novate their previous
Hence, the instant petition. agreement.
Obligations and Contracts A2010 page 57
Prof. Labitag
- In order for novation to take place, the concurrence of the following requisites is iron as well as other pieces of machinery can no longer be found on the premises of
indispensable: (1) there must be a previous valid obligation; (2) there must be an the corporation.
agreement of the parties concerned to a new contract; (3) there must be the
extinguishment of the old contract; and (4) there must be the validity of the new ISSUES
contract. 1. WON the "Purchase and Sale of Scrap Iron" contract entered into by both parties
- The aforesaid requisites are not found in the case at bench. The subsequent acts is a contract to sell (promise to sell) or a contact of sale
of the parties hardly demonstrate their intent to dissolve the old obligation as a 2. WON there was delivery of the scrap iron subject of the sale
consideration for the emergence of the new one. 3. WON moral and exemplary damages should lie
Disposition The decision rendered by the Court of Appeals was AFFIRMED with the
MODIFICATION that respondent spouses were ordered to return to petitioner the HELD
sum of P48,680.00 in addition to the amounts already awarded. 1. What obtains in the case at bar is a mere contract to sell or promise to sell,
and not a contract of sale. The contract is not one of sale where the buyer acquired
ownership over the property subject to the resolutory condition that the purchase
VISAYAN SAWMILL COMPANY, INC. V CA price would be paid after delivery. There was to be no actual sale until the opening,
DAVIDE; March 3, 1993 making or indorsing of the irrevocable and unconditional letter of credit.
-VSC’s obligation to sell is unequivocally subject to a positive suspensive condition,
NATURE i.e., RJH Trading’s making or indorsing of an irrevocable and unconditional letter of
Petition for review on certiorari to set aside CA decision in favor of RJH Trading in an credit. VSC agreed to deliver the scrap iron only upon payment of the purchase
action for specific performance and damages against Visayan Sawmill Company price by means of an irrevocable and unconditional letter of credit.
(VSC) and Ang Tay -Since what obtains in the case at bar is a mere promise to sell, the failure of the
RJH TRading to comply with the positive suspensive condition cannot even be
FACTS considered a breach – casual or serious – but simply an event that prevented the
-1 May 1983: RJH Trading and VSC entered into a sale involving scrap iron subject obligation of VSC to convey title from acquiring binding force.
subject to the condition that RJH Trading will open a letter of credit in the amount of -In the instant case, not only did RJH Trading fail to open, make or indorse an
P250k in favor of VSC on or before May 15, 1983. This is evidenced by a contract irrevocable and unconditional letter of credit on or before 15 May 1983, it also
entitled "Purchase and Sale of Scrap Iron" duly signed by both parties. violated certain stipulations of the agreement: (1) it was not opened, made or
-17 May 1983: RJH Trading sent laborers to dig and gather scrap iron at the VSC’s indorsed by RJH Trading but by a corporation which is not a party to the contract;
premises, proceeding with such endeavor until May 30 when VSC allegedly directed (2) it was not opened with the bank agreed upon; and (3) it is not irrevocable and
the laborers to desist from pursuing the work in view of an alleged case filed unconditional, for it is without recourse, it is set to expire on a specific date and it
against RJH Trading by a certain Alberto Pursuelo. This is denied by VSC which stipulates certain conditions with respect to shipment.
alleges that on May 23, 1983, they sent a telegram to RJH Trading cancelling the -Consequently, the obligation of VSC to sell did not arise; it therefore cannot be
contract of sale because of failure of the latter to comply with the conditions compelled by specific performance to comply with its prestation. In short, Article
thereof. 1191 of the Civil Code does not apply; on the contrary, pursuant to Article 1597 of
24 May 1983: RJH Trading informed VSC by telegram that the letter of credit was the Civil Code, VSC may totally rescind, as it did in this case, the contract.
opened May 12, 1983 at the Bank of the Philippine Islands main office in Ayala, but 2. NONE. The permission or consent in par6 of the agreement cannot be construed
that the transmittal was delayed. as delivery of the scrap iron.
26 May 1983: VSC received a letter advice from BPI Dumaguete City Branch dated -the obligation imposed in Article 1497, NCC is premised on an existing obligation to
May 26, 1983 to the effect that on that date a letter of credit was opened in favor of deliver the subject of the contract. In the instant case, in view of the RJH Trading’s
petitioner Ang Tay c/o Visayan Sawmill Co. Inc., drawn on ARMACO-MARSTEEL failure to comply within the positive suspensive condition, such an obligation had
ALLOY CORPORATION and set to expire on 24 July 1983. not yet arisen.
19 July 1983: RJH Trading sent a series of telegrams stating that the case filed -RJH Trading was not placed in possession of and control over the scrap iron.
against him by Pursuelo had been dismissed and demanding that VSC comply with Indeed, VSC demanded the fulfillment of the suspensive condition and eventually
the deed of sale, otherwise a case will be filed against them. cancelled the contract.
In reply to those telegrams, VSC’s lawyer informed RJH Trading’s lawyer that VSC is 3. NO. In contracts, moral damages may be recovered if defendants acted
unwilling to continue with the sale due to RJH Trading's failure to comply with fraudulently and in bad faith, while exemplary damages may only be awarded if
essential preconditions of the contract. defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent
29 July 1983: RJH Trading filed an action for specific performance and damages with manner. Moral damages are emphatically not intended to enrich a complainant at
a petition for preliminary attachment. The writ of attachment was returned the expense of the defendant.
unserved because the VSC was no longer in operation and also because the scrap -In the instant case, the refusal of the petitioners to deliver the scrap iron was
founded on the non-fulfillment by the private respondent of a suspensive condition.
There is no evidence of bad faith.
Obligations and Contracts A2010 page 58
Prof. Labitag
Disposition Petition granted. CA decision reversed. Civil Case dismissed. The spouses even issued a memorandum complaining that the construction works
Costs against the private respondent. were faulty and done haphazardly mainly due to lax supervision coupled with
Voting 8 concur, 5 disssent, 2 no part, 1 on leave. inexperienced and unqualified staff. The memorandum was ignored.
After several conferences, the parties agreed to conduct cylinder tests to ascertain
SEPARATE OPINION compliance with safety standards. Carungay suggested core testing (a more reliable
test of safety and strength), and although Deiparine was relunctant at first, he
ROMERO [ dissent] agreed to it and even promised that should the structure fail the test, he would
-the agreement in question is a contract of sale. The breach of the contract was not shoulder the test expenses. The core test was conducted, and the building was
substantial and therefore petitioners were not justified in law to rescind the found to be structurally defective.
agreement. - The spouses then filed in the RTC for rescission of the construction contract and
-When the parties entered into the contract entitled "Purchase and Sale of Scrap for damages. Deiparine alleged that RTC did not have jurisdiction for construction
Iron" on May 1, 1983, the contract reached the stage of perfection, there being a contracts are now cognizable by the Philippine Construction Development Board.
meeting of the minds upon the object which is the subject matter of the contract RTC declared the contract rescinded, Deiparine to have forfeited his expenses in the
and the price which is the consideration. construction, and ordered Deiparine to reimburse the spouses for the core testing
-From the time the seller gave access to the buyer to enter his premises, and restore the premises to their former condition before the construction began.
manifesting no objection thereto but even sending 18 or 20 people to start the CA affirmed RTC.
operation, he has placed the goods in the control and possession of the vendee and
delivery is effected. ISSUES
-That payment of the price in any form was not yet effected is immaterial to the 1. WON RTC had jurisdiction over the case
transfer of the right of ownership. In a contract of sale, the non-payment of the 2. WON rescission is the proper remedy
price is a resolutory condition which extinguishes the transaction that, for a time,
existed and discharges the obligations created thereunder. HELD
-Dignos v. Court of Appeals: Absent a proviso in the contract that the title to the 1. Yes. Firstly, there is no Philippine Construction Development Board in existence.
property is reserved in the vendor until full payment of the purchase price or a There is however, a Philippine Domestic Construction Board (PDCB), but this body
stipulation giving the vendor the right to unilaterally rescind the contract the has jurisdiction to settle claims and disputes in the implementation of PUBLIC
moment the vendee fails to pay within the fixed period, the transaction is an construction contracts (only), and thus does not have jurisdiction over private
absolute contract of sale and not a contract to sell. construction contracts. (Deiparine’s counsel is even held in contempt of court for
-In every contract which contains reciprocal obligations, the right to rescind is changing the wording of the relevant provision in the law, making it appear that the
always implied under Article 1191 of the Civil Code in case one of the parties fails to PDCB had jurisdiction over the instant case.)
comply with his obligations. 2. Yes.
-Song Fo and Co. v. Hawaiian-Philippine Co.: a delay in payment for 20 days was not - The facts show that Deiparine deliberately deviated from the specifications of the
a violation of an essential condition of the contract which would warrant rescission Carungays (changing the minimum strength, concrete mixture, etc.), possibly to
for non-performance. In the instant case, the contract is bereft of any suggestion avoid additional expenses so as to avoid reduction in profits. His breach of duty
that time was of the essence; the eleven-day delay must be deemed a casual constituted a substantial violation of the contract, which is correctible by judicial
breach which cannot justify a rescission. rescission.
Particularly for reciprocal obligations, Art.1191 CC provides that: “The power to
DEIPARINE, JR. V CA rewind obligations is implied in reciprocal ones, in case one of the obligors should
CRUZ; April 23, 1993 not comply with what is incumbent upon him.
- The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
NATURE
rescission, even after he has chosen fulfillment, if the latter should become
Petition for review of decision of CA
impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
FACTS
the fixing of a period.”
- Spouses Carungay entered into an agreement with Deiparine for the construction
- Clearly, the construction contract falls squarely under the coverage of Art.1191
of a 3-storey dormitory. The Carungays agreed to pay Php970K, and Deiparine
because it imposes upon Deiparine the obligation to build the structure and upon
bound himself to erect the building in strict accordance to the plans and
the Carungays the obligation to pay for the project upon its completion.
specifications. In the General Conditions and Specifications document, the minimum
- Art.1191 is not predicated on economic prejudice to one of the parties but on
acceptable compressive strength of the building was set at 3,000 psi (pounds per
breach of faith by one of them that violates the reciprocity between them. The
square inch). However, the Carungays found out that Deiparine was deviating from
violation of reciprocity between the parties, to wit, the breach caused by Deiparine's
the plans and specifications, thus impairing the strength and safety of the building.
Obligations and Contracts A2010 page 59
Prof. Labitag
failure to follow the stipulated plans and specifications, has given the Carungay 1. WON the contract of sale was validly rescinded;
spouses the right to rescind or cancel the contract. 2. WON the award of moral and exemplary damages is proper.
Disposition Decision affirmed.
HELD
IRINGAN V COURT OF APPEALS 1. Ratio The contract of sale between the parties as far as the prescriptive period
QUISIMBING; September 26, 2006 applies, can still be, validly rescinded.
\ Reasoning
NATURE - Art 1592 requires the rescinding party to serve judicial or notarial notice of his
Petition assailing decision of Court of Appeals. intent to resolve the contract.
ART. 1592. In the sale of immovable property, even though it may have
FACTS been stipulated that upon failure to pay the price at the time agreed upon the
- On March 22, 1985 private respondent Antonio Palao sold to petitioner Alfonso rescission of the contract shall of right take place, the vendee may pay xxx as
Iringan an undivided portion of Lot No. 992 of the Tuguegarao Cadastre, located in long as no demand for rescission of the contract has been made upon him
Poblacion of Tuguegarao. Parties executed a Deed of Sale on same date with the either judicially or by a notarial act.
purchase price of P295K, payable as follows: - Art 1592 “refers to a demand that the vendor makes upon the vendee for the
a) P10K upon execution of this instrument, and vendor acknowledges having latter to agree to the resolution of the obligation and to create no obstacle to this
received the amount; contractual mode of extinguishing obligations.” (Manresa)
b) P140K on or before April 30, 1985; - A judicial and notarial act is necessary before a valid rescission can take place,
c) P145K on or before December 31, 1985. whether or not automatic rescission has been stipulated. The phrase “even
- When second payment was due, Iringan paid only P40K. On July 18, 1985, Palao though” emphasizes that when no stipulation is found on automatic rescission, the
sent a letter to Iringan stating that he would not accept any further payment judicial or notarial requirement still applies.
considering that Iringan failed to comply with his obligation to pay full amount of ART. 1191. The power to rescind obligations is implied in reciprocal ones, in
second installment. case one of the obligors should not comply with what is incumbent upon him.
- On August 20, 1985, Iringan replied that they were not opposing the revocation of The injured party may choose between the fulfillment and the rescission of
the Deed of Sale, but asked for the reimbursement of the ff: the obligation, with payment of damages in either case. He may also seek
• P50K –cash received; rescission, even after he has chosen fulfillment, if the latter should become
impossible.
• P3,200—geodetic engineer’s fee;
The court shall decree the rescission claimed xxx.
• P500—attorney’s fee;
- The right to resolve reciprocal obligations is deemed implied in case one of the
• Interest on P53,700 obligors shall fail to comply with what is incumbent upon him. But the right must be
- Palao declared he was not amenable to the reimbursements claimed by Iringan. invoked judicially. Even if the right to rescind is made available to the injured party,
Iringan then proposed that the P50K which he had paid Palao be reimbursed, or the obligation is not ipso facto erased by the failure of the other party to comply
Palao could sell to Iringin an equivalent portion of the land. with what is incumbent upon him. The party entitled to rescind should apply to the
- Palao replied that Iringan’s standing obligation had reached P61,600 representing court for a decree of rescission. The operative act is the decree of the court.
payment of arrears for rentals from October 1985 to March 1989. - However, when private respondent filed an action for Judicial
- Spouses Iringan alleged that the contract of sale was a consummated contract, Confirmation of Rescission and Damages before RTC, he complied with the
hence the remedy for Palao was for collection of the balance of the purchase price requirement of the law for judicial decree of rescission in stating that its
and not rescission. In addition they declared that they had always been ready and purpose is:
willing to comply with their obligations to Palao. 1) To compel appellants to formalize in public document, their mutual
- RTC ruled in favor of Palao and affirmed the rescission of the contract. agreement of revocation and rescission;
Petitioner’s Claim 2) To have judicial confirmation.
- That no rescission was effected simply by virtue of the letter sent by respondent 2. Ratio The award of moral and exemplary damages is proper.
stating that he considered the contract of sale rescinded. Reasoning Petitioner claimed he was ready to pay but never actually paid
- That a judicial or notarial act is necessary before one party can unilaterally effect a respondent, even when he knew that the reason for selling the lot was for Palao to
rescission. needed to raise money to pay his SSS loan.
Respondent’s Comment 1) Iringan knew Palao’s reason for selling the property, and still he did not
- The right to rescind is vested by law on the obligee and since petitioner did not pay Palao.
oppose the intent to rescind the contract, Iringan in effect agreed to it and had the 2) Petitioner refused to formally execute an instrument showing their mutual
legal effect of a mutually agreed rescission. agreement to rescind the contract of sale, even when it was Iringan who
breached the terms of their contract, leaving Palao desperate to find other
ISSUES sources of funds to pay off the loan.
Obligations and Contracts A2010 page 60
Prof. Labitag
3) Petitioner did not substantiate by clear and convincing proof that he was between parties brought about by the breach of faith by one of them. It is allowed
ready and willing to pay respondent. It was more of an afterthought to only is the breach is substantial and fundamental. The present case shows that it is
evade the consequence of the breach. not given that the 12 percent interest is in place for late payment. Petitioner also
did not give any demand for the remaining balance. Petitioner also refused to
VDA. DE MISTICA V NAGUIAT accept the payment at the time of her husband’s funeral.
PANGANIBAN; December 11, 2003 2. NO, it is still feasible.
- The title is merely an evidence of an indefeasible and incontrovertible title to the
NATURE party in favor of the person whose name appears therein. However, such title could
Petition for review on certiorari of the decision and resolution of the Court of only be modified, altered, or canceled in direct proceedings in accordance with law.
Appeals Hence it is not determinable in the present civil case.
3. YES, it was a mistake.
FACTS - Such ruling allows a collateral attack on the certificate of title. However, given that
- Eulalio Mistica owned a parcel of land in Meycauayan, Bulacan, a portion of it was there is already a case filed by the State in favor of the petitioner and the heirs of
leased by Bernardino Naguiat sometime during 1970. On 5 April 1979 they entered her husband there is no need to pass upon the right of respondents to the
into a contract to sell a portion of the lot that contains around 200 sq. meters. A registration of the subject land under their names. There is no necessity to ask for
written document was signed by both parties acknowledging the sale for the the payment of 58 sq.m. importunately included in the title.
amount of Php. 20,000 with the downpayment of Php. 2,000 and the rest of the
balance of Php. 18,000 to be paid within ten (10) years. Naguiat paid the LACHICA V ARANETA
downpayment of two thousand and subsequently paid another one-thousand, PAREDES; August 19, 1949
however, no other payment was given thereafter the said payment in 1980. Eulalio
died in 1986. In 1991 the wife of the late Eulalio filed for a complaint for rescission FACTS
for the failure of Naguiat to pay the remaining balance of Php. 17,000. Naguiat - Early part of July 1943 – defendant Araneta Inc. offered for sale a parcel of land
responded that there was no breach of contract and that he got hold of the land with improvements thereon (TCT No. 14841, Land Records of Manila)
through the Free Patent Title duly awarded to him by the Bureau of lands making it - First week of July 1943 – RIC’s fieldman Navarro informed Sadang of the offer to
indefeasible and incontrovertible. Judgment was served by the CA disallowing sell the property by the defendant
rescission saying that the contract did not have a resolutory term and that it was - Rizal Investment Corp (RIC; where plaintiff Sadang was at that time the Sales
highlighted by the option of paying 12 percent interest if the respondent Naguiat so Manager) acted as defendant’s agent in the sale of such property
chooses, Also, it was said that payment was offered during the funeral of Eulalio but - July 12, 1943 (morning) – Sadang submitted to Jose Araneta (president of
was not accepted by his wife. With regards to the additional 58 sq. meters that was defendant corp) a letter of the same date addressed by RIC to the defendant,
taken by Naguiat the CA held that since it is already included in the title then it was containing a proposal of the buyer:
no longer feasible to reconvey, payment was for the said land is the only remedy for PROPOSAL I: (Exhibit E; this was rejected by Araneta)
petitioner. 1) to purchase property for P 18,000
2) with a downpayment of P 7,500
ISSUE 3) the balance to be paid anytime bet now and within 90 days after
1. WON the CA erred in applying Art. 1191 of the Civil Code in their ruling that there the peace of treaty bet warring nations
is no Breach of Contract regardless of the lapse of the stipulated period for Naguiat - July 12, 1943 (afternoon) – Sadang submitted another proposalto Jose Araneta
to pay addressed by RIC to the defendant, ctg a proposal of the buyer:
2. WON rescission is no longer feasible due to the certificate of title issued in favor PROPOSAL II (Exhibit F; Araneta told Sadang to return after 2 days – he wanted to
of Naguiat consider other offers and to select amongst them, that with a bigger dp and w the
3. WON the CA erred in ruling that the 58 sq. m. portion in question is covered by a fastest mode of settlement)
certificate of title in the names of respondents reconveyance and thus is no longer 1) purchase price: P20k
feasible and proper 2) dp: P7.5k
3) the balance to be paid anytime bet now and w/in 90 days
HELD after the peace of treaty bet warring nations
1. NO, it did not. - July 14, 1943- after further negotiations a letter addressed to RIC, signed by
- The Kasulatan was a Contract of Sale therefore absolute in nature given that there Araneta in behalf of the defendant corp (delivered to Sadang, accompanied by
is neither a stipulation in the deed that title to the property sold is reserved to the Flores, RIC president and mgr)
seller until the full payment of the price nor a stipulation giving the vendor the right RIC letter (Exhibit A; product of negotiations)
to unilaterally resolve the contract the moment the buyer fails to pay within a fixed 1) Purchase price: P20k
period. Art. 1191 gives the right to rescind on the violation of the reciprocity 2) P8k of purchase price to be paid in cash
Obligations and Contracts A2010 page 61
Prof. Labitag
3) 12k of purchase price to be paid in installments: - Lachica returned said check to defendant (april 12, 1944) stating that she
4) 1k on or before Dec. 31, 1943 acknowledges her being “forced to assume an oblication which I could now very
5) 1k on or before Dec. 31, 1944 well pay”
6) 10k (balance) on or before Dec. 31, 1945 - April 12, 1944 – Araneta wrote back to Lachica stating that “besides the interest
7) “this same property will be mortgaged to us to guarantee the you have to pay us for the balance of P6k at the rate of 8% per annum, we will also
unpaid balance; charge you the interest in accordance with the terms of the contract, which interest
8) And the same will bear an interest of 8% per annum; represents P317.80 on P5k (March 16 – Dec 30, 1944) and P320 on P4k (Dec 31,
9) Said interest to be paid in advance” 1944 – Dec 31, 1945).
- July 15, 1943 – pursuant ot par 7 of the provisions of the RIC letter, plaintiffs - April 1944 – Lachica wrote Araneta another letter asking for the computations to
deposited with defendant corp a sum of P1k “as good faith money” be made for the period April 15, 1944 – Dec 31, 1945 (enclosing PNB check No.
- July 16, 1943 (noon): 37255-K for P73.33 to cover the payment of interests on P11k for March 16 – April
DEED OF SALE with MORTGAGE (Exhibit C) 15, 1944)
1) parties: - Defendant corp thereafter applied the P5k sum to the payment of indebtedness of
a) VENDEE–MORTGAGOR: plaintiff Lachica with the plaintiff, and received payments on interest charges, so theat as of Sept 15,
concurrence of husband Sadang 1944, plaintiff’s account with the defendant under the mortgage contract was P6k
b) VENDOR– MORTGAGEE: Gregorio Araneta, Inc unpaid balance of the principal
2) conditions: - Sept 5, 1944 – plaintiff Sadang went to Araneta to pay the entire balance
a) form and manner of the payment of the P12k (including interest) and to ask the cancellation of the mortgage but Araneta refused
balance (as stated in RIC letter, Exhibit A); to accept the tender of the payment then made
b) P12k balance shall bear interest of 8% per annum; - Sept 5, 1944 afternoon – Sadang said Atty Salazar to intervene in the case but
c) Interest payable in advance within the first 5 days of Araneta persisted in his denial
each month; - Sept 6, 1944 – Atty Quisumbing, in behalf of the plaintiffs, tendered to Araneta the
d) Interest, while not paid, shall be paid liquidated and sum of P7,060.03 in satisfaction of the balance of the mortgage indebtedness
accumulated monthly and added to the capital until the vendee has (including interests not yet due, which the defendant would have earned were the
brought payments up-to-date (periods of payment agreed for the benefit payments made on Dec 31, 1945) but Araneta reasoned that his non-acceptance
of both vendor and vendee) was due to the payments in accordance with the terns of the deed of sale with
e) Shoud the vendee be in default in payment of any mortgage.
amount due, either for capital or interest, the whole balance shall - Atty Salazar gave notice of plaintiffs’ intention to consign the sum of P7,060.03 as
automatically become due and payable and the vendor shall have the he did in effect deposit the sum of P7,061 on Sept 6, 1944 with the Manila CFI by
right to foreclose the mortgage in its entrirety way of consignation, and at the same time presented the complaint
- Payments by plaintiff to defendant: - Sept 11, 1944 – counsel for plaintiffs notified the defendant in writing of the fact of
P1k – July 15, 1943 (deposit) consignation
P7k – upon execution of deed of sale with mortgage
P80 – Aug 16 (interest) ISSUES
P80 – Sep 16 (interest) 1. WON TC erred in holding that the plaintiffs had a right to pay the remaining
P80 – Oct 18 (interest) principal of P6k (balance of theor obligation) before Dec 31, 1945 (date of maturity)
P80 – Nov 15 (interest) – NO
P80 – Dec 16 (interest) 2. WON TC erred in holding that the plaintiffs made a valid tender of payment to
P1k – Jan 15, 1944 (on account of principal) defendant – NO
P73.33 – Jan 15 (interest) 3. WON TC erred in dismissing defendant’s counterclaim – NO
P73.33 – Feb 19 (interest)
P73.33 – Mar 15 (interest)
P5k – Apr 10 (on account of principal) HELD
P73.33 – Apr 13 (interest) 1. Plaintiffs did not appeal form the TC findings that the Deed of Sale with Mortgage
P146.66 – Jun 17 (interest) is the contract that defines the duties and obligations of the parties.
P219.99 – Aug 31 (interest) - Proposal I (Exhibit E), Proposal II (Exhibit F), verbal negotiations, and RIC Letter
- Anent the P5k (April 10, 1944) payment, Pres. Araneta wrote to Lachica, returning (Exhibit A) were merely among the steps taken in the transactions leading to the
the check covering the payment because it is not in accord with what was stated in formulation of the Deed of Sale with Mortgage
the contract. - While the RIC letter may be a skeleton of the contract, it should be reduced into a
public document sufficient in form, so that it may be recorded in the corresponding
Obligations and Contracts A2010 page 62
Prof. Labitag
office of the register of deeds, for the purposes of transfer under the Torrens not explain or call the attention of the plaintiffs to the changes made and effect of
system such changes
- Theory of Integration of Jural Acts-a written contract merges all prior and - The construction by plaintiffs as to the terms of the agreement should prevail
contemporaneous negotiations in connection with the same subject, and all (“When the terms of an agreement have been intended in a different sense by the
agreements verbal or written, made at, or before the time of the execution of that different parties to it, that sense to prevail against either party in which he
contract are to be considered as merged and integrated in the same written supposed the other understood it.”)
instrument. Such payment may be made on or before the date specified.
-was the RIC letter novated by the formal deed of sale with mortgage?-yes - Defendant alleges that the payment must be made on the date specified and
but this is immaterial. not before
- While diligence and erudiation were displayed by plaintiffs counsel in their - Contract does not prohibit if payment is done before due dates
dissertation on the question of novation, the materiality of this cannot be seen in - A term is foxed and “it is presumed to have been established for the benefit of
the present issues the creditor as well as that of the debtor, unless from its tenor or other
- All that may be conceded for the RIC letter is that it may explain the intention of circumstances it should appear that the term was established for the benefit of
the parties in having entered into the contract of the deed of sale with mortgage one or the other.” (Art 1127, CC)
-did Sadang and Lachica sign the deed of sale with mortgage without reading - Deed of Sale with Mortgage: “these periods of payment have been agreed for
the contents thereof?-no. the benefit of the vendor and vendee”
- We believe that the plaintiffs had read the deed of sale with mortgage before - Mutual benefit has been interpreted to consist of the time granted a debtor to
signing it, considering that Sadang was a USAFFE captain and that he was a find means to comply with his obligation, and the fruits of such interest
licensed real estate man and manager of RIC. accruing to the creditor
- The testimony of the defendant’s attorney also attested to the fact that plaintiffs - The only impediment to a debtor making payment before the term is fixed, is
first read the said document before it was signed. the denial of the creditor of the benefits, such as the interests, accruing to the
- It is by legal presumption that a person takes ordinary care and precaution of his latter by reason of the fixed term (inferred from the SC decision on Villasenor v.
business. Javellana)
- It is however reasonable to conclude that although they read the contents of the - To uphold defendants’ claim would be virtually compelling an obligor to
Deed of Sale with Mortgage (Ex C) due to the mistaken belief that the RIC letter (Ex assume an obligation later when he offers to, and could very well, discharge it
A) was reproduced in toto in the Deed of Sale with Mortgage, for in fact, all of the earlier
terms of both exhibits are the same except:-the omission of the word “or before” in - The law should not be so interpreted as to compel a debtor to remain so,
the Deed of Sale with Mortgage for the time of the payment; insertion of the equally when he is in a position to release himself
technical clause “these periods of payment have been agreed for the benefit of - The parties could not have contemplated payments of the last installments on
both vendor and vendee” Dec. 31, 1945, in good Philippine currency
- Plaintiffs might not have noticed the change, or if they had, they might not have - Because at the execution of the contract, they did not expect such
attached much importance to it depreciation of currency as would render the interest on a loan barely sufficient
- If to trained legalists, such terms had caused a great divergence of opinions, how to cover the depreciation of the military notes
much more to an ordinary layman, unassisted by a lawyer in the execution of a - If such depreciation occurred and the performance of the obligation had
contract who had not been apprised of such clause by the attorney who had become more burdensome in its operation than was anticipated, then the
prepared the Deed of Sale with Mortgage parties should not complain
- In the realm of reality, how many persons stamp their signatures on documents - The rights of the parties must be measured by the contract which they
because of the representations of people who command great respect, faith and themselves made, and the courts can not alter them because they work a
truth in their fellow beings hardship
- There is a case where plaintiffs construed the contract according to the way they - The fact that the Americans were already in the Islands on December 31,
understood it contrary to the construction made by defendant because it did not 1945 and the placing of that date as the maturity date of the last installment of
make its position clear to the other party 10k constitutes a mere coincidence
“on or before December 31, 1943/December 31, 1944/December 31, - The contentions of the appellant (Araneta et al) are not well-taken
1945” - The rule is to the effect that the benefit which would be derived by the
- This proposition was accepted by the plaintiffs as shown by the fact that they had creditor from the fixing of a term for the performance of an obligation to pay
deposited the sum of 1k with the defendant corporation as “good faith money” money is the stipulated interest for the prescribed term, is true under normal
- The plaintiffs (as revealed by records) understood these terms as conveying the circumstances;
simple meaning which they plainly express that these installments might be paid on - But Deed of Sale with Mortgage, executed during the Japanese occupation,
or before the due dates the benefit which it was to derive consisted of the receipt of the last installment
- As in the RIC letter (Ex A), the plaintiffs did not have intervention in the of 10k in good Philippine money and not in Japanese military notes
preparation of the Deed of Sale with Mortgage, and the attorney who prepared it did - The real benefit thereto was foreseen and contemplated by the parties
Obligations and Contracts A2010 page 63
Prof. Labitag
- Conditions when Deed was executed (July 16, 1943, when Japanese invaders - It does not necessarily imply with appellees’ expectation to receive his back
were lords of the pacific) were comparatively normal (Ballantine schedule: 1 pay as a USAFFE after the liberation of the Philippines that he would have
war peso = P.1.40 Japanese military notes) and at the time, few would agreed to a prohibition of payment before due dates
prophesy in whose favor the world war would end, and when it would end - expected back pay was merely in the nature of a guaranty or
- It would be presumptuous to say that on Dec. 31, 1945 (stipulated date), the inducement that even if the worst should happen, he would still be able
American liberation would be here, and the parties fixed purposely this to pay the obligation
particular date for the payment of the last installment of 10k. - the appellees’ offers to buy (Proposals I and II) provides for the
- When MacArthur promised return, he did not day when settlement of the balance: “at any time between now and within 90 days
- When Americans landed in Leyte on October 1944, many remarked that it was after the signing of the peace treaty between the “warring nations”
sooner than expected - this indicates the spirit guiding the parties then was the desire to
- Were it not for the great naval battle at the Sibuyan Sea, the wr would have permit the plaintiffs to pay within a specific period, on a specific date
been prolonged for another year more or at least beyond Dec. 31, 1945
- Benefit which defendant (Araneta) wanted to reap by the insertion of the disputed 2. Appellant did not refuse payment by check as tendered, for insufficiency of funds
clause, was the payment of the interest, more than anything else in the letter of in the bank, or on account of the medium in which the payment was made, but
April 12, 1944 because it believed that it could not be forced to accept the payment prior to the
- the defendant meant that besides the interest that would have to be paid for date specified in the contract.
the balance of 6k at the rate of 8% per annum, the defendant shall also charge - General rule: an objection to tender must, to be available to the creditor, be made
the interest in accordance with the terms of the contract which interest in good time and that the grounds for objection must be specified, and that an
represents: objection to a tender on one ground is waiver of all other objections which could
P317.80 on P5k (March 16-Dec, 30, 1944) have been made at that time.
P320 on P4k (Dec. 31, 1944-Dec. 1945) - To afford the debtor an opportunity to secure the specific money which the law
- Defendant credited the plaintiffs with the sum of 5k notwithstanding that: 1) prescribes shall be accepted in payment of debts
the acceptance of the payment was made under protest; and 2) payment was - Non-observance of this duty would mislead the debtor and might inflict a loss
made under protest which could be avoided if the creditor had objected to the form and character of the
- The refusal of the defendant to follow this construction on Sept. 5, 1944 (the tender
balance of 6k and the interests of the unexpired period was tendered to it) was - By the mere fact of the drawing of the check, the plaintiffs engaged that on die
because the Japanese notes had been greatly depreciated presentment, they would honor it, or if dishonored, they would pay the amount
- While the acceleration clause is a standard one contained in most mortgage thereof to the holder
deeds, we cannot escape the conclusion derived from the clause itself that the - Presumption that they have the sufficient funds in bank to cover the amount of
payments may be made by the vendee before the dates stated in the contract said check, was not rebutted by the appellant upon which the burden of proving
- The mortgage loan is payable in several installments that ther were no funds in the bank fails
- Deed of Sale with Mortgage Acceleration Clause: in the event of defaults in - Where the great bilk of business is transacted through the medium of checks,
the payment of any amount due, either for capital or interest, the whole drafts, and negotiable instruments, “it would be a dangerous rule, which could be
balance shall automatically become due and payable, and the vendor shall easily turned into an engine of oppression that a tender of payment especially
have the right the foreclosure the mortgage in its entirety where it involves the maturing of obligations not then due (as in this case), could
- Even if it were true that the appellees could not be sure of their ability to pay not be made by check where no question was raised as to the value of the check
during the Japanese occupation, they, as any businessman of ordinary foresight, tendered
would not have agreed to a stipulation which would prohibit them from paying, even - It is ordinarily required of one to whom payment is offered in the form of check
if they had the money with which to pay the same that he make his objection at the time, to the offer of a check, instead of an offer of
- Contentions of appellant were not tenable payment
- With the Deed containing an acceleration clause, it could practically be sure - Payment by check has been generally so recognized as acceptable in business
that the plaintiffs would pay the installments on time, since failure to do so transactions that it has been held that omissions to make objection to a check as
would have made the balance due and payable tender of payment is regarded as waiver of right to demand payment in money
- This was one contingency which said plaintiffs would have naturally desired to - Allegation, that apellees did not introduce to show that the president of the
avoid, since it appears that their income was only P2,500 a month which was appellant corp to whom the alleged tender was made was not shown so as to have
not big enough, considering its purchase power during the Japanese occupation given him the opportunity to object, runs counter to the facts of the case as found
- Appellees were precisely looking for investments and not for obligations by the TC
‘plaintiff Sadang was then engaged in real estate business - If the president had not seen the check, he could not have refused the tender of
Sadang’s wife was engaged in jewelry business payment
- It could not have been probable that plaintiffs would agree to prohibition of
payment
Obligations and Contracts A2010 page 64
Prof. Labitag
- And as stated, the president reasoned tat his non-acceptance was due to his - On several occasions in October, 1944, Ponce de Leon tendered to Syjuco the
opinion that such payment was not in accordance with the terms of the deed of amount of P254,880 in Japanese military notes in full payment of his indebtedness
sale. to Syjuco.
- The amount tendered included not only the interest up to the time of the tender,
3) In view of the positive resolution of the second issue, dismissal of counterclaim but also all the interest up to May 5, 1948.
was fully justified - Ponce de Leon also wrote to Syjuco a letter tendering the payment of his
Moreover, as state by the appellant, this assignment of error is made as a mere indebtedness, including interests up to May 5, 1948.
formality. - Syjuco, however, refused to accept such repeated tenders.
Disposition The judgment appealed from is affirmed, with costs against the - During the trial, Ponce de Leon explained that he wanted to settle his obligations
defendant-appellant. because as a member of the guerilla forces he was being hunted by the Japanese
and he was afraid of getting caught and killed.
PONCE DE LEON V SYJUCO, INC. - In view of Syjuco's refusal to accept the payment tendered by Ponce de Leon, the
BAUTISTA; October 31, 1951 latter deposited with the Clerk of Court P254,880.
- On November 4, 1944, Ponce de Leon filed a complaint consigning the amount so
NATURE deposited to Syjuco.
This is an appeal from a decision of the Court of First Instance of Manila absolving - On May 15, 1946, Ponce de Leon filed a petition for the reconstitution of Transfer
defendant Santiago Syjuco, Inc. of the complaint and condemning the plaintiff to Certificates of Title Nos. 17175 and 17176 in the name of the Bank.
pay to said defendant the sum of P18,000 as principal and the further sum of - The Court ordered the reconstitution of said titles.
P5,130 as interest thereon from August 6, 1944, to May 5, 1949, or a total of - On August 16, 1946, Ponce de Leon obtained an overdraft account from the Bank
P23,130, Philippine currency, with interest thereon at the rate of 6% per annum in an amount not exceeding P135,000.
from May 6, 1949, until said amount is paid in full, with costs against the plaintiff. - Ponce de Leon executed a mortgage of the two parcels of land covered by the
reconstituted Transfer Certificates of Title in favor of the said Bank to secure the
FACTS payment of any amount, which he may obtain from the Bank under the
- The appellee, Philippine National Bank, was the owner of 2 parcels of land known aforementioned overdraft account.
as Lots 871 and 872 of the Murcia Cadastre, Negros Occidental. - The overdraft account was granted by the Bank to Ponce de Leon in good faith,
- On March 9, 1936 the Bank executed a contract to sell the said properties to the said Bank not being aware of the mortgage which Ponce de Leon had executed in
plaintiff, Jose Ponce de Leon, the total price of P26,300, payable as follows: (a) favor of Syjuco and the said Bank believing that the said properties had no lien or
P2,630 upon the execution of the said deed; and (b) the balance P23,670 in 10 encumbrance.
annual amortizations, the first amortization to fall due one year after the execution - Syjuco claimed that Ponce de Leon had violated the conditions of the mortgage
of the said contract. which Ponce de Leon had executed in its favor.
- On May 5, 1944, Ponce de Leon obtained a loan from Santiago Syjuco, Inc., in the - Syjuco prayed that the mortgage executed by Ponce de Leon in favor of the Bank
amount of P200,000 in Japanese Military Notes, payable within one (1) year from be declared null and void.
May 5, 1948. - The lower court absolved Syjuco from Ponce de Leon's complaint and condemned
- It was also provided in said promissory note that the promisor (Ponce de Leon) Ponce de Leon to pay Syjuco the total amount of P23,130 with interest at the legal
could not pay, and the payee (Syjuco) could not demand, the payment of said note rate from May 6, 1949, until fully paid.
except within the aforementioned period.
- To secure the payment of said obligation, Ponce de Leon mortgaged in favor of ISSUES
Syjuco the parcels of land which he agreed to purchase from the Bank. 1. WON the plaintiff is justified in accelerating the payment of the obligation
- On May 6, 1944, Ponce de Leon paid the Bank of the balance of the purchase price because he was willing to pay the interests due up to the date of its maturity
amounting to P23,670 in Japanese Military notes and, on the same date, the Bank 2. WON the consignation made by the plaintiff is valid in the light of the law and the
executed in favor of Ponce de Leon, a deed of absolute sale of the aforementioned stipulations agreed upon in the two promissory notes signed by the plaintiff -
parcels of land.
- The deed of sale executed by the Bank in favor of Ponce de Leon and the deed of HELD
mortgage executed by Ponce de Leon in favor of Syjuco were registered in the 1. NO.
Office of the Register of Deeds. Ratio
- On July 31, 1944, Ponce de Leon obtained an additional loan from Syjuco in the - In the 2 promissory notes, it was expressly agreed upon that plaintiff shall pay the
amount of P16,000 in Japanese Military notes and executed in the latter's favor a loans "within one year from May 5, 1948, . . . peso for peso in the coin or currency
promissory note of the same tenor as the one had previously executed. of the Government of the Philippines that, at the time of payment above fixed it is
the legal tender for public and private debts, with interests at the rate of 6% per
annum, payable in advance for the first year, and semi-annually in advance during
the succeeding years".
Obligations and Contracts A2010 page 65
Prof. Labitag
- And that, the period above set forth having been established for the mutual because he was absent for incapacitated, or because several persons
benefit of the debtor and creditor, the former binds himself to pay, and the latter claimed to be entitled to receive the amount due (Art. 1176, Civil Code);
not to demand the payment of, the loans except within the period above (3) that previous notice of the consignation have been given to the person
mentioned. interested in the performance of the obligation (Art. 1177, Civil Code);
Reasoning (4) that the amount due was placed at the disposal of the court (Art 1178, Civil
- Under the law, in a monetary obligation contracted with a period, the Code); and
presumption is that the same is deemed constituted in favor of both the (5) that after the consignation had been made the person interested was
creditor and the debtor unless from its tenor or from other circumstances notified thereof (Art. 1178, Civil Code).
it appears that the period has been established for the benefit of either
one of them (Art. 1127, Civil Code). BUCE V CA
- Here no such exception or circumstance exists. DAVIDE; May 12, 2000
- It may be argued that the creditor has nothing to lose but everything to gain by
the acceleration of payment of the obligation because the debtor has offered to pay NATURE
all the interests up to the date it would become due. Petition to review the decision of the CA.
- But this argument loses force if we consider that the payment of interests is not
the only reason why a creditor cannot be forced to accept payment contrary to the FACTS
stipulation. - Petitioner leased a 56-square meter parcel of land. The lease contract was for a
- There are other reasons why this cannot be done. One of them is that the creditor period of fifteen years to commence on 1 June 1979 and to end on 1 June 1994
may want to keep his money invested safely instead of having it in his hands, or "subject to renewal for another ten (10) years, under the same terms and
that the creditor by fixing a period protects himself against sudden decline in the conditions."
purchasing power of the currency loaned specially at a time when there are many -Petitioner then constructed a building and paid the required monthly rental of
factors that influence the fluctuation of the currency. P200. Private respondents, later demanded a gradual increase in the rental until it
- Unless the creditor consents, the debtor has no right to accelerate the time of reached P400 in 1985. For July and August 1991, petitioner paid private
payment even if the premature tender included an offer to pay principal and respondents P1,000 as monthly rental.
interest in full. - On 6 December 1991, private respondents' counsel wrote petitioner informing her
of the increase in the rent to P1,576.58 effective January 1992 pursuant to the
2. NO. The consignation is invalid, and, therefore, did not have the effect of provisions of the Rent Control Law. Petitioner, however, tendered checks dated 5
relieving him of his obligation. October 1991, 5 November 1991, 5 December 1991, 5 January 1992, 31 May 1992,
Ratio and 2 January 1993 for only P400 each. Private respondents refused to accept the
- In order that consignation may be effective, the debtor must first comply with same.
certain requirements. - Petitioner filed with the RTC of Manila a complaint for specific performance with
- In the instant case, while it is admitted a debt existed, that the consignation was prayer for consignation, that private respondents be ordered to accept the rentals
made because of the refusal of the creditor to accept it, and the filing of the in accordance with the lease contract and to respect the lease of fifteen years,
complaint to compel its acceptance on the part of the creditor can be considered which was renewable for another ten years, at the rate of P200 a month.
sufficient notice of the consignation to the creditor, nevertheless, it appears that at - In their Answer, private respondents countered that petitioner had already paid
least two of the requirements have not been complied with. the monthly rent of P1,000 for July and August 1991. Under Republic Act No. 877, as
- The plaintiff, before making the consignation with the clerk of the court, failed to amended, rental payments should already be P1,576.5810 per month; hence, they
give previous notice thereof to the person interested in the performance of the were justified in refusing the checks for P400 that petitioner tendered. Moreover,
obligation. the phrase in the lease contract authorizing renewal for another ten years does not
- More importantly, the obligation was not yet due and demandable when the mean automatic renewal; rather, it contemplates a mutual agreement between the
money was consigned, because the obligation was to be paid within one year after parties.
May 5, 1948. - During the pendency of the controversy, counsel for private respondents wrote
- The consignation was made before this period matured. petitioner reminding her that the contract expired on 1 June 1994 and demanding
- The failure of these two requirements is enough ground to render the consignation that she pay the rentals in arrears, which then amounted to P33,000.
ineffective. - RTC declared the lease contract automatically renewed for ten years and
Reasoning In order that cogsignation may be effective, the debtor must first considered as evidence thereof (a) the stipulations in the contract giving the lessee
comply with certain requirements prescribed by law. The debtor must show the right to construct buildings and improvements and (b) the filing by petitioner of
(1) that there was a debt due; the complaint almost one year before the expiration of the initial term of fifteen
(2) that the consignation of the obligation had been made bacause the years. It then fixed the monthly rent at P400 from 1 June 1990 to 1 June 1994;
creditor to whom tender of payment was made refused to accept it, or P1,000 from 1 June 1994 until 1 June 1999; and P1,500 for the rest of the period or
Obligations and Contracts A2010 page 66
Prof. Labitag
from 1 June 2000 to 1 June 2004, reasoning that the continuous increase of rent 2. YES
from P200 to P250 then P300, P400 and finally P1,000 caused "an inevitable - After the lease terminated on 1 June 1994 without any agreement for renewal
novation of their contract." being reached, petitioner became subject to ejectment from the premises. It must
- Court of Appeals reversed the decision of the RTC, and ordered petitioner to be noted, however, that private respondents did not include in their Answer with
immediately vacate the leased premises on the ground that the contract expired on Counterclaim a prayer for the restoration of possession of the leased premises.
1 June 1994 without being renewed and to pay the rental arrearages at the rate of Neither did they file with the proper Metropolitan Trial Court an unlawful detainer
P1,000 monthly. suit against petitioner after the expiration of the lease contact. Moreover, the issues
- The Court of Appeals denied petitioner's motion for reconsideration. Hence this agreed upon by the parties to be resolved during the pre-trial were the correct
petition. interpretation of the contract and the validity of private respondents' refusal to
accept petitioner's payment of P400 as monthly rental. The issue of possession of
ISSUES the leased premises was not among the issues agreed upon by the parties or
1. WON the parties intended an automatic renewal of the lease contract when they threshed out before the court a quo. Neither was it raised by private respondents on
agreed that the lease shall be for a period of fifteen years "subject to renewal for appeal. T he Court of Appeals went beyond the bounds of its authority when after
another ten (10) years." interpreting the questioned provision of the lease contract in favor of the private
2. WON CA erred in ordering the petitioner to vacate the land upon expiration of the respondents it proceeded to order petitioner to vacate the subject premises.
lease contract. Disposition Petition is partly GRANTED. The decision of the CA is REVERSED
insofar as it ordered the petitioner to immediately vacate the leased premises,
HELD without prejudice, however, to the filing by the private respondents of an action for
1. NO. the recovery of possession of the subject property.
- Rules of interpretation: the literal meaning of the stipulations shall control if the
terms of the contract are clear and leave no doubt upon the intention of the ARANETA V PHILIPPINE SUGAR ESTATES DEVT. CO.
contracting parties. However, if the terms of the agreement are ambiguous resort is REYES; May 31, 1967
made to contract interpretation which is the determination of the meaning attached
to written or spoken words that make the contract. Also, to ascertain the true NATURE
intention of the parties, their actions, subsequent or contemporaneous, must be Review by certiorari
principally considered.
- *The phrase "subject to renewal for another ten (10) years" is unclear on whether FACTS
the parties contemplated an automatic renewal or extension of the term, or just an - On July 28, 1950, J. M. Tuason & Co. sold a portion of its land in Sta. Mesa Heights
option to renew the contract; and if what exists is the latter, who may exercise the Subdivision, Q.C. to Philippine Sugar Estates Development (PSED) Co., Ltd., through
same or for whose benefit it was stipulated. Gregorio Araneta Inc. (GAI) for P 430, 514. In their contract of purchase and sale,
-There is nothing in the stipulations in the contract and the parties' actuation that the parties stipulated that the buyer will build the Sto. Domingo Church and the
shows that the parties intended an automatic renewal or extension of the term of seller will construct streets on the NE and NW and SW sides of the land.
the contract. The fact that the lessee was allowed to introduce improvements on - The buyer PSED finished the construction of the church but the seller, GAI, was
the property is not indicative of the intention of the lessors to automatically extend unable to finish the construction of the street in the NE side because a certain third
the contract. Neither the filing of the complaint a year before the expiration of the party, Manuel Abundo, who has been physically occupying a middle part thereof,
15-year term nor private respondents' acceptance of the increased rentals has any refused to vacate the same.
bearing on the intention of the parties regarding renewal. It must be recalled that - On May 7, 1958, PSED filed a complaint against J. M. Tuason & Co, Inc., and GAI in
the filing of the complaint was even spawned by private respondents' refusal to CFI Manila, seeking to compel the latter to comply with their obligation and/or to
accept the payment of monthly rental in the amount of only P400. pay damages in the event they failed or refused to perform the obligation.
- Fernandez v. CA is applicable to the case at bar, thus: In a reciprocal contract like - Both defendants answered the complaint with GAI setting up the principal defense
a lease, the period must be deemed to have been agreed upon for the benefit of that the action was premature since its obligation to construct the streets in
both parties, absent language showing that the term was deliberately set for the question was without a definite period which needs to be fixed first by the court in a
benefit of the lessee or lessor alone. It was not specifically indicated who may proper suit for that purpose before a complaint for specific performance will
exercise the option to renew, neither was it stated that the option was given for the prosper.
benefit of herein petitioner. Thus, pursuant to the Fernandez ruling and Article 1196 - After the lower court dismissed the complaint, PSED moved for a reconsideration
of the Civil Code, the period of the lease contract is deemed to have been set for praying that the court fix a period within which defendants will comply with their
the benefit of both parties. Renewal of the contract may be had only upon their obligation to construct the streets in question. Defendant GAI opposed said motion,
mutual agreement or at the will of both of them. Since the private respondents maintaining that plaintiff's complaint did not expressly or impliedly allege and pray
were not amenable to a renewal, they cannot be compelled to execute a new for the fixing of a period to comply with its obligation and that the evidence
contract when the old contract terminated on 1 June 1994. It is the owner-lessor's presented at the trial was insufficient to warrant the fixing of such a period.
prerogative to terminate the lease at its expiration.
Obligations and Contracts A2010 page 67
Prof. Labitag
- On July 16, 1960, the lower court amended its previous decision and, after finding conclusion is thus forced that the parties must have intended to defer the
that the proven facts warrant the fixing of such a period, rendered judgment giving performance of the obligations under the contract until the squatters were duly
defendant GAI, a period of Two (2) Years from notice within which to comply with its evicted, as contended by the petitioner GAI.
obligation under the contract: to construct streets on the NE, NW and SW sides of - CA objected to this conclusion that it would render the date of performance
the land sold to plaintiff so that the same would be a block surrounded by streets on indefinite. However, this very indefiniteness is what explains why the agreement did
all four sides. not specify any exact periods or dates of performance. It follows that there is no
- The case was brought to the CA by GAI and the same rendered a decision justification in law, for the setting of the date of performance at any other time than
affirming that of the lower court’s, setting a period of 2 years from finality of that of the eviction of the squatters occupying the land in question; and in not so
judgment to comply with the obligation. GAI now resorted to the SC, hence this holding, both the trial court and the CA committed reversible error. In addition, the
petition for certiorari case against one of the squatters, Abundo, was still pending in the CA when its
decision in this case was rendered.
ISSUE Disposition decision appealed from is reversed. The time for the performance of
WON the trial court and the CA erred in setting the date for the performance of the the obligations of petitioner Gregorio Araneta, Inc. fixed at the date that all the
contract squatters on affected areas are finally evicted.
HELD
1. YES
MAKATI DEVELOPMENT CORP. V EMPIRE INSURANCE CO.
- CFI noted that reducing liability from P12,000 (as stipulated in the bond) to P1,500
CASTRO; June 30, 1967 that
> While no building has actually been constructed before the target date which
NATURE is March 31, 1961, it is also a fact that even before that date the entire area
Appeal from CFI Rizal was already fenced with a stone wall and building materials were also stocked
in the premises which are clear indicia of the owner's desire to construct his
FACTS house with the least possible delay
- March 31, 1959, the Makati Development Corporation sold to Rodolfo P. Andal a > incontrovertible testimony of Juan Carlos is that by the end of April 1961, he
lot, with an area of 1,589 square meters, in the Urdaneta Village, Makati, Rizal, for had finished very much more than the required 50% stipulated in the contract
P55,615 of sale TF there was only really a little delay
- so-called "special condition" contained in the deed of sale provides that - MDC argues that Andal became liable for full amount of his bond upon his failure
> vendee/s shall commence the construction and complete at least 50% of to build a house within the two-year period and that the trial court was without
residence on the property within two (2) years from March 31, 1959 to the authority to reduce Andal's liability on the basis of Carlos' construction of a house a
satisfaction of the vendor month after the stipulated period because there was no privity of contract between
> in the event of failure to do so, the bond which the vendee/s has delivered to Carlos and the Makati Development Corporation. But, to begin with, the so-called
the vendor in the sum of P11,123.00 and evidenced by a cash bond receipt dated "special condition" in the deed of sale is in reality an obligation — to build a house
April 10, 1959 will be forfeited in favor of the vendor by the mere fact of failure of at least 50% of which must be finished within 2 years, inserting a penal clause to
the vendee/s to comply with this special condition secure the performance of this obligation.
> to insure faithful compliance with this "condition," Andal gave a surety bond on - While in obligations with a penal sanction the penalty takes the place of damages
April 10, 1959 wherein he, as principal, and the Empire Insurance Company, as and the payment of interest in case of non-compliance and that the obligee is
surety, jointly and severally, undertook to pay the MDC the sum of P12,000 in entitled to recover upon the breach of the obligation without the need of proving
case Andal failed to comply with his obligation under the deed of sale damages, it is true that a mitigation of the obligor's liability is allowed under A1229
- January 18, 1960 - Andal did not build his house and instead sold the lot to Juan CC:
Carlos The judge shall equitably reduce the penalty when the principal obligation has
- April 3, 1961 - neither Andal nor Juan Carlos built a house on the lot within the been partly or irregularly complied with by the debtor. Even if there has been
stipulated period, the MDC, three days after the lapse of the two-year period, sent a no performance, the penalty may also be reduced by the courts if it is
notice of claim to the EIC advising Andal's failure to comply with his undertaking. iniquitous or unconscionable.
- May 22, 1961 - Demand for the payment of P12,000 was refused and MDC filed a - General Ins. & Surety Corp. vs. Republic cannot be invoked for the forfeiture of the
complaint in CFI Rizal against the Empire Insurance Co. to recover on the bond in full amount of the bond because unlike this case there was in that case no
the full amount, plus attorney's fees performance at all of any part of the obligation to secure the payment of salaries to
- EIC filed answer with a third-party complaint against Andal and asked that the teachers
complaint be dismissed or, in the event of a judgment in favor of the MDC, - Partial performance or irregular compliance with the provisions in a contract for
judgment be rendered ordering Andal to pay the EIC whatever amount it maybe special indemnification in the event of failure to comply with its terms, courts will
ordered to pay the MDC plus interest at 12%, from the date of the filing of the rigidly apply the doctrine of strict construction against the enforcement in its
complaint until said amount was fully reimbursed and attorney's fees. entirety of the indemnification, where it is clear from the contract that the amount
- Andal admitted the execution of the bond but alleged that the "special condition" or character of the indemnity is fixed without regard to the probable damages
was contrary to law, morals and public policy. Also, Juan Carlos had started which might be anticipated as a result of a breach of the terms of the contract, or,
construction of a house on the lot. in other words, where the indemnity provided for is essentially a mere penalty
having for its object the enforcement of compliance with the contract
Obligations and Contracts A2010 page 77
Prof. Labitag
- penal clause in this case was inserted not to indemnify MDC for any damage it Trial Court’s Ruling
might suffer as a result of a breach of the contract but rather to compel (1) gave little weight to the petitioner’s contention that the loan was merely for the
performance of the so-called "special condition" and thus encourage home building accommodation of Wilson Lucmen for the reason that the defense propounded was
among lot owners in the Urdaneta Village not credible in itself.
2. YES (2) assuming, that the petitioner did not personally benefit from the said loan, he
- In Insular Gov't. vs. Amechazurra where SC allowed mitigation of liability even if should have filed a third party complaint against Wilson Lucmen, but he did not.
recovery of the firearms was made possible through the efforts of third parties (the (3) in fact, Tan offered to settle his loan obligation with respondent CCP thrice.
Constabulary) (4) he may not avoid his liability to pay his obligation under the promissory note,
Disposition Decision appealed from is affirmed which he must comply with in good faith pursuant to Article 1159 of the New Civil
Code.
TAN V COURT OF APPEALS (5) he is estopped from denying his liability or loan obligation to the private
DE LEON, JR; October 19, 2001 respondent.
CA’s Ruling
NATURE - His liability cannot be modified on account of partial or irregular performance
Petition for review on certiorari of a decision of the CA because there is none. His offer or tender of payment cannot be deemed as a
partial or irregular performance of the contract, not a single centavo appears to
FACTS have been paid by the defendant.
- On May 14, 1978 and July 6, 1978, petitioner Antonio TAN obtained two (2) loans Petitioners' Claim
from respondent Cultural Center of the Philippines (CCP), each in the principal - If penalty is to be awarded, he is asking for the non-imposition of interest on the
amount of Two Million Pesos. This is evidenced by 2 promissory notes with maturity surcharges because the compounding of interest on surcharges is not provided in
dates on May 14, 1979 and July 6, 1979. the promissory note. HE also contests the computation whereby the interest,
- TAN defaulted but after a few partial payments, he had the loans restructured by surcharge and the principal were added together and that on the total sum interest
CCP. TAN executed a promissory note on Aug 31, 1979 in the amount of was imposed.
P3,411,421.32 payable in 5 installments. He failed to pay any installment, the last - There is no basis in law for the charging of interest on the surcharges for the
one falling due on December 31, 1980. reason that the New Civil Code is devoid of any provision allowing the imposition of
- In a letter dated Jan 26, 1982, petitioner requested and proposed to CCP a mode of interest on surcharges.
paying the restructured loan, i.e., (a) 20% of the principal amount of the loan upon - His obligation to pay the interest and surcharge should have been suspended
CCP’s conformity to the proposal; and (b) the balance on the principal obligation because this obligation has become conditional, which consists of whether the
payable in 36 equal monthly installments until fully paid. petitioner’s request for condonation of interest and surcharge would be
- Oct 20, 1983 – TAN again sent a letter to CCP requesting for a moratorium on his recommended by the Commission on Audit and the Office of the President to the
loan obligation until the following year allegedly due to a substantial deduction in House of Representatives for approval. Since the condition has not happened due to
the volume of his business and on account of the peso devaluation. No favorable respondent’s reneging on its promise, his liability to pay the interest and surcharge
response was made to these letters. on the loan has not arisen.
- Instead, CCP wrote TAN a letter dated May 30, 1984 demanding full payment of
the petitioner’s restructured loan (as of April 30, 1984 amounted to P6,088,735.03 ISSUES
within 10 days from receipt of the letter. 1. WON there are contractual and legal bases for the imposition of the penalty
- Aug 29, 1984 – CCP filed in the RTC of Manila a complaint for collection of a sum of 2. WON interest may accrue on the penalty or compensatory interest without violating Art. 19591 of NCC
money. TAN interposed the defense that he merely accommodated a friend, Wilson 3. WON the penalty should be reduced pursuant to Art. 12292
Lucmen, who allegedly asked for his help to obtain a loan from CCP and he has not 4. WON imposition of interest should be suspended for the period of time that respondent failed to assist
been able to locate Lucmen. While the case was pending in the trial court, the petitioner in applying for relief of liability through COA and Office of the President
petitioner filed a Manifestation wherein he proposed to settle his indebtedness to 5. WON CA erred in not deleting award of attorney’s fees and in reducing penalties
respondent CCP by proposing to make a down payment of P140,000.00 and to issue
12 checks every beginning of the year to cover installment payments for one year, HELD
and every year thereafter until the balance is fully paid. However, respondent CCP 1. YES
did not agree to the petitioner’s proposals and so the trial of the case ensued.
1
- On May 8, 1991, the trial court ruled against Tan, ordering him to pay CCP the Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn
amount of P7,996,314.67, representing his outstanding account as of August 28, interest. However, the contracting parties may by stipulation capitalize the interest due and
1986, with the corresponding stipulated interest and charges, until fully paid, plus unpaid, which as added principal, shall earn new interest.
2
attorney’s fees in an amount equivalent to 25% of said outstanding account, plus Art. 1229: “The judge shall equitably reduce the penalty when the principal obligation has
P50,000.00, as exemplary damages. been partly or irregularly complied with by the debtor. Even if there has been no performance,
the penalty may be also be reduced by the courts if it is iniquitous or unconscionable.”
Obligations and Contracts A2010 page 78
Prof. Labitag
Article 1226 of the New Civil Code provides that: - The appellate court ruled correctly and justly in reducing the trial court’s award of
“In obligations with a penal clause, the penalty shall substitute the indemnity for twenty-five percent (25%) attorney’s fees to five percent (5%) of the total amount
damages and the payment of interests in case of non-compliance, if there is no due.
stipulation to the contrary. Nevertheless, damages shall be paid if the obligor Disposition Decision appealed from is AFFIRMED with MODIFICATION in that the
refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. penalty charge of two percent (2%) per month on the total amount due,
The penalty may be enforced only when it is demandable in accordance with the compounded monthly, is hereby reduced to a straight twelve percent (12%) per
provisions of this Code.” annum starting from August 28, 1986.
Reasoning The promissory note expressly provides for the imposition of both
interest and penalties in case of default on the part of the petitioner in the COUNTRY BANKERS INSURANCE V CA
payment of the restructured loan. MEDIALDEA; September 9, 1991
- The stipulated 14% per annum interest charge until full payment of the loan
constitutes the monetary interest on the note and is allowed under Article 1956 of NATURE
the New Civil Code. The stipulated 2% per month penalty is in the form of penalty Petition for certiorari to review the decision of the Court of Appeals.
charge which is separate and distinct from the monetary interest on the principal.
- The penalty charge of two percent (2%) per month in the case at bar began to FACTS
accrue from the time of default by the petitioner. The penalty charge is also called - The CA affirmed the RTC’s decision, to wit:
penalty or compensatory interest. “WHEREFORE, THE COMPLAINT OF THE PLAINTIFF Enrique F. Sy is dismissed,
2. YES and on the counterclaim of the defendant O. Ventanilla Enterprises Corporation,
Since penalty clauses can be in the form of penalty or compensatory interest, the judgment is hereby rendered:
compounding of the penalty or compensatory interest is allowed pursuant to Art. ‘1. Declaring as lawful, the cancellation and termination of the Lease
1959. Agreement (Exh. A) and the defendant’s re-entry and repossession of the Avenue,
Reasoning First, there is an express stipulation in the promissory note permitting Broadway and Capitol theaters under lease on February 11, 1980;
the compounding of interest. Second, Article 2212 of the NCC provides that ‘2. Declaring as lawful, the forfeiture clause under paragraph 12 of the said
“Interest due shall earn legal interest from the time it is judicially demanded, Lease Agreement, and confirming the forfeiture of the plaintiff’s remaining cash
although the obligation may be silent upon this point.” In this case, interest began deposit of P290,000.00 in favor of the defendant thereunder, as of February 11,
to run on the penalty interest upon the filing of the complaint in court. 1980;
3. YES ‘3. Ordering the plaintiff to pay the defendant the sum of P289,534.78,
- The continued monthly accrual of the 2% penalty charge on the total amount due representing arrears in rentals, unremitted amounts for amusement tax
is “unconscionable” inasmuch as it is compounded monthly. (But it shall not be delinquency and accrued interest thereon, with further interest on said amounts at
reduced to 10% of the unpaid balance as the petitioner contends) the rate of 12% per annum (per lease agreement) from December 1, 1980 until the
Reasoning Considering petitioner’s several partial payments and the fact he is same is fully paid;
liable under the note for 21 years since his default in 1980, it is equitable to reduce ‘4. Ordering the plaintiff to pay the defendant the amount of P100,000.00,
the penalty charge to a straight 12% per annum on the total amount due starting representing the P10,000 portion of the monthly lease rental which were not
Aug 28, 1986 (the date of the last Statement of Account) deducted from the cash deposit of the plaintiff from February to November, 1980,
- Also considered were petitioner’s offers to enter into a compromise for the with interest thereon at the rate of 12% per annum on each of the said monthly
settlement of his debt by presenting proposed payment schemes to CCP. This amounts of P10,000.00 from the time the same became due until it is paid;
showed his good faith despite difficulty in complying with his loan obligation due to ‘5. Ordering the plaintiff to pay the defendant through the injunction bond, the
his financial problems. sum of P100,000.00, representing the P10,000.00 monthly increase in rentals which
4. NO the defendant failed to realize from February to November 1980 resulting from the
Reasoning It was the primary responsibility of petitioner to inform the Commission injunction, with legal interest thereon from the finality of this decision until fully
on Audit and the Office of the President of his application for condonation of interest paid;
and surcharge. ‘6. Ordering the plaintiff to pay the defendant the sum equivalent to ten per
- Also, the letter dated Sept 28, 1988 alleged to have been sent by the CCP to the centum (10%) of the above-mentioned amounts of P289,534.78, P100,000.00 and
petitioner is not part of the formally offered documentary evidence of either party P100,000.00, as and for attorney’s fees; and
in the trial court. It also does not contain any categorical agreement on the part of ‘7. Ordering the plaintiff to pay the costs.’”
respondent CCP that the payment of the interest and surcharge on the loan is -Respondent Oscar Ventanilla Enterprises Corporation (OVEC), as lessor, and the
deemed suspended while his appeal for condonation of the interest and surcharge petitioner Enrique F. Sy, as lessee entered into a lease agreement over the Avenue,
was being processed. Broadway and Capitol Theaters and the land on which they are situated in
5. NO Cabanatuan City. The term of the lease was for six years from June 13, 1977 to June
12, 1983. After more than two years of operation of the theaters, the lessor OVEC
Obligations and Contracts A2010 page 79
Prof. Labitag
made demands for the repossession of the said leased properties in view of Sy’s Ratio As a general rule, in obligations with a penal clause, the penalty shall
arrears in monthly rentals and non-payment of amusement taxes. On August 8, substitute the indemnity for damages and the payment of interests in case of non-
1979, OVEC and Sy had a conference and by reason of Sy’s request for compliance. However, there are exceptions:
reconsideration, he was allowed to continue operating the leased premises upon his 1) when there is a stipulation to the contrary
conformity to certain conditions imposed by the latter in a supplemental agreement 2) when the obligor is sued fro refusal to pay the agreed penalty
dated August 13, 1979. 3) when the obligor is guilty of fraud
- In pursuance to their latter agreement, Sy reduced his arrears in rental. However, Reasoning The forfeiture clause in the lease agreement would not unjustly enrich
the accrued amusement liability tax had accumulated to 84,000.00 despite the fact OVEC at expense of Sy and CBISCO—contrary to law, morals, good customs, public
that Sy had been deducting amounts from his monthly rental with the obligation to order or policy. A penal clause is an accessory obligation which the parties attach to
remit said deductions to the city government. Hence, letters of demand dated a principal obligation for the purpose of insuring the performance thereof by
January 7, 1980 and February 3, 1980 were sent to Sy demanding payment of the imposing on the debtor a special prestation (generally consisting in the payment of
arrears in rentals and amusement tax delinquency. The latter demand was with the a sum of money) in case the obligation is not fulfilled or is irregularly or
warning that OVEC will repossess the theaters on February 11, 1980 in pursuance inadequately fulfilled.
with their lease contract and their supplemental letter-agreement. But In the case at bar, the penalty cannot substitute for the P100,000.00 supposed
notwithstanding the said demands and warnings Sy failed to pay the above- damage suffered by OVEC from opportunity cost. It represents the P10,000 per
mentioned amounts in full. Consequently, OVEC took possession thereof in the month in additional rental during the ten months of injunction period. Thus, it must
morning of February 11, 1990. be applied against the injunction bond.
- Sy filed the present action for reformation of the lease agreement, damages and Disposition ACCORDINGLY, finding no merit in the grounds relied upon by
injunction. And by virtue of a restraining order dated February 12, 1980 followed by petitioners in their petition, the same is hereby DENIED and the decision dated June
an order to issue a writ of preliminary injunction, Sy regained possession of the 15, 1988 and the resolution dated September 21, 1988, both of the respondent
theaters. Court of Appeals are AFFIRMED.
Petitioners' Claim
- Sy alleged that the amount of deposit—P600,00.00 as agreed upon, P300,000.00 KALALO V LUZ
of which was to be paid on June 13, 1977 and the balance on December 13, 1977— ZALDIVAR; JULY 31, 1970
was too big; and OVEC assured him that said forfeiture will not come to pass.
- Sy sought to recover from OVEC the sums of P100,000.00 for repairs in the
Broadway theater; P48,000.00 for electrical cost of OVEC’s “illegal connection” in
NATURE
the Capitol theater; and P31,000.00 for electrical cost of OVEC’s “illegal connection” Appeal from the decision, dated February 10, 1967, of the Court of First Instance of
in the Broadway theater and for damages suffered by SY as a result of each Rizal (Branch V. Quezon City) in its Civil Case No. Q-6561
connection.
- It is also alleged that on February 11, 1980, OVEC had the three theaters FACTS
padlocked with the use of force, and as aresult, Sy suffered damages at the rate of - On November 17, 1959, appellee Kalalo, a licensed civil engineer doing business
P5,000 a day because of his failure to go thru the contracts with movie and booking under the firm name of O. A. Kalalo and Associates, entered into an agreement with
companies for the showing of movies. appellant Luz, a licensed architect, doing business under the firm name of AJ. Luz
- Finally, Sy prayed for the issuance of a restraining order/ preliminary injunction to and Associates, whereby the former was to render engineering design services to
enjoin OVEC from entering and taking possession of the theaters upon Sy’s filing of the latter for fees, as stipulated in the agreement. The services included design
a P500,000.00 bond supplied by Country Bankers Insurance Corporation (CBISCO). computation and sketches, contract drawing and technical specifications of all
Respondents' Counterclaim engineering phases of the project designed by O.A. Kalalo and Associates, bill of
- By reason of Sy’s violation of the lease agreement, OVRC became authorized to quantities and cost estimate, and consultation and advice during construction
enter and possess the theaters as well as to terminate said agreement so the relative to the work. Pursuant to said agreement, appellee rendered engineering
balance of deposits given by Sy had thus become forfeited. services to appellant in the following projects:
- OVEC would be losing P50,000.00 for every month that the possession and (a)Fil-American Life Insurance Building at Legaspi City;
operation of the theaters remain with Sy. (b)Fil-American Life Insurance Building at Iloilo City;
- OVEC incurred P500,000.00 for attorney’s fees. (c)General Milling Corporation Flour Mill at Opon, Cebu;
(d)Menzi Building at Ayala Blvd., Makati, Rizal;
ISSUE (e)International Rice Research Institute, Research Center, Los Baños, Laguna;
WON respondent is unjustly enriched at the expense of petitioners (f)Aurelia's Building at Mabina, Ermita, Manila;
(g)Far East Bank's Office at Fil-American Life Insurance Building at Isaac Peral,
HELD Ernita, Manila;
NO. (h)Arthur Young's residence at Forbes Park, Makati, Rizal;
(i) L & S Building at Dewey Blvd., Manila; and
Obligations and Contracts A2010 page 80
Prof. Labitag
(j)Stanvac Refinery Service Building at Limay, Bataan. ISSUE
- On December 11, 1961, appellee sent to appellant a statement of account to WON payment of the amount due to the appellee in dollars is legally permissible,
which was attached an itemized statement of defendant-appellant's account, and if not, at what rate of exchange it should be paid in pesos
according to which the total engineering fee asked by appellee for services
rendered amounted to P116,565.00 from which sum was to be deducted the HELD
previous payments made in the amount of P57,000.00, thus leaving a balance due NO. Payment in dollars is prohibited by Republic Act (RA) No. 529 which provides
in the amount of P59,565.00. On May 18, 1962 appellant sent appellee a resume of that if the obligation was incurred prior to the enactment of the Act and require
fees due to the latter. Said fees, according to appellant, amounted to P10,861.08 payment in a particular kind of coin or currency other than the Philippine currency
instead of the amount claimed by the appellee. On June 14, 1962 appellant sent the same shall be discharged in Philippine currency measured at the prevailing rate
appellee a check for said amount, which appellee refused to accept as full payment of exchange at the time the obligation was incurred. RA No. 529 was enacted on
of the balance of the fees due him. June 16, 1950. In the case now before Us the obligation of appellant to pay appellee
- On August 10, 1962, appellee filed a complaint against appellant, containing four the 20% of $140,000.00, or the sum of $28,000.00, accrued on August 25, 1961, or
causes of action. In the first cause of action, appellee alleged that for services after the enactment of RA No. 529. It follows that the provision of RA No. 529 which
rendered in connection with the different projects therein mentioned there was due requires payment at the prevailing rate of exchange when the obligation was
him fees in sums consisting of $28,000 (U.S.) and P100,204.46, excluding interests, incurred cannot be applied. RA No. 529 does not provide for the rate of exchange
of which sums only P69,323.21 had been paid, thus leaving unpaid the $28,000.00 for the payment of obligation incurred after the enactment of said Act. The logical
and the balance of P30,881.25. In the second cause of action, appellee claimed conclusion, therefore, is that the rate of exchange should be that prevailing at the
P17,000.00 as consequential and moral damages; in the third cause of action he time of payment. This view finds support in the ruling of this Court in the case of
claimed P55,000.00 as moral damages, attorney's fees and expenses of litigation; Engel vs. Velasco & Co. where this Court held that even if the obligation assumed
and in the fourth cause of action he claimed P25,000.00 as actual damages, and by the defendant was to pay the plaintiff a sum of money expressed in American
also for attorney's fees and expenses of litigation. currency, the indemnity to be allowed should be expressed in Philippine currency at
- In his answer, appellant admitted that appellee rendered engineering services, as the rate of exchange at the time of judgment rather than at the rate of exchange
alleged in the first cause of action, but averred that some of appellee's services prevailing on the date of defendant's breach.
were not in accordance with the agreement and appellee's claims were not justified Disposition Therefore, appellant should pay the appellee the equivalent in pesos
by the services actually rendered, and that the aggregate amount actually due to of the $28,000.00 at the free market rate of exchange at the time of payment. The
appellee was only P80,336.29, of which P69,475.21 had already been paid, thus trial court did not err when it held that herein appellant should pay appellee
leaving a balance of only P10,861.08. Appellant denied liability for any damage $28,000.00 to be converted into the Philippine currency on the basis of the current
claimed by appellee to have suffered, as alleged in the second, third and fourth rate of exchange at the time of payment of this judgment, as certified to by the
causes of action. Appellant set up affirmative and special defenses, alleging that Central Bank of the Philippines.
appellee had no cause of action, that appellee was in estoppel because of certain
acts, representations, admissions and/or silence, which led appellant to believe ST. PAUL FIRE & MARINE INSURANCE CO. V MACONDRAY
certain facts to exist and to act upon said facts, that appellee's claim regarding the & CO., INC.
Menzi project was premature because appellant had not yet been paid for said ANTONIO; March 25, 1976
project, and that appellee's services were not complete or were performed in
violation of the agreement and/or otherwise unsatisfactory. Appellant also set up a NATURE
counterclaim for actual and moral damages for such amount as the court may deem Certified by CA in its Resolution of May 8, 1967 on the ground that the appeal
fair to assess, and for attorney's fees of P10,000.00. involves purely questions of law.
- Inasmuch as the pleadings showed that the appellee's right to certain fees for
services rendered was not denied, the only question being the assessment of the FACTS
proper fees and the balance due to appellee after deducting the admitted payments - June 29, 1960, Winthrop Products, Inc., of New York, shipped aboard the SS "Tai
made by appellant, the trial court, upon agreement of the parties, authorized the Ping", owned and operated by Wilhelm Wilhelmsen, 218 cartons and drums of drugs
case to be heard before a Commissioner. The Commissioner rendered a report and medicine, with the freight prepaid, which were consigned to Winthrop-Stearns,
which, in resume, states that the amount due to appellee was $28,000.00 (U.S.) as Inc., Manila, Philippines.
his fee in the International Research Institute Project which was 20% of the - Barber Steamship Lines, Inc., agent of Wilhelmsen, issued Bill of Lading No. 34, in
$140,000.00 that was paid to appellant, and P51,539.91 for the other projects, less the name of Winthrop Products, Inc. as shipper, with arrival notice in Manila to
the sum of P69,475.46 which was already paid by the appellant. The trial court consignee Winthrop-Stearns, Inc., Manila, Philippines.
ruled in favor of Kalalo by ordering Luz to pay him the sum of P51,539.91 and - The shipment was insured by the shipper against loss and/or damage with the St.
$28,000.00, the latter to be converted into the Philippine currency on the basis of Paul Fire & Marine Insurance Company under its insurance Special Policy No.
the current rate of exchange at the time of the payment of this judgment, as OC173766 dated June 23, 1960
certified to by the Central Bank of the Philippines. - Aug 7, 1960, SS "Tai Ping" arrived at the Port of Manila and discharged its
Obligations and Contracts A2010 page 81
Prof. Labitag
shipment into the custody of Manila Port Service. The shipment was complete and - The purpose of the bill of lading is to provide for the rights and liabilities of the
in good order with the exception of one (1) drum and several cartons, which were in parties in reference to the contract to carry. The stipulation in the bill of lading
bad order condition. limiting the common carrier's liability to the value of the goods appearing in the bill,
- Consignee filed the corresponding claim in the amount of P1,109.67 representing unless the shipper or owner declares a greater value, is valid and binding. This
the C.I.F. value of the damaged drum and cartons of medicine with the carrier and limitation of the carrier's liability is sanctioned by the freedom of the contracting
the Manila Port Service. However, both refused to pay such claim. parties to establish such stipulations, clauses, terms, or conditions as they may
- Consignee filed its claim with the insurer, St. Paul Fire & Marine Insurance Co. The deem convenient, provided they are not contrary to law, morals, good customs and
insurance company paid to consignee the insured value of the lost and damaged public policy. A stipulation fixing or limiting the sum that may be recovered from
goods, including other expenses in connection therewith, in the total amount of the carrier on the loss or deterioration of the goods is valid, provided it is (a)
$1,134.46. reasonable and just under the circumstances, and (b) has been fairly and freely
- Aug 5, 1961, as subrogee of the rights of the shipper and/or consignee, St. Paul agreed upon. In this case, the liabilities of the defendants-appellees with respect to
Fire & Marine Insurance Co. instituted with the CFI Manila the present action against the lost or damaged shipments are expressly limited to the C.I.F. value of the goods
the defendants for the recovery of $1,134.46, plus costs. as per contract of sea carriage embodied in the bill of lading.
- Mar 10, 1965 lower court rendered judgment ordering defendants Macondray & - The plaintiff-appellant, as insurer, after paying the claim of the insured for
Co., Inc. Barber Steamship Lines, Inc. and Wilhelm Wilhelmsen to pay to the damages under the insurance, is subrogated merely to the rights of the assured. As
plaintiff, jointly and severally, P300.00, with legal interest from the filing of the subrogee, it can recover only the amount that is recoverable by the latter. Since the
complaint until fully paid, and defendants Manila Railroad Company and Manila Port right of the assured, in case of loss or damage to the goods, is limited or restricted
Service to pay to plaintiff, jointly and severally, P809.67, with legal interest thereon by the provisions in the bill of lading, a suit by the insurer as subrogee necessarily is
from the filing of the complaint until fully paid, the costs to be borne by all the said subject to like limitations and restrictions.
defendants. 2. The contention of the plaintiff-appellant that because of extraordinary inflation, it
Plaintiff’s Claims should be reimbursed for its dollar payments at the rate of exchange on the date of
- Plaintiff-appellant argues that, as subrogee of the consignee, it should be entitled the judgment and not on the date of the loss or damage, is untenable. The
to recover from defendants-appellees the amount of $1,134.46 which it actually obligation of the carrier to pay for the damage commenced on the date it failed to
paid to the consignee and which represents the value of the lost and damaged deliver the shipment in good condition to the consignee. The C.I.F. Manila value of
shipment as well as other legitimate expenses such as the duties and cost of survey the goods which were lost or damaged, according to the claim of the consignee
of said shipment, and that the exchange rate on the date of the judgment, which dated September 26, 1960 is $226.37 and $324.3 or P456.14 and P653.53,
was P3.90 for every US$1.00, should have been applied by the lower court. respectively, in Philippine Currency. The peso equivalent was based by the
Defendants’ Comments consignee on the exchange rate of P2.015 to $1.00 which was the rate existing at
- They countered that their liability is limited to the C.I.F. value of the goods, that time. The trial court committed no error in adopting the aforesaid rate of
pursuant to contract of sea carriage embodied in the bill of lading; that the exchange.
consignee's (Winthro, Stearns, Inc.) claim against the carrier (Macondray & Co., Inc., Disposition Appealed decision is affirmed, with costs against the plaintiff-
Barber Steamship Lines, Inc., Wilhelm Wilhelmsen) and the arrastre operators appellant.
(Manila Port Service and Manila Railroad Company) was only for the sum of PAPA V VALENCIA
1,109.67 representing the C.I.F. value of the loss and damage sustained by the KAPUNAN; 1998
shipment which was the amount awarded by the lower court to the plaintiff-
appellant; defendants appellees are not insurers of the goods and as such they FACTS
should not be made to pay the insured value; the obligation of the defendants- - In June 1982, herein private respondents A.U. Valencia and Co., Inc. and
appellees was established as of the date of discharge, hence the rate of exchange Felix Peñarroyo, filed a complaint for specific performance against herein
should be based on the rate existing on that date, i.e., August 7, 1960, and not the petitioner Myron C. Papa, in his capacity as administrator of the Testate
value of the currency at the time the lower court rendered its decision on March 10, Estate of one Angela M. Butte
1965. - The complaint alleged that on 15 June 1973, petitioner Myron C. Papa,
acting as attorney-in-fact of Angela M. Butte, sold to respondent
ISSUES Peñarroyo, through respondent Valencia, a parcel of land, consisting of
1. WON in case of loss or damage, the liability of the carrier to the consignee is 286.60 square meters, located at corner Retiro and Cadiz Streets, La Loma,
limited to the C.I.F. value of the goods which were lost or damaged Quezon City, and covered by Transfer Certificate of Title No. 28993 of the
2. Whether the insurer who has paid the claim in dollars to the consignee should be Register of Deeds of Quezon City
reimbursed in its peso equivalent on the date of discharge of the cargo or on the - Prior to the alleged sale, the said property, together with several other
date of the decision parcels of land likewise owned by Angela M. Butte, had been mortgaged by
her to the Associated Banking Corporation
HELD - After the alleged sale, but before the title to the subject property had been
1. YES released, Angela M. Butte passed away
Obligations and Contracts A2010 page 82
Prof. Labitag
- Despite representations made by herein respondents to the bank to possession and enjoyment of the said property to the said plaintiff, free from
release the title to the property sold to respondent Peñarroyo, the bank any liens and encumbrances. Should this not be possible, for any reason not
refused to release it unless and until all the mortgaged properties of the attributable to defendant, said defendant is ordered to pay to plaintiff Felix
late Angela M. Butte were also redeemed Peñarroyo the sum of P45,000.00 plus legal interest of 12% from June 15,
- In order to protect his rights and interests over the property, respondent 1973
Peñarroyo caused the annotation on the title of an adverse claim as 3. Ordering plaintiff Felix Peñarroyo to execute and deliver to intervenor a deed
evidenced by Entry No. PE. - 6118/T-28993, inscribed on 18 January 1977 of absolute sale over the same property, upon the latter's payment to the
- The complaint further alleged that it was only upon the release of the title former of the balance of the purchase price of P71,500.000. Should this not
to the property, sometime in April 1977, that respondents Valencia and be possible, plaintiff Felix Peñarroyo is ordered to pay intervenor the sum of
Peñarroyo discovered that the mortgage rights of the bank had been P5,000.00 plus legal interest of 12% from August 23, 1973
assigned to one Tomas L. Parpana (now deceased), as special 4. Ordering defendant to pay plaintiffs the amount of P5,000.00 for and as
administrator of the Estate of Ramon Papa. Jr., on 12 April 1977 attorney's fees and litigation expenses.
- That since then, herein petitioner had been collecting monthly rentals in - Petitioner appealed the aforesaid decision of the trial court to the Court of
the amount of P800.00 from the tenants of the property, knowing that said Appeals, alleging among others that the sale was never "consummated" as
property had already been sold to private respondents on 15 June 1973 he did not encash the check (in the amount of P40,000.00) given by
- Despite repeated demands from said respondents, petitioner refused and respondents Valencia and Peñarroyo in payment of the full purchase price
failed to deliver the title to the property of the subject lot. He maintained that what said respondents had actually
- Thereupon, respondents Valencia and Peñarroyo filed a complaint for paid was only the amount of P5,000.00 (in cash) as earnest money.
specific performance - Respondent Reyes spouses, likewise, appealed the above decision.
- In his Answer, petitioner admitted that the lot had been mortgaged to the However, their appeal was dismissed because of failure to file their
Associated Banking Corporation. He contended, however, that the appellants' brief
complaint did not state a cause of action; that the real property in interest - On 27 January 1992, the Court of Appeals rendered a decision, affirming
was the Testate Estate of Angela M. Butte, which should have been joined with modification the trial court's decision
as a party defendant; that the case amounted to a claim against the Estate - In affirming the trial court's decision, respondent court held that contrary
of Angela M. Butte and should have been filed in Special Proceedings No. to petitioner's claim that he did not encash the aforesaid check, and
A-17910 before the Probate Court in Quezon City; and that, if as alleged in therefore, the sale was not consummated, there was no evidence at all
the complaint, the property had been assigned to Tomas L. Parpana, as that petitioner did not, in fact, encash said check. On the other hand,
special administrator of the Estate of Ramon Papa, Jr., said estate should respondent Peñarroyo testified in court that petitioner Papa had received
be impleaded the amount of P45,000.00 and issued receipts therefor. According to
- Petitioner, likewise, claimed that he could not recall in detail the respondent court, the presumption is that the check was encashed,
transaction which allegedly occurred in 1973; that he did not have TCT No. especially since the payment by check was not denied by defendant-
28993 in his possession; that he could not be held personally liable as he appellant (herein petitioner) who, in his Answer, merely alleged that he
signed the deed merely as attorney-in-fact of said Angela M. Butte "can no longer recall the transaction which is supposed to have happened
- Finally, petitioner asseverated that as a result of the filing of the case, he 10 years ago."
was compelled to hire the services of counsel for a fee of P20,000.00, for - On petitioner's claim that he cannot be held personally liable as he had
which respondents should be held liable. acted merely as attorney-in-fact of the owner, Angela M. Butte, respondent
- Upon his motion, herein private respondent Delfin Jao was allowed to court held that such contention is without merit
intervene in the case - Petitioner filed a motion for reconsideration of the above decision, which
- For his part, petitioner, as administrator of the Testate Estate of Angela M. motion was denied by respondent Court of Appeals.
Butte, filed a third-party complaint against herein private respondents,
spouses Arsenio B. Reyes and Amanda Santos ISSUES
- Respondent Reyes spouses in their Answer raised the defense of 1. WON the sale in question was consummated
prescription of petitioner's right to redeem the property. 2. WON the decision of the CA cancelled the assignment of the subject property rights in favor of the
- At the trial, only respondent Peñarroyo testified. All the other parties only estate of Ramon Papa, Jr.
submitted documentary proof. 3. WON the estate of Angela M. Butte and the estate of Ramon Papa, Jr. are
- On 29 June 1987, the trial court rendered a decision: indispensable parties
1. Allowing defendant to redeem from third-party defendants and ordering the
latter to allow the former to redeem the property in question, by paying the HELD
sum of P14,000.00 plus legal interest of 12% thereon from January 2, 1980 1. YES.
2. Ordering defendant to execute a Deed of Absolute Sale in favor of plaintiff - Petitioner argues that respondent Court of Appeals erred in concluding that the
Felix Peñarroyo covering the property in question and to deliver peaceful alleged sale of the subject property had been consummated. He contends that such
Obligations and Contracts A2010 page 83
Prof. Labitag
a conclusion is based on the erroneous presumption that the check (in the amount enforce such lien. The cause of action for specific performance which respondents
of P40,000.00) had been cashed, citing Art. 1249 of the Civil Code, which provides, Valencia and Peñarroyo have against petitioner is different from the cause of action
in part, that payment by checks shall produce the effect of payment only when they which the estate of Ramon Papa, Jr. may have to enforce whatever rights or liens it
have been cashed or when through the fault of the creditor they have been has on the property by reason of its being an alleged assignee of the bank's rights
impaired. Petitioner insists that he never cashed said check; and, such being the of mortgage.
case, its delivery never produced the effect of payment. 3. NO.
- It is an undisputed fact that respondents Valencia and Peñarroyo had given - Under Section 3 of Rule 3 of the Rules of Court, an executor or administrator may
petitioner Myron C. Papa the amounts of Five Thousand Pesos (P5,000.00) in cash sue or be sued without joining the party for whose benefit the action is presented or
on 24 May 1973, and Forty Thousand Pesos (P40,000.00) in check on 15 June 1973, defended, thus:
in payment of the purchase price of the subject lot. Petitioner himself admits having Sec. 3. Representative parties. - A trustee of an express trust, a guardian,
received said amounts, and having issued receipts therefor. Petitioner's assertion executor or administrator, or a party authorized by statute, may sue or be sued
that he never encashed the aforesaid check is not substantiated and is at odds with without joining the party for whose benefit the action is presented or defended; but
his statement in his answer that "he can no longer recall the transaction which is the court may, at any stage of the proceedings, order such beneficiary to be made
supposed to have happened 10 years ago." After more than ten (10) years from the a party. An agent acting in his own name and for the benefit of an undisclosed
payment in part by cash and in part by check, the presumption is that the check principal may sue or be sued without joining the principal except when the contract
had been encashed. As already stated, he even waived the presentation of oral involves things belonging to the
evidence. principal.
- Granting that petitioner had never encashed the check, his failure to do so for - Neither is the estate of Ramon Papa, Jr. an indispensable party without whom, no
more than ten (10) years undoubtedly resulted in the impairment of the check final determination of the action can be had. Whatever prior and subsisting
through his unreasonable and unexplained delay. mortgage rights the estate of Ramon Papa, Jr. has over the property may still be
- While it is true that the delivery of a check produces the effect of payment only enforced regardless of the change in ownership thereof.
when it is cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the Disposition CA decision affirmed.
debtor is prejudiced by the creditor's unreasonable delay in presentment. The
acceptance of a cheek implies an undertaking of due diligence in presenting it for
payment, and if he from whom it is received sustains loss by want of such diligence, PHILIPPINE AIRLINES, INC V COURT OF APPEALS, STO.
it will be held to operate as actual payment of the debt or obligation for which it was TOMAS
given. It has, likewise, been held that if no presentment is made at all, the drawer REGALADO; August 13, 1990
cannot be held liable irrespective of loss or injury unless presentment is otherwise
excused. This is in harmony with Article 1249 of the Civil Code under which NATURE
payment by way of check or other negotiable instrument is conditioned on its being Certiorari
cashed, except when through the fault of the creditor, the instrument is impaired.
The payee of a check would be a creditor under this provision and if its non- FACTS
payment is caused by his negligence, payment will be deemed effected and the - November 16, 1970,- Adelina Bagadiong and Rosario Sto. Tomas, made
obligation for which the check was given as conditional payment will be discharged. reservations with, and bought 2 plane tickets from,PAL (Naga City branch
- Considering that respondents Valencia and Peñarroyo had fulfilled their part of the station), , a common carrier engaged in the business of transporting
contract of sale by delivering the payment of the purchase price, said respondents, passengers by air for compensation, for Naga-Manila flight on November 26,
therefore, had the right to compel petitioner to deliver to them the owner's 1970
duplicate of TCT No. 28993 of Angela M. Butte and the peaceful possession and - November 24, 1970- they went back to PAL Naga City branch station and paid the
enjoyment of the lot in question fare for two round trip tickets. They were not only issued their round trips
2. NO. tickets, but also their reservation in PAL's 3:40 pm Naga-Manila flight on
- With regard to the alleged assignment of mortgage rights, respondent Court of November 26, 1970 were expressly confirmed by the Naga City branch station;
Appeals has found that the conditions under which said mortgage rights of the bank - At 3 PM of November 26, 1970, or 45 minutes before the scheduled departure
were assigned are not clear. Indeed, a perusal of the original records of the case time of the Naga-Manila flight, they checked in at the Pili airport counter of PAL
would show that there is nothing there that could shed light on the transactions and there the latter's agent or employees got the tickets of the plaintiffs
leading to the said assignment of rights; nor is there any evidence on record of the allegedly for the purpose of issuing to them a boarding pass
conditions under which said mortgage rights were assigned. What is certain is that - A few minutes before departure time, their luggage was loaded to the plane, but
despite the said assignment of mortgage rights, the title to the subject property has they were not given back their tickets and were not allowed by PAL' s agent or
remained in the name of the late Angela M. Butte. Assuming arguendo that the employees to board the plane
mortgage rights of the Associated Citizens Bank had been assigned to the estate of
Ramon Papa, Jr., and granting that the assigned mortgage rights validly exist and
constitute a lien on the property, the estate may file the appropriate action to
Obligations and Contracts A2010 page 84
Prof. Labitag
- After the plane had taken off from the Pili airport with their luggage, in spite of - TC- there was a breach of contract; awarded moral, actual and exemplary
their complaint, PAL’ s agent or employees at the Naga City branch station just damages and legal interest to the complainants in both cases. Affirmed
returned their fares. decision on MR.
- (This is another case consolidated with above case) November 24, 1970- Ladislao - CA- on appeal it affirmed with modifications said decision of the lower court.
Santos, bought a plane ticket at the branch station of defendant in Naga City
for Flight 296 from Naga to Manila scheduled on the afternoon of November 26, ISSUES
1970. 1. WON moral damages could be awarded to a passenger when the failure of the
- He was assured by the PAL employees that his reservation for the flight was carrier to accommodate the passenger resulted from unlawful acts of third parties
confirmed against the carrier's personnel
- At 2 PM of November 29, 1970, 1 hr and 40 minutes before the departure of 2. WON respondents are entitled to exemplary damages when there is no sufficient
Flight 296, Santos checked in at the Pili airport counter and there the PAL evidence to show, and neither the appellate court nor the trial court found facts
employees asked for his ticket, allegedly for the purpose of issuing to him a showing reckless, oppressive or malevolent conduct by the carrier
boarding pass 3. WON a passenger in a contract of air transportation can validly claim damages
- About 3 minutes before departure of Flight 296, the ticket was returned to him by when she could have taken the flight had she not instead opted, of her own volition,
a PAL employee, informing him that there was no more seat available and he to give her confirmed seat to another passenger who was accommodated by the
could not ride on that flight to Manila carrier in her place
- The employees of PAL acted rudely and discourteously to his embarrassment in 4. WON a trial court, in a MR, may increase the damages it awarded in the original
the presence of so many people who were at the airport at that time decision to an amount drastically over that it initially found to be warranted and
- It was very important and urgent for him to be in Manila on the afternoon of significantly more than claimed by plaintiffs themselves
November 26, 1970, because he had an appointment with an eye specialist for
medical treatment of his eye and he and his brother were "to close a contract HELD
they entered into to supply shrimps to some restaurants and market vendors in - On first and second issue: SC finds no error in awarding moral and exemplary
Manila damages to respondents.
- He and his brother failed to close the contract to supply shrimps, because it was - On the third issue: SC finds it without merit. As noted by the CA, the act of
on December 1, 1970 that he was finally able to reach Manila by train. respondent Bagadiong was motivated solely by her concern for her son who also
- In both cases the appellees alleged that there is a breach of contract and asked risked being denied accommodation but who was then returning to school in Manila.
for moral damages. Such sacrifice was not voluntary on her part, and her inability to take the flight was
- PAL’s defense: the consequence of the wrongful act of PAL's employees for which it has to answer.
o that due to the cancellation of a morning flight from Virac, some of its - On the last issue: CA precisely resolved said issue by modifying the decision of the
passengers for said flight took Flight 296R; lower court, awarding each respondent instead an aggregate amount of P30,000.00
o that on the representations of Gov Alberto of Catanduanes, one of those in as moral and exemplary damages, plus P6,000.00 as attorney's fees. The award of
the cancelled morning flight, its employees at its Virac station were moral and exemplary damages in an aggregate amount may not be the usual way
constrained "to allow the Governor to take Flight 296R together with several of awarding said damages. However, there can be no question that the entitlement
companions" with the assurance of the Governor that two (2) of his to moral damages having been established, exemplary damages may be awarded;
companions would deplane in Naga; that on arrival in Naga, the two and exemplary damages may be awarded even though not so expressly pleaded in
companions of the Governor refused to deplane despite repeated pleas and the complaint nor proved .
entreaties of its employees Reasoning
o unable to persuade the 2 Virac passengers to deplane in Naga and - Moral damages are recoverable in a breach of contract of carriage where the air carrier through its
"compelled by a reasonable and well-grounded fear that an untoward agents acted fraudulently or in bad faith. The TC and the CA are in agreement that PAL through its
incident may ensue should the two (2) be forced to leave the aircraft," its agents acted in bad faith in "bumping off" private respondents. CA-> the failure of PAL to accommodate
employee "had to act in a manner dictated by the circumstances and by private respondents was not the result of an honest mistake, because its employees knew and were aware
reasons of safety both of the passenger and the aircraft and crew;" that what they were doing was wrong. This whole incident could have been avoided had Mr. Borjal
o it was necessitated by reason of safety and/or compliance with applicable (branch supervisor) not recklessly took a chance on the two overbooked passengers (Gov. Alberto and
laws regulations, or orders, and the same are valid grounds for refusal to Mayor Antonio) in getting confirmed reservations in Naga. The PAL employees knowingly and
carry plaintiffs in accordance with its Domestic Passenger Tariff No. 2 deliberately disregarded the rights of the plaintiffs to board the plane and take Flight 296R by virtue of
(Section A, Rule 8[a]) which is incorporated by reference into the conditions their being holders of tickets duly issued and paid for with confirmed reservations on Flight 296R.
of carriage as expressly provided for in plaintiffs plane tickets; and - A contract to transport passengers is quite different in kind and degree from any
o the error of its employees was an honest mistake or constitutes excusable other contractual relation. And this, because of the relation which an air-carrier with
the public. Its business is mainly with the travelling public. It invites people to avail
negligence.
of the comforts and advantages it offers. The contract of air carriage, therefore,
Obligations and Contracts A2010 page 85
Prof. Labitag
generates a relation attended with a public duty. Neglect or malfeasance of the Surety & Fidelity Co., Inc., as surety, was executed in favor of the Reparations
carrier's employees naturally could give ground for an action for damages. Commission. A corresponding indemnity agreement was executed to indemnify the
The operation of a common carrier is a business affected with public interest and surety company for any damage, loss charges, etc., which it may sustain or incur as
must be directed to serve the comfort and convenience of the passengers. In case a consequence of having become a surety upon the performance bond
of breach in bad faith of a contract of carriage, award of damages is in order. - The next 2 boats were delivered April 20, 1959 with contract dated Nov 25, 1959
- The contention of PAL that was due to the unlawful acts of third persons provided for a similar stipulation on the schedule of payments. A performance bond
and, constitutes caso fortuito, is untenable. To constitute a caso fortuito in the amount of P68,777.77, issued by the Manila Surety & Fidelity Co., Inc., was
that would exempt a person from responsibility, it is essential that (a) the also submitted to guarantee the faithful compliance with the obligations set forth in
event must be independent of the will of the obligor; (b) it must be either the contract,6 and indemnity agreement was executed in favor of the surety
unforseeable or inevitable; (c) its occurrence renders it impossible for the company in consideration of the said bond.
obligor to fulfill his obligation in a normal manner; and (d) the obligor - The delivery of the last 2 boats were covered by a contract for the Utilization of
must be free from any participation in the aggravation of the injury Reparation Goods executed by the parties on February 12, 1960 with a similar
resulting to the obligee or creditor. schedule of 10 equal yearly installments. A performance bond in the amount of
- One essential characteristic of a fortuitous event is that it was independent of the P54,500.00 issued by the Manila Surety & Fidelity Co., Inc., was submitted, and an
will of the obligor or of his employees, is N/A in this case. The alleged fortuitous indemnity agreement was executed by UNIVERSAL in favor of the surety company.
event, supposedly consisting of the unlawful acts of Gov Alberto and Mayor Antonio, - On August 10, 1962, the Reparations Commission instituted the present action
is not independent of the will of PAL as the obligor but was caused by the very act against UNIVERSAL and the surety company to recover various amounts of money
of its agents in allowing the governor and the mayor to board Flight 296R in excess due under these contracts. In answer, UNIVERSAL claimed that the amounts of
of the number of passengers allotted to them and with full knowledge that the said money sought to be collected are not yet due and demandable. The surety
flight for Manila was fully booked. The impossibility of their being accommodated company also contended that the action is premature, but set up a cross-claim
was necessarily forseeable. The fear spoken of by witness Azuela is speculative, against UNIVERSAL for reimbursement of whatever amount of money it may have to
fanciful and remote. The statement attributed to Governor Alberto and/or the pay the plaintiff by reason of the complaint, including interest, and for the collection
mayors, that "if we cannot board the plane there will be something that will of accumulated and unpaid premiums on the bonds with interest thereon. With
happen," is vague. The threat, if ever it was, was not of such a serious character leave of courts first obtained, the surety company filed a third-party complaint
and imminent as to create fear of greater injury in the minds of the PAL employees against Pablo S. Sarmiento, one of the indemnitors in the indemnity agreements.
if they would not allow Governor Alberto and the mayors to remain in the plane The third-party defendant Pablo S. Sarmiento denied personal liability claiming that
which was then scheduled to fly to Manila. It is difficult to believe that Governor he signed the indemnity agreements in question in his capacity as acting general
Alberto and the mayors would make any threat or intimidation to keep their seats in manager of UNIVERSAL. After appropriate proceedings and upon the preceding
the plane. They were provincial and municipal executives with a common duty to facts, the trial court rendered the judgment stated. Hence, this appeal.
maintain peace and order and to prevent the commission of crimes. - UNIVERSAL claims that there is an obscurity in the terms of the contracts in
Disposition CA’s decision is AFFIRMED in toto. question which were caused by the plaintiff as to the amounts and due dates of the
first installments which should have been first fixed before a creditor can demand
REPARATIONS COMMISSION V UNIVERSAL DEEP- SEA its payment from the debtor. The Schedule of Payment attached to, and forming a
FISHING CORPORATION part of, the contract for the purchase and sale of the first 2 boats which states that
CONCEPCION; June 27, 1978 the amount of first installment is P53,642.84 and the due date of is payment is May
8, 1961. However, the amount of the first of the succeeding itemized installments is
NATURE P56,597.20 and the due date is May 8, 1962. In the case of the 3 rd and 4th boats, the
Appeal from the decision of the Court of First Instance first installments are P68,777.77 and due in July, 1961 and P72,565.68 and due in
July, 1962, respectively. In the contract for the purchase and sale of the last 2
boats, the amounts indicated as first installments are P54,500.00 and P57,501.57,
FACTS and the due dates of payment are October 17, 1961 and October 17, 1962,
- Universal was awarded 6 trawl boats by the Reparations Commission as end-user respectively.
of reparation goods. These were delivered 2 at a time.
- The first 2 boats were delivered Nov 20, 1958 and the Contract of Conditional ISSUES
Purchase and Sale of Reparations Goods executed Feb 12, 1960 provided among 1. WON the first installments under the 3 contracts of conditional purchase and sale
others, that "the first installment representing 10% of the amount… shall be paid were already due and demandable when the complaint was filed
within 24 months from the date of complete delivery thereof, the balance shall be 2. WON the TC erred in not awarding the surety company premiums on the
paid in the manner herein stated as shown in the Schedule of Payments". To performance bonds
guarantee the compliance with the obligations under said contract, a performance
bond in the amount of P53,643.00, with UNIVERSAL as principal and the Manila
Obligations and Contracts A2010 page 86
Prof. Labitag
3. WON the court erred in not applying the down payment to the guaranteed pay the Manila Surety & Fidelity Co., Inc., the amount of P7,251.42 for the
indebtedness applying Art 12543 premiums and documentary stamps on the performance bonds. Appellants shall
4. WON Pablo Sarmiento is liable having executed the indemnity agreements in his pay proportionate costs.
capacity as acting general manager of universal
PACULDO V REGALADO
HELD PARDO; 2000
1. YES
Ratio The obligation of UNIVERSAL to pay the first installments on the purchase NATURE
price of the six (6) reparations vessels was already due and demandable when the APPEAL via certiorari from a decision of the CA on ejectment case
present action was commenced on August 10, 1962. Also due and demanded from
UNIVERSAL were the first of the ten (10) equal yearly installments on the balance of FACTS
the purchase price of the first 2 boats as well as the second pair of boats. The first - Nereo Paculdo, petitioner, and Bonifacio Regalado, respondent, entered into a
accrued on May 8, 1962, while the second fell due on July 31,1962. lease contract over a 16,478 square meter property with a wet market building
Reasoning In the contract concerning the first 2 boats, the parties expressly located along Don Mariano Marcos Avenue, Fairview Park, Quezon City on
agreed that the first installment representing 10% of the purchase price or December 27, 1990. Lease period is for 25 years beginning January 1, 1991 up to
P53,642.84 shall be paid within 24 months from the date of complete delivery of the December 31 , 2015.
vessel or on May 8, 1961, and the balance to be paid in ten (10) equal yearly - On top of this lease contract, petitioner also leased from respondent eleven other
installments. The amount of P56,597.20 due on May 8, 1962, which is also claimed properties and purchased from the same respondent eight units of heavy
to be a "first installment," is but the first of the ten (10) equal yearly installments of equipment and vehicles.
the balance of the purchase price. - The petitioner failed to pay rentals for the wet market property for May, June, and
- The 24 months fixed by the law for the payment of the 'first' installment are the July 1992. Respondent on July 6, wrote demand letter to petitioner for payment of
very dates stated in the aforementioned schedules for the payment of the the due rent with advise that if payment is not received within fifteen days the
respective '1st' installments. What is more, in view of said legal provision, the lease contract will be cancelled.
Commission had no authority to agree that the 1st installment shall be paid on any - Another letter was sent by the respondent on July 17, 1992 reiterating demand for
later date, and the Buyer must have been aware of this fact. payment and for the petitioner to vacate the premises.
2. YES - Petitioner tried to pay on a daily basis the rental beginning August 25, 1992 but
- Universal should award the premiums to the surety company. the petitioner refused to accept the same.
Reasoning The payment of premiums on the bonds to the surety company had - On August 20, 1992, petitioner filed an action for injunction and damages seeking
been expressly undertaken by UNIVERSAL in the indemnity agreements executed to enjoin respondent from disturbing his possession of the leased property. On the
by .it in favor of the surety company. The premium is the consideration for same day the respondent filed an ejectment case against the petitioner. The
furnishing the bonds and the obligation to pay the same subsists for as long as the ejectment case was however withdrawn five days later on the ground that certain
liability of the surety shall exist. details included therein had been omitted and must be re-computed.
3. NO - On April 22, 1993, the case for ejectment was re-filed with the MTC. On January
- Art 1254 is not applicable. 31, 1994, the MTC ruled in favor of Regalado and ordered the petitioner and all
Reasoning The rules contained in Articles 1252 to 1254 of the Civil Code apply to a persons claiming right under him to vacate the leased premises and to pay the
person owing several debts of the same kind to a single creditor. They cannot be respondent the back rentals beginning July 1992. This order was appealed to the
made applicable to a person whose obligation as a mere surety is both contingent RTC which subsequently affirmed the MTC decision en toto.
and singular, which in this case is the full and faithful compliance with the terms of - Despite having completely turned over the leased property, petitioner
the contract of conditional purchase and sale of reparations goods. nevertheless filed a petition for review with the Court of Appeals alledging among
4. YES others that portions of his payments to respondents were applied to his other
- He is liable. obligations. The CA found for the respondent when it ruled that petitioner consented
Reasoning He signed the indemnity agreement twice – the first in his capacity as to the respondent’s application of payment to the petitioner’s other obligations.
acting general manager and second in his individual capacity. Besides - Hence the appeal.
acknowledgment, stated that Pablo Sarmiento for himself and in behalf of Universal
personally appeared before the notary and acknowledged that the document is his ISSUE
own free and voluntary act and deed. WON the petitioner was truly in arrears in the payment of the rentals on the subject
Disposition WHEREFORE, the judgment appealed from is hereby affirmed with the property at the time of the filing of the complaint for ejectment
modification that the UNIVERSAL Deep-Sea Fishing Corporation is further ordered to
HELD
3
Where there is no imputation of payment made by either the debtor or creditor, the debt which is the most NO.
onerous to the debtor shall be deemed to have been satisfied
Obligations and Contracts A2010 page 87
Prof. Labitag
- There was no clear assent from the petitioner to the change in the manner of defendant Caperal, as well as the Assignment of Leasehold Rights executed by
application of payment. The silence of the petitioner with regard the request of the Caperal in favor of DBP, were also void and ineffective; awarding P1,067,500.00 for
respondent with regard the application of the rental did not mean that he consented actual damages.; P100,000.00as moral damages; P50,000.00 for exemplary
thereto. damages;
- Assuming further that petitioner did not choose the obligation to be first satisfied, P100,000.00 for attorney's fees; and ordering DBP to reimburse and pay to
giving the respondent the right to apply the payments to the other obligations of defendant Agripina Caperal P1,532,610.75 representing the amounts paid by
the petitioner, the law provided that no payment shall be made to a debt not yet defendant Agripina Caperal to defendant Development Bank of the Philippines
due (Article 1252 of the Civil Code) and that payment must be first applied to the under their Deed of Conditional Sale;
debt most onerous to the debtor (Article 1254 of the Civil Code). - CA: declared valid the ff: (1) the act of DBP in appropriating Cuba's leasehold
- The decision of the CA was a misappreciation of the facts and of the law. rights and interest under Fishpond Lease Agreement No. 2083; (2) the deeds of
assignment executed by Cuba in favor of DBP; (3) the deed of conditional sale
DBP V CA between CUBA and DBP; and (4) the deed of conditional sale between DBP and
DAVIDE; January 5, 1998 Caperal, the Fishpond Lease Agreement in favor of Caperal, and the assignment of
leasehold rights executed by Caperal in favor of DBP. It then ordered DBP to turn
NATURE over possession of the property to Caperal as lawful holder of the leasehold rights
Consolidated petition for review of the decision of the Court of Appeals and to pay CUBA the following amounts: (a) P1,067,500 as actual damages;
P50,000 as moral damages; and P50,000 as attorney's fees.
FACTS
- Plaintiff CUBA is a grantee of a Fishpond Lease Agreement from the Government; ISSUES
- CUBA obtained from DBP three separate loans totalling P335,000, each of which 1. WON the assignment of leasehold rights was a mortgage contract, not amounting
was covered by a promissory note and as security for said loans, CUBA executed to novation, cession under Art. 1255 of Civil Code, nor a Dation under Art. 1254
two Deeds of Assignment of her Leasehold Rights; 2. WON condition no. 12 of the deed of assignment constituted pactum
- Plaintiff failed to pay her loan on the scheduled dates in accordance with the terms commissionrum, as was held by the trial court
of the Promissory Notes; 3. WON the act of DBP of appropriating CUBA’s leasehold rights was violative of Art.
- Without foreclosure proceedings, whether judicial or extra-judicial, defendant DBP 2088 of the Civil Code, and that DBP should have just conducted a foreclosure
appropriated the leasehold Rights of plaintiff CUBA over the fishpond in question; proceeding, so that the execution of the Deed of Conditional Sale in favor of Caperal
then executed a Deed of Conditional Sale of the Leasehold Rights in favor of was void
plaintiff CUBA over the same fishpond; 4. WON CUBA is estopped from questioning DBP’s act of appropriation
- In the negotiation for repurchase, plaintiff CUBA addressed two letters (offers to 5. WON the award for the damages were correctly awarded
repurchase the fishpond) to the Manager DBP, which DBP accepted; 5.1 WON the award for actual damages was correctly awarded
- After the Deed of Conditional Sale was executed in favor of plaintiff CUBA, a new 5.2 WON the award for moral damages was correctly awarded, and therefore the
Fishpond Lease Agreement was issued by the Ministry of Agriculture and Food in awarding of exemplary damages and attorney’s fees
favor of plaintiff CUBA but CUBA failed to pay the amortizations stipulated in the
Deed of Conditional Sale and entered with the DBP a temporary arrangement HELD
whereby in consideration for the deferment of the Notarial Rescission of Deed of 1. YES, the assignment of leasehold rights was a mortgage contract.
Conditional Sale, plaintiff CUBA promised to make certain payments as stated in Ratio An assignment to guarantee an obligation is in effect a mortgage, and being
temporary Arrangement; in its essence a mortgage, is but a security and not a satisfaction of indebtedness.
- Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act which CUBA Reasoning The stipulations of the deeds of assignment constantly referred to the
received,a and thereafter, defendant DBP took possession of the Leasehold Rights contract as a mortgage contract. The parties admitted that the assignment was by
of the fishpond in question, advertised the public bidding to dispose of the property; way of security for the payment of the loans.
and thereafter executed a Deed of Conditional Sale in favor of defendant Agripina - on NOVATION: the said assignment merely complemented or supplemented the
Caperal; defendant Caperal was awarded Fishpond Lease Agreement by the notes; both could stand together. The obligation to pay a sum of money remained,
Ministry of Agriculture and Food. and the assignment merely served as security for the loans covered by the
- CUBA filed complaint against DBP and Caperal promissory notes.
- RTC: sided with CUBA, holding that (1) DBP's taking possession and ownership of - on CESSION: Article 1255 contemplates the existence of two or more creditors and
the property without foreclosure was plainly violative of Article 2088 of the Civil involves the assignment of all the debtor's property, but in the case only DBP is the
Code; (2) condition no. 12 of the Assignment of Leasehold Rights is void for being a creditor
clear case of pactum commissorium expressly prohibited and declared null and void - on DATION: The assignment, being in its essence a mortgage, was but a security and not a satisfaction
by Article 2088 of the Civil Code; (3) the Deed of Conditional Sale in favor of CUBA, of indebtedness so not Dation as defined in Article 1254
the notarial rescission of such sale, and the Deed of Conditional Sale in favor of
2. NO
Obligations and Contracts A2010 page 88
Prof. Labitag
Ratio To have a pactum commissiorum, the following elements must be present: Agriculture and Natural Resources that it had "foreclosed the mortgage," an award
(1) there should be a property mortgaged by way of security for the payment of the of moral damages in the amount of P50,000 is in order.
principal obligation, and (2) there should be a stipulation for automatic - Exemplary or corrective damages in the amount of P25,000 should likewise be
appropriation by the creditor of the thing mortgaged in case of non-payment of the awarded by way of example or correction for the public good. There being an award
principal obligation within the stipulated period. of exemplary damages, attorney's fees are also recoverable.
Reasoning Condition no. 12 merely provided for the appointment of DBP as Disposition WHEREFORE, the 25 May 1994 Decision of the Court of Appeals in CA-
attorney-in-fact with authority, among other things, to sell or otherwise dispose of G.R. CV No. 26535 is hereby REVERSED, except as to the award of P50,000 as moral
the said real rights, in case of default by CUBA, and to apply the proceeds to the damages, which is hereby sustained. The 31 January 1990 Decision of the Regional
payment of the loan. Trial Court of Pangasinan, Branch 54, in Civil Case No. A-1574 is MODIFIED setting
-The provision is a standard condition in mortgage contracts and is in conformity aside the finding that condition no. 12 of the deed of assignment constituted
with Article 2087 of the Civil Code, which authorizes the mortgagee to foreclose the pactum commissorium and the award of actual damages; and by reducing the
mortgage and alienate the mortgaged property for the payment of the principal amounts of moral damages from P100,000 to P50,000; the exemplary damages,
obligation. from P50,000 to P25,000; and the attorney's fees, from P100,000 to P20,000. The
3. YES Development Bank of the Philippines is hereby ordered to render an accounting of
Ratio Even in cases where foreclosure proceedings were had, this Court had not the income derived from the operation of the fishpond in question. Case is
hesitated to nullify the consequent auction sale for failure to comply with the REMANDED to the trial court for the reception of the income statement of DBP, as
requirements laid down by law, such as Act No. 3135, as amended. 15 With more well as the statement of the account of Lydia P. Cuba, and for the determination of
reason that the sale of property given as security for the payment of a debt be set each party's financial obligation to one another.
aside if there was no prior foreclosure proceeding.
Reasoning Article 2088 of the Civil Code forbids a creditor from appropriating, or FILINVEST CREDIT CORP. V PHILIPPINE ACETYLENE CO,
disposing of, the thing given as security for the payment of a debt. INC.
- DBP knew that foreclosure proceedings were necessary, however it did not DE CASTRO; January 30, 1982
conduct any. In view of the false representation of DBP that it had already
foreclosed the mortgage, the Bureau of Fisheries canceled CUBA's original lease NATURE
permit, approved the deed of conditional sale, and issued a new permit in favor of Appeal from the decision of the Court of First Instance of Manila
CUBA. Said acts which were predicated on such false representation, as well as the
subsequent acts emanating from DBP's appropriation of the leasehold rights, should FACTS
therefore be set aside. To validate these acts would open the floodgates to - On October 30, 1971, the Philippine Acetylene Co., Inc. purchased from Alexander
circumvention of Article 2088 of the Civil Code. Lim a 1969 Chevorlet for P55,247.80 with a down payment of P20,000.00 and the
4. NO balance of P35,247.80 payable, under the terms and conditions of the promissory
Ratio Estoppel cannot give validity to an act that is prohibited by law or against note, at a monthly installment of P1,036.70 for thirty-four months, due and payable
public policy on the first day of each month starting December 1971 through and inclusive
Reasoning The appropriation of the leasehold rights, being contrary to Article 2088 September 1, 1974 with 12 % interest per annum on each unpaid installment, and
of the Civil Code and to public policy, cannot be deemed validated by estoppel. attorney's fees in the amount equivalent to 25% of the total of the outstanding
5. unpaid amount. As security for the payment, the appellant executed a chattel
5.1 NO mortgage over vehicle in favor of Lim. On November 2, 1971, Alexander Lim
Ratio Actual or compensatory damages cannot be presumed, but must be proved assigned to the Filinvest Finance Corporation all his rights, title, and interests in the
with reasonable degree of certainty. promissory note and chattel mortgage by virtue of a Deed of Assignment.
Reasoning Other than the testimony of CUBA and her caretaker, there was no Thereafter, the Filinvest Finance Corporation, as a consequence of its merger with
proof as to the existence of those items which were allegedly damaged before DBP the Credit and Development Corporation assigned to the new corporation, Filinvest
took over the fishpond in question (no inventory, receipts presented). Credit Corporation, all its rights, title, and interests on the aforesaid promissory
- Such claim for "losses of property," having been made before knowledge of the note and chattel mortgage which, in effect, the payment of the unpaid balance
alleged actual loss, was therefore speculative. The alleged loss could have been a owed by Phil. Acetylene to Alexander Lim was financed by Filinvest such that Lim
mere afterthought or subterfuge to justify her claim for actual damages. became fully paid. Phil Acetylene had defaulted in the payment of nine successive
- From 1979 until after the filing of her complaint in court in May 1985, CUBA did installments. Filinvest then sent a demand letter for the aforesaid amount in full in
not bring to the attention of DBP the alleged loss, and CUBA even admitted that the addition to stipulated interest and charges or return the mortgaged property to be
loss was due to the fraudulent acts of her fishpond workers. remitted at Filinvest’s office within five days from date of the letter during office
5.2 YES, but reduced hours. Appellant, thru its asst. general-manager advised Filinvest of its decision to
Reasoning DBP's act of appropriating CUBA's leasehold rights which was contrary return the mortgaged property, which return shall be in full satisfaction of its
to law and public policy, as well as its false representation to the then Ministry of indebtedness pursuant to Article 1484 of the New Civil Code. The car was returned
Obligations and Contracts A2010 page 89
Prof. Labitag
to the Filinvest together with the document "Voluntary Surrender with Special mortgaged motor vehicle took place, for it is quite possible that appellee, as
Power of Attorney To Sell" executed by appellant on March 12, 1973 and confirmed mortgagee, merely wanted to secure possession to forestall the loss, destruction,
to by Filinvest's vice-president. On April 4, 1973, Filinvest wrote a letter to appellant fraudulent transfer of the vehicle to third persons, or its being rendered valueless if
informing the latter that Filinvest cannot sell the car as there were unpaid taxes left in the hands of the appellant. Filinvest is also not guilty of estoppel since it
worth P70,122.00 on the car. Filinvest requested the appellant to update its account never accepted the mortgaged car in full satisfaction of the debt. It is the fact of
by paying the installments in arrears and accruing interest in the amount of foreclosure and actual sale of the mortgaged chattel that bar the recovery by the
P4,232.21 on or before April 9, 1973. On May 8, 1973, Filinvest offered to deliver vendor of any balance of the purchaser's outstanding obligation not satisfied by the
back the motor vehicle to the appellant but the latter refused to accept it, so sale
Filinvest instituted an action for collection of a sum of money with damages in this 2. NO
petition. Ratio The unpaid taxes on the vehicle is a burden on the property and must be
Respondent’s Comments borne by the owner.
- Filinvest has no cause of action against it since its obligation towards Filinvest was Reasoning There is a specific provision in the Deed of Sale that the Lim warrants
extinguished when in compliance with the demand letter, it returned the mortgaged the sale of the car to be free from liens and encumbrances. When Filinvest accepted
property. Assuming that the return of the property did not extinguish its obligation, the assignment of credit from the Lim, there is a specific agreement that Lim
it was nonetheless justified in refusing payment since Filinvest is not entitled to continued to be bound by the warranties he had given to Filinvest and that if it
recover the same due to the breach of warranty committed by Lim. appears subsequently that "there are such counterclaims, offsets or defenses that
may be interposed by the debtor at the time of the assignment, such counterclaims,
ISSUES offsets or defenses shall not prejudice the FILINVEST FINANCE CORPORATION and I
1. WON the return of the mortgaged motor vehicle to Filinvest by totally extinguished and/or cancelled (Alexander Lim) further warrant and hold the said corporation free and harmless
Phil Acetylene’s obligation from any such claims, offsets, or defenses that may be availed of.". Since as earlier
2. WON the warranty for the unpaid taxes on the mortgaged motor vehicle may be shown, the ownership of the mortgaged property never left the mortgagor, the Phil
properly raised and imputed to or passed over to the appellee. Acetylene Co., the burden of the unpaid taxes should be borne by him, who, in any
case, may not be said to be without remedy under the law, but definitely not
HELD against appellee to whom were transferred only rights, title and interest, as such is
1. NO the essence of assignment of credit.
Ratio The mere return of the mortgaged motor vehicle by the mortgagor, the Disposition The judgment appealed from is hereby affirmed in toto with costs
herein appellant, to the mortgagee, the herein appellee, does not constitute dation against defendant-appellant.
in payment or dacion en pago in the absence, express or implied of the true
intention of the parties. SEPARATE OPINION
Reasoning Dacion en pago is the transmission of the ownership of a thing by the
debtor to the creditor as an accepted equivalent of the performance of obligation. In ABAD SANTOS [ concur]
dacion en pago, as a special mode of payment, the debtor offers another thing to
The document indicated that the appellee was to foreclose the chattel mortgage.
the creditor who accepts it as equivalent of payment of an outstanding debt. The
The surrender of the car to the appellee was a mere preparatory act for its sale in a
undertaking really partakes in one sense of the nature of sale, that is, the creditor is
foreclosure of the chattel mortgage. After the appellee discovered, without
really buying the thing or property of the debtor, payment for which is to be
negligence on its part, that foreclosure of the chattel mortgage was impractical, it
charged against the debtor's debt. As such, the essential elements of a contract of
had the right which it exercised to abandon the chattel mortgage and demand
sale, namely, consent, object certain, and cause or consideration must be present.
fulfillment of the obligation.
In its modern concept, what actually takes place in dacion en pago is an objective
DE GUZMAN V COURT OF APPEALS
novation of the obligation where the thing offered as an accepted equivalent of the
performance of an obligation is considered as the object of the contract of sale,
CONCEPCION, July 23, 1985
while the debt is considered as the purchase price. In any case, common consent is
an essential prerequisite, be it sale or innovation to have the effect of totally NATURE
extinguishing the debt or obligation. The evidence on the record fails to show that Petition for the reversal of the decision of the respondent appeal appellate court
Filinvest consented, or at least intended, that the mere delivery to, and acceptance which dismissed the petition to annul and set aside the orders of the Court of First
by him, of the mortgaged motor vehicle be construed as actual payment, more Instance of Rizal, Pasay City Branch, dismissing the petitioners' appeal in Civil Case
specifically dation in payment or dacion en pago. The fact that the mortgaged No. 5247- P and to restrain the respondents from enforcing the same
motor vehicle was delivered to him does not necessarily mean that ownership
thereof, as juridically contemplated by dacion en pago, was transferred from FACTS
appellant to appellee. In the absence of clear consent of appellee to the proferred - The de Guzman et al, as SELLER, and Singh, as BUYER, executed a Contract to Sell
special mode of payment, there can be no transfer of ownership of the mortgaged covering two parcels of land owned by the petitioners located at Pasay City
motor vehicle from appellant to appellee. If at all, only transfer of possession of the
Obligations and Contracts A2010 page 90
Prof. Labitag
- Sigh should pay the balance of the purchase price of P133,640 on or before
February 17, 1975. ISSUE
- Two days before the said date, Singh asked the petitioners to furnish her with a WON Singh had complied with the terms of the compromise agreement
statement of account of the balance due; copies of the certificates of title covering
the two parcels of land subject of the sale; and a copy of the power of attorney HELD
executed by Gestuvo in favor of de Guzman. Petitioners denied the request. YES.
- Singh filed a complaint for specific performance with damages against the - Singh had substantially complied with the terms and conditions of the compromise
petitioners before the CFI of Rizal. agreement. Her failure to deliver to the petitioners the full amount on January 27,
- She said that petitioners committed a breach of contract, and had also acted 1978 was not her fault. The blame lies with the petitioners. The record shows that
unfairly and in manifest bad faith for which they should be held liable for damages. Singh went to the sala of Judge Bautista on the appointed day to make payment, as
- Petitioners claimed that the complaint failed to state a cause of action; that the agreed upon in their compromise agreement. But, the petitioners were not there to
balance due was already pre-determined in the contract; that the petitioners have receive it. Only the petitioners' counsel appeared later, but, he informed Singh that
no obligation to furnish Singh with copies of the documents requested; and that he had no authority to receive and accept payment. Instead, he invited Singh and
Singh's failure to pay the balance of the purchase price on the date specified had her companions to the house of the petitioners to effect payment. But, the
caused the contract to expire and become ineffective without necessity of notice or petitioners were not there either. They were informed that the petitioner Pilar de
of any judicial declaration to that effect. Guzman would arrive late in the afternoon. Singh was assured, however, that she
- Trial court approved the compromise agreement submitted by the parties wherein would be informed as soon as the petitioners arrived. Singh, in her eagerness to
they agreed on the following: settle her obligation, consented and waited for the call which did not come and
1. Not later than December 18, 1977, plaintiff will pay defendants the total unwittingly let the period lapse.
amount of P240,000 and in case of failure to do so, she shall have only - The next day, January 28, 1978, Singh went to the office of the Clerk of the Court
until January 27, 1978 within which to pay the total amount of P250,000, of First Instance of Rizal, Pasay City Branch, to deposit the balance of the purchase
which shall be treated as complete and final payment of the consideration price. But, it being a Saturday, the cashier was not there to receive it. So, on the
in the contract to sell next working day, Monday, January 30, 1978, Singh deposited the amount of
2. Immediately upon receipt of either amount within the periods so P30,000 with the cashier of the Office of the Clerk of the Court of First Instance of
contemplated, defendants undertake to immediately execute the Rizal, Pasay City Branch, to complete the payment of the purchase price of
necessary legal instruments to transfer to plaintiff the title to the parcels of P250,000.
land - Since the deposit of the balance of the purchase price was made in good faith and
3. That defendants would temporarily desist from enforcing their right or that the failure of Singh to deposit the purchase price on the date specified was due
possession over the properties involved herein until January 27, 1978, but to the petitioners who also make no claim that they had sustained damages
this shall not be construed as an abandonment or waiver of its causes of because of the two days delay, there was substantial compliance with the terms
action and conditions of the compromise agreement.
4. Should plaintiff fail to pay either of the amounts within the period herein Disposition WHEREFORE, the petition should be, as it is hereby DISMISSED. The
stipulated, the aforesaid Contract to Sell dated February 17, 1971 shall be temporary restraining order heretofore issued is LIFTED and SET ASIDE. With costs
deemed rescinded and plaintiff agrees to voluntarily surrender and vacate against the petitioners.
the same without further notice or demand;
5. That payment of either amounts above-stated shall take place at CFI TLG INTERNATIONAL CONTINENTAL ENTERPRISING, INC. V
Rizal Branch 3 at 10:00 a.m. Friday, January 27, 1978 unless payment has FLORES
been earlier made, in which case plaintiff shall produce receipt of the same ANTONIO; October 31, 1972
at the same time and place
6.Both parties waive and abandon, by reason hereof, their respective
NATURE
claims and counterclaims as embodied in the Complaint and Answer.
Petition for certiorari to set aside orders (of June 23, 1972 and July 30, 1972) of
- On January 28, 1978, the petitioners filed a motion for the issuance of a writ of
respondent judge denying petitioner’s motion to withdraw sum of P3,750.00
execution, claiming that Singh had failed to abide by the terms of the compromise
deposited by it by way of consignation
agreement and pay the amount specified in their compromise agreement within the
period stipulated.
FACTS
- Singh opposed the motion, saying that she had complied with the terms and
- In Oct. 5, 1971, Respondent judge granted petitioner’s “Motion To Intervene”, and
conditions of the compromise agreement and asked the court to direct the
admitted its “Complaint in Intervention” in the case of Bearcon Trading Co., Inc. v.
petitioners to comply with the court's decision and execute the necessary
Juan Fabella Et Al
documents to effect the transfer of ownership of the two parcels of land to her.
- the case was an action for declaratory relief involving the rights of Bearcon as
- CFI directed the petitioners to immediately execute the necessary documents,
lessee of the premises of the defendants in that case.
transferring to private respondent the title to the properties. CA affirmed.
Obligations and Contracts A2010 page 91
Prof. Labitag
- Petitioner intervened as sub-lessee of Bearcon over the property. NATURE
- Purpose: 1. to protect its rights as such sub-lessee, 2. to make a consignation Appeal by certiorari from the decision of the Court of Appeals
of the monthly rentals as it didn’t know who was lawfully entitled to receive
payments of the monthly rentals. FACTS
- Because of the admission of the “Complaint In Intervention”, petitioner deposited - On Feb 28, 1977, petitioner Luisa F. McLaughlin and private respondent Ramon
P3,750 with the CFI, by way of rentals. Flores entered into a contract of conditional sale of real property. Paragraph 1 of
- Oct. 20, 1971: defendants in the case filed an “Omnibus Motion”, praying that the the deed of conditional sale fixed the total purchase price of P140,000.00 payable
complain, as well as the Complaint In Intervention be dismissed. as follows: a) P26,550.00 upon the execution of the deed; and b) the balance of
- the court a quo dismissed both the complaint and the complaint in intervention P113,450.00 to be paid not later than May 31, 1977. The parties also agreed that
- May, 1972: petitioner filed Motion to withdraw the sums it deposited, because the the balance shall bear interest at the rate of 1% per month to commence from
order which dismissed the case without a resolution left the intervenor “without any Dec 1, 1976, until the full purchase price was paid.
recourse but to apply for authority to withdraw the amount and turn over the same - On June 19, 1979, petitioner filed a complaint for the rescission of the deed of
to the defendants in accordance with the understanding arrived at between the conditional sale due to the failure of Flores to pay the balance due on May 31,
parties hereto”. 1977.
- June 23 and July 15, 1972: respondent denied the motion and the motion for - On Dec 27, 1979, the parties submitted a Compromise Agreement on the basis of
consideration which the court rendered a decision on Jan 22, 1980. In said compromise
agreement, Flores acknowledged his indebtedness to petitioner under the deed of
ISSUE conditional sale in the amount of P119,050.71, and the parties agreed that said
WON Respondent could authorize the withdrawal of the deposits considering that amount would be payable as follows: a) P50,000.00 upon signing of the agreement;
according to Respondent, the Court “has not ordered the intervenor to make any and b) the balance of P69,059.71 in two equal installments on June 30, 1980 and
deposit in connection” with the case Dec 31, 1980.
- As agreed upon, Flores paid P50,000.00 upon the signing of the agreement and
HELD he also paid an "escalation cost" of P25,000.00.
Yes. Respondent Judge had the authority to authorize the withdrawal of the - Under paragraph 3 of the Compromise Agreement, private respondent agreed to
deposits. pay P1,000 pesos monthly rental beginning Dec 5, 1979 until the obligation is
Ratio A court shall have the authority to authorize the withdrawal of a deposit, duly paid, for the use of the said property
when the intervenor made the deposit as a consequence of the admission by the - Paragraphs 6 and 7 of the Compromise Agreement further state:
Court of its “Complaint In Intervention”. -"That the parties are agreed that in the event the defendant (Flores) fails to
Reasoning - In general, Art. 1260: Before the creditor has accepted the comply with his obligations herein provided, the plaintiff (Mclaughlin) will be
consignation, or before a judicial declaration that the consignation has been entitled to the issuance of a writ of execution rescinding the Deed of
properly made, the debtor may withdraw the thing or the sum deposited, allowing Conditional Sale of Real Property. In such eventuality, defendant (Flores)
the obligation to remain in force”. hereby waives his right to appeal to (from) the Order of Rescission and the Writ
- The case was dismissed before the amount deposited was either accepted by the of Execution which the Court shall render in accordance with the stipulations
creditor, or a declaration was made by the court approving such consignation. herein provided for.
- Dismissal rendered the consignation ineffectual -"That in the event of execution all payments made by defendant (private
- the Respondent should have allowed withdrawal. respondent) will be forfeited in favor of the plaintiff (petitioner) as liquidated
- Repondent’s claim that it had no authority since it “has not ordered intervenor to damages."
make” the deposit ignores the fact that the deposit was made because of the - On Oct 15, 1980, McLaughlin wrote to private respondent demanding that he pay
admission of its “Complaint in Intervention” the balance of P69,059.71 on or before Oct 31, 1980. This demand included not
- Deposit was made and officially receipted by the Clerk of Court only the installment due on June 30, 1980 but also the installment due on Dec 31,
- From the moment the money was deposited, the money remained under the 1980.
control and jurisdiction of the court and the former could not recover it without an - On Oct 30, 1980, Flores sent a letter to petitioner signifying his willingness and
express order of restitution.” intention to pay the full balance of P69,059.71
Disposition WHEREFORE, the orders dated June 23, 1972 and July 15, 1972 subject - On Nov 7, 1980, petitioner filed a Motion for Writ of Execution alleging that Flores
of the petition for certiorari are hereby set aside and Respondent directed to grant failed to pay the installment due on June 1980 and that since June 1980 he had
the withdrawal of the deposit in accordance with the foregoing. failed to pay the monthly rental of P1,000.00. Petitioner prayed that a) the deed of
conditional sale of real property be declared rescinded with forfeiture of all
MCLAUGHLIN V COURT OF APPEALS payments as liquidated damages; and b) the court order the payment of P1,000.00
FERIA; October 10, 1986 back rentals since June 1980 and the eviction of private respondent.
- TC granted the motion for writ of execution.
Obligations and Contracts A2010 page 92
Prof. Labitag
- CA held that the Song Fo v Hawaian Ruling is applicable in the case at bar – - According to Article 1256 (Civil Code), if the creditor to whom tender of payment
Recission will not be permitted for slight breach of contract. has been made refuses without just cause to accept it, the debtor shall be released
ISSUES from responsibility by the consignation of the thing or sum due, and that
1. WON contract should be rescinded consignation alone shall produce the same effect in the five cases enumerated
2. WON respondent is liable for the P76,059.71 he attempted to pay to the therein; Article 1257 provides that in order that the consignation of the thing (or
petitioner but the petitioner did not accept (even though the 30-day period provided sum) due may release the obligor, it must first be announced to the persons
by R.A. 6552 has not yet expired) interested in the fulfillment of the obligation; and Article 1258 provides that
consignation shall be made by depositing the thing (or sum) due at the disposal of
HELD the judicial authority and that the interested parties shall also be notified thereof.
1. NO - Soco vs. Militante: "Tender of payment must be distinguished from consignation.
- SC agrees with the CA that it would be inequitable to cancel the contract of Tender is the antecedent of consignation, that is, an act preparatory to the
conditional sale and to have the amount of P101,550.00 (P148,126.97 according to consignation, which is the principal, and from which are derived the immediate
private respondent in his brief) already paid by him under said contract, excluding consequences which the debtor desires or seeks to obtain. Tender of payment may
the monthly rentals paid, forfeited in favor of petitioner, particularly after private be extrajudicial, while consignation is necessarily judicial, and the priority of the
respondent had tendered the amount of P76,059.71 in full payment of his first is the attempt to make a private settlement before proceeding to the
obligation. solemnities of consignation.
- Private respondent had substantially complied with the terms and conditions of - Although private respondent had preserved his rights as a vendee in the contract
the compromise agreement. of conditional sale of real property by a timely valid tender of payment of the
- Section 4 of RA No. 6552 which took effect on Sept14, 1972 provides as balance of his obligation which was not accepted by petitioner, he remains liable for
follows: the payment of his obligation because of his failure to deposit the amount due with
"In case where less than two years of installments were paid, the seller shall give the court.
the buyer a grace period of not less than sixty days from the date the installment - Inasmuch as petitioner did not accept the aforesaid amount, it was incumbent on
became due. If the buyer fails to pay the installments due at the expiration of the private respondent to deposit the same with the court in order to be released from
grace period, the seller may cancel the contract after thirty days from receipt by responsibility. Since private respondent did not deposit said amount with the court,
the buyer of the notice of the cancellation or the demand for rescission of the his obligation was not paid and he is liable in addition for the payment of the
contract by a notarial act." monthly rental of P1,000.00 from January 1, 1981 until said obligation is duly paid,
- Petitioner demanded payment of the balance of P69,059.71 on or before in accordance with paragraph 3 of the Compromise Agreement. Upon full payment
October 31, 1980, petitioner could cancel the contract after 30 days from receipt by of the amount of P76,059.71 and the rentals in arrears, private respondent shall be
private respondent of the notice of cancellation. Considering petitioner's motion for entitled to a deed of absolute sale in his favor of the real property in question.
execution filed on November 7, 1980 as a notice of cancellation, petitioner could Disposition. Decision of the CA AFFIRMED w/ the modifications:
cancel the contract of conditional sale after 30 days from receipt by private (a) Petitioner ordered to accept from private respondent the Metrobank Cashier's
respondent of said motion. Private respondent's tender of payment of the amount Check in the amount of P76,059.71
of P76,059.71 together with his motion for reconsideration on November 17, 1980 (b) Private respondent ordered to pay petitioner the rentals in arrears of P1,000.00
was, therefore, within the thirty-day period granted by R.A.6552. a month from Jan 1, 1981 until full payment; and
(c) Petitioner ordered to execute a deed of absolute sale in favor of private
2. YES respondent over the real property upon full payment of the amounts .
- The tender made by private respondent of a certified bank manager's check
payable to petitioner was a valid tender of payment. The certified check covered
not only the balance of the purchase price in the amount of P69,059.71, but also
the arrears in the rental payments from June to December, 1980 (P7,000.00) or a
total of P76,059.71.
Section 49, Rule 130 of the Revised Rules of Court provides that: "An offer in
writing to pay a particular sum of money or to deliver a written instrument or
specific property is, if rejected, equivalent to the actual production and tender
of the money, instrument, or property."
- However, although private respondent had made a valid tender of payment which
SOCO V MILITANTE
preserved his rights as a vendee in the contract of conditional sale of real property, GUERRERO; June 28, 1983
respondent did not follow it with a consignation or deposit of the sum due with the
court. The Manager's Check tendered by private respondent on November 17, 1980 NATURE
was subsequently cancelled and converted into cash, but the cash was not Petition to review the decision of the Court of First Instance of Cebu
deposited with the court.
Obligations and Contracts A2010 page 93
Prof. Labitag
FACTS - The Court of First Instance reversed this judgment and found the consignation to
- Soco and Francisco entered a contract of lease on January 17, 1973 whereby Soco be valid. Hence, this appeal.
leased her commercial building and lot situated at Manalili Street, Cebu City, to
Francisco for a monthly rental of Php 800.00 for a period of 10 years renewable for ISSUES
another 10 years at the option of the lessee. 1. WON the lessee failed to pay the monthly rentals beginning May, 1977 up to the
- Sometime later, Francisco noticed that Soco did not anymore send her collector for time the complaint for eviction was filed on January 8, 1979. (WON lessee made a
the payment of rentals and at times there were payments made but no receipts valid tender of payment)
were issued. This situation prompted Francisco to write Soco, the letter dated 2. WON the consignation of the rentals was valid
February 7, 1975 which the latter received.
- On May 13, 1975, Francisco wrote the Vice-President of Comtrust, Cebu Branch HELD
requesting the latter to issue checks to Soco in the amount of Php 840.00 every 1 YES (NO)
10th of the month, obviously for payment of his monthly rentals. This request of - The June and July, 1977 letters may be proof of tender of payment but only for the
Francisco was complied with by Comtrust in its letter dated June 4, 1975. months they refer to. They are not proof of tender of payment of other or
- Pursuant to his letter dated February 7, 1975, Francisco paid his monthly rentals subsequent monthly rentals. The November, 1978 letter likewise is not a proof of
to Soco by issuing checks of the Commercial Bank and Trust Company where he tender of payment for the said month. It merely proves rental deposit for the
had a checking account. particular month of November, 1978 and no other.
- These payments in checks were received because Soco admitted that prior to May - Furthermore, there is no factual basis for the lower court’s finding that the lessee
1977 defendant Francisco had been religiously paying the rental. had tendered payment of the monthly rentals, thru his bank, citing the lessee’s
- Soon after Soco learned that Francisco sub-leased a portion of the building to letter requesting the bank to issue checks in favor of Soco in the amount of
NACIDA, at a monthly rental of more than Php 3,000.00 which is much higher than Php840.00 every 10th of each month and to deduct the full amount and service fee
what Francisco was paying to Soco, the latter felt that she was on the losing end so from his current account. It must be noted that the letter also requested said bank
she tried to look for ways and means to terminate the contract. to notify them every time the check is ready so they may send somebody to get it.
- In view of the alleged non-payment of rental of the leased premises from May, Evidently, it was the lessee’s duty to send someone to get the cashier’s check from
1977, Soco, through her lawyer, sent a letter dated November 23, 1978 to Francisco the bank and logically, the lessee has the obligation to make and tender the check
serving notice to the latter “to vacate the premises leased.” to the lessor. This the lessee failed to do.
- In answer to this letter, Francisco through his lawyer informed Soco and her lawyer - Tender of payment must be made in lawful currency. While payment in check by
that all payments of rental due her were in fact paid by Commercial Bank and Trust the debtor may be acceptable as valid, if no prompt objection to said payment is
Company through the Clerk of Court of the City Court of Cebu. Despite this made the fact that in previous years payment in check was accepted does not place
explanation, Soco filed this instant case of Illegal Detainer on January 8, 1979. its creditor in estoppel from requiring the debtor to pay his obligation in cash. Thus,
- Soco alleged that she personally demanded form Francisco the May, June, July and tender of a check to pay for an obligation is not a valid tender of payment thereof.
August rentals but Francisco did not pay for the reason that he had no funds 2. NO
available at that time. - For a consignation to be valid, its essential requisites must be complied with fully
- This allegation of Soco was denied by Francisco because per his instructions, the and strictly in accordance with the law, Articles 1256 to 1261, new Civil Code. That
Commercial Bank and Trust Company issued checks in favor of Soco representing these articles must be accorded a mandatory construction is clearly evident from
payments for monthly rentals for the months of May, June, July, August, 1977 as the very language of the codal provisions themselves which require absolute
shown in Debit Memorandum issued by Comtrust. These payments are further compliance with the essential requisites therein provided.
bolstered by the certification issued by Comtrust dated October 29, 1979. - Consignation is the act of depositing the thing due with the court or judicial
- Soco was informed of the deposits made to the Clerk of Court through a letter of authorities whenever the creditor cannot accept or refuses to accept payment and
Atty. Pampio Abarientos dated June 9, 1977 (requesting Soco to claim the rental it generally requires a prior tender of payment.
payment from Francisco’s office otherwise the latter would be constrained to make In order that consignation may be effective, the debtor must first comply with
a consignation) and July 6, 1977 (informing Soco that Francisco has consigned certain requirements prescribed by laws. The debtor must show,
rental payment for May and June, 1977 to the Clerk of Court of City Court of Cebu) (a) that there was a debt due;
as well as in the answer of Francisco in Civil Case R-16261. -She was further (b) that the consignation of the obligation had been made because the creditor to
notified of these payments by consignation in the letter of Atty. Menchavez dated whom tender of payment was made refused to accept it, or because he was absent
November 28, 1978 (answer to Soco’s letter alleging non-payment; the letter or incapacitated, or because several persons claimed to be entitled to receive the
proved Francisco’s payment for November, 1978 as deposited in the Clerk of Court). amount due, Article 1176;
- The City Court of Cebu ruled that the consignation was not valid and ordered (c) that previous notice of the consignation had been given to the person interested
Francisco to vacate immediately the leased premises, pay the rentals due, pay the in the performance of the obligation, Article 1177;
plaintiff’s attorney’s fee, pay for damages and incidental litigation expenses and (d) that the amount due was placed at the disposal of the court, Article 1178;
pay the costs. (e) that after the consignation had been made the person interested was notified
thereof, Article 1178. - Failure in any of these requirements is enough ground to
Obligations and Contracts A2010 page 94
Prof. Labitag
render a consignation ineffective. Furthermore, without notice first announced to - On November 26, 1962 the lower court ordered the defendants to deposit said
the persons interested in the fulfillment of the obligation, the consignation as amount to the Clerk of Court
payment is void. - On November 28, 1962 plaintiff filed a motion for partial judgment on the
- In the case at bar, respondent Francisco failed to prove the following requisites of pleadings with respect to the amount of P5,106.00, modifying their previous request
a valid consignation, for judicial deposit, which had already been granted
(a) tender of payment of the monthly rentals to the lesser except that indicated in - Defendants moved to reconsider the order of November 26, explaining that
the June, 1977 letter (tender of payment already discussed above); through oversight they failed to allege in their "Opposition" that the sum of
(b) respondent lessee failed to prove the first notice to the lessor prior to P5,106.00 was actually secured by a real estate mortgage. They would thus
consignation, except payment referred to in the June, 1977 letter. The lessee must premise their willingness to deposit said amount upon the condition that the
give prior notice of consignation for each monthly rental; plaintiff will cancel the mortgage above-mentioned
(c) respondent lessee likewise failed to prove the second notice, that is after - On March 20, 1963 the lower court resolved both motions, in effect denying them
consignation has been made, to the lessor except the consignation referred to in and reiterating its previous order
the May and June cashier’s check. The lessee should give a notice of consignation - Hence, this appeal
of each deposit every monthly rental. The bank did not send notice to Soco that
checks will be deposited and have actually been deposited in consignation with the ISSUES
Clerk of Court because no instructions were given by its depositor; Procedural
(d) the respondent failed to prove actual deposit or consignation of the monthly rentals except the two WON the order is unappealable
cashier’s checks previously mentioned. Not a single copy of the official receipts issued by the Clerk of Substantive
Court was presented at the trial of the case to prove actual deposit or consignation. The official receipts WON the court below acted with authority and in the judicious exercise of its
are the best proof of actual consignation. The court also found that the tenant only made the deposits due discretion in ordering the defendants to make the deposit but without the condition
in court two years later and after the filing of the complaint for illegal detainer. The debit memorandums they had stated
presented as evidence does not prove payment of rentals or deposits in court. These debit memorandums
are merely internal banking practices or office procedures involving the bank and its depositor which is HELD
not binding upon a third person such as the lessor. What is important is whether the checks were picked Procedural
up by the lessee as per the arrangement, wherein the lessee shall pick up the check issued by the bank to Plaintiff-appellant maintains that the order is interlocutory, since it does not dispose
tender the same to the lessor. The lessee failed to prove that he complied with the arrangement of the case with finality but leaves something still to be done, and hence is
unappealable.
SOTTO V MIJARES - The remedy, it is pointed out, should have been by petition for certiorari but this
MAKALINTAL; May 8, 1969 Court sees fit to disregard technicalities and treat this appeal as such a petition and
consider it on the merits
NATURE Substantive
Appeal from the order of the CFI of Negros Occidental - Whether or not to deposit at all the amount of an admitted indebtedness, or to do
so under certain conditions, is a right which belongs to the debtor exclusively
FACTS - If he refuses he may not be compelled to do so, and the creditor must fall back on
- Cristina Sotto (plaintiff-appellee) and Hernani Mijares along with other individuals the proper coercive processes provided by law to secure or satisfy his credit, as by
(defendants-appellants), were parties to a contract attachment, judgment and execution
- On November 13, 1962, during the pendency of Civil Case No. 6796, a proceeding - From the viewpoint of the debtor a deposit such as the one involved here is in the
to foreclose a real estate mortgage earlier executed by defendants to plaintiff in nature of consignation, and consignation is a facultative remedy which he may or
consideration of a P5,000.00 loan which the former had allegedly failed to pay, may not avail of.
plaintiff filed a "Motion for Deposit" which stated: - Indeed, the law says that "before the creditor has accepted the consignation or
1. that the balance indebtedness of the defendants in favor of the plaintiff is the before a judicial declaration that the consignation has been properly made, the
amount of P5,106.00 debtor may withdraw the thing or the sum deposited, allowing the obligation to
2. that defendants, in their answer, admitted the said claim of P5,106.00 3. that in remain in force.
view of the admission of the defendants of the same it is fitting and proper that the - If the debtor has such right of withdrawal, he surely has the right to refuse to
said amount of P5,106.00 be deposited in the Office of the Clerk of Court of this make the deposit in the first place
province or to deliver the same to the plaintiff and/or her counsel. - The court, in issuing the order complained of, committed grave abuse of discretion
- Defendants, in their "Opposition" signified their willingness to deposit the amounting to excess of jurisdiction.
requested amount provided that the complaint be dismissed and that they be Disposition The order appealed from is set aside
absolved of all other liabilities, expenses and costs.
Obligations and Contracts A2010 page 95
Prof. Labitag
MEAT PACKING CORPORATION OF THE PHILIPPINES V extinguishes the obligation. Refusal due to the said rescission of contract is
SANDIGANBAYAN untenable since MPCP accepted annual amortizations or rentals, advances,
YNARES-SANTIAGO; June 22, 2001 insurance, and taxes from PIMECO. The acceptance negates the said rescission.
NATURE 2. YES
Special Civil Action - The voluntary appearance in court and its submission to its authority or by service
of summons gives the courts jurisdiction over the person. MPCPs appearance in the
FACTS courts in the Civil Case alreadr created the said jurisdiction
Meat Packing Corporation of the Philippines (MPCP) is a corporation wholly owned
by the GSIS the MPCP entered an Agreement with the Philippine Integrated Meat at PABUGAIS V SAHIJWANI
the rate of P1,375,563.92 payable over 28 years with it totaling P38,515,789.87. In YNARES-SANTIAGO; February 23, 2004
1986, PCGG sequestered all the assets, properties, and records of PIMECO which
included the meat packing plant and the lease-purchase agreement. MPCP wrote a NATURE
letter of rescission of the lease-purchase agreement on ther ground of non-payment Petition for review on certiorari of the decision of Court of Appeals which set aside
of non-payment of rentals of more than P.2,000,000.00 for the year 1986. A case the Decision of the Regional Trial Court of Makati.
was filed in the Sandiganbayan for a Writ of Preliminary Injunction stating that the
transfer of PIMECO to MPCP will result in the dissipation of assets and that the PCGG FACTS
commited a grave abuse of authority in its termination of the lease-purchase - Pursuant to an "Agreement And Undertaking", petitioner Teddy G. Pabugais, in
agreement. The Sandiganbayan issued the writ of preliminary injunction; it also consideration of the amount of Fifteen Million Four Hundred Eighty Seven Thousand
continued to conduct its hearings regarding the validity of the turn-over of the meat Five Hundred Pesos (P15,487,500.00), agreed to sell to respondent Dave P.
packing plant to GSIS. The Sandiganbayan ruled that the PCGG gravely abused its Sahijwani a lot containing 1,239 square meters located at Jacaranda Street, North
discretion. PIMECO asked for declaratory relief and remedies. It stated that it has Forbes Park, Makati, Metro Manila. Respondent paid petitioner the amount of
paid rentals from 1981-1985 and prior to the sequestration it was able to pay MPCP P600,000.00 as option/reservation fee and the balance of P14,887,500.00 to be
P846,269.70, however, since the PCGG management took over the plant and paid within 60 days from the execution of the contract, simultaneous with delivery
presented the danger of making PIMECO in default in the payment of the rentals to of the owner's duplicate Transfer Certificate of Title in respondent's name the Deed
MPCP for three annual installments and causing the cancellation. PIMECO prayed for of Absolute Sale; the Certificate of Non-Tax Delinquency on real estate taxes and
a declaration that it was not bound by the said payment. PCGG paid MPCP two Clearance on Payment of Association Dues. The parties further agreed that failure
checks amounting to P5 M. The Sandiganbayan set a hearing for the declaration on the part of respondent to pay the balance of the purchase price entitles
and MPCP through a special appearance filed its comment. The Sandiganbayan petitioner to forfeit the P600,000.00 option/reservation fee; while non-delivery by
ruled that MPCP should accept the P5 M payment made by the PCGG. MPCP filed for the latter of the necessary documents obliges him to return to respondent the said
a Motion for Reconsideration that was denied. The Petition for relief on the other option/reservation fee with interest at 18% per annum.
hand was dismissed since the P5 M already covered part of the P7,530,036.21 - Petitioner failed to deliver the required documents. In compliance with their
previously unpaid rentals thus making it moot and academic. This gave rise to this agreement, he returned to respondent the latter's P600,000.00 option/reservation
petition for certiorari, mandamus, and prohibition. fee by way of Far East Bank & Trust Company which was, however, dishonored.
ISSUES Petitioner's Claims
1. WON MPCPs refusal to accept the payment was unjustified - He twice tendered to respondent, through his counsel, the amount of P672,900.00
2. WON Sandiganbayan has a jurisdiction to accept the consignation (representing the P600,000.00 option/reservation fee plus 18% interest per annum
computed from December 3, 1993 to August 3, 1994) in the form of a check but
HELD said counsel refused to accept the same (1st-via messenger; 2nd-via DHL) Because
1. YES, it is unjustified. of these refusals, he wrote a letter saying saying that he is consigning the amount
- The Sandiganbayan already approved the consignation by the PCGG wherein tendered with the RTC Makati City.
consignation is the act of depositing the thing due with the court or judicial Respondent's Claims
authorities whenever the creditor cannot accept or refuses to accept payment, and - Admitted that his office received petitioner's letter but claimed that no check was
it generally requiresa a prior tendser of payment. Tender on the otherhand is the appended thereto. He averred that there was no valid tender of payment because
antecedent of conmsignation, an act preparatory to the consignation, which is the no check was tendered and the computation of the amount to be tendered was
principal, and from which are derived the immediate consequences which the insufficient, because petitioner verbally promised to pay 3% monthly interest and
debtor desires or seeks to obtain. Tender of payment maybe extrajudicial while 25% attorney's fees as penalty for default, in addition to the interest of 18% per
consigning is necessarily judicial. The priority of tendering payment is to attempt to annum on the P600,000.00 option/reservation fee.
make a private settlement before proceeding to the solemnities of consignation.
Both tender and consignation validly made produces the effect of payment and ISSUES
Obligations and Contracts A2010 page 96
Prof. Labitag
1. WON there was a valid consignation
2. WON the petitioner can withdraw the amount consigned as a matter of right OCCEÑA V COURT OF APPEALS
TEEHANKEE; October 29, 1976
HELD
1. YES NATURE
- If there is a valid tender of payment in an amount sufficient to extinguish the Appeal from resolution of CA
obligation, the consignation is valid.
Reasoning FACTS
a. The amount tendered is sufficient since it appears that only the interest of 18% - Tropical Homes filed complaint for modification of terms and conditions of its
per annum on the P600,000.00 option/reservation fee stated in the default clause of subdivision contract with petitioners due to increase in price of oil w/c are not w/in
the "Agreement And Undertaking" was agreed upon by the parties. control. Accdg to them, it will result in situation where defendants would be
b. petitioner's tender of payment in the form of manager's check is valid even unjustly enriched at expense of plaintiff.
though it is not a legal tender since he did not object to the form. - They are invoking Art 1267 of Civil Code w/c states that a positive right is created
- Consignation is the act of depositing the thing due with the court or judicial in favor of obligor to be released fr performance when its performance has become
authorities whenever the creditor cannot accept or refuses to accept payment and so difficult as to be manifestly beyond the contemplation of the parties
it generally requires a prior tender of payment.
- Requisites of an effective consignation: ISSUE
(1) there was a debt due; WON the ground cited justifies modification of the subdivision contract
(2) the consignation of the obligation had been made because the creditor to
whom tender of payment was made refused to accept it, or because he was HELD
absent or incapacitated, or because several persons claimed to be entitled to NO
receive the amount due or because the title to the obligation has been lost; - Release could have been granted. However, the complaint seeks not release from
(3) previous notice of the consignation had been given to the person interested contract but that the court modify the terms and conditions.
in the performance of the obligation; - Court does not have authority to remake, modify, revise contract. Modification
(4) the amount due was placed at the disposal of the court; and has no basis in law.
(5) after the consignation had been made the person interested was notified Disposition Resolution is reversed and certiorari is granted.
thereof.
2. NO. PNCC V COURT OF APPEALS
- Withdrawal of the money consigned would enrich petitioner and unjustly prejudice DAVIDE; May 5, 1997
respondent.
Reasoning
NATURE
a. Article 1260 is not applicable here. It provides that “Once the consignation has
- Petition for review on certiorari.
been duly made, the debtor may ask the judge to order the cancellation of the
obligation”
FACTS
b. Respondent's prayer in his answer that the amount consigned be awarded to
- The lease contract executed by petitioner and private respondents Raymundos on
him is equivalent to an acceptance of the consignation, which has the effect of
November 18, 1985, reads in part as follows:
extinguishing petitioner's obligation.
1.TERM OF LEASE - 5 years, commencing on the date of issuance of the industrial
c. Petitioner failed to manifest his intention to comply with the "Agreement And
clearance by the Ministry of Human Settlements (MHS), renewable for 5 years or
Undertaking" by delivering the necessary documents and the lot subject of the sale
other period at the option of the Lessee under the same terms and conditions.
to respondent in exchange for the amount deposited.
2.RATE OF RENT - monthly rate of P20,000, to be increased yearly by 5% based on
Disposition
the agreed monthly rate of P20,000.00 as follows: P21,000 starting on the 2nd year;
The instant petition for review is DENIED and the petitioner's obligation to
P22,000 starting on the 3rd year; P23,000 starting on the 4th year; P24.000 starting
respondent under paragraph 5 of the "Agreement And Undertaking" as having been
on the 5th year
extinguished, is AFFIRMED.
3.TERMS OF PAYMENT - The rent stipulated shall be paid yearly in advance. The first
annual rent of P240,000.00 shall be due and payable upon the execution of this
Agreement and the succeeding annual rents shall be payable every 12 months
thereafter during the effectivity of this Agreement.
4.USE OF LEASED PROPERTY - Property shall be used as the site, grounds and
premises of a rock crushing plant and field office, sleeping quarters and
canteen/mess hall.
Obligations and Contracts A2010 page 97
Prof. Labitag
xxx xxx xxx “We wish to reiterate PNCC Management's previous stand that it is only obligated to
11.TERMINATION OF LEASE - This Agreement may be terminated by mutual pay your clients the amount of P20,000.00 as rental payments for the one-month
agreement of the parties. Upon the termination or expiration of the period of lease period of the lease, counted from January 7, 1986 when the Industrial Permit was
without the same being renewed, the Lessee shall vacate the Leased Property at its issued by the MHS up to February 7, 1986 when the Notice of Termination was
expense. served on your clients”. The Industrial Permit mentioned in the said letter could only
- On 7 January 1986, petitioner obtained from the MHS a Temporary Use Permit for refer to the Temporary Use Permit issued by the MHS January 7, 1986. And it can be
the proposed rock crushing project, valid for 2 years unless sooner revoked by MHS. gleaned from this letter that petitioner has considered the permit as industrial
- On 16 January 1986, private respondents wrote petitioner requesting payment of clearance; otherwise, petitioner could have simply told private respondents that its
the first annual rental in the amount of P240,000 which was due and payable upon obligation to pay rentals has not yet arisen because the Temporary Use Permit is
the execution of the contract. They also assured the latter that they had already not the industrial clearance contemplated by them. Instead, petitioner recognized
stopped considering the proposals of other aggregates plants to lease the property its obligation to pay rentals counted from the date the permit was issued.
because of the existing contract with petitioner. 2. YES
- Petitioner argued that under paragraph 1 of the lease contract, payment of rental - Aside from the letter mentioned in no. 1, it can be deduced from another letter by
would commence on the date of the issuance of an industrial clearance by the MHS, petitioner that the suspensive condition - issuance of industrial clearance - has
and not from the date of signing of the contract. It then expressed its intention to already been fulfilled and that the lease contract has become operative. The letter
terminate the contract, as it had decided to cancel or discontinue with the rock states: “Please be advised of PNCC Management's decision to cancel or discontinue
crushing project "due to financial, as well as technical, difficulties." with the rock crushing project due to financial as well as technical difficulties. In
- Private respondents refused to accede to petitioner's request for the view thereof, we would like to terminate our Lease Contract dated 18 November,
pretermination of the lease contract. They insisted on the performance of 1985. Should you agree to the mutual termination of our Lease Contract, kindly
petitioner's obligation and reiterated their demand for the payment of the first indicate your conformity hereto by affixing your signature on the space provided
annual rental. below.” If petitioner thought otherwise, it did not have to solicit the conformity of
- Petitioner objected to private respondents' claim and argued that it was "only private respondents to the termination of the contract for the simple reason that no
obligated to pay the amount of P20,000.00 as rental payments for the one-month juridical relation was created because of the non-fulfillment of the condition.
period of lease, counted from January 7, 1986 when the Industrial Permit was issued - Moreover, the reason of petitioner in discontinuing with its project and in
by the MHS up to February 7, 1986 when the Notice of Termination was served on consequently cancelling the lease contract was "financial as well as technical
private respondents. difficulties," not the alleged insufficiency of the Temporary Use Permit.
- On 19 May 1986, private respondents instituted an action against petitioner for 3. NO
Specific Performance with Damages. - The fundamental rule that contracts, once perfected, bind both contracting
- On 12 April 1989, the trial court rendered a decision ordering petitioner to pay parties, and obligations arising therefrom have the force of law between the parties
private respondents the amount of P492,000 which represented the rentals for two and should be compiled with in good faith, recognizes exceptions. One exception is
years, with legal interest from January 7,1986 until the amount was fully paid, plus laid down in Article 1266 of the Civil Code, which reads: 'The debtor in obligations
attorney's fees in the amount of P20,000 and costs. to do shall also be released when the prestation becomes legally or physically
- Upon appeal by petitioner, the CA affirmed the trial court’s decision. impossible without the fault of the obligor.’ However, petitioner cannot successfully
take refuge in the said article, since it is applicable only to obligations "to do," and
ISSUES not to obligations "to give". The obligation to pay rentals or deliver the thing in a
1. WON the Temporary Use Permit is the Industrial Clearance referred to in the contract of lease falls within the prestation "to give"; hence, it is not covered within
contract the scope of Article 1266. At any rate, the unforeseen event and causes mentioned
2. WON the suspensive condition -issuance of an industrial clearance- has been by petitioner are not the legal or physical impossibilities contemplated in the said
fulfilled article. Besides, petitioner failed to state specifically the circumstances brought
3. WON Article 1266 and the principle of rebus sic stantibus apply to this case about by 'the abrupt change in the political climate in the country" except the
4. WON the award of P492,000.00 representing the rent for two years is excessive, alleged prevailing uncertainties in government policies on infrastructure projects.
considering that PNCC did not benefit from the property - The principle of rebus sic stantibus neither fits in with the facts of the case. Under
this theory, the parties stipulate in the light of certain prevailing conditions, and
HELD once these conditions cease to exist, the contract also ceases to exist. This theory is
1. NO said to be the basis of Article 1267 of the Civil Code, which provides: When the
- The Temporary Use Permit is not the industrial clearance referred to in the service has become so difficult as to be manifestly beyond the contemplation of the
contract, for the said permit requires that a clearance from the National Production parties, the obligor may also be released therefrom, in whole or in part. This article,
Control Commission be first secured. However, petitioner is estopped from claiming which enunciates the doctrine of unforeseen events, is not, however, an absolute
that the Temporary Use Permit was not the industrial clearance contemplated in the application of the principle of rebus sic stantibus, which would endanger the
contract. In its letter dated 24 April 1986, petitioner states: security of contractual relations. The parties to the contract must be presumed to
have assumed the risks of unfavorable developments. It is therefore only in
Obligations and Contracts A2010 page 98
Prof. Labitag
absolutely exceptional changes of circumstances that equity demands assistance private respondent was placed under receivership by the Central Bank and Ricardo
for the debtor. Lirio and Cristina Destajo were appointed as receiver and in-house examiner,
- This Court cannot subscribe to the argument that the abrupt change in the respectively.
political climate of the country after the EDSA Revolution and its poor financial - On May 17, 1986, petitioners made a partial payment of P50,000.00 on the second
condition "rendered the performance of the lease contract impractical and inimical loan. They later wrote private respondent a letter, dated June 18, 1986, proposing
to the corporate survival of the petitioner." PNCC entered into the contract of lease to settle their obligation. On July 2, 1986, private respondent, through its counsel,
with private respondents with open eyes of the deteriorating conditions of the replied with a counter-offer, namely, that it would reduce the penalty charges up to
country. P140,000.00, provided petitioners can pay their obligation on or before July 30,
- Anent petitioner's alleged poor financial condition, the same will neither release 1986.
petitioner from the binding effect of the contract of lease. Mere pecuniary inability - As of July 31, 1986, petitioners’ total liability to private respondent was
to fulfill an engagement does not discharge a contractual obligation, nor does it P727,001.35, broken down as follows:
constitute a defense to an action for specific performance. Principal - P295,469.47
- With regard to the non-materialization of petitioner's particular purpose in entering Interest - 165,385.00
into the contract of lease, i.e., to use the leased premises as a site of a rock Penalties - 254,820.55
crushing plant, the same will not invalidate the contract. The cause or essential Service Charges - 11,326.33
purpose in a contract of lease is the use or enjoyment of a thing. As a general TOTAL P 727,001.35
principle, the motive or particular purpose of a party in entering into a contract - On this date, petitioners paid P410,854.47 by means of a Pilipinas Bank check,
does not affect the validity nor existence of the contract; an exception is when the receipt of which was acknowledged by Destajo. The corresponding voucher for the
realization of such motive or particular purpose has been made a condition upon check bears the following notation: “full payment of IGLF LOAN.”
which the contract is made to depend.24 The exception does not apply here. - The amount of P410,854.47 was the sum of the principal (P295,469.47) and the
4. NO interest (P165,385.00) less the partial payment of P50,000.00. The private
- Petitioner cannot be heard to complain that the award is excessive. The temporary respondent sent two demand letters to petitioners, dated September 4, 1986 and
permit was valid for two years but was automatically revoked because of its non- September 25, 1986, seeking payment of the balance of P266,146.88. As
use within one year from its issuance. The non-use of the permit and the non-entry petitioners did not respond, private respondent filed this case in the Regional Trial
into the property subject of the lease contract were both imputable to petitioner Court of Metro Manila for the collection of P266,146.88 plus interests, penalties,
and cannot, therefore, be taken advantage of in order to evade or lessen and service charges or, in the alternative, for the foreclosure of the mortgaged
petitioner's monetary obligation. The damage or prejudice to private respondents is machineries.
beyond dispute. They unquestionably suffered pecuniary losses because of their - In their Answer, petitioners claimed that they had fully paid their obligation to
inability to use the leased premises. Thus, in accordance with Article 1659 of the private respondent. They contended that some time after receiving private
Civil Code, they are entitled to indemnification for damages; and the award of respondent’s letter of July 2, 1986 (concerning the conditional offer to reduce their
P492,000 is fair and just under the circumstances of the case. penalty charges), petitioner Victor Yam and his wife, Elena Yam, met with Carlos
Disposition Petition is DENIED. Sobrepeñas, president of respondent corporation, during which the latter agreed to
waive the penalties and service charges (in short, there allegedly was condonation),
YAM V COURT OF APPEALS provided petitioners paid the principal and interest, computed as of July 31, 1986,
MENDOZA; February 11, 1999 less the earlier payment of P50,000.00. This is the reason why according to them
they only paid P410,854.47. Petitioners added that this fact of full payment is
reflected in the voucher accompanying the Pilipinas Bank check they issued, which
FACTS
bore the notation “full payment of IGLF loan.”
- On May 10, 1979, the parties in this case entered into a Loan Agreement with
Assumption of Solidary Liability whereby petitioners were given a loan of
ISSUE
P500,000.00 by private respondent. The contract provided for the payment of 12%
WON petitioners are liable for the payment of the penalties and service charges on
annual interest, 2% monthly penalty, 1 1/2% monthly service charge, and 10%
their loan which, as of July 31, 1986, amounted to P266,146.88
attorney’s fees. Denominated the first Industrial Guarantee and Loan Fund (IGLF),
the loan was secured by a chattel mortgage on the printing machinery in
HELD
petitioners’ establishment. Petitioners subsequently obtained a second IGLF loan of
YES
P300,000.00 evidenced by two promissory notes, dated July 3, 1981 and September
- Art. 1270, par. 2 of the Civil Code provides that express condonation must comply
30, 1981. For this purpose, a new loan agreement was entered into by the parties
with the forms of donation. Art. 748, par. 3 provides that the donation and
containing identical provisions as the first one, except as to the annual interest
acceptance of a movable, the value of which exceeds P5,000.00, must be made in
which was increased to 14% and the service charge which was reduced to 1% per
writing, otherwise the same shall be void. In this connection, under Art. 417, par. 1,
annum. The deed of chattel mortgage was amended correspondingly. By April 2,
obligations, actually referring to credits, are considered movable property. In the
1985, petitioners had paid their first loan of P500,000.00. On November 4, 1985,
Obligations and Contracts A2010 page 99
Prof. Labitag
case at bar, it is undisputed that the alleged agreement to condone P266,146.88 of Disposition The judgment of the Court of Appeals was reversed, and the writ of
the second IGLF loan was not reduced in writing. execution issued by the CFI of Manila is set aside. Costs against respondent.
Disposition the decision of the Court of Appeals is AFFIRMED.
ISSUES
Obligations and Contracts A2010 page
120 Prof. Labitag
FACTS admitted liability is a good consideration for a promise. The fact that the bargain is
- Petitioner was a jewel appraiser in the pawnshop of Monte de Piedad from 1913 to a hard one will not deprive it of its validity.
May 1933. A contract is to be judged by its character, and courts will look to the substance and
- On December 1932, he executed a chattel mortgage to secure the payment of not to the mere form of the transaction. The freedom of contract is both a
deficiencies caused by his erroneous appraisal of jewels pawned to the appellee, constitutional and statutory right and to uphold this right, courts should move with
amounting to toP14,679.07, with 6% interest from said date (paid by installments of all the necessary caution and prudence in holding contracts void.
P300/month). Disposition The petition is hereby dismissed and the judgment sought to be
- To recover balance of P11,345.75 of aforementioned sum, Monte de Piedad filed a reviewed is affirmed, with costs against the petitioner.
civil case against petitioner.
- Petitioner, in his answer, denied all specifications therein and also denied under PAKISTAN INTERNATIONAL AIRLINES CORPORATION v.
oath the genuineness of the execution of the alleged chattel mortgage attached OPLE
thereto. He alleged that 1) the chattel mortgage was part of a scheme by FELICIANO; September 28, 1990
respondent to cover for losses incurred in its pawnshop department; 2) a criminal
action had been instituted against him where said chattel mortgage was presented NATURE
but he was acquitted therein; and 3) the said acquittal was a bar to the civil case. Petition for certiorari to review the order of the Minister of Labor
Petitioners' Claim
- By way of cross-complaint, the petitioner alleged 1) that the chattel mortgage was FACTS
entered into by E. Marco for and in behalf of Monte de Piedad, without being - On 2 December 1978, petitioner Pakistan International Airlines Corporation (PIA), a
authorized to do so by the latter; 2) that he was induced, through false foreign corporation licensed to do business in the Philippines, executed in Manila
representation, to sign said mortgage against his will; 3) that the chattel mortgage two separate contracts of employment, one with private respondent Farrales and
was based upon all nonexisting subject matter and nonexisting consideration; and the other with private respondent Mamasig. The contracts provided in pertinent
4) that the chattel mortgage was null and void ab initio. portion as follows:
- By way of counterclaim, the petitioner alleged 1) that the payments made by him "5. DURATION OF EMPLOYMENTAND PENALTY
were made through deceit and consisted of P300 monthly deductions to his salary; This agreement is for a period of three years, but can be extended by the
2) that he received P356.25 a month as expert appraiser and that he was separated mutual consent of the parties.
arbitrarily at the end of May 1933 from plaintiff entity without lawful cause and one xxxxxxxxx
month notice and plaintiff failed to pay him his salaries for May and June 1933, in 6. TERMINATION
accordance with law; and 3) that due to the criminal and the present case, he xxxxxxxxx
suffered damages and losses both materially and in his reputation in the amount of Notwithstanding anything to contrary as herein provided, PIA reserves the right
at least P15,000.00 to terminate this agreement at any time by giving the EMPLOYEE notice in
writing in advance one month before the intended termination or in lieu
ISSUE thereof, by paying the EMPLOYEE wages equivalent to one month's salary.
WON the provisions of the chattel mortgage are contrary to law, morals and public xxxxxxxxx
policy rendering it ineffective and the principal obligation secured by it void 10. APPLICABLE LAW:
This agreement shall be construed and governed under and by the laws of Pakistan, and only the
HELD Courts of Karachi, Pakistan shall have the jurisdiction to consider any matter arising out of or under
Ratio Courts should not rashly extend the rule which holds that a contract is void this agreement.
as against public policy. - Respondents then commenced training in Pakistan. After their training period,
Reasoning The term “public policy” is vague and uncertain in meaning, floating they began discharging their job functions as flight attendants, with base station in
and changeable in connotation. In absence of express legislation or constitutional Manila and flying assignments to different parts of the Middle East and Europe.
prohibition, a court, in order to declare a contract void as against public policy, - On 2 August 1980, roughly one year and four months prior to the expiration of the
must find that the contract as to the consideration or thing to be done, has a contracts of employment, PIA sent separate letters both dated 1 August 1980 to
tendency to injure the public, is against the public good, or contravenes some private respondents Farrales and Mamasig advising both that their services as flight
established interests of society, or is inconsistent with sound policy and good attendants would be terminated "effective 1 September 1980, conformably to
morals, or tends clearly to undermine the security of individual rights, whether of clause 6 (b) of the employment agreement [they had] executed with [PIA]."
personal liability or of private property. - On 9 September 1980, private respondents Farrales and Mamasig jointly instituted
The contract at bar does not militate against the public good. Neither does it a complaint for illegal dismissal and non-payment of company benefits and
contravene the policy of the law nor the established interests of the society. bonuses, against PIA with the then Ministry of Labor and Employment (MOLE). After
As to petitioner’s contention that the chattel mortgage lacks consideration, it was several unfruitful attempts at conciliation, both parties were ordered to submit their
already established that it was executed voluntarily by the him to guarantee position papers and evidence supporting their respective positions. The PIA
deficiencies resulting from his erroneous appraisal of the jewels. A preexisting
Obligations and Contracts A2010 page
121 Prof. Labitag
submitted its position paper, but no evidence, and there claimed that both private relating to matters affected with public policy, are deemed written into the contract.
respondents were habitually absent and bringing in from abroad sizeable quantities Put a little differently, the governing principle is that parties may not contract away
of "personal effects"; and that PIA personnel at the Manila International Airport had applicable provisions of law especially peremptory provisions dealing with matters
been discreetly warned by customs officials to advise private respondents to heavily impressed with public interest. The law relating to labor and employment is
discontinue that practice. PIA further claimed that the services of both private clearly such an area and parties are not at liberty to insulate themselves and their
respondents were terminated pursuant to the provisions of the employment relationships from the impact of labor laws and regulations by simply contracting
contract. with each other. It is thus necessary to appraise the contractual provisions invoked
- In his Order dated 22 January 1981, Regional Director Estrella ordered the by petitioner PIA in terms of their consistency with applicable Philippine law and
reinstatement of private respondents with full backwages or, in the alternative, the regulations.
payment to them of the amounts equivalent to their salaries for the remainder of - Both the Labor Arbiter and the Deputy Minister, MOLE, in effect held that
the fixed three-year period of their employment contracts; the payment to private paragraph 5 of that employment contract was inconsistent with Articles 280 and
respondent Mamasig of an amount equivalent to the value of a round trip ticket 281 of the Labor Code as they existed at the time the contract of employment was
Manila-USA-Manila; and payment of a bonus to each of the private respondents entered into, and hence refused to give effect to said paragraph 5. These Articles
equivalent to their one-month salary. The Order stated that 1) private respondents are as follows:
had attained the status of regular employees after they had rendered more than a "Art. 280. Security of Tenure.-In cases of regular employment, the employer shall
year of continued service; 2) the stipulation limiting the period of the employment not terminate the services of an employee except for a just cause or when
contract to three years was null and void as violative of the provisions of the Labor authorized by this Title. An employee who is unjustly dismissed from work shall be
Code and its implementing rules and regulations on regular and casual employment entitled to reinstatement without loss of seniority rights and to his backwages
and, 3) the dismissal, having been carried out without the requisite clearance from computed from the time his compensation was withheld from him up to the time his
the MOLE, was illegal and entitled private respondents to reinstatement with full reinstatement.
backwages. Article 281. Regular and Casual Employment.-The provisions of written agreement
- On appeal, in an Order dated 12 August 1982, Hon. Leogardo, Jr., Deputy Minister, to the contrary notwithstanding and regardless of the oral agreements of the
MOLE, adopted the findings of fact and conclusions of the Regional Director and parties, an employment shall be deemed to be regular where the employee has
affirmed the latter's award save for the portion thereof giving PIA the option, in lieu been engaged to perform activities which are usually necessary or desirable in the
of reinstatement, "to pay each of the complainants [private respondents] their usual business or trade of the employer, except where the employment has been
salaries corresponding to the unexpired portion of the contract[s] [of employment] fixed for a specific project or undertaking the completion or termination of which
x ''. has been determined at the time of the engagement of the employee or where the
- In the instant Petition for Certiorari, PIA assails the award of the Regional Director work or services to be performed is seasonal in nature and the employment is for
and the Order of the Deputy Minister for having been issued in disregard and in the duration of the season.
violation of Petitioner's rights under the employment contracts with private - An employment shall be deemed to be casual if it is not covered by the preceding
respondents. PIA invokes paragraphs 5 and 6 of its contract of employment with paragraph: provided, that, any employee who has rendered at least one year of
private respondents Farrales and Mamasig, arguing that its relationship with them service, whether such service is continuous or broken, shall be considered as
was governed by the provisions of its contract rather than by the general provisions regular employee with respect to the activity in which he is employed and his
of the Labor Code. Paragraph 5 of that contract set a term of three years for that employment shall continue while such actually exists.'' (Italics supplied)
relationship, extendible by agreement between the parties; while paragraph 6 - In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al., the Court had occasion
provided that, notwithstanding any other provision in the contract, PIA had the right to examine in detail the question of whether employment for a fixed term has been
to terminate the employment agreement at any time by giving one-month's notice outlawed under the above quoted provisions of the Labor Code. After an extensive
to the employee or, in lieu of such notice, one-month's salary. examination of the history and development of Articles 280 and 281, the Court
reached the conclusion that a contract providing for employment with a fixed period
ISSUE was not necessarily unlawful. The critical consideration is the presence or absence
WON the principle of party autonomy in contracts is absolute of a substantial indication that the period specified in an employment agreement
was designed to circumvent the security of tenure of regular employees which is
HELD provided for in Articles 280 and 281 of the Labor Code. This indication must
NO ordinarily rest upon some aspect of the agreement other than the mere
- A contract freely entered into should, of course, be respected since a contract is specification of a fixed term of the employment agreement, or upon evidence
the law between the parties. The principle of party autonomy in contracts is not, aliunde of the intent to evade.
however, an absolute principle. The rule in Article 1306, of our Civil Code is that the - Examining the provisions of paragraphs 5 and 6 of the employment agreement
contracting parties may establish such stipulations as they may deem convenient, between PIA and private respondents, we consider that those provisions must be
"provided they are not contrary to law, morals, good customs, public order or public read together and when so read, the fixed period of three years specified in
policy." Thus, counter-balancing the principle of autonomy of contracting parties is paragraph 5 will be seen to have been effectively neutralized by the provisions of
the equally general rule that provisions of applicable law, especially provisions paragraph 6 of that agreement. Paragraph 6 in effect took back from the employee
Obligations and Contracts A2010 page
122 Prof. Labitag
the fixed three-year period ostensibly granted by paragraph 5 by rendering such - Before the school year 1948-1949 Cui took up a preparatory law course in Arellano
period in effect a facultative one at the option of the employer PIA. For PIA claims to University, after which he enrolled in the College of Law of said university starting
be authorized to shorten that term, at any time and for any cause satisfactory to school year 1948-1949.
itself, to a one-month period, or even less by simply paying the employee a month's - Plaintiff took up his law studies in the defendant university up to and including the
salary. Because the net effect of paragraphs 5 and 6 of the agreement here first semester of the fourth year. During all the school years in which plaintiff was
involved is to render the employment of private respondents Farrales and Mamasig studying law in defendant law college, Francisco R. Capistrano, brother of the
basically employment at the pleasure of PIA, the Court considers that paragraphs 5 mother of plaintiff, was the dean of the College of Law and legal counsel of the
and 6 were intended to prevent any security of tenure from accruing in favor of defendant university.
private respondents even during the limited period of three years, and thus to - Cui enrolled for the last semester of his law studies in the defendant university
escape completely the thrust of Articles 280 and 281 of the Labor Code. but failed to pay his tuition fees.
- PIA cannot take refuge in paragraph 10 of its employment agreement which - Since his uncle, Dean Capistrano, severed his connection with Arellano University
specifies, firstly; the law of Pakistan as the applicable law of the agreement and, and has accepted the deanship and chancellorship of the College of Law of Abad
secondly, lays the venue for settlement of any dispute arising out of or in Santos University, Cui left Arellano University and enrolled for the last semester of
connection with the agreement "only [in] courts of Karachi, Pakistan". The first his fourth year law in Abad Santos. Cui graduated from Abad Santos University.
clause of paragraph 10 cannot be invoked to prevent the application of Philippine - Plaintiff, during all the time he was studying law in Arellano University, was
labor laws and regulations to the subject matter of this case, i.e., the employer- awarded scholarship grants, for scholastic merit, so that his semestral tuition fees
employee relationship between petitioner PIA and private respondents. We have were returned to him after the end of each semester. From Cui’s first semester of
already pointed out that that relationship is much affected with public interest and his first year law up to and including the first semester of his last year in Arellano,
that the otherwise applicable Philippine laws and regulations cannot be rendered the total amount of tuition fees he paid, which was refunded to him, is P1,033.87.
illusory by the parties agreeing upon some other law to govern their relationship. - Before being awarded scholarship grants, Cui was made to sign the following
- Neither may PIA invoke the second clause of paragraph 10, specifying the Karachi contract, covenant and agreement:
courts as the sole venue for the settlement of disputes between the contracting 'In consideration of the scholarship granted to me by the University, I hereby waive
parties. Even a cursory scrutiny of the relevant circumstances of this case will show my right to transfer to another school without having refunded to the University
the multiple and substantive contacts between Philippine law and Philippine courts, (defendant) the equivalent of my scholarship cash. (Sgd.) EMETERIO CUI'."
on the one hand, and the relationship between the parties, upon the other: the - Aug 16, 1949, the Director of Private Schools issued Memorandum No. 38, series
contract was not only executed in the Philippines, it was also performed here, at of 1949, which reads in part:
least partially; private respondents are Philippine citizens and residents, while "1. … some schools offer full or partial scholarships to deserving students…. Such
petitioner, although a foreign corporation, is licensed to do business (and actually inducements … should be encouraged. But to stipulate the condition that such
doing business) and hence resident in the Philippines; lastly, private respondents scholarships are good only if the students concerned continue in the same school
were based in the Philippines in between their assigned flights to the Middle East nullifies the principle of merit in the award of these scholarships.
and Europe. All the above contracts point to the Philippine courts and administrative "2. … such scholarships are merited and earned. The amount in tuition and other
agencies as a proper forum for the resolution of contractual disputes between the fees corresponding to these scholarships should not be subsequently charged to the
parties. Under these circumstances, paragraph 10 of the employment agreement recipient students when they decide to quit school or to transfer to another
cannot be given effect so as to oust Philippine agencies and courts of the institution….
jurisdiction vested upon them by Philippine law. Finally, and in any event, the "3 Several complaints have actually been received from students who have enjoyed
petitioner PIA did not undertake to plead and prove the contents of Pakistan law on scholarships, full or partial, to the effect that they could not transfer to other
the matter; it must therefore be presumed that the applicable provisions of the law schools since their credentials would not be released unless they would pay the
of Pakistan are the same as the applicable provisions of Philippine law. fees corresponding to the period of the scholarships. Where the Bureau believes
that the right of the student to transfer is being denied on this ground, it reserves
CUI V ARELLANO UNIVERSITY the right to authorize such transfer."
CONCEPCION; May 30, 1961 - After graduating from Abad Santos University, he applied to take the bar
examinations. He petitioned Arellano University to provide him his transcript of
NATURE records. The defendant refused until after Cui had paid back the P1,033.87.
Appeal by plaintiff Emeterio Cui from a decision of the Court of First Instance of - Cui asked the Bureau of Private Schools to pass upon the issue on his right to
Manila, absolving defendant Arellano University from plaintiff's complaint, with secure the transcript of his record in Arellano University, without being required to
costs against the plaintiff, and dismissing defendant's counterclaim, for insufficiency refund P1,033.87. The Bureau of Private Schools upheld the position taken by the
of proof thereon. plaintiff and so advised the defendant. This notwithstanding, Arellano University
refused to issue transcript of record, unless refund were made, and even
FACTS recommended to said Bureau that it issue a written order directing the defendant to
release said transcript of record, "so that the case may be presented to the court
Obligations and Contracts A2010 page
123 Prof. Labitag
for judicial action". Cui was thus constrained to pay P1,033.87, in order that he - On August 14, 1914, the defendant requested the plaintiff to agree to dismiss the
could take the bar examinations in 1953. said criminal proceeding and stipulated with the plaintiff that his client Marcela
- Defendant claims that the provisions of its contract with plaintiff are valid and Juaniza would recognize the plaintiff’s ownership in the land situated on Calle San
binding, and that the memorandum above-referred to is null and void. Juan of the municipality of Iloilo where his said client ordered the cane cut, which
land and which cut cane are referred to in the cuase for theft. Furthermore, the
ISSUE defendant agreed that the plaintiff should obtain a Torrens title to the said land
WON the provision of the contract between plaintiff and defendant, whereby Cui during the next term of the court and that defendant’s client Marcel Juaneza would
waived his right to transfer to another school without refunding to the latter the not oppose the application for registration to be filed by the said applicant provided
equivalent of his scholarships in cash, is valid that the plaintiff would ask the prosecuting attorney to dismiss the said proceedings
filed against Marcela Juaneza and Alejandro Castro for the crime of theft
HELD - Plaintiff on his part complied with the agreement
NO. The stipulation in question is contrary to public policy and hence, null and void. - In exchange, the defendant did not comply with the agreement
- In order to declare a contract void as against public policy, a court must find that the contract as to - Plaintiff delivered to the defendant a written agreement for signature of the said
consideration or the thing to be done, contravenes some established interest of society, or is inconsistent Marcel Juaneza attesting that the defendant’s said client recognized the plaintiff’s
with sound policy and good morals, or tends clearly to undermine the security of individual rights. ownership of the land and that she would not oppose the plaintiff’s application for
(Gabriel vs. Monte de Piedad) registration
- The Court’s decision was mainly a quotation of the letter of Bureau of Private - The defendant has not returned to the plaintiff the said written agreement
Schools, which the Court held as correctly argued. It says in part: notwithstanding the demands of the latter
- If Arellano University understood clearly the real essence of scholarships and the
motives which prompted the Bureau to issue Memorandum No. 38, s. 1949, it ISSUE
should have not entered into a contract of waiver with Cui on September 10, 1951, WON the agreement between the plaintiff and the defendant had valid stipulations
which is a direct violation of our Memorandum and an open challenge to the
authority of the Director of Private Schools because the contract was repugnant to HELD
sound morality and civic honesty. NO
- Scholarships are awarded in recognition of merit, not to keep outstanding students It was contrary to public policy. The SC affirmed the decision of the trial judge
in school to bolsters prestige. In the understanding of that university, scholarships dismissing the complaint on the ground of the illegality of the consideration of the
award is a business scheme designed to increase the business potential of an alleged contract. An agreement by the owner of stolen goods to stifle the
educational institution. Thus conceived it is not only inconsistent with sound policy prosecution of the person charged with the theft, for a pecuniary or other valuable
but also good morals. consideration, is manifestly contrary to public policy and the due administration of
- Morals, as defined by Manresa, is good customs; those generally accepted justice.
principles of morality which have received some kind of social and practical Article 1255, CC:
confirmation. - The contracting parties may make the agreement and establish the clauses and
- The practice of awarding scholarships to attract students and keep them in school is not good customs conditions which they may deem advisable, provided they are not in contravention
nor has it received some kind of social and practical confirmation except in some private institutions as in of law, morals, or public order.
Arellano University. Article 1275, CC:
Disposition The decision appealed from is reversed, and another one shall be - Contracts without consideration or with an illicit one have no effect whatsoever. A
entered sentencing the defendant to pay to the plaintiff the sum of P1,033.87, with consideration is illicit when it is contrary to law and good morals.
interest thereon at the legal rate from September 1, 1954, date of the institution of
this case, as well as the costs, and dismissing defendant's counterclaim.
HELD
YES
Ratio 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.
Reasoning Although in general, only parties to a contract may bring an action
based thereon, this rule is subject to exceptions, one of which is found in the second
COQUIA V FIELDMEN’ S INSURANCE CO., INC. paragraph of Art. 1311 of the Civil Code of the Philippines. This is but a restatement
CONCEPCION; November 29, 1968 of a well-known principle concerning contracts pour autrui, the enforcement of
which may be demanded by a third party for whose benefit it was made, although
NATURE not a party to the contract, before the stipulation in his favor has been revoked by
Appeal from a decision of the Court of First Instance of Manila the contracting parties. The policy in question provides, inter alia, that the Company
FACTS ‘will indemnify any authorized driver who is driving the motor vehicle’ of the Insured
- On Dec. 1, 1961, The Fieldmen’s Insurance Co. issued in favor of the Manila Yellow and, in the event of death of said driver, the Company shall, likewise, ‘indemnify his
Taxicab Co. a common carrier accident insurance policy, covering the period from personal representatives.’ Thus, the policy is typical of contracts pour autrui, this
Dec. 1, 1961 to Dec. 1, 1962. It was stipulated in said policy that the “Company will characteristic being made more manifest by the fact that the deceased driver, paid
indemnify the Insured in the event of accident against all sums which the Insured fifty percent of the premiums, which were deducted from his weekly commissions.
will become legally liable to pay for the death or bodily injury to any fare-paying Under these conditions, the Coquias – who, admittedly are the sole heirs of the
passenger including the driver, conductor and/or inspector who is riding in the deceased – have a direct cause of action against the Company, and, since they
motor vehicle insured at the time of accident or injury.” On Feb. 10, 1962, as a could have maintained this action themselves, without the assistance of the
result of a vehicular accident in Pangasinan, Carlito Coquia, driver of one of the taxi Insured, it goes without saying that they could and did properly join the latter in
cabs covered by said policy, was killed. The Insured filed therefor a claim for filing the complaint hereon. The second defense cannot stand because none of the
P5,000.00 to which the Company replied with an offer to pay P2,000.00, by way of parties invoked this section, or made any reference to arbitration, during the
compromise. The Insured rejected the same and made a counter-offer for negotiations preceding the institution of the present case. Their aforementioned
P4,000.00, but the Company did not accept it. Because of the failure of the acts or omissions had the effect of a waiver of their respective right to demand an
Company and the Insured to agree with respect to the amount to be paid to the arbitration. The test for determining whether there has been a waiver in a particular
heirs of the driver, the Insured and the parents of Carlito, the Coquias, finally case is as follows: "Any conduct of the parties inconsistent with the notion that they
brought this action against the Company to collect the proceeds of the treated the arbitration provision as in effect, or any conduct which might be
aforementioned policy. The trial court rendered a decision sentencing the Company reasonably construed as showing that they did not intend to avail themselves of
to pay to the plaintiffs the sum of P4,000.00 and the costs. Hence, this appeal by such provision, may amount to a waiver thereof and estop the party charged with
the Company, which contends that plaintiffs have no cause of action because: 1) such conduct from claiming its benefits".
the Coquias have no contractual relation with the Company; and 2) the Insured has Disposition Decision appealed from is affirmed.
not complied with the provisions of the policy concerning arbitration based on Sec
17 of the policy reading: “If any difference or dispute shall arise with respect to the CONSTANTINO V ESPIRITU
amount of the Company's liability under this Policy, the same shall be referred to DIZON; May 31, 1971
the decision of a single arbitrator to be agreed upon by both parties or failing such
agreement of a single arbitrator, to the decision of two arbitrators, one to be NATURE
appointed in writing by each of the parties within one calendar month after having
Obligations and Contracts A2010 page
129 Prof. Labitag
Direct appeal on a question of law taken by Pastor B. Constantino from an order of the Court of First clear that the three parties concerned therewith would, as a result, be before the
Instance of Rizal denying his motion for the admission of his amended complaint in Civil Case No. 5924, court and the latter's adjudication would be complete and binding upon them.
entitled "Pastor B. Constantino vs. Herminia Espiritu." 2. YES
The contention that the contract in question is not enforceable by action by reason
FACTS of the provisions of the Statute of Frauds does not appear to be unquestionable, it
- Constantino had by a fictitious deed of absolute sale conveyed to Espiritu for a being clear upon the facts alleged in the amended complaint that the contract
consideration of P8,000.00, the two-storey house and four (4) subdivision lots in the between the parties had already been partially performed by the execution of the
name of Pastor B. Constantino, married to Honorata Geukeko, with the deed of sale, the action brought below being only for the enforcement of another
understanding that Espiritu would hold the properties in trust for their illegitimate phase thereof, namely, the execution by appellee of a deed of conveyance in favor
son, Pastor Constantino, Jr., still unborn at the time of the conveyance of the beneficiary thereunder.
- Espiritu mortgaged said properties to the Republic Savings Bank of Manila twice to
secure payment of two loans, one of P3,000.00 and the other of P2,000.00, and that INTEGRATED PACKAGING CORP V CA, FIL- ANCHOR PAPER
thereafter she offered them for sale. CO, INC.
- The complaint then prayed for the issuance of a writ of preliminary injunction QUISUMBING; June 8, 2000
restraining Espiritu and her agents or representatives from further alienating or
disposing of the properties, and for judgment ordering her to execute a deed of NATURE
absolute sale of said properties in favor of Pastor B. Constantino, Jr., the beneficiary Petition to review the CA decision of April 20, 1994, reversing the judgment of the
(who, at the filing of said complaint, was about five years of age), and to pay RTC in an action for recovery of sum of money filed by private respondent against
attorney's fees in the sum of P2,000.00. petitioner
- TCT No, 20714 in the name of plaintiff was partially cancelled and in lieu thereof,
TCT No. 32744 was issued by the Register of Deeds of Rizal in the name of appellee FACTS
Herminia Espiritu. - May 5, 1978: Petitioner and private respondent executed an order agreement:
- Espiritu moved to dismiss the complaint on the ground that it stated no cause of respondent bound itself to deliver 3,450 reams of printing paper (coated, 2 sides
action because Pastor Constantino, Jr., the beneficiary of the alleged trust, was not basis, 80 lbs, short grain) under the following schedule:
included as party-plaintiff, and on the further ground that cause of action was May and June 1978: 450 reams at P290/ream
unenforceable under the Statute of Frauds. August and September: 450 reams at P290/ream
- Constantino argued that the Statute of Frauds does not apply to trustee January 1979: 575 reams at P307.20/ream
- The trial court dismissed the complaint, with costs. March: 575 reams at P307.20/ream
July: 575 reams at P307.20/ream
ISSUES October: 575 at P307.20/ream
1. WON the contract of sale entered into between appellant and appellee was S.O.P. of parties: materials were to be paid w/in 30-90 days from delivery
subject to the agreement that appellee would hold the properties in trust for their - June 7, 1978: petitioner entered into contract with Philacor to print 3 volumes of
unborn child books, 1 volume by November, 1978; another by November, 1979, and the last one
2. WON the contract in question is not enforceable by action by reason of the by November, 1980.
provisions of the Statute of Frauds - July 30, 1979: respondent had delivered to petitioner 1,097 reams out of the
3,450.
HELD - Petitioner alleged it wrote private respondent that further delay in delivering the
1. This is a question of fact that appellee may raise in her answer for the lower court balance would greatly prejudice petitioner
to determine after trial. - June, 1980 – July, 1981: respondent delivered various quantities amounting to
- The contract between him and appellee was a contract pour autrui, although P766,101.70.
couched in the form of a deed of absolute sale, and that appellant's action was, in - Petitioner had difficulties paying
effect, one for specific performance. - Respondent made a formal demand for petitioner to settle the outstanding
- That one of the parties to a contract is entitled to bring an action for its account
enforcement or to prevent its breach is too clear to need any extensive discussion. - Petitioner made partial payments of P97,200.00 applied to its back accounts
- The contract contained a stipulation pour autrui amplifies this settled rule only in -Petitioner entered into additional printing contract with Philacor but unfortunately
the sense that the third person for whose benefit the contract was entered into may failed to comply with its contract
also demand its fulfillment provided he had communicated his acceptance thereof - Thus, Philacor demanded compensation from petitioner for the delay and damage
to the obligor before the stipulation in his favor is revoked. suffered
- It appearing that the amended complaint submitted by appellant to the tower
court impleaded the beneficiary under the contract as a party co-plaintiff, it seems
Obligations and Contracts A2010 page
130 Prof. Labitag
- August 14, 1981: respondent filed with RTC a collection suit against petitioner for 2. NO
the sum of P766,101.70, the unpaid purchase price of printing paper bought by Ratio Aforesaid contracts could not affect third persons like private respondent
petitioner on credit because of the basic civil law principle of relativity of contracts which provides that
- Petitioner denied the allegations of complaint. Counterclaim: that private contracts can only bind the parties who entered into it, and it cannot favor or
respondent was able to deliver only 1,097 reams, which was short of 2,875 reams, prejudice a third person, even if he is aware of such contract and has acted with
in total disregard of their agreement; that private respondent failed to deliver knowledge thereof.
despite demand therefore, hence petitioner suffered damages and failed to realize Reasoning The order agreement entered into by petitioner and private respondent
expected profits; and that their complaint was prematurely filed has not been shown as having a direct bearing on the contracts of petitioner with
- respondent submitted a supplemental complaint, alleging that petitioner made Philacor. The paper specified in the order agreement between petitioner and private
additional purchases of printing paper on credit amounting to P94,200; and that respondent are markedly different from the paper involved in the contracts of
petitioner refused to pay its outstanding obligation. petitioner with Philacor. The demand made by Philacor upon petitioner for the latter
- July 5, 1990: Trial court: to comply with its printing contract is dated February 15, 1984, which is clearly
1. petitioner should pay respondent P763,101.70. made long after private respondent had filed its complaint on August 14, 1981. This
2. petitioner’s claim meritorious: if not for the delay of private respondent demand relates to contracts with Philacor dated April 12, 1983 and May 13, 1983,
to deliver printing paper, petitioner could have sold books to Philacor and realized a which were entered into by petitioner after private respondent filed the instant
profit of P790,324.30 from the sale case.
3. petitioner suffered dislocation of contracts as a result of respondent’s Disposition The instant petition is DENIED. The decision of the Court of Appeals is
failure: awarded moral damages AFFIRMED. Costs against petitioner.
- CA reversed and set aside decision.
1. Ordered petitioner to pay respondent P763,101.70 DAYWALT V LA CORP DE LOS PADRES AGUSTINOS
2. deleted the P790,324.30 compensatory damages and moral damages RECOLETOS
Petitioners' Claim STREET; February 4, 1919
[I] the court of appeals erred in concluding that private respondent did not violate
the order agreement. NATURE
[ii] the court of appeals erred in concluding that respondent is not liable for Appeal from judgment of CFI Manila
petitioner’s breach of contract with philacor.
[iii] the court of appeals erred in concluding that petitioner is not entitled to damages against private FACTS
respondent. - In 1902, Teodorica Endencia, an unmarried woman Mindoro, executed a contract
where she obligated herself to convey to Geo. W. Daywalt, a tract of land situated in
ISSUES the barrio of Mangarin, Bulalacaoose, MIndoro
Substantive - It was agreed that a deed should be executed as soon as the title is perfected in
1. WON private respondent violated the order agreement the proceedings of the Court of Land Registration and a Torrens title procured
2. WON private respondent is liable for petitioner’s breach of contract with Philacor therefore in Endencia’s name
HELD - A decree recognizing the right of Endencia as owner was entered in said court in
1. NO August 1906, but the Torrens certificate was not issued until later
Ratio When there is a contract of sale of goods to be delivered by stated - The parties made a new contract with a view to carrying their original agreement
installments, which are to be separately paid for, and the seller makes defective into effect; this new contract was executed in the form of deed of conveyance and
deliveries in respect of one or more installments, or the buyer neglects or refuses is dated 16 Aug 1906
without just cause to take delivery of or pay for one or more installments, it - The price is P4,000 and the area of the land enclosed in the boundaries is 452
depends in each case on the terms of the contract and the circumstances of the hectares and a fraction
case, whether the breach of contract is so material as to justify the injured party in - The second contract was not immediately carried into effect for the reason that
refusing to proceed further and suing for damages for breach of the entire contract, the Torrens certificate was not yet obtainable
or whether the breach is severable, giving rise to a claim for compensation but not - On Oct 3 1908, the parties entered into another agreement, replacing the old; said
to a right to treat the whole contract as broken. (art. 1583) agreement bound Endencia to deliver the land, upon receiving the Torrens title, to
Reasoning In this case, as found a quo petitioner’s evidence failed to establish that the Hongkong and Shanghai Bank in Manila, to be forwarded to the Crocker National
it had paid for the printing paper covered by the delivery invoices on time. Bank in San Francisco, where it was to be delivered to the plaintiff upon payment of
Consequently, private respondent has the right to cease making further delivery, a balance of P3,100
hence the private respondent did not violate the order agreement. On the contrary, - The Torrens certificate was in time issued to Teodorica Endencia, but in the course
it was petitioner which breached the agreement as it failed to pay on time the of the proceedings in the registration of the land, it was found by official survey that
materials delivered by private respondent. Respondent appellate court correctly the area of the tract inclosed in the boundaries stated in the contract was about
ruled that private respondent did not violate the order agreement.
Obligations and Contracts A2010 page
131 Prof. Labitag
1,248 hectares instead of 452 hectares as stated in the contract. Due to this, 1. WON damages in the 1st cause of action should be increased
Endencia became reluctant to transfer the whole tract to the purchaser Daywalt; 2. WON La Corporation who is not a party to the contract of sale of land will be
this led to litigation which upon appeal to the SC, Daywalt obtained a decree for liable for the damages by colluding with the vendor and maintaining her in the
specific performance; such decree appears to have become finally effective in early effort to resist an action for specific performance
1914
- The defendant, La Corporacion de los Padres Recoletos, is a religious corporation. HELD
The corporation was was at this time the owner of an estate in Mindoro known as 1. NO
the San Jose Estate and also of a property immediately adjacent to the land which -The trial court estimated the rental value of the land for grazing purposes at 50
Endencia had sold to Daywalt centavos per hectare per annum, and roughly adopted the period of four years as
- Its representative, Fr. Sanz, had long been well acquainted with Endencia and the time for which compensation at that rate should be made.
exerted over her an influence and ascendency due to his religious character as well -The SC is of the opinion that the damages assessed are sufficient to compensate
as to the personal friendship which existed between them; and Endencia was the plaintiff for the use and occupation of the land during the whole time it was
accustomed to seek, and was given the advice of Father Sanz and other members used
of his order -There is evidence in the record strongly tending to show that the wrongful use of
- Fr Sanz was aware of the contract of 1902 (1st contract to sell); Sanz and the other the land by the defendant was not continuous throughout the year but was confined
members also knew about the 2nd contract executed in 1903 mostly to the season when the forage obtainable on the land of the defendant was
- When the Torrens certificate was finally issued in 1909 in favor of Endencia, she not sufficient to maintain its cattle, for which reason it became necessary to allow
delivered it for safekeeping to the defendant corporation, and it was then taken to them to go over to pasture on the land in question
Manila where it remained in the custody and under the control of P. Juan Labarga 2. NO
- When La Corporation sold the San Jose Estate in 1909, some 2,368 head of cattle -To our mind a fair conclusion on this feature of the case is that Fr Juan Labarga and
were removed to the estate of the corporation immediately adjacent to the property his associates believed in good faith that the contract could not be enforced and
which the plaintiff had purchased from Teodorica Endencia that Endencia would be wronged if it should be carried into effect
- As Teodorica still retained possession of said property Father Sanz entered into an -Whatever may be the character of the liability which a stranger to a contract may
arrangement with her where large numbers of cattle belonging to the defendant incur by advising or assisting one of the parties to evade performance, there is one
corporation were pastured upon said land during a period extending from June 1, proposition upon which all must agree. This is that the stranger cannot become
1909, to May 1, 1914 more extensively liable in damages for the nonperformance of the contract than the
- Daywalt sought to recover from corporation P24,000 as damages for the use and party in whose behalf he intermeddles. To hold the stranger liable for damages in
occupation of the land by reason of pasturing the cattle during the said period excess of those that could be recovered against the immediate party to the contract
- TC fixed damages at P2,497 would lead to results at once grotesque and unjust.
- Plaintiff appealed for higher damages; defendant did not question the fact of -The defendant’s liability cannot exceed Endencia’s (the principal of the contract)
awarding damages per se in the first cause of action (Court proceeds to determine Endencia’s liability-- the damages laid under the
- Plaintiff, in a 2nd cause of action, also sought to recover from defendant second cause of action in the complaint could not be recovered from her, first,
P500,000, as damages on the ground that said corporation, for its own selfish because the damages in question are special damages which were not within
purposes, unlawfully induced Endencia to refrain from the performance of her contemplation of the parties when the contract was made, and secondly, because
contract for the sale of the land in question and to withhold delivery to the plaintiff said damages are too remote to be the subject of recovery)
of the Torrens title, and further, maliciously and without reasonable cause, -Plaintiff relies on English and US decisions which have ruled that a person who is a
maintained her in her defense to the action of specific performance which was stranger to a contract may, by an unjustifiable interference in the performance
finally decided in favor of the plaintiff in this court thereof, render himself liable for the damages consequent upon non-performance,
- Plaintiff claimed that in 1911, he, as the owner of the land which he bought from as recognized in Gilchrist v Cuddy
Endencia entered into a contract with S. B. Wakefield, of San Francisco, for the sale -Upon the said authorities it is enough if the wrongdoer having knowledge of the
and disposal of said lands to a sugar growing and milling enterprise, the successful existence of the contract relation in bad faith sets about to break it up. Whether his
launching of which depended on the ability of Daywalt to get possession of the land motive is to benefit himself or gratify his spite by working mischief to the employer
and the Torrens certificate of title, however, the Torrens title was still in Labarga’s is immaterial
hands, the latter having refused to turn said title over to Endencia; thus, the -If a party enters into contract to go for another upon a journey to a remote and
contract could not be consummated unhealthful climate, and a third person with a bona fide purpose of benefiting the
- Plaintiff alleged that, by interfering in the performance of the contract in question one who is under contract to go dissuades him from the step, no action will lie. But
and obstructing the plaintiff in his efforts to secure the certificate of title to the land, if the advice is not disinterested and the persuasion is used for "the indirect
the defendant corporation made itself a co-participant with Teodorica Endencia in purpose of benefiting the defendant at the expense of the plaintiff," the intermedler
the breach of said contract is liable if his advice is taken and the contract broken
-No question can be made as to the liability of one who interferes with a contract
ISSUES existing between others by means which under known legal canons can be
Obligations and Contracts A2010 page
132 Prof. Labitag
denominated an unlawful means. Thus, if performance is prevented by force, -DCCSI acceded to petitioner’s request
intimidation, coercion, or threats, or by false or defamatory statements, or by -Private respondents filed a petition for injunction, pressing for the nullification of
nuisance or riot, the person using such unlawful means is under all the authorities the lease contracts between DCCSI and petitioner. They also claimed damages.
liable for the damage which ensues -Trial Court ruled in favor of respondents
-Article 1902 of the Civil Code declares that any person who by an act or omission -CA affirmed
characterized by fault or negligence, causes damage to another shall be liable for
the damage so done. The SC takes the rule to mean that a person is liable for ISSUES
damage done to another by any culpable act; and by "culpable act" we mean any 1. WON So Ping Bun is guilty of tortuous interference of contract
act which is blameworthy when judged by accepted legal standards. Nevertheless, 2. WON So Ping Bun should be liable for attorney’s fees
it must be admitted that the codes and jurisprudence of the civil law furnish a
somewhat uncongenial field in which to propagate the idea that a stranger to a HELD
contract may be sued for the breach thereof 1. YES
-Article 1257 of the Civil Code declares that contracts are binding only between the Ratio There is tort interference when during the existence of a valid contract, a
parties and their privies. In conformity with this it has been held that a stranger to a third person, to whom the existence of such contract is known, interferes without
contract has no right of action for the nonfulfillment of the contract except in the legal justification or excuse.
case especially contemplated in the second paragraph of the same article Reasoning A duty which the law of torts is concerned with is respect for the
-If the two antagonistic ideas which we have just brought into juxtaposition are property of others, and a cause of action ex delicto may be predicated upon an
capable of reconciliation, the process must be accomplished by distinguishing unlawful interference by one person of the enjoyment by the other of his private
clearly between the right of action arising from the improper interference with the property.
contract by a stranger thereto, considered as an independent act generative of civil -This may pertain to a situation where a third person induces a party to renege on
liability, and the right of action ex- contractu against a party to the contract or violate his undertaking under a contract.
resulting from the breach thereof -In the case at bar, petitioner’s Trendsetter Marketing asked DCCSI to execute lease
contracts in its favor, and as a result petitioner deprived respondent corporation of
SO PING BUN V CA the latter’s property right. Clearly, and as correctly viewed by the appellate court,
QUISUMBING; September 21, 1999 the three elements of tort interference, (1) existence of a valid contract; (2)
knowledge on the part of the third person of the existence of contract; and (3)
NATURE interference of the third person is without legal justification or excuse, are present
Petition for review on certiorari of a decision of the Court of Appeals in the instant case.
-In Gilchrist vs. Cuddy, the court held that where there was no malice in the
FACTS interference of a contract, and the impulse behind one’s conduct lies in a proper
- In 1963, Tek Hua Trading Co, through its managing partner, So Pek Giok, entered business interest rather than in wrongful motives, a party cannot be a malicious
into lease agreements with lessor Dee C. Chuan & Sons Inc. (DCCSI) interferer.
- Subjects of four (4) lease contracts were premises located at Nos. 930, 930-Int., -In the instant case, though petitioner took interest in the property of respondent
924-B and 924-C, Soler Street, Binondo, Manila which Tek Hua used as storage corporation and benefited from it, nothing on record imputes deliberate wrongful
space for its textiles motives or malice on him.
-The contracts each had a one-year term. They provided that should the lessee -Section 1314 of the Civil Code categorically provides that, “Any third person who
continue to occupy the premises after the term, the lease shall be on a month-to- induces another to violate his contract shall be liable for damages to the other
month basis. contracting party”
- When the contracts expired, the parties did not renew the contracts, but Tek Hua -Lack of malice, however, precludes damages. But it does not relieve petitioner of
continued to occupy the premises the legal liability for entering into contracts and causing breach of existing ones.
-In 1976, Tek Hua Trading Co. was dissolved. Later, the original members of Tek The respondent appellate court correctly confirmed the permanent injunction and
Hua Trading Co. including Manuel C. Tiong, formed Tek Hua Enterprising Corp., nullification of the lease contracts between DCCSI and Trendsetter Marketing,
herein respondent corporation. without awarding damages.
- When So Pek Giok, managing partner of Tek Hua Trading, died in 1986, So Pek 2. YES
Giok’s grandson, petitioner So Ping Bun, occupied the warehouse for his own textile Ratio When the defendant’s act or omission has compelled the plaintiff to litigate
business, Trendsetter Marketing with third persons or to incur expenses to protect his interest, the recovery of
-On March 1, 1991, private respondent Tiong, president of Tek Hua Enterprising attorney’s fees is allowed.
Corp sent a letter to petitioner So Ping Bun asking him to vacate the premises Reasoning Art. 2208 of the Civil Code reads:
-Petitioner refused to vacate and instead, on March 4, 1992, petitioner requested In the absence of stipulation, attorney's fees and expenses of litigation, other than
formal contracts of lease with DCCSI in favor of Trendsetter Marketing judicial costs, cannot be recovered, except:
Obligations and Contracts A2010 page
133 Prof. Labitag
(2) When the defendant's act or omission has compelled the plaintiff to litigate with 2. YES
third persons or to incur expenses to protect his interest - The fact that the defendant was to ask for nothing in exchange for the travel thus
-The court has consistently held that the award of considerable damages should making the repair the only exchange that is expected.
have clear factual and legal bases Disposition The petitioner is not obliged to buy the yacht but is ordered to pay for
- Considering that the respondent corporation’s lease contract, at the time when the the repairs done.
cause of action accrued, ran only on a month-to-month basis whence before it was
on a yearly basis, the reduced amount of attorney’s fees ordered by the Court of MALBAROSA V COURT OF APPEALS
Appeals is still exorbitant in the light of prevailing jurisprudence. Consequently, the CALLEJO; April 30, 2003
amount of two hundred thousand (P200,000.00) awarded by respondent appellate
court should be reduced to one hundred thousand (P100,000.00) pesos as the NATURE
reasonable award for attorney’s fees in favor of private respondent corporation. Petition for review on certiorari of the decision of the CA.
Disposition The petition is DENIED. The assailed Decision and Resolution of the
Court of Appeals are hereby AFFIRMED, with MODIFICATION that the award of
attorney’s fees is reduced from two hundred thousand (P200,000.00) to one FACTS
hundred thousand (P100,000.00) pesos. - The petitioner Salvador Malbarosa was the president and general manager of
ROSENSTOCK V BURKE Philtectic Corporation and an officer of other corporations belonging to the SEADC
AVANCENA; September 26, 1924 group of companies. SEADC assigned to him a 1982 model Mitsubishi Gallant Super
Saloon car and was also issued membership certificates in the Architectural Center,
NATURE Inc.
Appeal from the Judgment of the CFI of Manila - On January 8, 1990, Malabarosa tendered his resignation from all his positions in
the SEADC group of companies and reiterating his request for the payment of his
FACTS incentive compensation for 1989 which is approximately P395,000.00 according to
- Burke owned a yacht known as Bronzewing. Elser, the plaintiff, negotiated for the him.
purchase of the yacht. The plan of Elser was to create a yacht club and sell it - SEADC, through its President Louis Da Costa, accepted his resignation and
afterwards for P120,000. P20,00 to be retained by Elser and P100,000 to be paid to entitled him to an incentive amounting to P251,057.67, which was lower than
Burke. Elser requested that a voyage be down to the south using the said yacht for Malbarosa's expectation. It is to be satisfied by transferring to him the car assigned
purposes of advertising and creating opportunities for the sale. However, the yacht to him, which estimated fair market value is P220,000.00 and the membership
needed some repairs for the voyage thus making the plaintiff pay for such repair. share of SEADC subsidiary, Tradestar International Inc. in the Architectural Center,
Elser never accepted the offer for the purchase rather requested that the engine Inc. amounting to P60,000.00.
should replaced thus asking for a loan of P20, 000. After a talk with the bank - The respondent prepared the letter-offer dated march 14, 1990 and required
manager Mr. Avery, they agreed that the yacht was to be sold to Elser for the Malbarosa to affix his conformity on the space provided therefor and the date
amount of P80,000. Elser agreed but stated in the letter that he is in a position to thereof on the right bottom position of the letter.
entertain the purchase of the said yacht. The case focuses on the recovery of the - On March 16, 1990, Da Costa met with the petitioner and handed to him the
money used to repair the yacht in the amount of P6,139.28 that is asked by Elser. original copy of the letter-offer for his consideration but he refused to sign it,
The trial court ruled in favor of Elser and asked Burke to pay for P6,139.28 with instead said that he will review the offer first. More than two weeks have passed
legal interest of 6 percent per annum as well as the Cooper Company the sume of and Da Costa never heard feedback from Malbarosa. Thus he decided to finally
P1,730.84 with legal interest of 6 per cent. The plaintiff is then asked to comply with withdraw his offer on April 3, 1996. However, Malbarosa transmitted the copy of
the conditions stated in the letter. Hence this appeal coming from the plaintiff. the signed Letter-offer to respondent on April 7, 1996 and he alleged that he has
affixed his signature on it since March 28, 1996 but failed to communicate his
ISSUUES acceptance immediately.
1. WON the contract is valid and binding against the plaintiff Procedure
2. WON plaintiff is required to pay for the repairs of the yacht - Due to petitioner's refusal to return the vehicle after April 3, 1996, the respondent
filed a complaint for recovery of personal property with replevin, with damages and
HELD atty's fee.
1. NO - RTC – issued a writ of replevin
- The court looked at the intent of the plaintiff in using the language. Instead of - CA – affirmed RTC's decision
using clear and simple words such as I offer to purchase, I want to purchase, or I am
in the position to purchase he used the word entertain which implies that he is in a ISSUES
position to deliberate whether or not he would purchase such yacht. It is a mere 1. WON there was a valid acceptance on Malbarosa's part of the March 14, 1990
invitation that is discretionary upon him. Letter-offer of the respondent
Obligations and Contracts A2010 page
134 Prof. Labitag
2. WON there was an effective withdrawal by the respondent of said Letter-offer - However, Purefoods unilaterally cancelled the award. FEMSCO protested and
sought a meeting. Before the matter could be resolved, Purefoods awarded the
HELD project and entered into contract with Jardine w/c was not one of the bidders.
1. NO. - FEMSCO wrote to Purefoods and Jardine, but its letters unheeded, FEMSCO sued
- Article 1318 of CC says that “There is no contract unless the following requisites them both.
concur:
(1) consent of the contracting parties; ISSUES
(2) object certain which is the subject matter of the contract 1. WON there existed a perfected contract bet Purefoods and FEMSCO
(3) cause of the obligation which is established 2. WON there is showing that Jardine induced/connived with Purefoods to violate
In this case, there is no contract as Malbarosa failed to meet the requirements of a Purefoods’ contract with FEMSCO
valid acceptance to wit:
(a) may be express or implied HELD
(b) must be absolute, unconditional and without variance of any sort from the offer 1. YES
© must be made known to the offeror - Contract: juridical convention manifested in legal form, by virtue of w/c one or
(d) must be made in the manner prescribed by the offeror more persons bind themselves in favor of another or others, or reciprocally, to the
Reasoning Malabarosa communicated his acceptance only after the knowledge of fulfillment of a prestation to give, to do, or not to do. It binds the parties and has
revocation or withdrawal of his offer. He should have transmitted his conformity the force of law between them.
while the offer was subsisting. The time given to him was long enough. - Requisites of contract:
2. YES - consent of the parties
- Implicit in the authority given to Philtectic Corporation to demand for and recover - object/subject matter of the contract
from the petitioner the subject car and to institute the appropriate action against - cause of the obligation
him to recover possession of the car is the authority to withdraw the respondent's - In this case, the controversy lies in the consent (whether there was acceptance).
Letter-offer. Contracts are perfected by mere consent, acceptance by the offeree of the offer
Disposition Decision of the CA is AFFIRMED. made by the offeror. Acceptance may be express or implied. For a contract to
arise, acceptance must be made known to the offeror. Acceptance can be
withdrawn or revoked before it is made known to offeror.
- Art 1326 of Civil Code applies: Advertisements for bidders are simply invitations
to make proposals. The bid proposals/quotations of the bidders are the offers. The
reply of petitioner Purefoods is the acceptance/rejection of the offers.
- Purefoods’ letter to FEMSCO constituted acceptance. While the letter enumerated
“basic terms and conditions”, these were imposed on the performance of the
obligation rather than on the perfection of the contract.
These two things are different. While failure to comply w/ CONDITION ON
JARDINE DAVIES INC. V COURT OF APPEALS PERFECTION OF CONTRACT results in failure of a contract, failure to comply w/
BELLOSILLO; June 19, 2000 CONDITION ON PERFORMANCE OF THE OBLIGATION merely gives other party
options and/or remedies.
NATURE - Even granting that the letter of Purefoods is just a conditional counter-offer,
Action for specific performance FEMSCO’s submission of bond and insurance was implied acceptance, and
acknowledgment by Purefoods, not to mention its return of the Bidder’s Bond,
FACTS manifests its knowledge that FEMSCO consented to the offer.
- Controversy started in 1992 at height of power crisis. Petitioner Pure Foods Corp 2. NO
decided to install 2 1500 KW generators in food processing plant in Marikina. - The similarity in the design submitted to Purefoods by both Jardine and FEMCO
- A bidding for supply and installation of generators was held. Out of 8 prospective and the tender of a lower quotation by Jardine are insufficient to show that Jardine
bidders who attended pre-bidding conference, 3 bidders (FEMSCO, MONARK and induced Purefoods to violate contract with FEMSCO.
ADVANCE POWER) submitted bid proposals and gave bid bonds equivalent to 5% of
their respective bids, as required. SANCHEZ V RIGOS
- In a letter, Purefoods confirmed the award of contract to FEMSCO. FEMSCO CONCEPCION; June 14, 1972
submitted the required performance bond (P1,841,187.90) and contractor’s all-risk
insurance policy (P6,137,293.00) w/c Purefoods acknowledged in a letter. FEMSCO
NATURE
also made arrangements w/ its principal and started by purchasing materials.
Purefoods on the other hand returned FEMSCO’s Bidder’s Bond (P1M) as requested.
Obligations and Contracts A2010 page
135 Prof. Labitag
- Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of - A1354 applies to contracts in general whereas A1479 refers to sales in particular
Appeals (specifically to a unilateral promise to buy and sell), making A1479 the controlling
provision.
FACTS - For the unilateral promise to be binding, there must be a concurrence of a
- April 3, 1961 – Sanchez and Rigos executed an instrument called “Option to condition, that it be supported by a consideration distinct from price. The promise
Purchase” cannot compel the promisor to comply with the promise unless there is the
- Rigos committed to sell to Sanchez a parcel of land in Nueva Ecija for the sum of existence of that distinct consideration. In this case, this was not alleged by
P1,510.00. Sanchez.
- Within two years from the said date, if Sanchez shall not exercise his right to buy - Rigos stated that there was indeed the absence of that consideration which
the property, the option shall be terminated Sanchez did not oppose
- Within the said period, Sanchez made several attempts to pay P1,510.00 to Rigos - Despite this differences, later jurisprudence states that A1354 and A1479 have no differences and can
but Rigos rejected these payments actually be harmonized.
- March 12, 1963 – Sanchez deposited the amount in the Court of First Instance in
Nueva Ecija ADELFA PROPERTIES, INC. V COURT OF APPEALS
- Feb. 28, 1964 – Rigos ordered by the lower court to accept the payments of REGALADO; January 25, 1995
Sanchez and to execute in Sanchez’s favor the deed of conveyance for the
property. NATURE
Petitioners’ Claim - Petition for review on certiorari of the judgment of the Court of Appeals.
- By virtue of the document executed, Rigos had agreed and committed to sell the
property and he, in turn, agreed and committed to buy. FACTS
- Thus the promise contained in the contract is reciprocally demandable. - Private respondent Rosario Jimenez-Castañeda and Salud Jimenez and their
Respondents’ Comments brothers, Jose and Dominador Jimenez, were the registered co-owners of a parcel of
- The contract is a unilateral promise to sell. land consisting of 17,710 sqm., situated in Barrio Culasi, Las Piñas, Metro Manila.
- The contract was unsupported by any valuable consideration and is thus null and - On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-
void when viewed in the light of the Civil Code. half of said parcel of land, specifically the eastern portion thereof, to herein
petitioner pursuant to a "Kasulatan sa Bilihan ng Lupa." Subsequently, a
ISSUE "Confirmatory Extrajudicial Partition Agreement" was executed by the Jimenezes,
WON a promise to buy and sell existed between the parties involved wherein the eastern portion of the subject lot, with an area of 8,855 sqm. was
adjudicated to Jose and Dominador Jimenez, while the western portion was allocated
HELD to private respondents.
YES - Thereafter, petitioner expressed interest in buying .the western portion of the
Ratio An accepted unilateral promise' can only have a binding effect if supported property from private respondents. Accordingly, on November 25, 1989, an
by a consideration, which means that the option can still be withdrawn, even if "Exclusive Option to Purchase" was executed between petitioner and private
accepted, if the same is not supported by any consideration. Since there may be no respondents, under the following terms and conditions:
valid contract without a cause or consideration, the promisor is not bound by his 1. The selling price of said 8,655 sqm. of the subject property is P2,856,150;
promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his 2. The sum of P50,000 which the private respondents received from ADELFA
accepted promise partakes, however, of the nature of an offer to sell which, if PROPERTIES, INC. as an option money shall be credited as partial payment upon the
accepted, results in a perfected contract of sale. consummation of the sale and the balance in the sum of P2,806,150 to be paid on
Reasoning or before November 30, 1989;
- The case is dependent on A1479 of the Civil Code which states that: “An accepted 3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said balance in
unilateral promise to buy or to sell a determinate thing for a price certain is binding accordance with paragraph 2 , the option shall be cancelled and 50% of the option
upon the promisor if the promise is supported by a consideration distinct from the money to be forfeited in our favor and we will refund the remaining 50% of said
price.” option money upon the sale of said property to a third party;
- The document drawn between Rigos and Sanchez does not require Sanchez to 4. All expenses including the corresponding capital gains tax, cost of documentary
purchase the property. It is not a contract to buy and sell. stamps are for the account of the VENDORS, and expenses for the registration of
- Rigos committed to sell the property to Sanchez but the document does not state the deed of sale in the Registry of Deeds are for the account of ADELFA
that the promise or undertaking is supported by consideration distinct from the PROPERTIES, INC.
price stipulated. - Considering, however, that the owner's copy of the TCTcertificate of title issued to
- The lower court relied on A1354. The Supreme Court however makes the respondent Salud Jimenez had been lost, a petition for the re-issuance of a new
following notes with regard to the use of that provision vis-à-vis A1479: owner's copy of said certificate of title was filed in court through Atty. Bayani L.
Obligations and Contracts A2010 page
136 Prof. Labitag
Bernardo, who acted as private respondents' counsel. Eventually, a new owner's tantamount to a rejection of the option. It likewise ruled that petitioner could not
copy of the certificate of title was issued but it remained in the possession of Atty. validly suspend payment in favor of private respondents on the ground that the
Bernardo until he turned it over to petitioner Adelfa Properties, Inc. vindicatory action filed by the latter's kin did not involve the western portion of the
- Before petitioner could make payment, it received summons on November 29, land covered by the contract between petitioner and private respondents, but the
1989, together with a copy of a complaint filed by the nephews and nieces of eastern portion thereof which was the subject of the sale between petitioner and
private respondents against the latter, Jose and Dominador Jimenez, and petitioner the brothers Jose and Dominador Jimenez. The trial court then directed the
in the RTC of Makati, for annulment of the deed of sale in favor of Household cancellation of the exclusive option to purchase, declared the sale to intervenor
Corporation and recovery of ownership of the property covered . Emylene Chua as valid and binding, and ordered petitioner to pay damages and
- As a consequence, in a letter dated November 29,1989, petitioner informed attorney's fees to private respondents, with costs.
private respondents that it would hold payment of the full purchase price and - On appeal, the Court of Appeals affirmed in toto the decision of the court a quo
suggested that private respondents settle the case with their nephews and nieces, and held that the failure of petitioner to pay the purchase price within the period
adding that "x x x if possible, although November 30, 1989 is a holiday, we will be agreed upon was tantamount to an election by petitioner not to buy the property;
waiting for you and said plaintiffs at our office up to 7:00 p.m." Another letter of the that the suspension of payment constituted an imposition of a condition which was
same tenor and of even date was sent by petitioner to Jose and Dominador Jimenez. actually a counter-offer amounting to a rejection of the option; and that Article 1590
Respondent Salud Jimenez refused to heed the suggestion of petitioner and of the Civil Code on suspension of payments applies only to a contract of sale or a
attributed the suspension of payment-of the purchase price to "lack of word of contract to sell, but not to an option contract which it opined was the nature of the
honor." document subject of the case at bar. Said appellate court similarly upheld the
- On December 7, 1989, petitioner caused to be annotated on the title of the lot its validity of the deed of conditional sale executed by private respondents in favor of
option contract with private respondents, and its contract of said with Jose and intervenor Emylene Chua.
Dominador Jimenez,
- On December 14, 1989, private respondents sent Francisca Jimenez to see Atty. ISSUES
Bernardo, in his capacity as petitioner's counsel, and to inform the latter that they 1. WON the "Exclusive Option to Purchase" executed between petitioner Adelfa
were cancelling the transaction. In turn, Atty. Bernardo offered to pay the purchase Properties, Inc. and private respondents is a contract to sell, rather than a contract
price provided that P500,000 be deducted therefrom for the settlement of the civil of sale
case. This was rejected by private respondents. On December 22, 1989, Atty. 2. WON there was a valid suspension of payment of the purchase price by said
Bernardo wrote private respondents on the same matter but this time reducing the petitioner, and the legal effects thereof on the contractual relations of the parties
amount from P500,000 to P300,000, and this was also rejected by the latter.
- On February 23, 1990, the RTC of Makati dismissed civil case. Thus, on February HELD
28, 1990, petitioner caused to be annotated anew on the TCT the exclusive option 1. YES.
to purchase. On the same day, private respondents executed a Deed of Conditional - In a contract of sale, the title passes to the vendee upon the delivery of the thing
Sale in favor of Emylene Chua over the same parcel of land for P3,029,250, of which sold; whereas in a contract to sell, by agreement the ownership is reserved in the
P1,500,000 was paid to private respondents on said date, with the balance to be vendor and is not to pass until the full payment of the price. In a contract of sale,
paid upon the transfer of title to the specified one-half portion. the vendor has lost and cannot recover ownership until and unless the contract is
- On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter resolved or rescinded; whereas in a contract to sell, title is retained by the vendor
that in view of the dismissal of the case against them, petitioner was willing to pay until the full payment of the price, such payment being a positive suspensive
the purchase price, and he requested that the corresponding deed of absolute sale condition and failure of which is not a breach but an event that prevents the
be executed. This was ignored by private respondents. obligation of the vendor to convey title from becoming effective. Thus, a deed of
- On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing sale is considered absolute in nature where there is neither a stipulation in the deed
therein a check for P25,000 representing the refund of 50% of the option money that title to the property sold is reserved in the seller until the full payment of the
paid under the exclusive option to purchase. Private respondents then requested price, nor one giving the vendor the right to unilaterally resolve the contract the
petitioner to return the owner's duplicate copy of the certificate of title of moment the buyer fails to pay within a fixed period.
respondent Salud Jimenez. Petitioner failed to surrender the certificate of title, - The parties never intended to transfer ownership to petitioner except upon full
hence private respondents filed a civil case in the RTC of Pasay City for annulment payment of the purchase price. Firstly, the exclusive option to purchase, although it
of contract with damages, praying, among others, that the exclusive option to provided for automatic rescission of the contract and partial forfeiture of the
purchase be declared null and void; that defendant, herein petitioner, be ordered to amount already paid in case of default, does not mention that petitioner is obliged
return the owner's duplicate certificate of title; and that the annotation of the option to return possession or ownership of the property as a consequence of non-
contract on the TCT be cancelled. - Emylene Chua, the subsequent purchaser of the payment. There is no stipulation anent reversion or reconveyance of the property to
lot, filed a complaint in intervention. herein private respondents in the event that petitioner does not comply with its
- The trial court rendered judgment holding that the agreement entered into by the obligation. With the absence of such a stipulation, although there is a provision on
parties was merely an option contract, and declaring that the suspension of the remedies available to the parties in case of breach, it may legally be inferred
payment by herein petitioner constituted a counter-offer which, therefore, was
Obligations and Contracts A2010 page
137 Prof. Labitag
that the parties never intended to transfer ownership to the petitioner prior to sell his land, if the holder elects to accept them within the time limited. If the holder
completion of payment of the purchase price. does so elect, he must give notice to the other party, and the accepted offer
- Moreover, that the parties really intended to execute a contract to sell, and not a thereupon becomes a valid and binding contract. If an acceptance is not made
contract of sale, is bolstered by the fact that the deed of absolute sale would have within the time fixed, the owner is no longer bound by his offer, and the option is at
been issued only upon the payment of the balance of the purchase price, as may be an end. A contract of sale, on the other hand, fixes definitely the relative rights and
gleaned from petitioner's letter dated April 16, 1990 wherein it informed private obligations of both parties at the time of its execution. The offer and the acceptance
respondents that it "is now ready and willing to pay you simultaneously with the are concurrent, since the minds of the contracting parties meet in the terms of the
execution of the corresponding deed of absolute sale." agreement.
- Secondly, it has not been shown that there was delivery of the property, actual or - A perusal of the contract in this case readily shows that there is indeed a
constructive, made to herein petitioner. The exclusive option to purchase is not concurrence of petitioner's offer to buy and private respondents' acceptance
contained in a public instrument the execution of which would have been thereof. The rule is that except where a formal acceptance is so required, although
considered equivalent to delivery. Neither did petitioner take actual, physical the acceptance must be affirmatively and clearly made and must be evidenced by
possession of the property at any given time. It is true that after the reconstitution some acts or conduct communicated to the offeror, it may be made either in a
of private respondents' certificate of title, it remained in the possession of formal or an informal manner, and may be shown by acts, conduct, or words of the
petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter delivered the same to accepting party that clearly manifest a present intention or determination to accept
herein petitioner. Normally, under the law, such possession by the vendee is to be the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or
understood as a delivery. However, private respondents explained that there was words of a party recognizing the existence of the contract of sale.
really no intention on their part to deliver the title to herein petitioner with the - The records also show that private respondents accepted the offer of petitioner to
purpose of transferring ownership to it. They claim that Atty. Bernardo had buy their property under the terms of their contract. At the time petitioner made its
possession of the title only because he was their counsel in the petition for offer, private respondents suggested that their transfer certificate of title be first
reconstitution. We have no reason not to believe this explanation of private reconstituted, to which petitioner agreed. As a matter of fact, it was petitioner's
respondents, aside from the fact that such contention was never refuted or counsel, Atty. Bayani L. Bernardo, who assisted private respondents in filing a
contradicted by petitioner. petition for reconstitution. After the title was reconstituted, the parties agreed that
- The title of a contract does not necessarily determine its true nature. The fact that petitioner would pay either in cash or manager's check the amount of P2,856,150
the document under discussion is entitled "Exclusive Option to Purchase" is not for the lot. Petitioner was supposed to pay the same on November 25, 1989, but, it
controlling where the text thereof shows that it is a contract to sell. An option, as later offered to make a down payment of P50,000, with the balance of P2,806,150
used in the law on sales, is a continuing offer or contract by which the owner to be paid on or before November 30, 1989. Private respondents agreed to the
stipulates with another that the latter shall have the right to buy the property at a counter-offer made by petitioner. As a result, the so-called exclusive option to
fixed price within a certain time, or under, or in compliance with, certain terms and purchase was prepared by petitioner and was subsequently signed by private
conditions, or which gives to the owner of the property the right to sell or demand a respondents, thereby creating a perfected contract to sell between them.
sale. It is also sometimes called an "unaccepted offer." An option is not of itself a - It cannot be gainsaid that the offer to buy a specific piece of land was definite and
purchase, but merely secures the privilege to buy. It is not a sale of property but a certain, while the acceptance thereof was absolute and without any condition or
sale of the right to purchase. It is simply a contract by which the owner of property qualification.
agrees with another person that he shall have the right to buy his property at a - The agreement as to the object, the price of the property, and the terms of
fixed price within a certain time. He does not sell his land; he does not then agree payment was clear and well-defined. No other significance could be given to such
to sell it; but he does sell something, that is, the right or privilege to buy at the acts than that they were meant to finalize and perfect the transaction. The parties
election or option of the other party. Its distinguishing characteristic is that it even went beyond the basic requirements of the law by stipulating that "all
imposes no binding obligation on the person holding the option, aside from the expenses including the corresponding capital gains tax, cost of documentary
consideration for the offer. Until acceptance, it is not, properly speaking, a contract, stamps are for the account of the vendors, and expenses for the registration of the
and does not vest, transfer, or agree to transfer, any title to, or any interest or right deed of sale in the Registry of Deeds are for the account of Adelfa Properties, Inc."
in the subject matter, but is merely a contract by which the owner of property gives Hence, there was nothing left to be done except the performance of the respective
the optionee the right or privilege of accepting the offer and buying the property on obligations of the parties.
certain terms. - There already existed a perfected contract between the parties at the time the
- On the other hand, a contract like a contract to sell, involves a meeting of minds alleged counter-offer was
between two persons whereby one binds himself, with respect to the other, to give made. Thus, any new offer by a party becomes binding only when it is accepted by
something or to render some service. Contracts, in general, are perfected by mere the other. In the case of private respondents, they actually refused to concur in said
consent, which is manifested by the meeting of the offer and the acceptance upon offer of petitioner, by reason of which the original terms of the contract continued to
the thing and the cause which are to constitute the contract. The offer must be be enforceable. At any rate, the same cannot be considered a counteroffer for the
certain and the acceptance absolute. simple reason that petitioner's sole purpose was to settle the civil case in order that
- The distinction between an "option" and a contract of sale is that an option is an it could already comply with its obligation. In fact it was even indicative of a desire
unaccepted offer. It states the terms and conditions on which the owner is willing to by petitioner to immediately comply therewith, except that it was being prevented
Obligations and Contracts A2010 page
138 Prof. Labitag
from doing so because of the filing of the civil case which, it believed in good faith, deed of absolute sale. It is consignation which is essential in order to extinguish
rendered compliance improbable at that time. In addition, no inference can be petitioner's obligation to pay the balance of the purchase price. The rule is different
drawn from that suggestion given by petitioner that it was totally abandoning the in case of an option contract or in legal redemption or in a sale with right to
original contract. repurchase; wherein consignation is not necessary because these cases involve an
- More importantly, it will be noted that the failure of petitioner to pay the balance exercise of a right or privilege (to buy, redeem or repurchase) rather than the
of the purchase price within the agreed period was attributed by private discharge of an obligation, hence tender of payment would be sufficient to preserve
respondents to "lack of word of honor" on the part of the former. The reason of the right or privilege. This is because the provisions on consignation are not
"lack of word of honor" is to us a clear indication that private respondents applicable when there is no obligation to pay. A contract to sell, as in the case
considered petitioner already bound by its obligation to pay the balance of the before us, involves the performance of an obligation, not merely the exercise of a
consideration. In effect, private respondents were demanding or exacting fulfillment privilege or a right. Consequently, performance or payment may be effected not by
of the obligation from herein petitioner. With the arrival of the period agreed upon tender of payment alone but by both tender and consignation.
by the parties, petitioner was supposed to comply with the obligation incumbent - Furthermore, petitioner no longer had the right to suspend payment after the
upon it to perform, not merely to exercise an option or a right to buy the property. disturbance ceased with the dismissal of the civil case filed against it. Necessarily,
-The test in determining whether a contract is a "contract of sale or purchase" or a therefore, its obligation to pay the balance again arose and resumed after it
mere "option" is whether or not the agreement could be specifically enforced. There received notice of such dismissal. Unfortunately, petitioner failed to seasonably
is no doubt that the obligation of petitioner to pay the purchase price is specific, make payment, as in fact it has failed to do so up to the present time, or even to
definite and certain, and consequently binding and enforceable. Had private deposit the money with the trial court when this case was originally filed therein.
respondents chosen to enforce the contract, they could have specifically compelled - By reason of petitioner's failure to comply with its obligation, private respondents,
petitioner to pay the balance of P2,806,150. This is distinctly made manifest in the elected to resort to and did announce the rescission of the contract through its
contract itself as an integral stipulation, compliance with which could legally and letter to petitioner dated July 27, 1990. That written notice of rescission is deemed
definitely be demanded from petitioner as a consequence. sufficient under the circumstances. Article 1592 of the Civil Code which requires
2. YES. rescission either by judicial action or notarial act is not applicable to a contract to
- At a glance, it is easily discernible that, although the complaint prayed for the sell." Furthermore, judicial action for rescission of a contract is not necessary where
annulment only of the contract of sale executed between petitioner and the Jimenez the contract provides for automatic rescission in case of breach, as in the contract
brothers, the same likewise prayed for the recovery of therein plaintiffs share in involved in the present controversy.
that parcel of land. In other words, the plaintiffs therein were claiming to be co- - In the case at bar, it has been shown that although petitioner was duly furnished
owners of the entire parcel of land and not only of a portion thereof nor did their and did receive a written notice of rescission which specified the grounds therefor,
claim pertain exclusively to the eastern half adjudicated to the Jimenez brothers. it failed to reply thereto or protest against it. Its silence thereon suggests an
Such being the case, petitioner was justified in suspending payment of the balance admission of the veracity and validity of private respondents' claim. Furthermore,
of the purchase price by reason of the aforesaid vindicatory action filed against it. the initiative of instituting suit was transferred from the rescinder to the defaulter
The assurance made by private respondents that petitioner did not have to worry by virtue of the automatic rescission clause in the contract. But then, the records
about the case because it was pure and simple harassment is not the kind of bear out the fact that aside from the lackadaisical manner with which petitioner
guaranty contemplated under the exceptive clause in Article 1590 wherein the treated private respondents' letter of cancellation, it utterly failed to seriously seek
vendor is bound to make payment even with the existence of a vindicatory action if redress from the court for the enforcement of its alleged rights under the contract.
the vendee should give a security for the return of the price. If private respondents had not taken the initiative of filing a civil case, evidently
- Be that as it may, and the validity of the suspension of payment notwithstanding, petitioner had no intention to take any legal action to compel specific performance
the private respondents may no longer be compelled to sell and deliver the subject from the former. By such cavalier disregard, it has been effectively estopped from
property to petitioner for two reasons, that is, petitioner's failure to duly effect the seeking the affirmative relief it now desires but which it had theretofore disdained.
consignation of the purchase price after the disturbance had ceased; and,
secondarily, the fact that the contract to sell had been validly rescinded by private ASIAIN V JALANDONI
respondents MALCOLM; October 23, 1923
- As early as February 28, 1990 when petitioner caused its exclusive option to be
annotated anew on the certificate of title, it already knew of the dismissal of the FACTS
civil case. However, it was only on April 16, 1990 that petitioner, through its - Luis Asiain, the plaintiff-appellant in this case, is the owner of the hacienda known
counsel, wrote private respondents expressing its willingness to pay the balance of as "Maria" situated in the municipality of La Carlota, Province of Occidental Negros,
the purchase price upon the execution of the corresponding deed of absolute sale. containing about 106 hectares. Benjamin Jalandoni, the defendant-appellee, is the
At most that was merely a notice to pay. There was no proper tender of payment owner of another hacienda adjoining that of Asiain. Asiain and Jalandoni happening
nor consignation in this case as required by law. The mere sending of a letter by the to meet on one of the days of May, 1920, Asiain said to Jalandoni that he was willing
vendee expressing the intention to pay, without the accompanying payment, is not to sell a portion of his hacienda for the sum of P55,000. With a wave of his hand,
considered a valid tender of payment. Besides, a mere tender of payment is not Asiain indicated the tract of land in question, affirming that it contained between 25
sufficient. to compel private respondents to deliver the property and execute the
Obligations and Contracts A2010 page
139 Prof. Labitag
and 30 hectares, and that the crop of sugar cane then planted would produce not 2. WON the stipulation “more or less” saves the contract from being declared null
less than 2,000 piculs of sugar. But as Jalandoni remained doubtful as to the extent and void.
of the land and as to the amount of the crop on it, Asiain wrote Jalandoni a letter
assuring the latter of the accuracy of his assessment of the area and the amount of HELD
sugar it could produce and that in case it turned out to be inaccurate, he would be 1. NO
willing to compensate for it. Ratio Mutual mistake of the contracting parties to a sale in regard to the subject-
- Sometime later, in July of the same year, Asiain and Jalandoni having met at Iloilo, matter of the sale which is so material as to go to the essence of the contract, is a
they prepared and signed the memorandum-agreement where Asiain spouses ground for relief and rescission.
promised to sell to Jalandoni parcels of land containing “25 hectares more or less” Reasoning A comparative study of the American authorities throws considerable
and producing an estimated crop of 2000 piculs. During all of the period of light on the situation. In volume 39 Cyc., page 1250, under the subject "Vendor and
negotiations, Jalandoni remained a doubting Thomas and was continually Purchaser," is found the following:
suggesting that, in his opinion, the amount of the land and of the crop was "If, in a contract of sale the quantity of the realty to be conveyed is indicated by a
overestimated. Asiain on his part always gave assurances in conformity with the unit of area, as by the acre, a marked excess or deficiency in the quantity stipulated
letter which he had written intended to convince Jalandoni that the latter was in for is a ground for avoiding the contract. Since it is very difficult, if not impossible,
error in his opinion. As a result, the parties executed the another agreement to ascertain the quantity of a tract with perfect accuracy, a slight excess or
reaffirming their previous agreement and that in case the vendor should withdraw deficiency does not affect the validity of the contract.
from the contract and desist from signing the document of final sale, the purchaser
shall have the right to collect from said vendor all such amount as may have been "Where, however, the contract is not for the sale of a specific quantity of land, but
advanced on account of this sale, with an indemnity of P15,000 as penalty. In case for the sale of a particular tract, or designated lot or parcel, by name or description,
it is the purchaser who should withdraw from the contract of sale, then he will lose fix a sum in gross, and the transaction is bona fide, a mutual mistake as to quantity,
all such amount as may have been paid in advance on account of, this transaction. but not as to boundaries, will not generally entitle the purchaser to compensation,
- Once in possession of the land, Jalandoni did two things. He had the sugar cane and is not ground for rescission. But it is well settled that a purchaser of land, when
ground in La Carlota Sugar Central with the result that it gave an output of 800 it is sold in gross, or with the description, 'more-or less,' or 'about,' does not thereby
piculs and 28 cates of centrifugal sugar. When opportunity offered, he secured the ipso-facto take all risk of quantity in the tract. If the difference between the real and
certificate of title of Asiain and procured a surveyor to survey the land. According to the represented quantity is very great, both parties act obviously under a mistake
this survey, the parcel in question contained an area of 18 hectares, 54 ares, and which it is the duty of a court of equity to correct.' And relief will be granted when
22 centiares. the mistake is so material that if the truth had been known to the parties the sale
- Of the purchase price of P55,000, Jalandoni had paid P30,000, leaving a balance would not have been made."
unpaid of P25,000. To recover the sum of P25,000 from Jalandoni or to obtain the - A mutual mistake as to the quantity of the land sold may afford ground for
certificate of title and the rent from him, action was begun by Asiain in the Court of equitable relief. As has been said, if, through gross and palpable mistake, more or
First Instance of Occidental Negros. To the complaint, an answer and a counter- less land should be conveyed than was in the contemplation of the seller to part
complaint were interposed by the defendant, by which it was asked that he be with or the purchaser to receive, the injured party would be entitled to relief in like
absolved from the complaint, that the contract be annulled, both parties to return manner as he would be for an injury produced by a similar cause in a contract of
whatever they had received, and that he recover from the plaintiff the sum of any other species. And when it is evident that there has been a gross mistake as to
P3,600 annually as damages. In a well-reasoned decision, the Honorable Eduardo quantity, and the complaining party has not been guilty of any fraud or culpable
Gutierrez David, Judge of First Instance, declared null the document of purchase negligence, nor has he otherwise impaired the equity resulting from the mistake, he
and its related memorandum; absolved Jalandoni from the payment of P25,000; may be entitled to relief from the technical or legal effect of his contract, whether it
ordered the Asiain to return to the defendant the sum of P30,000 with legal interest be executed or only executory. It has also been held that where there is a very
from July 12, 1920; ordered the Jalandoni to turn over to the plaintiff the tract of great difference between the actual and the estimated quantity of acres of land sold
land and the certificate of title No. 468, and absolved the Asiain from the counter- in gross, relief may be granted on the ground of gross mistake.
complaint, without special finding as to the costs. It is from said judgment that the - EXCEPTION TO MUTUAL MISTAKE. Relief, however, will not be granted as a general
plaintiff has appealed. rule where it appears that the parties intended a contract of hazard, as where the
- The plaintiff contends that in the case of Irureta Goyena vs. Tambunting ([1902], 1 sale is a sale in gross and not by acreage or quantity as a basis for the price; and it
Phil., 490), the rule announced in the syllabus is: "An agreement to purchase a has been held that a mistake on the part of the vendor of a town lot sold by
certain specified lot of land at a certain specified price is obligatory and enforceable description as to number on the plat, as to its area or dimensions, inducing a sale
regardless of the fact that its area is less than that mentioned in the contract." thereof at a smaller price than he would, have asked had he been cognizant of its
size, not in any way occasioned or concealed by conduct of the purchaser,
ISSUE constitutes no ground for the rescission of the contract. The apparent conflict and
1. WON the lower court erred in nullifying the document of purchase and its related discrepancies in the adjudicated eases involving mistakes as to quantity arise not
memorandum on the ground of mutual mistake under the Civil Code and thereafter from a denial of or a failure to recognize the general principle, but from the
restoring the parties to their original position. difficulty of its practical application in particular eases in determining the questions
Obligations and Contracts A2010 page
140 Prof. Labitag
whether the contract was one of hazard as to quantity or not and whether the reference to the subject-matter of the contract is such that, at the option of the
variance is unreasonable. The relative extent of the surplus or deficit -cannot purchaser, it is rescindable. Without such mistake the agreement would not have
furnish, per se, an infallible criterion in each caw for its determination, but each been made and since this is true, the agreement is inoperative and void. It is not
case must be considered with reference not only to that but its other peculiar exactly a case of over reaching on the plaintiff's part, or of misrepresentation and
circumstances. The conduct of the parties, the value, extent, and locality of the deception, or of fraud, but is more nearly akin to a bilateral mistake for which relief
land, the date of the contract, the price, and other nameless circumstances, are should be granted. Specific performance of the contract can therefore not be
always important, and generally decisive. In other words, each case must depend allowed at the instance of the vendor.
on its own peculiar circumstances and surroundings. 2. NO.
- "The rule denying relief in ease of a deficit or an excess is frequently applied in Ratio The use of "more or less" or similar, words in designating quantity covers
equity as well as at law, but a court of equity will not interfere on account of either only a reasonable excess or deficiency and that when a vendee of land enters into a
a surplus or a deficiency where it is clear that the parties intend a contract of contract of sale with the vendor with the description "more or less," he does not
hazard, and it is said that although this general rule may not carry into effect the thereby ipso facto take all risk of quantity in the land.
real intention of the parties. It is calculated to prevent litigation. From an early date Reasoning The memorandum-agreement between Asiain and Jalandoni contains
courts of equity under their general jurisdiction to grant relief on the ground of the phrase "more or less." It is the general view that this phrase or others of like
mistake have in case of a mistake in the estimation of the acreage in the tract sold import, added to a statement of quantity, can only be considered as covering
and conveyed interposed their aid to grant relief to the vendor where there was a inconsiderable or small differences one way or the other, and do not in themselves
large surplus over the estimated acreage, and to the purchaser where there was, a determine the character of the sale as one in gross or by the acre. The use of this
large deficit. For the purpose of determining whether relief shall be granted the phrase in designating quantity covers only a reasonable excess or deficiency. Such
courts have divided the cases into two general classes: (1) Where the sale is of a words may indeed relieve from exactness but not from gross deficiency.
specific quantity which is usually denominated a sale by the acre; (2) where the - The apparent conflict and discrepancies in the adjudicated cases arise not from a
sale is of a specific tract by name or description, which is usually called a sale in denial of or a failure Ito recognize the general principles. These principles, as
gross. * * * " commonly agreed to, may be summarized as follows: A vendee of land when it is
"Sales in gross for the purpose of equitable relief may be divided into various sold in gross or with the description "more or less" does not thereby ipso facto take
subordinate classifications; all risk of quantity in the land. The use of "more or less" or similar, words in
(1) sales strictly and essentially by the tract, without reference in the negotiation or designating quantity covers only a reasonable excess or deficiency.
in the consideration to any designated or estimated quantity of acres; Disposition
(2) sales of the like in which, though a supposed quantity by estimation is The ultimate result is to put the parties back in exactly their respective positions
mentioned or referred to in the contract, the reference was made only for the before they became involved in the negotiations and before accomplishment of the
purpose of description, and under such circumstances or in such a manner as to agreement. This was the decision of the trial judge and we think that decision
show that the parties intended to risk the contingency of quantity, whatever it conforms to the facts, the law, and the principles of equity. Judgment is affirmed,
might be, or how much it might exceed or fall short of that which was mentioned in without prejudice to the right of the plaintiff to establish in this action in the lower
the contract; court the amount of the rent of the land pursuant to the terms of the complaint
(3) sales in which it is evident, from extraneous circumstances of locality, value, during the time the land was in the possession of the defendant, and to obtain
price, time, and the conduct and conversations of the parties, that they did not judgment against the defendant for that amount, with costs against the appellant.
contemplate or intend to risk more than the usual rates of excess or deficit in So ordered.
similar cases, or than such as might reasonably be calculated on as within the
range of ordinary contingency; THEIS V COURT OF APPEALS
(4) sales which, though technically deemed and denominated sales in gross, are in HERMOSISIMA; February 12, 1997
fact sales by the acre, and so understood by the parties. Contracts belonging to
either of the two first mentioned classes, whether executed or executory, should FACTS
not be modified by the chancellor when there has been no fraud. But in sales of - Respondent Calsons Development Corporation is the owner of three (3) adjacent
either the third or fourth kind, an unreasonable surplus or deficit may entitle the parcels of land covered by Transfer Certificate of Title (TCT) Nos. 15515 (parcel no.
injured party to equitable relief, unless he has, by his conduct, waived or forfeited I), 15516 (parcel no. 2) and 15684 (parcel no. 3. All three parcels of land are
his equity. * * * " situated in Tagaytay City. Adjacent to parcel no. 3, which is the lot covered by TCT
- Coordinating more closely the law and the facts in the instant case, we reach the No. 15684 is a vacant lot denominated as parcel no. 4.
following conclusions: This was not a contract of hazard. It was a sale in gross in - In 1985, private respondent constructed a two-storey house on parcel no. 3. The
which there was a mutual mistake as to the quantity of land sold and as to the lots covered by TCT No. 15515 and TCT no. 15516, which are parcel no. 1 and
amount of the standing crop. The mistake of fact as disclosed not alone by the parcel no. 2, remained idle.
terms of the contract but by the attendant circumstances, which it is proper to - In a survey conducted in 1985, parcel no. 3, where the two-storey house stands,
consider in order to throw light upon the intention of the parties, is, as it is was erroneously indicated to be covered not by TCT No. 15684 but by TCT No.
sometimes expressed, the efficient cause of the concoction. The mistake with
Obligations and Contracts A2010 page
141 Prof. Labitag
15515. while the two idle lands (parcel nos. 1 and 2) were mistakenly surveyed to discovered, it immediately offered two other vacant lots to the petitioners or to
be located on parcel no. 4 instead (which was not owned by private respondent) reimburse them with twice the amount paid.
and covered by TCT Nos. 15516 and 15684. - As enunciated in the case of Mariano vs. Court of Appeals:
- On October 26, 19 87, unaware of the mistake, private respondent, sold parcel no. "A contract may be annulled where the consent of one of the contracting parties
4 to petitioners. was procured by mistake, fraud, intimidation, violence, or undue influence."
- When the petitioners went to Tagaytay to look over the vacant lots and to plan the "Art. 1331. In order that mistake may invalidate consent, it should refer to the
construction of their house thereon, they discovered that parcel no. 4 was owned by substance of the thing which is the object of the contract, or to those conditions
another person. They also discovered that the lots actually sold to them were parcel which have principally moved one or both parties to enter into the contract."
nos. 2 and 3 covered by TCT Nos. 15516 and 15684, respectively. - Tolentino explains that the concept of error in this article must include both
- Petitioners insisted that they wanted parcel no. 4, which is the idle lot adjacent to ignorance, which is the absence of knowledge with respect to a thing, and mistake
parcel no. 3, and persisted in claiming that it was parcel no. 4 that private properly speaking, which is a wrong conception about said thing, or a belief in the
respondent sold to them. However, private respondent could not have possibly sold existence of some circumstance, fact, or event, which in reality does not exist. In
the same to them for it did not own parcel no. 4 in the first place. both cases, there is a lack of full and correct knowledge about the thing. The
- To remedy the mistake, private respondent offered parcel nos. 1 and 2 covered by mistake committed by the private respondent in selling parcel no. 4 to the
TCT Nos. 15515 and 15516, respectively, as these two were precisely the two petitioners falls within the second type. Verily, such mistake invalidated its consent
vacant lots which private respondent owned and intended to sell when it entered and as such, annulment of the deed of sale is proper.
into the transaction with petitioners. Disposition Petition was DISMISSED and the decision of the Court of Appeals
- Petitioners adamantly rejected the good faith offer. They refused to yield to reason AFFIRMED. Costs against the petitioner.
and insisted on taking parcel no. 3, covered by TCT No. 155864 and upon which a
two-storey house stands, in addition to parcel no. 2, covered by TCT No. 15516.
- Such refusal of petitioners prompted private respondent to make another offer, HEIRS OF WILLIAM SEVILLA V SEVILLA
the return of an amount double the price paid by petitioners. Petitioners still YNARES-SANTIAGO; April 30, 2003
refused.
- Private respondent was then compelled to file an action for annulment of deed of NATURE
sale and reconveyance of the properties. Petition for certiorari to review CA decision affirming in toto RTC (Dipolog City)
- The trial court rendered judgment in favor of private respondent. decision declaring, inter alia, the questioned Deed of Donation Inter Vivos valid and
- Aggrieved by the decision of the trial court, petitioners sought its reversal from binding on the parties.
respondent Court of Appeals. Respondent court, however, did not find the appeal
meritorious and accordingly affirmed the trial court decision. FACTS
ISSUE -10 December 1973: Filomena Almirol de Sevilla died intestate leaving 8 children:
WON the Deed of Sale may be annulled on the ground of consent given through William(†), Peter, Leopoldo, Felipe, Rosa, Maria(†), Luzvilla, and Jimmy(†). The estate
mistake. includes (a) three parcels of land (forming part of conjugal properties with late
husband) and (b) another parcel co-owned with her sisters Honorata and Felisa
HELD (both single and without issue) where commercial and residential buildings have
YES. been erected. When Honorata died intestate, her 1/3 undivided share in the said
- Clearly, there was honest mistake on the part of plaintiff-appellee in the sale of parcel was transmitted to Felisa and the heirs of Filomena (½ share each).
Parcel No. 4 to defendants-appellants which plaintiff-appellee tried to remedy by - During the lifetime of Felisa and Honorata, they lived in the house of Filomena,
offering defendants-appellants instead his Parcels Nos. 1 or 2, or reimbursement of together with their nephew Leopoldo Sevilla and his family, who attended to the
the purchase price in double amount. needs of the three women.
- Respondent court correctly affirmed the findings and conclusions of the trial court - Before Felisa’s death, she executed a last will and testament (25Nov1985)
in annulling the deed of sale as the former are supported by evidence and the latter devising her ½ share in subject lot to the spouses Leopoldo Sevilla and Belen
are in accordance with existing law and jurisprudence. Leyson. Later, Felisa executed another document “Donation Inter Vivos”
- Art. 1390 of the New Civil Code provides: (8Aug1986) ceding to Leopoldo her ½ undivided share in subject lot. Leopoldo
“The following contracts are voidable or annullable, even though there may have accepted such in the same document.
been no damage to the contracting parties: - Sept 3, 1986: Felisa Almirol and Peter Sevilla, in his own behalf and in behalf of her
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue siblings (heirs of Filomena), executed a Deed of Extra-judicial Partition of the 1/3
influence, or fraud.” share of Honorata Almirol to the heirs of Filomena and to Felisa. Thereafter,
- Private respondent obviously committed an honest mistake in selling parcel no. 4. Leopoldo, Peter and Luzvilla Sevilla obtained the cancellation of the old title of the
As correctly noted by the Court of Appeals, it is quite impossible for said private subject lot and the issuance of new titles to Felisa and the heirs of Filomena. The
respondent to sell the lot in question as the same is not owned by it. The good faith requested titles were left unsigned by the Register of Deeds of Dipolog City,
of the private respondent is evident in the fact that when the mistake was
Obligations and Contracts A2010 page
142 Prof. Labitag
pending submission by Peter Sevilla of a Special Power of Attorney authorizing him confidential, family, spiritual and other relations between the parties, or the fact
to represent his siblings (the other heirs of Filomena). that the person alleged to have been unduly influenced was suffering from mental
- 21 June 1990: Felipe, Rosa, & the heirs of William, Jimmy & Maria filed the instant weakness, or was ignorant or in financial distress.
case against Leopoldo, Peter and Luzvilla for annulment of the Deed of Donation -Fraud and undue influence that vitiated a party’s consent must be established by
and the Deed of Extrajudicial Partition, Accounting, Damages, with prayer for full, clear and convincing evidence, otherwise, the latter’s presumed consent to the
Receivership and for Partition of the properties of the late Filomena Almirol de contract prevails.
Sevilla. Reasoning
Petitioners’ Claim -Factual findings of the trial court, if affirmed by the Court of Appeals, are entitled to
(1) that the Deed of Donation is tainted with fraud because Felisa (81 y/o) was great respect. The lower courts correctly found out that neither fraud nor undue
seriously ill and of unsound mind at the time of the execution thereof; and influence can be inferred from the circumstances alleged by the petitioners.
(2) that the Deed of Extra-judicial Partition is void because it was executed without -Ei incumbit probatio qui dicit, non qui negat. He who asserts, not he who denies,
their knowledge and consent. must prove. The self-serving testimony of the petitioners are vague on what acts of
Respondents' Comments Leopoldo Sevilla constituted fraud and undue influence and on how these acts
There was no fraud or undue pressure in the execution of the questioned vitiated the consent of Felisa Almirol.
documents. -Petitioners failed to show proof why Felisa should be held incapable of exercising
(1) that Felisa was of sound mind at the time of the execution of the assailed deeds; sufficient judgment in ceding her share to respondent Leopoldo. The notary public
that she freely and voluntarily ceded her undivided share in the questioned lot in who notarized the Deed of Donation testified that Felisa confirmed to him her
consideration of Leopoldo’s and his family’s love, affection, and services rendered in intention to donate her share in the questioned lot to Leopoldo. He stressed that
the past. though the donor was old, she was of sound mind and could talk sensibly. There is
(2) they were willing to have the other properties of Filomena partitioned among nothing in the record that discloses even an attempt by petitioners to rebut said
her heirs in accordance with the law on intestate succession. declaration of the notary public.
Dipolog City RTC Ruling 2. NO
- upheld the validity of the Deed of Donation and declared the Deed of Extra-judicial - The Deed of Extra-judicial Partition is void ab initio and not merely unenforceable.
Partition unenforceable (for lack of the req’d SPA). The conjugal property (3lots) was Ratio Legal consent presupposes capacity. There is said to be no consent, and
equally divided among the 8 heirs. The lot owned by Filomena, Felisa, and Honorata consequently, no contract when the agreement is entered into by one in behalf of
was divided equally into two, between Leopoldo on one hand, and the 7 heirs on the another who has never given him authorization therefor unless he has by law a right
other (Rosa’s name was omitted; I suppose it was by mistake). to represent the latter (Delos Reyes v. Court of Appeals).
CA affirmed. MFR denied. -A donation inter vivos is immediately operative and final. As a mode of acquiring
ownership, it results in an effective transfer of title over the property from the donor
ISSUES to the donee and the donation is perfected from the moment the donor knows of
1. WON the Donation Inter Vivos executed by Felisa Almirol in favor of Leopoldo the acceptance by the donee. And once a donation is accepted, the donee becomes
Sevilla is valid the absolute owner of the property donated.
1a. WON its execution was attended by fraud Reasoning At the time Felisa executed the deed of extra-judicial partition dividing
2. WON the Deed of Extrajudicial Partition is valid the share of her deceased sister Honarata between her and the heirs of Filomena,
she was no longer the owner of the ½ undivided portion of the questioned lot,
HELD having previously donated the same to Leopoldo who accepted the donation in the
1. YES same deed.
Ratio Donation is an act of liberality whereby a person disposes gratuitously of a -Felisa did not possess the capacity to give consent to or execute the deed of
thing or right in favor of another who accepts it. Like any other contract, an partition inasmuch as she was neither the owner nor the authorized representative
agreement of the parties is essential, and the attendance of a vice of consent of Leopoldo to whom she previously transmitted ownership of her share.
renders the donation voidable. Disposition ½ shall go to Leopoldo by virtue of the deed of donation, while the
Reasoning At the time Felisa executed the deed of donation, (having inherited half other half shall be divided equally among the heirs of Filomena Almirol de Sevilla
of Honorata’s share) she was already the owner of 1/2 undivided portion of the lot in including Leopoldo Sevilla, following the rules on intestate succession.
question. This ½ share is considered a present property which she can validly - CA decision affirmed with modifications. The Deed of Extra-judicial Partition is
dispose of at the time of the execution of the deed of donation. declared void, and the name of Rosa Sevilla is ordered included in the disposition
1a. NO portion of the trial court’s judgment.
Ratio There is FRAUD when, through the insidious words or machinations of one of
the contracting parties, the other is induced to enter into a contract which, without DUMASUG V MODELO
them, he would not have agreed to. There is UNDUE INFLUENCE when a person TORRES; March 16, 1916
takes improper advantage of his power over the will of another, depriving the latter
of a reasonable freedom of choice. Certain circumstances are considered: the
Obligations and Contracts A2010 page
143 Prof. Labitag
NATURE - The controversy involves a question of ownership over an unregistered parcel of
Appeal from judgment of CFI Cebu land, identified as Lot 6, plan PSU-111331, with an area of 21,773 sq. m., situated in
Sala, Cabuyao, Laguna, originally owned by the late Jose Hemedes, father of
FACTS Maxima Hemedes and Enrique D. Hemedes.
- Andrea Dumasug cannot write (no mention if she can read). Modelo persuaded - On March 22, 1947 Jose Hemedes executed a document entitled “Donation Inter
Dumasug to affix her mark (since she didn’t know how to write) on a document, Vivos with Resolutory Conditions,” where he conveyed ownership over the subject
falsely and maliciously making her believe that it contained an engagement on the land, in favor of his 3rd wife, Justa Kausapin, subject to the following:
part of Dumasug to pay Modelo a certain sum of money to pay for the expenses of Upon death or marriage of the DONEE, property shall revert to any of the children
an earlier lawsuit wherein Modelo gave “advice” to Dumasug . However, 3 months or their heirs of the DONOR expressly designated by the DONEE;
after the execution of the document, Modelo took possession of Dumasug’s carabao “xxx”
and two parcels of land, and notified Dumasug that she had conveyed to him - Pursuant to the first condition, Kausapin executed on September 27, 1960 a “Deed
through a deed of absolute sale the said properties. Apparently, the document of Conveyance of Unregistered Real Property by Reversion” conveying to Maxima
provided that Dumasug, in exchange of P333.49 received from Modelo, agreed to Hemedes the subject property.
convey to Modelo the properties. - Original Certificate of Title was issued in the name of Maxima Hemedes, with the
- Dumasug then filed in the CFI a petition to declare null and void and of no effect annotation that Justa Kausapin shall have the usufructuary rights over the parcel of
the document/ contract allegedly entered into by her and Modelo. CFI ruled in her land described during her lifetime or widowhood.
favor, ordering Modelo to restore the animal and the lands, pay any loss and - R & B Insurance claims that Maxima Hemedes and her husband constituted a real
damages to Dumasug, and pay the costs of the suit. Modelo appealed. estate mortgage over the subject property in its favor to serve as security for a loan
- Respondent (Modelo): the lands and animal were payment from Dumasug for which they obtained in the amount of P6k.On February 22, 1968, R&B Insurance
debts incurred by her on several occasions, in the amounts of P101.87 and P46.77 extrajudicially foreclosed the mortgage since Maxima Hemedes failed to pay the
(money used as attorney’s fees and traveling expenses in the earlier suit) loan even after it became due in August 2, 1964. The land was sold at a public
auction with R&B Insurance as the highest bidder, and a certificate of sale was
ISSUE issued in its favor. Since Maxima failed to redeem the property within the
WON the instrument of purchase of two parcels of land and the work animal is null redemption period, R&B executed an Affidavit of Consolidation and acquired TCT in
and void its name.
- Despite earlier conveyance, Kausapin executed a “Kasunduan” on May 27, 1971
HELD whereby she transferred the same land to her stepson Enrique D. Hemedes,
YES, the instrument is null and void for lack of consent pursuant to the resolutory condition in the deed of donation executed in her favor.
Ratio The consent given in this case was a consent given by mistake, thus the - On February 28, 1979 Enrique sold the property to Dominium Realty and
document is null and void, as provided in Article 1265 and 1266 of the Civil Code. Construction Corporation. On April 10, 1981 Kausapin executed an affidavit
Reasoning The error (in consent) invalidates the contract, as it goes into the very affirming the conveyance of the property in favor of Enrique, at the same time
substance of the thing which is the subject matter of the contract. Had she denying the conveyance made to Maxima.
understood the contents of the said document, she would neither have accepted - Dominium leased the property to Asia Brewery, who even before the signing of the
nor authenticated it by her mark. It is undeniable that she was deceived in order to contract of lease, constructed two warehouses. Upon learning of said constructions,
obtain her consent. The document is of no value whatever for the reason that it is R&B sent Asia Brewery a letter informing of its ownership, and the right to
not the one which, of her own free will, she authenticated with her mark. appropriate the constructions since Asia Brewery is a builder in bad faith. Maxima
The consent given by plaintiff being null and void, the document is consequently also wrote a letter wherein she asserted that she is the rightful owner of the subject
also null, void, and of no value or effect. Article 1303 of the Civil Code is therefore, property.
applicable, which prescribes that: "when the nullity of an obligation has been Petitioner’s Claim
declared, the contracting parties shall restore to each other the things which have - Maxima Hemedes argues that Justa Kausapin's affidavit should not be given any
been the object of the contract with their fruits, and the value with its interest." credence since she is obviously a biased witness as it has been shown that she is
Disposition Judgment Affirmed . dependent upon Enrique D. Hemedes for her daily subsistence, and she was most
probably influenced by Enrique D. Hemedes to execute the "Kasunduan" in his
HEMEDES V COURT OF APPEALS favor.
GONZAGA-REYES; October 8, 1999 Respondents’ Comments
- The deed of conveyance in favor of Maxima Hemedes was in English and that it
NATURE was not explained to Justa Kausapin. Thus, Maxima Hemedes failed to discharge her
Petitions for review on certiorari of a decision and resolution of the Court of Appeals. burden, pursuant to Article 1332 of the Civil Code, to show that the terms thereof
were fully explained to Justa Kausapin.
FACTS
ISSUES
Obligations and Contracts A2010 page
144 Prof. Labitag
1. Which of the two conveyances by Justa Kausapin, the first in favor of Maxima - it is a well-established principle that every person dealing with registered land
Hemedes, and the second in favor of Enrique Hemedes, effectively transferred may safely rely on the correctness of the certificate of title issued and the law will in
ownership over the property? no way oblige him to go behind the certificate to determine the condition of the
2. WON R&B Insurance should be considered an innocent purchaser of the land in property. An innocent purchaser for value is one who buys the property of
question. another without notice that some other person has a right to or interest in such
property and pays a full and fair price for the same at the time of such purchase or
HELD before he has notice of the claim of another person.
1. - Clearly, only the jus utendi and jus fruendi over the property is transferred to the
Ratio A party to a contract cannot just evade compliance with his contractual usufructuary. The owner of the property maintains the jus disponendi or the
obligations by the simple expedient of denying the execution of such contract. power to alienate, encumber, transform, and even destroy the same. This
Reasoning If, after a perfect and binding contract has been executed between the right is embodied in the Civil Code, which provides that the owner of property the
parties, it occurs to one of them to allege some defect therein as a reason for usufruct of which is held by another, may alienate it, although he cannot alter the
annulling it, the alleged defect must be conclusively proven, since the validity and property's form or substance, or do anything which may be prejudicial to the
fulfillment of contracts cannot be left to the will of one of the contracting parties. usufructuary.
- Moreover, public respondent's reliance upon Justa Kausapin's repudiation of the - Even assuming in gratia argumenti that R & B Insurance was obligated to look
deed of conveyance is misplaced for there are strong indications that she is a beyond the certificate of title and investigate the title of its mortgagor, still, it would
biased witness. The trial court found that Justa Kausapin was dependent upon not have discovered any better rights in favor of private respondents. Enrique D.
Enrique D. Hemedes for financial assistance. Justa Kausapin was already 80 years Hemedes and Dominium base their claims to the property upon the "Kasunduan"
old, suffering from worsening physical infirmities and completely dependent upon allegedly executed by Justa Kausapin in favor of Enrique Hemedes. As we have
her stepson Enrique D. Hemedes for support. It is apparent that Enrique could easily already stated earlier, such contract is a nullity as its subject matter was inexistent.
have influenced his aging stepmother to donate the subject property to him. - is a well-settled principle that where innocent third persons rely upon the
Although it is a well-established rule that the matter of credibility lies within the correctness of a certificate of title and acquire rights over the property, the court
province of the trial court, such rule does not apply when the witness' credibility has cannot just disregard such rights. Otherwise, public confidence in the certificate of
been put in serious doubt, such as when there appears on the record some fact or title, and ultimately, the Torrens system, would be impaired for everyone dealing
circumstance of weight and influence, which has been overlooked or the with registered property would still have to inquire at every instance whether the
significance of which has been misinterpreted. title has been regularly or irregularly issued.
- Public respondent was in error when it sustained the trial court's decision to nullify Disposition The donation in favor of Enrique D. Hemedes is null and void for the
the "Deed of Conveyance of Unregistered Real Property by Reversion" for failure of purported object thereof did not exist at the time of the transfer, having already
Maxima Hemedes to comply with article 1332 of the Civil Code, which states: been transferred to Maxima Hemedes.
When one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the SEPARATE OPINION
contract must show that the terms thereof have been fully explained to the former.
Article 1330 VITUG [ concur]
A contract where consent is given through mistake, violence, intimidation, undue
- A donation would not be legally feasible if the donor has neither ownership nor real right that he can
influence, or fraud is voidable.
transmit to the donee. Unlike an ordinary contract, a donation, under Article 712, in relation to Article
- In order that mistake may invalidate consent, it should refer to the substance of
725 of the Civil Code is also a mode of acquiring and transmitting ownership and other real rights by an
the thing which is the object of the contract, or to those conditions which have
act of liberality whereby a person disposes gratuitously that ownership or real right in favor of another
principally moved one or both parties to enter into the contract. Fraud, on the other
who accepts it. It would be an ineffecacious process if the donor would have nothing to convey at the
hand, is present when, through insidious words or machinations of one of the
time it is made.
contracting parties, the other is induced to enter into a contract which, without - Article 744 of the Civil Code states that the "donation of the same thing to two or
them, he would not have agreed to. more different donees shall be governed by the provisions concerning the sale of
2. the same thing to two or more persons," i.e., by Article 1544 of the same Code, as if
Ratio The annotation of usufructuary rights in favor of Justa Kausapin upon Maxima so saying that there can be a case of "double donations" to different donees with
Hemedes' OCT does not impose upon R & B Insurance the obligation to investigate
opposing interest. A donation once perfected would deny the valid execution of a
the validity of its mortgagor's title. subsequent inconsistent donation (unles perhaps if the prior donation has provided
Reasoning Usufruct gives a right to enjoy the property of another with the a suspensive condition which still pends when the later donation is made).
obligation of preserving its form and substance. The usufructuary is entitled to all
the natural, industrial and civil fruits of the property and may personally enjoy the MELO [concur]
thing in usufruct, lease it to another, or alienate his right of usufruct, even by a
- The Opinion will have far-searching ramifications on settled doctrines concerning
gratuitous title, but all the contracts he may enter into as such usufructuary shall
the finality and conclusiveness of the factual findings of the trial court in view of its
terminate upon the expiration of the usufruct.
Obligations and Contracts A2010 page
145 Prof. Labitag
unique advantage of being able to observe at first-hand the demeanor and Leopoldo Balguma, Sr., involving the subject property for a consideration of
deportment of witnesses, and especially when such findings of facts are affirmed by P187,000.00. Consequently, respondent’s title to the property was cancelled and in
the Court of Appeals, which is the final arbiter of questions of fact. lieu thereof, TCT No. 168394 was registered and issued in the names of the
- “All these conditions are present in the case at bar, and I have grave reservation Balguma brothers. In January, 1986, Atty. Balguma, then still alive, started
about the propriety of setting aside time-tested principles in favor of a finding that collecting rentals from the lessees of the apartments.
hinges principally on the credibility of a single witness, whom we are asked to - On March 10, 1987, respondent filed with the RTC of Manila, Branch 21, a
disbelieve on the basis merely of her recorded testimony without the benefit of the complaint for annulment of the Deed of Absolute Sale, docketed as Civil Case No.
advantage that the trial court had, disregarding in the process another long- 87-39891.He averred that his brother Miguel, Atty. Balguma and Inocencio Valdez
established rule - that mere relationship of a witness to a party does not discredit (defendants therein, now petitioners) convinced him to work abroad. They even
his testimony in court.” brought him to the NBI and other government offices for the purpose of securing
- MAXIMA failed to comply with the requirements laid down by Article 1332 of the clearances and other documents which later turned out to be falsified. Through
Civil Code. MAXIMA admitted the entire document was written in English, a insidious words and machinations, they made him sign a document purportedly a
language not known to Justa Kausapin. Yet, MAXIMA failed to introduce sufficient contract of employment, which document turned out to be a Deed of Absolute Sale.
evidence that would purportedly show that the deed of conveyance was explained By virtue of the said sale, brothers Edgardo and Leopoldo, Jr. (co-defendants), were
to Justa Kausapin before the latter allegedly affixed her thumbmark. able to register the title to the property in their names. Respondent further alleged
- MAXIMA failed to repudiate the allegation of Justa Kausapin disclaiming knowledge that he did not receive the consideration stated in the contract. He was shocked
of her having executed such a deed. Justa Kausapin claimed that it was only during when his sister Agueda Katipunan-Savellano told him that the Balguma brothers
the hearing conducted on 07 December 1981 that she first caught glimpse of the sent a letter to the lessees of the apartment informing them that they are the new
deed of conveyance She therefore could not have possibly affixed her thumbmark owners. Finally, he claimed that the defendants, now petitioners, with evident bad
on said document. Affiant disowned the alleged 'Deed of Conveyance of faith, conspired with one another in taking advantage of his ignorance, he being
Unregistered Real Property by Reversion" invoked by defendant Maxima Hemedes, only a third grader.
and expressly stated that she never granted any right over the property to Maxima - In their answer, petitioners denied the allegations in the complaint, alleging that
Hemedes, whether as owner or mortgagor, that she never allowed her to use the respondent was aware of the contents of the Deed of Absolute Sale and that he
land as security or collateral for loan. received the consideration involved; that he also knew that the Balguma brothers
- It must be remembered that Justa Kausapin had a legal right to such financial have been collecting the rentals since December, 1985 but that he has not objected
assistance, not only from respondent Enrique Hemedes, but also from Maxima or confronted them; and that he filed the complaint because his sister, Agueda
Hemedes, who are both her stepchildren. If one must impute improper motives in Savellano, urged him to do so.
favor of Enrique, one could just as easily ascribe these to Maxima. - Twice respondent moved to dismiss his complaint (which were granted) on the
- There are other indications which led this Court to believe that neither defendant grounds that he was actually instigated by his sister to file the same; and that the
Maxima Hemedes nor defendant R & B INSURANCE consider themselves the owner parties have reached an amicable settlement after Atty. Balguma, Sr. paid him
of the property in question. Both of these claimants never declared themselves as P2,500.00 as full satisfaction of his claim. In granting his motions for
owners of the property for tax purposes; much less did they pay a single centavo in reconsideration, the trial court was convinced that respondent did not sign the
real estate taxes. motions to dismiss voluntarily because of his poor comprehension, as shown by the
medical report of Dr. Annette Revilla, a Resident Psychiatrist at the Philippine
KATIPUNAN V KATIPUNAN General Hospital.
SANDOVAL-GUTIERREZ; January 30, 2002 - The trial court noted that respondent was not assisted by counsel in signing the
said motions, thus it is possible that he did not understand the consequences of his
NATURE action.
Petition for review on certiorari assailing the Decision of the Court of Appeals which - The trial court set the case for pre-trial. The court likewise granted respondent’s
set aside the Decision of the Regional Trial Court (RTC) of Manila, Branch 28, in Civil motion to appoint Agueda Savellano as his guardian ad litem.
Case No. 87-39891 for annulment of a Deed of Absolute Sale. - The trial court dismissed the complaint, holding that respondent failed to prove his
causes of action since he admitted that: (1) he obtained loans from the Balgumas;
FACTS (2) he signed the Deed of Absolute Sale; and (3) he acknowledged selling the
- Respondent Braulio Katipunan, Jr. is the owner of a 203 square meter lot and a property and that he stopped collecting the rentals.
five-door apartment constructed thereon located at 385-F Matienza St., San Miguel, - Court of Appeals reversed
Manila. The lot is registered in his name under TCT No. 109193 of the Registry of
Deeds of Manila. The apartment units are occupied by lessees.
- On December 29, 1985, respondent, assisted by his brother, petitioner Miguel ISSUE
Katipunan, entered into a Deed of Absolute Sale with brothers Edgardo Balguma WON the consent of Braulio Katipunan, Jr., in the sale of his property was vitiated
and Leopoldo Balguma, Jr. (co-petitioners), represented by their father Atty. rendering the Deed of Absolute sale voidable
Obligations and Contracts A2010 page
146 Prof. Labitag
HELD - Under the contract, she agreed to a conveyance of several properties to Aldecoa &
YES Co. and the Hongkong and Shanghai Bank as settlement of their claims against her
- A contract of sale is born from the moment there is a meeting of minds upon the and her husband who in order to escape criminal charges had escaped to Macao, a
thing which is the object of the contract and upon the price. This meeting of the territory no covered by any extradition treaty.
minds speaks of the intent of the parties in entering into the contract respecting the - It was established at the trial that during the period of negotiation, representations
subject matter and the consideration thereof. Thus, the elements of a contract of were made to her by the defendants and concurred in by her lawyers, that if she
sale are consent, object, and price in money or its equivalent. Under Article 1330 of assented to the requirements of the defendants, the civil suit against herself and
the Civil Code, consent may be vitiated by any of the following: (a) mistake, (2) her husband would be dismissed and the criminal charges against the latter
violence, (3) intimidation, (4) undue influence, and (5) fraud. The presence of any of withdrawn; but if she refused, her husband must either spend the rest of his life in
these vices renders the contract voidable. Macao or be criminally prosecuted.
Respondent signed the deed without the remotest idea of what it was.The
circumstances surrounding the execution of the contract manifest a vitiated ISSUE
consent on the part of respondent. Undue influence was exerted upon him by his WON there was duress, which would invalidate the contract
brother Miguel and Inocencio Valdez (petitioners) and Atty. Balguma. It was his
brother Miguel who negotiated with Atty. Balguma. However, they did not explain to HELD
him the nature and contents of the document. Worse, they deprived him of a - In order that this contract can be annulled it must be shown that the plaintiff never
reasonable freedom of choice. It bears stressing that he reached only grade three. gave her consent to the execution thereof. It is however necessary to distinguish
Thus, it was impossible for him to understand the contents of the contract written in between real duress and the motive which is present when one gives his consent
English and embellished in legal jargon. His lack of education, coupled with his reluctantly. A contract is valid even though one of the parties entered into it against
mental affliction, placed him not only at a hopelessly disadvantageous position vis- his wishes and desired or even against his better judgment. Contracts are also valid
à-vis petitioners to enter into a contract, but virtually rendered him incapable of even though they are entered into by one of the parties without hope of advantage
giving rational consent. To be sure, his ignorance and weakness made him most or profit.
vulnerable to the deceitful cajoling and intimidation of petitioners. - A contract whereby reparation is made by one party for injuries which he has
- A contract where one of the parties is incapable of giving consent or where willfully inflicted upon another is one which from its nature is entered into
consent is vitiated by mistake, fraud, or intimidation is not void ab initio but only reluctantly by the party making the reparation. He is confronted with a situation in
voidable and is binding upon the parties unless annulled by proper Court action. The which he finds the necessity of making the reparation or of taking the
effect of annulment is to restore the parties to the status quo ante insofar as legally consequences, civil or criminal, of his unlawful acts. He makes the contract of
and equitably possible-- this much is dictated by Article 1398 of the Civil Code. As reparation with extreme reluctance and only by the compelling force of the
an exception however to the principle of mutual restitution, Article 1399 provides punishment threatened. Nevertheless, such contract is binding and enforceable.
that when the defect of the contract consists in the incapacity of one of the parties, - It is disputed that the attorneys for the plaintiff in this case advised her that, from
the incapacitated person is not obliged to make any restitution, except when he has the facts which they had before them, facts of which she was fully informed, her
been benefited by the things or price received by him. Thus, since the Deed of husband had been guilty of embezzlement and misappropriation in the
Absolute Sale between respondent and the Balguma brothers is voidable and management of the business of Aldecoa & Co. and that, in their judgment, if
hereby annulled, then the restitution of the property and its fruits to respondent is prosecuted therefore, he would be convicted. In other words, under the advice of
just and proper. Petitioners should turn over to respondent all the amounts they her counsel, the situation was so presented to her that it was evident that in signng
received starting January, 1986 up to the time the property shall have been the agreement, she had all to gain and nothing tolose, whereas in refusing to sign
returned to the latter. said agreement, she had all to lose and nothing to gain. In the one case, she would
- Article 24 of the Civil Code enjoins courts to be vigilant for the protection of a lose her property to save her husband. In the other, she would lose her property
party to a contract who is placed at a disadvantage on account of his ignorance, and her husband, too. The argument this presented to her by her attorneys
mental weakness or other handicap, like respondent herein. We give substance to addressed itself to judgment and not to fear. If appealed to reason and not to
this mandate. passion. It asked her to be moved by common sense and not by love of family. It
spoke to her own interests as much as to those of her husband. The argument went
MARTINEZ V HSBC ot her financial interests as well as to those of the defendants. It spoke to her
MORELAND; February 19, 1910 business judgment as well as to her wifely affections.
- From the opinions of her attorneys as they were presented to her upon facts
NATURE assumed by all to be true, the SC did not see how she could reasonably have
An action to annul a contract on the ground that plaintiff's consent thereto was reached a conclusion other than that which she did reach. It is of no consequence
obtained under duress here whether, as a matter of law, she would have been deprived of her alleged
interests in the properties mentioned in the manner described and advised by her
FACTS attorneys. The important thing is that she believed and accepted their judgment
and acted upon it. The question is not did she make a mistake; but did she consent;
Obligations and Contracts A2010 page
147 Prof. Labitag
not was she wrongly advised, but was she coerced; not was she wise, but was she signed the blank sheet of paper thinking it was for the P8,000) as she did reject it in
under duress. 1912 saying she did not consider herself in debt to the minors, but to their mother.
Disposition - It is of no importance whether La Cooperativa exclusively belonged to Veloso or
- From the whole case SC was of the opinion that the finding of the court below that Franco, the obligation being joint.
the plaintiff executed the contract in suit of her own free will and choice and not - Deceit alleged could not annul the consent of the contracting parties to the
from duress is fully sustained by the evidence. promissory note, nor exempt Veloso from the obligation incurred.
- The judgment of the court below was affirmed with cost against the appellant. - There is deceit when by words or insidious machinations on the part of one of the
contracting parties, the other is induced to execute a contract which without them
HILL V VELOSO he would not have made.
ARELLANO; July 24, 1915 - Franco is not one contracting party with regard to Veloso as the other. They are
both but one single contracting party in a relation with or against Michael & Co.
NATURE - Franco could be as a third person inducing deceit. But, there is no reason for
Appeal from a judgment of the CFI absolving defendants from the complaint making one of the parties suffer for the consequences of the act of a third person in
whom the other contracting party may have reposed an imprudent confidence.
FACTS - It has been fully proven that the goods, the consideration for the debt, were
- Defendant Veloso and Domingo Franco jointly and severally executed a received by La Cooperativa. It was likewise proven that La Cooperativa belonged to
promissory note in the amount of P6,319 on behalf of Michael & Co. for goods to be the defendant, and that the goods came from Michael & Co.
received by the former’s company, La Cooperativa Filipina Disposition Judgment appealed from is reversed against defendant Veloso
- Goods were proven to have been delivered to La Cooperativa ordering the payment of the P4,319 with the stipulated interest.
- P2,000 was already paid.
- Promissory note was indorsed to Plaintiff Hill. TUASON V MARQUEZ
- Hill brought the present suit to recover the P4,319 balance. MALCOLM; November 3, 1923
- Veloso alleged that she was deceived by Franco into signing a blank sheet of
paper by saying that it was for a promissory note to be executed by Veloso for NATURE
P8,000 for the benefit of the minor children of one Ricablanca, mother and former Petition to review the decision of the CFI.
guardian of said children
- The new guardian is one Levering, to whom Veloso thought the obligation was due FACTS
as guardian of the estate of the minor children. - On March 5, 1921, Crisanto Marquez, the owner of the electric light plan of Lucena
- Upon Franco’s death, Veloso alleged that she discovered that the former Tayabas, called Sucesores del Lucena Electric, gave an option to Antonio Tuason for
apparently used her signature to execute the contract with Michael & Co, now the purchase of the plant for P14,400. The option was taken advantage of by
indorsed to Hill. Mariano S. Tuason.
- Therefore, she alleges that she has no transaction with Michael & Co. nor with the - The agreement was, that Tuason was to pay Marquez a total of P14,400; P2,400
plaintiff, and as they had not received any kind of goods whatever from said firm. within sixty days, and the remainder, P12,000, within a year. The first installment
- During the pendency of the suit initiated by Hill, Levering commenced proceedings was paid subsequent to the sixty-day period; the second installment has not been
to recover the P8,000. paid.
- Veloso answered that her debt was to Ricablanca in her own right, and not in her - Tuason being once in possession of the electric light plant, it was run under the
capacity as guardian of her minor children. management of the Consolidated Electric Company for about sixteen months, that
is, from March 20, 1921, to July 19, 1922. On the date last mentioned, the property
ISSUE was sold under execution by reason of a judgment. The purchaser at said sale was
WON the promissory note is binding on the defendants Gregorio Marquez, brother of Crisanto Marquez, who paid P5,501.57 for the
property.
HELD - It appears that originally in either 1913 or 1914, a franchise for thirty-five years
NO was granted the Lucena Electric Company. The rights of this company passed to
Ratio There is no other signed document than the promissory note presented with Crisanto Marquez at a sheriff's sale on September 10, 1919. The company seems
the intention, on its being signed, of securing the payment of the goods sold to the never to have functioned very efficiently either at that time or at any other time, as
La Cooperativa. And the facts constituting the consideration for the contract appears from the constant complaint of the municipal authorities of Lucena.
contained in the promissory note are fully proven. Evidently, Marquez became disgusted with the business, with the result that on
Reasoning February 28, 1921, that is, prior to the accomplishment of the contract, he
- With regard to the P8,000, what is natural and logical is that Veloso would have announced to the Public Utility Commissioner his intention to give up the franchise.
refused to execute her obligation to Levering in the first instance (i.e. when she
Obligations and Contracts A2010 page
148 Prof. Labitag
- On March 29, 1921, that is, subsequent to the accomplishment of the contract, the NATURE
Public Utility Commissioner took action and declared cancelled the franchise Consolidated petitions for review on certiorari
acquired by Crisanto Marquez from the Lucena Electric Light, Ice & Water Company.
- Tuason and his outfit were permitted to operate the company pursuant to a FACTS
special license which was to continue until they obtained a new franchise. The new - A parcel of land of about 49,969 m2 registered in the name of Manuel Behis and
franchise was finally granted by the Public Utility Commissioner with certain his wife, Cristina Behis was mortgaged in favor of the Bank in a real estate
conditions, which amounted to a renovation of the entire plant. It was then, mortgage as security for loans.
following a knowledge of what was expected by the Government, and following the - On Jan. 2, 1985, Manuel sold the land to Rosario Rayandayan and Carmen Arceño
execution sale, that Tuason conceived the idea of bringing action against Marquez (herein respondents) in a Deed of Absolute Sale with Assumption of Mortgage for
for a rescission of the contract. P250K. This deed bore the signature of his wife which he took upon himself to sign.
- In the complaint filed in the CFI of Manila, Tuason, the plaintiff, asked for judgment - On the same day, Rayandayan and Arceño, together with Manuel Behis executed
against Crisanto Marquez, defendant, for a total of P37,400. The answer and cross- another Agreement embodying the real consideration of the sale of the land in the
complaint of the defendant asked for a dismissal of the action and for an allowance sum of P2.4M to be paid in installments with P10K paid upon signing and in case of
of a total of P12,654.50 from the plaintiff. The case was submitted on an agreed default in the installments, Manuel Behis shall have legal recourse to the portions of
statement of facts in relation with certain telegrams of record. Judgment was the land equivalent to the unpaid balance of the amounts in installments. The title
rendered, absolving the defendant from the complaint and permitting the defendant to the land remained in the name of Manuel Behis however.
to recover from the plaintiff P12,240, with legal interest from August 1, 1922. The - Pursuant to their two contracts with Manuel Behis, plaintiffs were only able to pay
P12,000 of this judgment represented the amount still due on the contract, and under P300K (which included hospitalization, medical and burial expenses until he
P240 represented rent which the plaintiff was expected to pay the defendant. died on June 21, 1985).
- The plaintiff claims in effect that the contract should be rescinded and that he - Thereafter, Rayandayan and Arceño negotiated with the principal stockholder of
should be allowed his damages, on account of the misrepresentation and fraud the Bank, Engr. Edilberto Natividad for the assumption of the indebtedness of
perpetrated by the defendant in selling an electric light plan with a franchise, when Manuel Behis and the subsequent release of the mortgage on the property by the
the defendant had already given up his rights to that franchise. bank. Rayandayan and Arceño did not show to the bank the Agreement with Manuel
Behis providing for the real consideration of P2.4M for the sale of the property to
ISSUE the former. Subsequently, the Bank consented to the substitution of respondents as
WON the sale may be rescinded on the ground of misrepresentation and fraud. mortgage debtors in place of Manuel Behis in a Memorandum of Agreement
between private respondents and the Bank with restructured and liberalized terms
HELD for the payment of the mortgage debt. Instead of the bank foreclosing immediately
- The contract in making mention of the property of the electric light company, for non-payment of the delinquent account, petitioner Bank agreed to receive only a
merely renewed a previous inventory of the property. The franchise, therefore, was partial payment of P 143K by installment on specified dates. After payment thereof,
not the determining cause of the purchase. Indeed, the franchise was then in force the bank agreed to release the mortgage of Manuel Behis; to give its consent to the
and either party could easily have ascertained its status by applying at the office of transfer of title to the private respondents; and to the payment of the balance of
the Public Utility Commissioner. The innocent non-disclosure of a fact does not P200K under new terms with a new mortgage to be executed by the private
effect the formation of the contract or operate to discharge the parties from their respondents over the same land.
agreement. - The Bank failed to comply with its obligation and on Jan.7, 1986, which prompted
- The equitable doctrine termed with questionable propriety "estoppel by laches," respondents to demand that the Bank comply with its obligation under the
has particular applicability to the facts before us. Inexcusable delay in asserting a Memorandum of Agreement to (1) release the mortgage of Manuel Behis, (2) give
right and acquiescene in existing conditions are a bar to legal action. The plaintiff its consent for the transfer of title in the their name, and (3) execute a new
operated the electric light plant for about sixteen months without question; he mortgage with plaintiffs for the balance of P200K over the same land.
made the first payment on the contract without protest; he bestirred himself to - On July 28, 1986, an Assignment of Mortgage was entered into between Halsema
secure what damages he could from the defendant only after the venture had and The Bank in consideration of the total indebtedness of Manuel Behis.
proved disastrous and only after the property had passed into the hands of a third - Because of non-compliance with their MOA, Rayandayan and Arceño instituted an
party. action for specific performance, declaration of nullity and/or annulment of
- There is no proof of fraud on the part of the defendant and find the plaintiff is assignment of mortgage and damages on Sept. 5, 1986. A judgment was rendered
estopped to press his action. declaring that the deed of sale with assumption of mortgage be taken together
Disposition Judgment is affirmed. valid until annulled or cancelled. As well as declaring the MOA as annulled due to
the fraud of Rayandayan & Arceño.
RURAL BANK OF STA. MARIA V CA - In sum, the Court of Appeals in its assailed decision: (1) affirmed the validity of the
GONZAGA-REYES; September 14, 1999 Memorandum of Agreement between parties thereto; (2) reversed and set aside the
finding of the trial court on the bad faith of Rayandayan and Arceño in concealing
the real purchase price of the land sold to them by Manuel Behis during
Obligations and Contracts A2010 page
149 Prof. Labitag
negotiations with the bank on the assumption of the mortgage debt; (3) modified 2. NO
the trial court's finding as to the damages due Rayandayan and Arceño from the The Court may no longer examine the amounts awarded by the trial court and
bank by adding P229,135.00 as actual damages; (4) dismissed the counterclaim for affirmed by the appellate court.
damages by the bank and deleted the portion on the set-off of damages due Reasoning Petitioner Bank does not question the actual damages awarded to
between the bank on the one hand, and Rayandayan and Arceño on the other private respondents in the amount of P 229,135 but only the moral damages,
exemplary damages, atty’s fees, and litigation expenses. As petitioner Bank did not
ISSUES appeal from the decision of the trial court. It is well-settled that a party who does
1. WON the private respondents’ withholding of material information from not appeal from a decision of the lower court may not obtain any affirmative relief
petitioner Bank would render their Memorandum of Agreement (MOA) voidable on from the appellate court other than what he has obtained from the lower court.
the ground that its consent to enter the agreement was vitiated by fraud - In addition, the Bank’s imputation of bad faith to private respondents, premised on
2. WON the SC should modify the damages awarded by the lower court the same non-disclosure of the real purchase price of the sale so as to preclude
their entitlement to damages must necessarily be resolved in the negative.
HELD Disposition petition is denied & decision of the CA is affirmed
1. NO
We cannot see how the omission or concealment of the real purchase price could AZARRAGA V GAY
have induced the bank into giving its consent to the agreement; or that the bank VILLAMOR; December 29, 1928
would not have otherwise given its consent had it known of the real purchase price
Ratio The kind of fraud that will vitiate a contract are those insidious words or FACTS
machinations resorted to by one of the contracting parties to induce the other to - January 17, 1921, the plaintiff sold two parcels of lands to the defendant for the
enter into a contract which without them he would not have agreed to. The fraud lump sum of P47,000, payable in installments.
must be the determining cause of the contract, or must have caused the consent to - The conditions of the payment were: P5,000 at the time of signing the contract
be given. Exhibit A; P20,000 upon delivery by the vendor to the purchaser of the Torrens title
Reasoning The consideration for the purchase of the land between Manuel Behis to the first parcel described in the deed of sale, P10,000 upon delivery by the
and herein private respondents Rayandayan and Arceño could not have been the vendor to the purchaser of Torrens title to the second parcel; and lastly the sum of
determining cause for the petitioner bank to enter into the memorandum of P12,000 one year after the delivery of the Torrens title to the second parcel.
agreement. To all intents and purposes, the bank entered into said agreement in - The vendee paid P5,000 to the vendor when the contract was signed. The vendor
order to effect payment on the indebtedness of Manuel Behis delivered the Torrens title to the first parcel to the vendee who, pursuant to the
- The bank received payments due under the Memorandum of Agreement, even if agreement, paid him P20,000. In the month of March 1921, Torrens title to the
delayed. It initially claimed that the sale with assumption of mortgage was invalid second parcel was issued and forthwith delivered by the vendor to the vendee who,
not because of the concealment of the real consideration of P2,400,000.00 but however, failed to pay the P10,000 as agreed, neither did she pay the remaining
because of the information given by Cristina Behis, the widow of the mortgagor P12,000 one year after having received the Torrens title to the second parcel.
Manuel Behis that her signature on the deed of absolute sale with assumption of - The plaintiff here claims the sum of P22,000, with legal interest from the month of
mortgage was forged. Thus, the alleged nullity of the Memorandum of Agreement, April 1921 on the sum of P10,000, and from April 1922 on the sum of P12,000, until
of counterclaim only after it was sued. full payment of the amounts claimed.
- Indeed, whether the consideration of the sale with assumption of mortgage was - Defendant admits that she purchased the two parcels of land referred to by
P250,000.00 as stated in Exhibit A, or P2,400,000.00 as stated in the Agreement, plaintiff, but alleges in defense: (a) That the plaintiff knowing that the second
Exhibit 15, should not be of importance to the bank. Whether it was P 250, 000 or P parcels of land he sold had an area of 60 hectares, by misrepresentation lead the
2,400,000, the bank's security remained unimpaired defendant to believe that said second parcel contained 98 hectares, and thus made
- Pursuant to Art.1339 of the Civil Code, silence or concealment, by itself, does not it appear in the deed of sale and induced the vendee to bind herself to pay the price
constitute fraud, unless there is a special duty to disclose certain facts, or unless of P47,000 for the two parcels of land, which he represented contained an area of
according to good faith and the usages of commerce the communication should be no less than 200 hectares, to which price the defendant would not have bound
made. Verily, private respondents Rayandayan and Arceño had no duty, and herself had she known that the real area of the second parcel was 60 hectares, and,
therefore did not act in bad faith, in failing to disclose the real consideration of the consequently, she is entitled to a reduction in the price of the two parcels in
sale between them and Manuel Behis proportion to the area lacking which ought to be reduced to P38,000
- The bank had other means and opportunity of verifying the financial capacity of private respondents and - The lower court, having found no fraud when the parties agreed to the lump sum
cannot avoid the contract on the ground that they were kept in the dark as to the financial capacity by the for the two parcels of land described in the deed Exhibit A, following article 1471 of
non-disclosure of the purchase price. As correctly pointed out by respondent court, the bank security the Civil Code, ordered the defendant to pay the plaintiff the sum of P19,300 with
remained unimpaired regardless of the consideration of the sale. Under the term of the Memorandum of legal interest at 8 per cent per annum from April 30, 1921 on the sum of P7,300,
Agreement, the property remains as security for the payment of the indebtedness, in case of default of and from April 30, 1922, on the sum of P12,000.
payment. Thus, petitioner bank does not and can not even allege that the agreement was operating to its
disadvantage. If fact, the bank admits that no damages has been suffered by it.
Obligations and Contracts A2010 page
150 Prof. Labitag
ISSUE - From all this, it follows that the provisions of article 1471 concerning the delivery
WON there was fraud in the circumstances leading to the agreement in the contract of determinate objects had to be materially different from those governing the
delivery of things sold a price per unit of measure or number.
HELD - The reason for the regulation is clear and no doubts can arise from its application.
NO It is concerned with determinate objects. The consideration of the contract, and the
- There is no evidence of record that the plaintiff made representation to the thing to be delivered is a determinate object, and not the number of units it
defendant as to the area of said second parcel, and even if he did make such false contains. The price is determined with relation to it; hence, its greater or lesser area
representations as are now imputed to him by the defendant, the latter accepted cannot influence the increase or decrease of the price agreed upon. We have just
such representations at her own risk and she is the only one responsible for the learned the reason for the regulation, bearing in mind that the Code has rightly
consqunces of her inexcusable credulousness. In the case of Songco vs. Sellner (37 considered an object as determinate for the purposes now treated, when it is a
Phil., 254), the court said: single realty as when it is two or more, so long as they are sold for a single price
The law allows considerable latitude to seller's statements, or dealer's talk; and constituting a lump sum and not for a specified amount per unit of measure or
experience teaches that it as exceedingly risky to accept it at its face value. number.
Assertions concerning the property which is the subject of a contract of sale, or in
regard to its qualities and characteristics, are the usual and ordinary means used TRINIDAD V IAC
by sellers to obtain a high price and are always understood as affording to buyers CRUZ; December 3, 1991
no grund from omitting to make inquires. A man who relies upon such an
affirmation made by a person whose interest might so readily prompt him to NATURE
exaggerate the value of his property does so at his peril, and must take the Petition for review on certiorari
consequences of his own imprudence.
- The defendant had ample opportunity to appraise herself of the condition of the FACTS
land which she purchased, and the plaintiff did nothing to prevent her from making - Sometime in early 1969, Laureta Trinidad, petitioner, approached Vicente J.
such investigation as she deemed fit, and as was said in Songco vs. Sellner, supra, Francisco and offered to buy the property. The house was Bungalow No. 17,
when the purchaser proceeds to make investigations by himself, and the vendor situated at Commonwealth Village in Quezon City. Francisco was willing to sell.
does nothing to prevent such investigation from being as complete as the former Trinidad inspected the house and lot and examined a vicinity map which indicated
might wish, the purchaser cannot later allege that the vendor made false drainage canals along the property. The purchase price was P70,000 with a down
representations to him. payment of P17,500. The balance was to be paid in 5 equal annual installments not
- "One who contracts for the purchase of real estate in reliance on the later than July 1 of each year at 12% interest per annum.
representations and statements of the vendor as to its character and value, but - On March 29,1969, Trinidad paid Francisco P5,000 as earnest money and entered
after he has visited and examined it for himself, and has had the means and into the possession of the house. She heard from her new neighbors that two
opportunity of verifying such statements, cannot avoid the contract on the ground buyers had previously vacated the property because it was subject to flooding. She
that they were false or exaggerated."- She did not complain of the difference in the talked to Francisco who told her everything had been fixed and the house would
area of said second parcel until the year 1926. never be flooded again. Thus assured, she gave him P12,500 to complete the down
- More so, it appears that by the contract Exhibit A, the parties agreed to the sale of payment. They signed the Contract of Conditional Sale on August 8,1969.
two parcels of land, the first one containing 102 hectares, 67 ares and 32 centares, - The Contract of Conditional Sale contains a *condition that should Trinidad fail to
and the second one containing about 98 hectares, for the lump sum of P47,000 make any of the payments the contract shall be considered automatically rescinded
payable partly in cash and partly in installments. Said two parcels are defind by and cancelled without the necessity of notice or of any judicial declaration to that
means of the boundaries given in the instrument. Therefore, the case falls within effect, and any and all sums paid shall be considered rents and liquidated damages
the provision of article 1471 of the Civil Code, which reads as follows: for the breach, and Trinidad shall vacate the property peacefully.
ART. 1471. In case of the sale of real estate for a lump sum and not at the rate of a - Trinidad paid the installment for 1970 and 1971 on time but asked Francisco for an
specified price for each unit of measure, there shall be no increase or decrease of extension of 60 days to pay the third installment due on July 1, 1972. However, she
the price even if the area be found to be more or less than that stated in the eventually decided not to continue paying the amortizations because the house was
contract. flooded again on July 18, 21, and 30, 1972, the waters rising to as high as five feet
- As the hectares were paid due to a lump sum and not based of a defined unit of on July 21. Upon her return from the US on October 11, 1972, she wrote the City
measure – if the sale was made for a price per unit of measure or number, the Engineer's office of QC and requested an inspection to determine the cause of the
consideration of the contract with respect to the vendee, is the number of such flooding. The finding of City Engineer Pantaleon P. Tabora was that "the lot is low
units, or, if you wish, the thing purchased as determined by the stipulated number and is a narrowed portion of the creek."
of units. But if, on the other hand, the sale was made for a lump sum, the - On January 10, 1973, Trinidad filed her complaint against Francisco alleging that
consideration of the contract is the object sold, independently of its number or she was induced to enter into the contract of sale because of his
measure, the thing as determined by the stipulated boundaries, which has been misrepresentations. She asked that the agreement be annulled and her payments
called in law a determinate object.
Obligations and Contracts A2010 page
151 Prof. Labitag
refunded to her, together with the actual expenses she had incurred for the in the world; but not for that alone can the law intervene and restore. There must
"annexes and decorations" she had made on the house. She also demanded the be, in addition, a violation of law, the commission of what the law knows as an
actual cost of the losses she had suffered as a result of the floods, moral and actionable wrong before the courts are authorized to lay hold of the situation and
exemplary damages in the sum of P200,000 and P10,000 attorney's fees. remedy it.”
- Francisco denied the charge of misrepresentation and stressed that Trinidad had The fraud alleged by the petitioner has not been satisfactorily established to call for
thoroughly inspected the property before she decided to buy it. The claimed creek the annulment of the contract. This finding is based on the following considerations.
was a drainage lot, and the floods complained of were not uncommon in the village - First, it was the petitioner who admittedly approached the private respondent, who
and indeed even in the Greater Manila area if not the entire Luzon. In any event, the never advertised the property nor offered it for sale to her.
floods were fortuitous events not imputable to him. He asked for the rescission of - Second, the petitioner had full opportunity to inspect the premises, including the
the contract and the forfeiture of the payments made by the plaintiff plus monthly drainage canals indicated in the vicinity map that was furnished her, before she
rentals with interest of P700 for the property from July 2, 1972, until the actual entered into the contract of conditional sale.
vacation of the property by the plaintiff. He also claimed litigation expenses, - Third, it is assumed that she made her appraisal of the property not with the
including attorney's fees. untrained eye of the ordinary prospective buyer but with the experience and even
- Pendente lite, Vicente J. Francisco died and was eventually substituted by his expertise of the licensed real estate broker that she was. If she minimized the
heirs, two of whom, Trinidad J. Francisco and Rosario F. Kelemen, filed their own presence of the drainage canals, she has only her own negligence to blame.
joint memorandum. - Fourth, seeing that the lot was depressed and there was a drainage lot abutting it,
she cannot say she was not forewarned of the possibility that the place might be
ISSUE flooded. Notwithstanding the obvious condition of the property, she still decided to
WON there was misrepresentation on the part of Francisco to justify the rescission buy it.
of the sale and the award of damages to the petitioner - Fifth, there is no evidence except her own testimony that two previous owners of
the property had vacated because of the floods and that Francisco assured her that
HELD the have would not be flooded again. The supposed previous owners were not
NO presented as witnesses and neither were the neighbors. Francisco himself denied
Ratio One who contracts for the purchase of real estate in reliance on the having made the alleged assurance.
representations and statements of the vendor as to its character and value, but - Sixth, the petitioner paid the 1970 and 1971 amortizations even if, according to
after he has visited and examined it for himself and has had the means and her Complaint, "since 1969 said lot had been under floods of about one (1) foot
opportunity of verifying such statements, cannot avoid the contract on the ground deep,"' and despite the floods of September and November 1970.
that they were false and exaggerated. - Seventh, it is also curious that notwithstanding the said floods, the petitioner still
Reasoning It has not been satisfactorily established that Francisco inveigled the "made annexes and decorations on the house," all of a permanent nature, for which
petitioner through false representation to buy the subject property. Assuming that she now claims reimbursement from the private respondent.
he did make such representations, as the petitioner contends, she is deemed to Regarding Trinidad’s refusal to continue paying the amortizations, we cannot say
have accepted them at her own risk and must therefore be responsible for the that the petitioner was, strictly speaking, in default in the payment of the remaining
consequences of her careless credulousness. The law allows considerable latitude to amortizations in the sense contemplated in the contract. If she asked for the
seller's statements, or dealer's talk, and experience teaches that it is exceedingly annulment of the contract and the refund to her of the payments she had already
risky to accept it at its face value. Assertions concerning the property, subject of a made, plus damages, it was because she felt she had the right to do so. Given such
contract of sale, or in regard to its qualities and characteristics, are the usual and circumstances, the Court feels that the stipulation [see condition in facts] should
ordinary means used by sellers to obtain a high price and are always understood as not be strictly enforced, to justify the rescission of the contract. To make her forfeit
affording to buyers no ground for omitting to make inquiries. A man who relies upon the payments already made by her and at the same time return the property to the
such affirmation made by a person whose interest might so readily prompt him to private respondents for standing up to what she considered her right would, in our
exaggerate the value of his property does so at his peril, and must take the view, be unfair and unconscionable. Justice demands that we moderate the harsh
consequences of his own imprudence. What we see here is a bad bargain, not an effects of the stipulation.
illegal transaction vitiated by fraud. While we may commiserate with the petitioner Disposition Appealed decision is AFFIRMED with modification.
for a purchase that has proved unwise, we can only echo what Mr. Justice Moreland
observed in Vales v. Villa: SONGCO V SELLNER
“Courts cannot follow one every stop of his life and extricate him from bad STREET; December 4, 1917
bargains, protect him from unwise investments, relieve him from one-sided
contracts, or annul the effects of foolish acts. Courts cannot constitute themselves FACTS
guardians of persons who are not legally incompetent. Courts operate not because - In Dec. 1915, the defendant George Sellner, was the owner of a sugar farm at
one person has been defeated or overcome by another, but because he has been FloridaBlanca, Pampanga adjacent to another sugar farm owned by plaintiff
defeated or overcome illegally. Men may do foolish things, make ridiculous Lamberto Songco. Sellner wished to mill his cane at a sugar central in nearby
contracts, use miserable judgment, and lose money by them-indeed, all they have
Obligations and Contracts A2010 page
152 Prof. Labitag
Dinalupijan but the owners of the mill would not promise to take it. Sellner found TORRES; December 1, 1917
out that the central was going to mill Songco’s cane and decided to buy it and run
his own cane at the same time the latter’s cane was to be milled. Sellner also NATURE
desired to get a right of way over Songco’s land for converting his own cane to the Appeal from a judgment of the Court of First Instance Bulacan
central. He bought the cane for an agreed sum of P12,000 and executed 3
promissory notes of P4,000, paying for two; an action was instituted to recover the FACTS
3rd for which a judgment was rendered in favor of the plaintiff and to which - The annulment of a deed of sale regarding parcels of land was sought on the
defendant has appealed. ground that the two of the four parties (Domingo Mercado and Josefa Mercado)
- The defendant denied all allegations of the complaint, further asserting by way of thereto were minors (under the Civil Code), 18 and 19 years old, respectively on the
special defense that the defendant obtained the note by means of fraudulent date the instrument was executed. In the deed of sale, however, these minors
representations. The note, on which the action was brought, was admitted in court stated that they were of legal age at the time they executed and signed it; and they
as evidence. made the same manifestation before the notary public when the document was
prepared.
ISSUES
1. WON the court erred in admitting the note as evidence even though its ISSUE
genuineness and due execution were not proven WON the minors Domingo and Josefa misrepresented themselves in the sale of the
2. WON plaintiff is guilty of false representation real estate thus making the deed of sale valid
HELD HELD
1. NO YES
- Under Sec 103 of the Code of Civil Procedure, it is necessary that the genuineness - The courts have laid down the rule that the sale of real estate, effected by minors
and due execution of a written instrument be specifically denied by the defendant who have already passed the ages of puberty and adolescence and are near the
under oath before such an issue is raised. The answer to the effect that the note adult age, when they pretend to have already reached their majority, while in fact
was procured by fraudulent representation is actually an admission of its they have not, is valid, and they cannot be permitted afterwards to excuse
genuineness and due execution since it seeks to avoid the instrument on a ground themselves from compliance with the obligation assumed by them or seek their
not affecting either. Furthermore, the defendant admits the note’s execution in his annulment. This doctrine is entirely in accord with the provisions of our law on
answer. estoppel.
2. NO Disposition CFI ruling affirmed. Petition dismissed.
- Songco estimated that his cane would produce 3,000 piculs of sugar but instead
produced 2,017. Although Songco had grossly exaggerated his estimate, the court
finds that Sellner is still bound to pay the price stipulated. Matters of opinion,
judgment, probability or expectation are not actionable deceits and cannot void a
contract. Jurisprudence dictates that one may not rely on a vendor’s
misrepresentations as to the value of his goods if that person is given an ample
opportunity to investigate/examine the goods. Using expert knowledge to take
advantage of the ignorance of another may be grounds for relief; however, the
BRAGANZA V VILLA ABRILLE
court finds Sellner’s relative inexperience lacking.
CONCEPCION; May 14, 1954
- An incident to the action was that the plaintiffs sued out an attachment against
the defendant on the ground that he was disposing of his property in fraud of his NATURE
creditors. This was refuted upon a showing that defendant had not attempted to Petition for review of the Court of Appeal's decision
convey away his property, and thus damages were awarded to him equal to the
cost of procuring the dissolution of the attachment. The defendant assigns error to FACTS
the court’s refusal to award further damages, claiming that the attachment caused - Rodolfo and Guillermo Braganza, received from Villa Abrille, as a loan, on October
a creditor to withhold credit, forcing him to sell sugar at lower prices and losing 30, 1944 P70,000 in Japanese war notes. They promised to pay him P10,000 "in
money. The damages were remote and speculative; the plaintiff cannot be held legal currency of the P. I. two years after the cessation of the present hostilities or
accountable for such complications leading to said damages. as soon as International Exchange has been established in the Philippines", plus 2 %
Disposition From what has been said it follows that the judgment of the court per annum. Payment was not made, thus, Villa Abrille sued them.
below must be affirmed, with costs against the appellant. - Rodolfo and Guillermo claimed to have received P40,000 only. They also claim that
they were minors when they signed the promissory note. The trial court ordered
MERCADO V ESPIRITU them solidarily to pay Fernando F. de Villa Abrille the sum of P10,000 plus 2 %
interest from October 30, 1944
Obligations and Contracts A2010 page
153 Prof. Labitag
have leased from the Rodriguez children and grandchildren the fishpond for a
ISSUE period of 5 years commencing August 16, 1962. for an annual rental of P7,161.37.
WON the minors are liable for the said loan At about this time. it seemed that the relationship between the widow and her
stepchildren had turned for the worse. Thus, when she failed to deliver to them the
HELD balance of the earnings of the fishponds, in the amount of P3,000.00, her
NO stepchildren endorsed the matter to their lawyer who, on May 16, 1962, sent a
- From the minors' failure to disclose their minority in the same promissory note letter of demand to the widow for payment thereof.
they signed, it does not follow as a legal proposition, that they will not be permitted - On May 28, 1962, petitioner filed the present action in the CFI of Manila. The
thereafter to assert it. They had no juridical duty to disclose their inability. action to declare null and void the deeds of transfer of plaintiff's properties to the
- In order to hold infant liable, however, the fraud must be actual and not conjugal partnership was based on the alleged employment or exercise by plaintiff’s
constructure. It has been held that his mere silence when making a contract as to deceased husband of force and pressure on her, that the conveyances of the
age does not constitute a fraud which can be made the basis of an action of deceit properties from plaintiff to her daughter and then to the conjugal partnership of
- However, they are not entirely absolved from monetary responsibility. They shall plaintiff and her husband are both without consideration, that plaintiff participated
make restitution to the extent that they have profited by the money they received. in the extrajudicial settlement of estate (of the deceased Domingo Rodriguez) and
(Art. 1340) in other subsequent deeds or instruments involving the properties in dispute, on the
Disposition Decision reversed false assumption that the said properties had become conjugal by reason of the
execution of the deeds of transfer in 1934, that laboring under the same false
RODRIGUEZ V RODRIGUEZ assumption, plaintiff delivered to defendants. as income of the properties from
REYES; July 31, 1967 1953 to 1961, the total amount of P56,976.58. As alternative cause of action, she
contended that she would claim for her share, as surviving widow of 1/5 of the
NATURE properties in controversy, should such properties be adjudicated as belonging to the
Appeal from a judgment of the CFI conjugal partnership.
FACTS ISSUES
- Concepcion Felix, widow of the late Don Felipe Calderon and with whom she had 1. WON plaintiff can recover the illegally donated properties
one living child, Concepcion Calderon, contracted a second marriage on June 20, 2. WON plaintiff is estopped from questioning the transfer of properties
1929, with Domingo Rodriguez, a widower with four children by a previous 3. WON plaintiff’s cause of action has prescribed
marriage, named Geronimo, Esmeragdo, Jose and Mauricio, all surnamed Rodriguez. 4. WON the conveyances of title are void ab initio
- Prior to her marriage to Rodriguez, Concepcion Felix was the registered owner of 2
fishponds. Under date of January 24, 1934, Concepcion Felix appeared to have HELD
executed a deed of sale conveying ownership of the aforesaid properties to her 1. NO
daughter, Concepcion Calderon, for the sum of P2,500.00 which the latter in turn Ratio In contracts invalidated by illegal subject matter or illegal causa, Article 1305
appeared to have transferred to her mother and stepfather by means of a and 1306 of the Civil Code then in force apply rigorously the rule in pari delicto non
document dated January 27, 1934. Both deeds were registered in the Office of the oritur actio, denying all recovery to the guilty parties inter se. And appellant is
Register of Deeds of Bulacan on January 29, 1934, as a consequence of which, the clearly as guilty as her husband in the attempt to evade the legal interdiction.
original title were cancelled and TCT Nos. 13815 and 13816 were issued in the 2. YES
names of the spouses Domingo Rodriguez and Concepcion Felix. Ratio Having taken part in the questioned transactions, petitioner was not the
- On March 6, 1953, Doming Rodriguez died intestate, survived by the widow, proper party to plead lack of consideration to avoid the transfers On top of it, she
Concepcion Felix, his children Geronimo, Esmeragdo and Mauricio and entered into a series of subsequent transactions with respondents that confirmed
grandchildren Oscar, Juan and Ana, surnamed Rodriguez, children of a son, Jose, the contracts that she now tries to set aside. There was ratification or confirmation
who had predeceased him. On March 16, 1953, the above-named widow, children by the plaintiff of the transfer of her property, by her execution (with the other
and grandchildren of the deceased entered into an extrajudicial settlement of his heirs) of the extrajudicial settlement of estate.
(Domingo's) estate, consisting of one-half of the properties allegedly belonging to 3. YES
the conjugal partnership. Among the properties listed as conjugal were the two Ratio Duress being merely a vice or defect of consent, an action based upon it
parcels of land in Bulacan, Bulacan, which, together with another piece of property, must be brought within four years after it has ceased, and the present action was
were divided among the heirs. instituted only in 1962, 28 years after the intimidation is claimed to have occurred,
- On October 12, 1954, the Rodriguez children executed another document granting and no less than 9 years after the supposed culprit died in 1953. Likewise, the
unto the widow lifetime usufruct over one-third of the fishpond which they received action for rescission of the deed of extrajudicial settlement should have been filed
as hereditary share in the estate of Domingo Rodriguez, which grant was accepted within 4 years from its execution.
by petitioner. Then in a contract dated December 15, 1961, the widow appeared to 4. NO
Obligations and Contracts A2010 page
154 Prof. Labitag
Ratio Although the two documents were executed for the purpose of converting - So Federico’s counsel filed a case in the CFI. The trial court upheld the validity
plaintiff's separate properties into conjugal assets of the marriage with Domingo and genuineness of the deed of sale executed by Federico in favor of Rafael, but it
Rodriguez, the consent of the parties thereto was voluntary, contrary to the ruled that the counter-deed, executed by Rafael in favor of Federico, was simulated
allegations of plaintiff and her witness. In the first transaction, the price of and without consideration, hence, null and void ab initio. (it was not dated, not
P2,500.00 is recited in the deed itself; in the second, the consideration set forth is notarized and above all it has no consideration because plaintiff did not pay
P3,000.00. Since in each conveyance the buyer became obligated to pay a definite defendant the consideration of the sale in the sum of P20,000.00)
price in money, such undertakings constituted in themselves actual causa or - CA ruled the same. BUT it then reversed itself upon petition and said that the first
consideration for the conveyance of the fishponds. That the prices were not paid Deed of Sale was a mere accommodation arrangement executed without any
does not make the sales inexistent for want of causa. The characteristic of consideration and therefore a simulated contract of sale. Considering the ff.
simulation is the fact that the apparent contract is not really desired or intended to circumstances:
produce legal effects or in any way alter the juridical situation of the parties. But > the 2 instruments were executed closely one after the other
appellant contends that the sale by her to her daughter, and the subsequent sale by > the close relationship bet. the parties
the latter to appellant and her late husband were done for the purpose of >the value and location of the property purportedly sold . (P20,000)
converting the property from paraphernal to conjugal, thereby vesting a half > Rafael also never assumed ownership nor did eh gather any benefit.
interest in Rodriguez, and evading the prohibition against donations from one - Rafael Suntay on the other hand insists that the transaction was a veritable sale.
spouse to another during coverture. If this is true, then the appellant and her
daughter must have intended the two conveyances to be real and effective; for ISSUE
appellant could not intend to keep the ownership of the fishponds and at the same WON the deed of sale executed in favor of Rafael Suntay was valid
time vest half of them in her husband. HELD
NO
SUNTAY V CA Reasoning The history and relationship of trust, interdependence and intimacy
HERMOSISIMA; December 19,1995 between the late Rafael and Federico is an unmistakable token of simulation. It has
been observed that fraud is generally accompanied by trust.
NATURE - The late Rafael insisted that the sale to him of his uncle's property was in fact a
Petition for Review on Certiorari of the Amended Decision of respondent Court of "dacion en pago" in satisfaction of Federico's unpaid attorney's fees. But such claim
Appeals and of its Resolution denying petitioner's motion for reconsideration. cannot prosper. He did not even tell Federico that he considered such to be his fee.
Federico was also liquid enough to pay him.
FACTS - All circumstances point to the conclusion that such was simulated transaction.
- Federico Suntay is a wealthy land owner and rice miller from Bulacan. He owned a Ratio A contract of purchase and sale is void and produces no effect whatsoever
5,118 square-meter land in Bulacan. On it was a rica mill, a warehouse and other where the same is without cause or consideration in that the purchase price, which
improvements. appears thereon as paid, has in fact never been paid by the purchaser to the vendor
- Federico applied as a miller-contractor of the then National Rice and Com two veritable legal presumptions: first, that there was sufficient consideration for
Corporation (NARIC). His application was prepared by his nephew lawyer Rafael the contract 45 and, second, that it was the result of a fair and regular private
Suntay. But it was disapproved because at that time he was tied up w/ several transaction.46 These presumptions if shown to hold, infer prima facie the
unpaid loans. transaction's validity, except that it must yield to the evidence adduced.
- For purposes of circumvention, he had thought of allowing Rafael to make the Disposition WHEREFORE, the Amended Decision promulgated by the Court of
application for him. Rafael prepared an absolute deed of sale whereby Federico, for Appeals on December 15, 1993 in CA-G.R. CV No. 08179 is hereby AFFIRMED IN
and in consideration of P20,000.00 conveyed to Rafael said parcel of land with all its TOTO.
existing structures.
- Federico claims that the sale was merely fictitious/simulated and has been BLANCO V QUASHA
executed only for purposes of accommodation. YNARES-SANTIAGO; November 17, 1999
- Less than three months after this conveyance, Rafael sold it back to Federico for
the same amount of P20,000. It was notarized by Atty. Herminio V. Flores. NATURE
- However, the said document was not the said deed of sale but a certain "real Petition for review on certiorari; CA reversed trial court’s decision
estate mortgage of a parcel of land to secure a loan of P3,500.00 in favor of the
Hagonoy Rural Bank. It could not be found in the notarial register as well FACTS
- Federico through his new counsel requested that Rafael have TCT No. T-36714 so - Mary Ruth C. Elizalde was an American national who owned a house and lot (2,500
that he can have the counter deed of sale in favor registered in his . But the request sqm) in Forbes Park, Makati,
was turned down. - During her lifetime, on May 22, 1975, she, through attorney-in-fact Don Manuel
Elizalde, entered into a Deed of Sale over the property in favor of Parex Realty
Obligations and Contracts A2010 page
155 Prof. Labitag
Corporation (Parex), for and in consideration of the amount of P625,000.00 payable - Court of Appeals set aside the appealed judgment and dismissed petitioner's
in twenty-five (25) equal annual installments of P25,000.00 commencing on May 22, action for reconveyance.
1975 and ending on May 22, 1999. - Petitioner filed a motion for reconsideration with motion for the inhibition of all
- Also on May 22, 1975, simultaneously with the execution of the Deed of Sale, three members of the appellate court's Fourth Division, namely, Justices Ramon A.
Parex executed a Contract of Lease4 with Mary Ruth C. Elizalde, whereby the same Barcelona, Minerva Gonzaga-Reyes and Demetrio G. Demetria, pleading
parcel of land was leased to the latter for a term of twenty five (25) years for a circumstances which allegedly show attempts on the part of the Quasha Law Firm
monthly rental of P2,083.34, or P25,000.08 a year. The rental payments shall be to influence Mr. Justice Barcelona.—denied by CA for being patently groundless and
credited to and applied in reduction of the agreed yearly installments of the without basis in fact and law.
purchase price of the property. - In his motion for the inhibition of the above-named Court of Appeals Justices,
- Parex, was registered with the Securities and Exchange Commission on May 10, petitioner alleges the following circumstances:
1974 with the following incorporators, namely, Cirilo F. Asperilla, Jr., Alonzo Q. 1.The petitioner wrote the Clerk of the Court of Appeals as to why there was still no
Ancheta, William H. Quasha, Delfin A. Manuel, Jr. and Edgardo F. Sundiam.3 ponente to adjudicate the case notwithstanding that one was ordered re-raffled two
- By virtue of the sale, the title was issued in the name of Parex Realty Corporation years before.
on May 27, 1975 2.A clerk of the Court of Appeals handwrote thereon as follows:
- Mary Ruth Elizalde executed a Confirmation and Ratification of the Deed of Sale. J. Galvez J. R. Barcelona -for completion of records -for decision (raffled on 7-16-
Despite the transfer of title, however, she continued to pay the Forbes Park 96)
Association dues, garbage fees, and the realty taxes on the property during the and promised a formal written reply.
term of the lease until her demise in 1990. 3.The petitioner's curiosity was thereby aroused because after 7-16-96 there was a
- Elizalde passed away on March 1, 1990. On March 26, 1990, Atty. Daisy P. Arce of non-adjudicatory Resolution dated 20 November 1996 of Justice Ricardo P. Galvez
the law firm of Quasha, Asperilla, Ancheta, Peña and Nolasco, on behalf of some with none of the two concurring Justices being Barcelona.
heirs of Mary Ruth Elizalde, sent a letter to Peter Wohlfeiler, Esq., who was handling 4.Consequently, the petitioner caused his messenger to follow-up the said promised
the legal affairs of the other heirs, informing him that Elizalde left property (the formal written reply, at one such on 20 January 1998 said messenger was informed
subject of this case) by a clerk of Justice Barcelona's Office that Atty. Fernando F. Viloria of the private
- Petitioner J.R. Blanco, special administrator of the estate of Elizalde demanded respondents' Quasha law firm in the company of Manuel Barcelona who is the
from respondents, the individual stockholders and directors of Parex, the brother of Justice Barcelona was in the office of Justice Barcelona on 16 January
reconveyance of the title to the property to the estate of Mary Ruth Elizalde or, in 1998.
the alternative, to assign all shares of Parex to said estate. Respondents ignored. - Petitioner further alleges that the parties, through their respective counsel, have
- Petitioner alleged that the sale of the property by Elizalde to Parex was absolutely entered into a compromise agreement and that petitioner had moved that the CA
simulated and fictitious and, therefore, null and void. According to petitioner, the call the parties to a preliminary conference. However, one day after respondents
alleged sale was executed upon advice of Elizalde's lawyers, namely, the individual filed their opposition, the CA through Justice Barcelona promulgated the assailed
respondents herein, in order to circumvent the effects of this Court's ruling in Resolution
Republic v. Quasha12 which held that “under the 'Parity Amendment' to our Respondents’ Comment
Constitution, citizens of the United States and corporations and business enterprises - petition must be dismissed because it raises questions of fact and not of law.
owned or controlled by them can not acquire and own, save in cases of hereditary -Respondents deny that Atty. Fernando Viloria went to Justice Barcelona's office,
succession, private agricultural lands in the Philippines and that all other rights and claims that petitioner's allegations to this effect are double hearsay-- having
acquired by them under said amendment will expire on 3 July 1974.13” been obtained from information supposedly relayed first by a Court of Appeals clerk
- Petitioner further alleges that a few months before July 3, 1974, respondents to petitioner's messenger, then by the messenger to petitioner.
rushed the organization and incorporation of Parex. On May 24, 1974, Presidential - that the sale-lease-back agreement was valid, and deny the existence of any
Decree No. 471 was issued limiting the duration of leases of private lands to aliens compromise agreement between the parties.
to 25 years renewable for another 25 years. Hence, petitioner posits that the ISSUES
Quasha law firm caused Elizalde to simulate a sale of her land to Parex. 1. WON the sale-lease-back is simulated
Simultaneously with the execution of the contract of sale, Parex and Elizalde 2. WON there was influence peddling
entered into a lease contract whereby Parex leased back to Elizalde the same land
for a period of 25 years at a monthly rental of P2,083.34 which, when computed, HELD
totals P25,000.00 in a year. Hence, petitioner prayed that the land be reconveyed 1. NO
to the estate of Elizalde, arguing that she did not receive a single centavo from the - In order to determine whether or not the sale-lease-back agreement is simulated,
transactions. there is a need to look into the true intent or agreement of the parties. To do so,
- Regional Trial Court rendered judgment in favor of the plaintiff and against the however, is to pass upon a factual issue, a function that is not within the province of
defendants declaring the sale executed by Elizalde in favor of Parex to be fictitious this Court. The findings of the Court of Appeals are binding and conclusive on us,
and simulated; especially, the conclusion of the appellate court is more in accord with the
documents on record.
Obligations and Contracts A2010 page
156 Prof. Labitag
- The Court finds nothing wrong with the arrangement stated in the contract for the Simeon Blas contracted another marriage with Maxima Santos when Marta Cruz
same is not contrary to law, morals, good customs, public order, or public policy, died. Ti should be noted that when Marta Cruz died, there was no liquidation of the
but rather, for the convenience of both parties. The requisites of a contract of sale couple’s property. A week before the death of Simeon Blas, he executed a will
have been complied with, and that the parties intended to be bound by the deed of which stated that half of their property (with Maxima) is the share of his
sale and for it to produce legal effects. wife.another document (exibit A) was executed by Maxima Santos which states that
Reasoning To begin with, this Court is not a trier of facts. It is not its function to one-half of her share of the properties left to her by her husband, she would give to
examine and determine the weight of the evidence supporting the assailed decision the heirs and legatees or the beneficiaries (plaintiffs) named in the will of her
- Simulation of a contract may be absolute or relative. The former takes place when husband.
the parties do not intend to be bound at all; the latter, when the parties conceal - This action was instituted by plaintiffs against the administratrix of the estate of
their true agreement. An absolutely simulated or fictitious contract is void. A Maxima Santos, to secure a judicial declaration that one-half of the properties left
relative simulation, when it does not prejudice a third person and is not intended for by said Maxima Santos Vda. de Blas and requesting that the said properties so
any purpose contrary to law, morals, good customs, public order or public policy promised be adjudicated to the plaintiffs.
binds the parties to their real agreement. The characteristic of simulation is the fact - Trial court held that said Exhibit "A" has not created any right in favor of plaintiffs
that the apparent contract is not really desired nor intended to produce legal effects which can serve as a basis of the complaint; that neither can it be considered as a
nor in any way alter the juridical situation of the parties. valid and enforceable contract for lack of consideration and because it deals with
- Court of Appeals based its ruling on the following factual findings: future inheritance. The court also declared that Exhibit "A" is not a will because it
First, Elizalde decided to transfer, as in fact she did, the ownership of the subject does not comply with the requisites for the execution of a will; nor could it be
property. Second, the vendee, Parex obligated itself to pay a price certain for the considered as a donation.
property. Although no actual exchange of money was made, yet payment was - Both the court below in its decision and the appellees in their brief before us,
effected between the vendee and the vendor by mutual arrangement. Third, argue vehemently that the heirs of Simeon Blas and his wife Marta Cruz can no
Elizalde never contested the sale of the property. Fourth, Mary Ruth Elizalde, during longer make any claim for the unliquidated conjugal properties acquired during said
her lifetime, never contested the cancellation of Certificate of Title. first marriage, because the same were already included in the mass of properties
- By preponderance of evidence, therefore, the defendants were able to prove that constituting the estate of the deceased Simeon Blas and in the adjudications made
the deed of sale executed by Elizalde in favor of Parex is a valid and binding by virtue of his will, and that the action to recover the same has prescribed.
contract which transferred ownership of the property to the said corporation.
- We are not prepared to delve into the motive of Elizalde in transferring the land ISSUE
only and not the house thereon, inasmuch as that involves a factual question. To WON plaintiffs can make a claim for half of the properties received by Maxima
resolve the issue of whether or not the sale-lease-back was simulated, it is Santos after the death of Simeon Blas
imperative that we look into the true intention of the parties, rather than the correct
interpretation of the written stipulations in the contracts. That, again, is a question HELD
of fact. YES
2. NO Ratio The principal basis for the plaintiffs' action in the case at bar is the document
- It is purely speculative and unfounded. Moreover, it is anchored on evidence that Exhibit "A". Plaintiffs-appellants argue before the Court that Exhibit "A" is both a
can only be characterized as double hearsay. Being based on incompetent trust agreement and a contract in the nature of a compromise to avoid litigation.
evidence, the charge does not merit the attention of this Court. Defendants-appellees, in answer, claim that it is neither a trust agreement nor a
Disposition To recapitulate, therefore, we find that the Court of Appeals compromise agreement. The Court finds that the preparation and execution of
committed no reversible error to warrant this appeal. Accordingly, we affirm the Exhibit "A" was ordered by Simeon Blas evidently to prevent his heirs by his first
appealed decision of the Court of Appeals in toto and dismiss the instant marriage from contesting his will and demanding liquidation of the conjugal
petition.WHEREFORE, the petition is DISMISSED. properties acquired during his -first marriage, and an accounting of the fruits and
proceeds thereof from the time of the death of his first wife.
BLAS V SANTOS Exhibit "A", therefore, appears to be the compromise defined in Article 1809 of the
LABRADOR; March 29, 1961 Civil Code of Spain, in force at the time of the execution of Exhibit "A", which
provides as follows:
NATURE "Compromise is a contract by which each of the parties in interest, by giving,
Appeal from a judgement of the Court of the First Instance of Rizal promising, or retaining something avoids the provocation of a suit or terminates one
which has already been instituted."
FACTS The agreement or promise that Maxima Santos makes in Exhibit "A" is to hold one-
- Simeon Blas married twice. His first marriage was with Marta Cruz. They had 3 half of her said share in the conjugal assets in trust for the heirs and legatees of her
children only one of whom, Eulalia left children namely Maria, Marta and Lazaro. husband in his will, with the obligation of conveying, the same to such of his heirs or
Lazaro laft 3 legitimate children. Maria and Lazaro’s children are plaintiffs herein. legatees as she may choose in her last will and testament. Under Exhibit "A",
Obligations and Contracts A2010 page
157 Prof. Labitag
therefore, Maxima Santos contracted the obligation and promised to give one-half - February 28, 1980 - Lazaro executed an “Affidavit of Conformity” upon death of
of the above indicated properties to the heirs and legatees of Simeon Blas his father Matias to “re-affirm, respect. acknowledge and validate the sale I made
*this case is under future inheritance so this next paragraph is important in 1962.”
- The Court also rejects the defendant’s contention that Exibit A is a contract on - January 13, 1981 - Lazaro executed another notarized deed of sale in favor of
future inheritance. It is an obligation or promise made by the maker to transmit private respondents covering his “undivided ONE TWELVE (1/12) of a parcel of land
one-half of her share in the conjugal properties acquired with her husband, which known as Lot 191” where he acknowledged receipt of P 10,000.00 as consideration
properties are stated or declared to be conjugal properties in the will of the - February 1981 - Ricardo learned that Lazaro sold the same property to his children
husband. The conjugal properties were in existence at the time of the execution of (petitioners) through a deed of sale dated December 29, 1980 conveying to his ten
Exhibit "A" on December 26, 1936. The properties mentioned were even included children his allotted portion under the extrajudicial partition executed by the heirs
by Maxima in the inventory of her husband’s property. The document refers to of Matias
existing properties which she will receive by operation of law on the death of her - June 7, 1982 – Sps Ricardo Tanedo recorded the Deed of Sale in their favor in the
husband, because it is her share in the conjugal assets. Registry of Deeds
- It will be noted that what is prohibited to be the subject matter of a contract under - July 16, 1982 – Lazaro’s children filed a complaint for rescission (plus damages) of
Article 1271 of the Civil Code is "future inheritance." To us future inheritance is any the deeds of sale executed by Lazaro in favor of Sps Ricardo Lazao covering the
property or right not in existence or capable of determination at the time of the property inherited by Lazaro from his father.
contract, that a person may in the future acquire by succession. The properties - Petitioners also presented in evidence
subject of the contract Exhibit "A" are well-defined properties, existing at the time (1) a private writing purportedly prepared and signed by Matias dated December
of the agreement, which Simeon Blas declares in his testament as belonging to his 28, 1978, stating that it was his desire that whatever inheritance Lazaro would
wife as her share in the conjugal partnership. receive from him should be given to his (Lazaro’s) children
- It is also claimed that the case at bar are concluded by the judgment rendered in (2) a typewritten document dated March 10, 1979 signed by Lazaro in the presence
the proceedings for the settlement of the estate of Simeon Blas for the reason that of two witnesses, wherein he confirmed that he would voluntarily abide by the
the properties left by him be longed to himself and his wife Maxima Santos; that the wishes of his father, Matias, to give to his (Lazaro’s) children all the property he
project of partition in the said case. But the main ground upon which plaintiffs base would inherit from the latter
their present action is the document Exhibit "A", already fully considered above. As (3) a letter dated January 1, 1980 of Lazaro to his daughter, Carmela, stating that
this private document contains the express promise made by Maxima Santos to his share in the extrajudicial settlement of the estate of his father was intended for
convey in her testament, upon her death, one-half of the conjugal properties she his children
would receive as her share in the conjugal properties, the action to enforce the said - Sps Ricardo Tanedo presented “Deed of Revocation of a Deed of Sale” dated
promise did not arise until and after her death when it was found that she did not March 12, 1981 where Lazaro revoked the sale in favor of his children for the reason
comply with her above-mentioned promise. It may be added that plaintiffs- that it was “simulated or fictitious - without any consideration whatsoever.”
appellants did not question the validity of the project of partition precisely because - after the case was filed, Lazaro executed a sworn statement which virtually
of the promise made by Maxima Santos in the compromise Exhibit "A". repudiated the contents of the Deed of Revocation of a Deed of Sale and the Deed
Disposition The defendant-appellee, administratrix of the estate of Maxima of Sale in favor of the Sps Ricardo Tanedo. However, Lazaro testified that he sold
Santos, is ordered to convey and deliver one-half of the properties adjudicated to the property to Ricardo, and that it was a lawyer who induced him to execute a
Maxima Santos as her share in the conjugal properties to the heirs and the legatees deed of sale in favor of his children after giving him five pesos (P5.00) to buy a
of her husband Simeon Blas. “drink”
- TC: decided in favor of Sps Ricardo Tanedo and that Lazaro’s children failed “to
TANEDO V COURT OF APPEALS adduce a preponderance of evidence to support (their) claim.”
PANGANIBAN; January 22, 1996 - CA: affirmed the decision of the trial court, ruling that the Deed of Sale dated
January 13, 1981 was valid and that its registration in good faith
NATURE Petitioners Claim
Petition for review on certiorari under Rule 45 of the Rules of Court to set aside and TC committed errors in
reverse the Decision of the Court of Appeals on September 26, 1991 affirming the 1. concluding that the Contract of Sale of October 20, 1962 is merely voidable or
decision of RTC Tarlac, Tarlac denying reconsideration on May 27, 1992. annulable and not void ab initio pursuant to A1347 par2 CC involving ‘future
inheritance’
FACTS 2. holdings Sps Ricardo Tanedo acted in good faith in registering the deed of sale of
- October 20, 1962 - Lazardo Tañedo executed a notarized deed of absolute sale in January 13, 1981 with the Register of Deeds of Tarlac and therefore ownership of
favor of his eldest brother, Ricardo Tañedo, and the latter’s wife, Teresita Barera the land passed on to them
(private respondents) whereby in consideration of P1,500.00, “one hectare of 3. ignoring and failing to consider the testimonial and documentary evidence of
whatever share I shall have over Lot No. 191 of the cadastral survey of Gerona, Lazaro’s children which clearly established by preponderance of evidence that they
Province of Tarlac… the said property being his future inheritance from his parents” are indeed the legitimate and lawful owners of the property in question
Obligations and Contracts A2010 page
158 Prof. Labitag
4. that the decision is contrary to law and the facts of the case and the conclusions - the documents that are critical to the resolution of this case are:
drawn from the established facts are illogical and off-tangent (a) the deed of sale of January 13, 1981 in favor of private respondents covering
- Allegations made by petitioners in their basic petition and in their Lazaro’s undivided inheritance of one-twelfth (1/12) share in Lot No. 191, which was
memorandum subsequently registered on June 7, 1982
1. TC allegedly ignored the claimed fact that Ricardo “by fraud and deceit and with (b) the deed of sale dated December 29, 1980 in favor of petitioners covering the
foreknowledge” that the property in question had already been sold to petitioners, same property.
made Lazaro execute the deed of January 13, 1981 - These two documents were executed after the death of Matias (and his spouse)
2. There is allegedly adequate evidence to show that only 1/2 of the purchase price and after a deed of extrajudicial settlement of his (Matias’) estate was executed,
of P10,000.00 was paid at the time of the execution of the deed of sale, contrary to thus vesting in Lazaro actual title over said property. In other words, these
the written acknowledgment, thus showing bad faith dispositions, though conflicting, were no longer infected with the infirmities of the
3. There is allegedly sufficient evidence showing that the deed of revocation of the 1962 sale.
sale in favor of petitioners “was tainted with fraud or deceit.” - Critical in determining which of these two deeds should be given effect is the
4. There is allegedly enough evidence to show that private respondents “took registration of the sale in favor of private respondents with the register of deeds on
undue advantage over the weakness and unschooled and pitiful situation of Lazaro June 7, 1982.
Tanedo . . .” and that respondent Ricardo Tañedo “exercised moral ascendancy - A1544 CC governs the preferential rights of vendees in cases of multiple sales, as
over his younger brother he being the eldest brother and who reached fourth year follows:
college of law and at one time a former Vice-Governor of Tarlac, while his younger If the same thing should have been sold to different vendees, the ownership shall
brother only attained first year high school” be transferred to the person who may have first taken possession thereof in good
5. TC erred in not giving credence to petitioners’ evidence, especially Lazaro faith, if it should be movable property.
Tañedo’s Sinumpaang Salaysay dated July 27, 1982 stating that Ricardo Tañedo Should it be immovable property, the ownership shall belong to the person
deceived the former in executing the deed of sale in favor of private respondents. acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in
ISSUES good faith was first in the possession; and, in the absence thereof, to the person
1. WON sale of a future inheritance is valid who presents the oldest title, provided there is good faith.
2. WON the subsequent execution on January 13, 1981 (and registration with the - Also, between two purchasers, the one who registered the sale in his favor has a
Registry of Property) of a deed of sale covering the same property to the same preferred right over the other who has not registered his title, even if the latter is in
buyers is valid actual possession of the immovable property
3. WON this Court may review the findings of the respondent Court in 3. NO.
a. holding that the buyers acted in good faith in registering the said subsequent - CA, reviewing TC’s findings, refused to overturn the latter’s assessment of the
deed of sale and testimonial evidence, as follows:
b. failing to consider petitioners’ evidence “We are not prepared to set aside the finding of the lower court upholding Ricardo
c. its conclusions “being illogical and off-tangent” Tanedo’s testimony, as it involves a matter of credibility of witnesses which the trial
judge, who presided at the hearing, was in a better position to resolve.”
HELD - all the above contentions involve questions of fact, appreciation of evidence and
* “errors” which are reviewable by this Court in this petition for review on certiorari credibility of witnesses, which are not proper in this review. It is well-settled that the
are only those allegedly committed by the respondent Court of Appeals and not Supreme Court is not a trier of facts.
directly those of the trial court, which is not a party here. - In petitions for review under Rule 45 of the Revised Rules of Court, only questions
* The “assignment of errors” in the petition quoted above is therefore totally of law may be raised and passed upon. Absent any whimsical or capricious exercise
misplaced, and for that reason, the petition should be dismissed. But in order to of judgment, and unless the lack of any basis for the conclusions made by the lower
give the parties substantial justice we have decided to delve into the issues as courts be amply demonstrated, the Supreme Court will not disturb their findings.
above re-stated. We are far from convinced that both courts gravely abused their respective
1. NO. authorities and judicial prerogatives.
- A1347 CC Disposition Petition is DENIED and the Decision of the Court of Appeals is
no contract may be entered into upon a future inheritance except in cases AFFIRMED
expressly authorized by law.
TF contract made in 1962 is not valid and cannot be the source of any right nor the
creator of any obligation between the parties and also, “affidavit of conformity”
dated February 28, 1980, that validates or ratifies the 1962 sale, is also useless LIGUEZ V COURT OF APPEALS
2. YES REYES; December 18, 1957
In land, an immovable property, ownership shall belong to the buyer who in good
faith registers it first in the registry of property
Obligations and Contracts A2010 page
159 Prof. Labitag
NATURE 1. WON donation was predicated upon an illicit causa
Petition for review by certiorari of a decision of the CA, affirming the CFI Davao’s 2. WON the “in pare delicto” rule is applicable to the case
decision dismissing Liguez’ complaint for recovery of land 3. WON heirs of Lopez can plead illegality of deed of donation
4. WON Liguez is entitled to the land donated by Lopez
FACTS
- Conchita LIGUEZ filed a complaint against the widow and heirs of the late Salvador
LOPEZ so as to recover a parcel of 51.84 hectares of land, situated in barrio Bogac- HELD
Linot, in Mati, Davao. She claimed to be its legal owner, pursuant to a deed of 1. YES
donation of said land, executed in her favor by the owner, Salvador Lopez, on 18 Ratio The motive may be regarded as causa when it predetermines the purpose of
May 1943. the contract. The cohabitation was an implied condition to the donation, and being
- The defense interposed was that the donation was null and void for having an illicit unlawful, it necessarily tainted the donation itself.
causa or consideration, which was the plaintiff's entering into marital relations with Reasoning Art 1274 is not applicable because liberality of the donor therein is
Salvador Lopez, a married man. Also, the property had already been adjudicated to deemed causa in those contracts that are of "pure" beneficence. These are
the appellees as heirs of Lopez. contracts designed solely and exclusively to procure the welfare of the beneficiary,
> Findings of the Court of Appeals: without any intent of producing any satisfaction for the donor. Art 1274 also
- The deed of donation was prepared by the Justice of the Peace of Mati, Davao, provides that in remuneratory contracts, the consideration is the service or benefit
before whom it was signed and ratified on the said date. At that time, Liguez was a for which the remuneration is given; causa is not liberality in these cases because
minor and only 16 years of age. When the donation was made, Lopez had been the contract or conveyance is not made out of pure beneficence, but "solvendi
living with the parents of Liguez for barely a month. The donation was made in view animo."
of the desire of Lopez to have sexual relations with Liguez. Lopez had confessed to - In making the donation, the late Lopez was not moved exclusively by the desire to
his love for appellant to the instrumental witnesses, with the remark that her benefit Conchita Liguez, but also to secure her cohabiting with him, so that he could
parents would not allow Lopez to live with her unless he first donated the land in gratify his sexual impulses. This is clear from the confession of Lopez to the
question. After the donation, Conchita Liguez and Salvador Lopez lived together in witnesses Rodriguez and Ragay, that he was in love with appellant, but her parents
the house that was built upon the latter's orders, until Lopez was killed on July 1, would not agree unless he donated the land in question to her. Therefore, the
1943. donation was but one part of an onerous transaction (at least with appellant's
- The donated land originally belonged to the conjugal partnership of Salvador parents) that must be viewed in its totality.
Lopez and his wife, Maria Ngo. The widow and children of Lopez were in possession - Appellant sought to differentiate between the alleged liberality of Lopez, as causa
of the land and made improvements. The deed of donation was never recorded. for the donation in her favor, and his desire for cohabiting with appellant, as
Court of Appeal’s Ruling motives that impelled him to make the donation. She quoted from Manresa and the
- The deed of donation was inoperative, and null and void (1) because the husband, jurisprudence of this Court on the distinction that must be maintained between
Lopez, had no right to donate conjugal property to the plaintiff appellant; and (2) causa and motives. However, Manresa himself expressly exempted from the rule
because the donation was tainted with illegal cause or consideration, of which donor those contracts that are conditioned upon the attainment of the motives of either
and donee were participants. party.
- CA rejected appellant's claim on the basis of "in pari delicto non oritur actio" rule 2. NO
as embodied in Art.1412 of the New Civil Code.6 Reasoning It cannot be said that both parties had equal guilt when we consider
Petitioners' Claim that as against Lopez, who was a man advanced in years and mature experience,
- CFI and CA erred in holding the donation void for having an illicit cause or the appellant was a mere minor, 16 years of age, when the donation was made.
consideration. Under Art 1274 of the Civil Code of 1889, "in contracts of pure There is no finding made by the Court of Appeals that she was fully aware of the
beneficence the consideration is the liberality of the donor", and that liberality can terms of the bargain entered into by and Lopez and her parents. Her acceptance in
never be illegal, since it is neither against law or morals or public policy. the deed of donation did not necessarily imply knowledge of conditions and terms
not set forth therein. The facts are of the case are actually more suggestive of
ISSUES seduction than of immoral bargaining on the part of appellant.
- Memo auditor propriam turpitudinem allegans. The rule that parties to an illegal
6 contract, if equally guilty, will not be aided by the law but will both be left where it
ART. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a finds them, has been interpreted by this Court as barring the party from pleading
criminal offense, the following rules shall be observed: the illegality of the bargain either as a cause of action or as a defense.
(1) When the fault is on the part of both contracting parties, neither may recover what he 3. NO
has given by virtue of the contract, or demand the performance of the other's undertaking;
Reasoning The deed of donation is regular on its face, and to defeat its effect, the
(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 fulfillment of what has been promised him. The other, appellees must plead and prove that it is illegal. But such plea on the part of the
who is not at fault, may demand the return of what he has given without any obligation to Lopez heirs is not receivable, since Lopez, himself, if living, would be barred from
comply with his promise. setting up that plea; and his heirs can have no better rights than Lopez himself.
Obligations and Contracts A2010 page
160 Prof. Labitag
4. YES - Mateo Carantes was the original owner of Lot No. 44 situated at Loakan, Baguio
Ratio The prima facie donation inter vivos and its acceptance by the donees having City. In 1913 he died and was survived by his widow Ogasia and six children,
been proved by means of a public instrument, and the donor having been duly namely, Bilad Lauro, Crispino, Maximino, Apung and Sianang, all surnamed Crantes.
notified of said acceptance, the contract is perfect and obligatory, unless an - In 1930, construction of the Loakan airport was commenced by the Government.
exception is proved which is based on some legal reason opportunely alleged by the Because a portion of Lot No. 44 was needed for the landing field, the Government
donor or his heirs. (Lopez v. Olbes) instituted proceedings for its expropriation. For this purpose, Lot No. 44 was
- The donation made by the husband in contravention of law is not void in its subdivided into Lot Nos. 44-A, 44-B, 44-C, 44-D and 44-E. The Government
entirety, but only in so far as it prejudices the interest of the wife, because said expropriated Lot No. 44-A.
property was conjugal in character and the right of the husband to donate - In 1933, special proceedings were filed to settle the estate of Mateo Carantes
community property is strictly limited by law (Civil Code of 1889, Arts. 1409, 1415, where his son, herein petitioner Maximino Carantes was appointed judicial
1413)7 administrator. On June 20, 1939, Maximino, as administrator, filed a project of
Reasoning Only the court of origin that settled the estate of the late Salvador partition wherein he listed himself, and his brothers and sisters, or the latter’s
Lopez. has the requisite data to determine whether the donation is inofficious or surviving children as the heirs of Mateo Carantes. At that time, negotiations were
not. To determine the prejudice to the widow, it must be shown that the value of under way for the Government’s purchase of Lot Nos. 44-B and 44-C, so Maximino
her share in the property donated can not be paid out of the husband's share of the only listed Lot Nos. 44-D and 44-E as the properties to be divided.
community profits. - On October 23, 1939 a deed denominated “Assignment of Right to Inheritance”
- The situation of the children and forced heirs of Lopez approximates that of the was executed by four of Mateo Carantes’ children, namely, Bilad, Sianang, Lauro
widow. As privies of their parent, they are barred from invoking the illegality of the and Crispino, and the heirs of Apung Carantes, Namely, Pitag, Bill, Alson, Eduardo
donation. But their right to a legitime out of his estate is not thereby affected, since and Juan, assigning to Maximino Carantes their rights to inheritance in Lot No. 44.
the legitime is granted them by the law itself. The forced heirs are then entitled to The stated monetary considerato]ion for the assignment was P1.00. However, the
have the donation set aside in so far as in officious: i.e., in excess of the portion of document contains a recital to the effect that the said lots, “by agreement of all the
free disposal. In computing the legitimes, the value of the property to Liguez, direct heirs and heirs by representation of the deceased Mateo Carntes as
should be considered part of the donor's estate. expressed and conveyed verbally by him during his lifetime, rightly and exclusively
- With regard to the improvements in the land in question, the same should be governed by the rules of belong to the particular heir, Maximino Carantes, now and in the past in the
accession and possession in good faith, it being undisputed that the widow and heirs of Lopez were exclusive, continuous, peaceful and notorious possession of the same for more than
unaware of the donation in favor of the appellant when the improvements were made. ten years.” On the same date Maximino sold to the Government Lot Nos. 44-B and
Disposition Decisions appealed from are reversed and set aside, and the 44-C and divided the proceeds of the sale among himself and the other heirs of
appellant Conchita LIGUEZ declared entitled to so much of the donated property as Mateo.
may be found, upon proper liquidation, not to prejudice the share of the widow - On February 6, 1940, the heirs of Mateo petitioned for the cancellation of the
Maria Ngo in the conjugal partnership with Salvador P. Lopez or the legitimes of the Original Certificate of Title of Lot No.44 and had it replaced with Transfer Certificate
forced heirs of the latter. The records are ordered remanded to the court of origin of Title 2533 declaring the five children of Mateo and the children of Apung
for further proceedings in accordance with this opinion. Carantes (representing their deceased father) as co-owners of Lot No. 44.
- On March 16, 1940, Maximino registered the deed of “Assignment of Right to
CARANTES V COURT OF APPEALS Inheritance” and accordingly, TCT 2533 was cancelled and was replaced with TCT
CASTRO; April 25, 1977 2540 in the name of Maximino Carantes.
- On February 21, 1947, pursuant to the deed of sale executed by Maximino in favor
NATURE of the Government, TCT 2540 was cancelled and replaced with TCT T-98 (covering
Appeal by certiorari from the decision of the Court of Appeals. Lot Nos. 44-A, 44-B and 44-C) in the Government’s name and TCT T-99 (covering
Lot Nos. 44-D and 44-E) in Maximino’s name, who has up to the present remained
FACTS the registered owner of said lots.
- On September 4, 1958 a complaint was filed by Bilad, Lauro and Crispino and
some of the heirs of Apung and of Sianang against Maximino. They alleged that
they only executed the deed of “Assignment of Right to Inheritance” because they
7
ART. 1409. The conjugal partnership shall also be chargeable with anything which may have were made to believe that it merely authorized Maximino to convey portions of Lot
been given or promised by the husband alone to the children born of the marriage in order to No. 44 to the Government in their behalf to minimize expenses and facilitate the
obtain employment for them or give then, a profession or by both spouses by common consent, transaction; and that it was only on February 18, 1958, when the plaintiffs secured
should they not have stipulated that such expenditures should be borne in whole or in part by a copy of the deed, that they came to know that the same assigned in favor of
the separate property of one of them.".
Maximino their rights to inheritance from Mateo Carantes.
ART. 1415. The husband may dispose of the property of the conjugal partnership for the
purposes mentioned in Article 1409. - On September 10, 1958 the defendant filed a motion to dismiss on the grounds 1)
ART. 1413. In addition to his powers as manager the husband may for a valuable consideration that plaintiffs’ cause of action was barred by the statute of limitation because the
alienate and encumber the property of the conjugal partnership without the consent of the wife. deed of assignment was recorded in the Registry of Property at the latest on
Obligations and Contracts A2010 page
161 Prof. Labitag
February 21, 1947, hence cause of action accrued from said date, and pursuant to corresponding certificates of title issued in their names. In seeking the declaration
Art. 1144 of the New Civil Code, it must be brought within ten years so plaintiffs’ of nullity of the said deeds of sale and certificates of title, petitioners, in their
right to file the complaint had already prescribed on September 4, 1958; and 2) the complaint, aver that the deeds of sale are simulated as they are, are null and void
complaint states no cause of action because ownership of the property became ab initio because (1) there was no actual valid consideration for the deeds of sale x
vested in Maximino by acquisitive prescription ten years from its registration in his x x over the properties in litis; (2) assuming that there was consideration in the
name on February 21, 1947. sums reflected in the questioned deeds, the properties are more than three-fold
- On January 28, 1965, the RTC decided that since an action on fraud prescribes times more valuable than the measly sums appearing therein; (3) the deeds of sale
after 4 years from discovery, the discovery deemed to have been on March 16, do not reflect and express the true intent of the parties (vendors and vendees); and
1940 when Maximino registered the deed of assignment, the plaintiffs’ cause of (4) the purported sale of the properties in litis was the result of a deliberate
action had prescribed. The plaintiffs’ motion for reconsideration was denied. And so conspiracy designed to unjustly deprive the rest of the compulsory heirs (petitioner
they appealed in the CA and it reversed the RTC’s ruling. children) of their legitime.
- Respondents aver that (1) petitioner siblings do not have a cause of action against
ISSUE them as well as the requisite standing and interest to assail their titles over the
WON respondent court is correct in reversing the RTC’s decision properties in litIs; (2) the sales were with sufficient considerations and made by
respondent parents voluntarily, in good faith, and with full knowledge of the
HELD consequences of their deeds of sale; and (3) the certificates of title were issued with
Ratio Total absence of consideration is what renders a contract absolutely void and sufficient factual and legal basis.
inexistent. - The trial court ruled in favor of the respondents and dismissed the complaint. The
Reasoning The CA points out that the deed of assignment is void ab initio and Court of Appeals affirmed the decision of the trial court. Hence, this petition.
inexistent on the grounds that real consent was wanting and the consideration of Petitioners assert that their respondent siblings did not actually pay the prices
P1.00 is so shocking to the conscience that there was in fact no consideration, stated in the Deeds of sale to their respondent father. Thus, petitioners ask the
hence the action for declaration of its inexistence does not prescribe. court to declare the Deeds of Sale void. Petitioners also ask that assuming that
BUT the sum of P1.00 is clear evidence that there was no absence of consideration. there is consideration, the same is grossly inadequate as to invalidate the Deeds of
In addition, the document recites that the decedent Mateo Carantes had, during his Sale.
lifetime, expressed to the signatories to the contract that the property subject-
matter thereof rightly and exclusively belonged to petitioner Maximino Carantes. ISSUES
This acknowledgment by the signatories definitely constitutes valuable 1. WON the Deeds of Sale are void for lack of consideration
consideration for the contract. 2. WON the Deeds of Sale are void for gross inadequacy of price
As for fraud and the prescription of action, the Court agrees with the RTC.
Disposition ACCORDINGLY, the judgment of the Court of Appeals appealed from is HELD
set aside, and another entered dismissing the complaint in Civil Case No. 804 of the 1. NO
Court of First Instance of Baguio. No costs. - It is not the payment of price that determines the validity of a contract of sale.
Voting Makasiar, Munoz Palma and Martin, JJ., concur. Payment of the price has nothing to do with the perfection of the contract. Payment
Teehankee, J., concur on the ground that respondents’ action based on constructive of the price goes into the perfection of the contract. Failure to pay the consideration
trust prescribed after ten years. is different from lack of consideration. The former results in a right to demand the
fulfillment or cancellation of the obligation under an existing valid contract while the
latter prevents the existence of a valid contract.
BUENAVENTURA V CA - Petitioners failed to show that the prices in the Deeds of Sale were absolutely
CARPIO; Novermber 20, 2003 simulated. To prove simulation, petitioners presented Emma Joaquin Valdoz’s
testimony stating that their father, respondent Leonardo Joaquin, told her that he
NATURE would transfer a lot to her through a deed of sale without need for her payment of
Petition for review on certiorari of a decision of the Court of Appeals the purchase price. The trial court did not find the allegation of absolute simulation
of price credible. Petitioners’ failure to prove absolute simulation of price is
FACTS magnified by their lack of knowledge of their respondent siblings’ financial capacity
- Respondent spouses Leonardo Joaquin and Feliciana Landrito are the parents of to buy the questioned lots. On the other hand, the Deeds of Sale which petitioners
petitioners Consolacion, Nora, Emma and Natividad as well as of respondents Fidel, presented as evidence plainly showed the cost of each lot sold. Not only did
Tomas, Artemio, Clarita, Felicitas, Fe, and Gavino, all surnamed Joaquin. The respondents’ minds meet as to the purchase price, but the real price also stated in
married Joaquin children are joined in this action by their respective spouses. the Deeds of Sale. As of the filing of the complaint, respondent siblings have also
- Sought to be declared null and void ab initio are six deeds of sale of real property fully paid the price to their respondent father.
executed by respondent parents in favor of their respondent children and the 2. NO
- Art. 1355 of the Civil Code states:
Obligations and Contracts A2010 page
162 Prof. Labitag
“Except in cases specified by law, lesion or inadequacy of cause shall not invalidate - respondent lower court argues that the proposed amended complaint did not vary
a contract, unless there has been fraud, mistake, or undue influence. (Emphasis in any material respect from the original complaint except in minor details, and
supplied) suffers from the same vital defect of the original complaint, which is the violation of
- Art. 1470 of the Civil Code further provides: Article 1356 of the Civil Code, in that the contract sued upon was not alleged to be
“Gross inadequacy of price does not affect a contract of sale, except as may in writing; that by Article 1358 the writing was absolute and indispensable, because
indicate a defect in the consent, or that the parties really intended a donation or the amount involved exceeds five hundred pesos; and that the second motion for
some other act or contract.” (Emphasis supplied) reconsideration did not interrupt the period for appeal, because it was not served
- Petitioners failed to prove any of the instances mentioned in art. 1355 and 1470 of on three days notice.
the Civil Code which would invalidate, or even affect, the Deeds of Sale. Indeed,
there is no requirement that the price be equal to exact value of the subject matter ISSUES
of the sale. All the respondents believed that they received the commutative value 1. WON lower court erred in denying plaintiff’s motions for reconsideration and
of what they gave. “Men may do foolish things, make ridiculous contracts, use leave to amend
miserable judgment, and lose money by them—indeed, all they have in the world; 2. WON lower court abused its discretion in ruling that a contract for personal
but not for that alone can the law intervene and restore. There must be, in addition, services involving more than P500.00 was either invalid or unenforceable under the
a violation of the law, the commission of what the law knows as an actionable last paragraph of Article 1358 of the Civil Code of the Philippines
wrong, before the courts are authorized to lay hold of the situation and remedy it
(Vales V Villa).” HELD
- Moreover, the factual findings of the appellate court are conclusive on the parties 1. YES
and carry greater weight when they coincide with the factual findings of the trial When a court sustains a demurrer or motion to dismiss it is error for the court to
court. In the instant case, the trial court found that the lots were sold for a valid dismiss the complaint without giving the party plaintiff an opportunity to amend his
consideration, and that the defendant children actually paid the purchase price complaint if he so chooses. Insofar as the first order of dismissal did not provide
stipulated in their respective Deeds of Sale. Actual payment of the purchase price that the same was without prejudice to amendment of the complaint, or reserve to
by the buyer to the seller is a factual finding that is now conclusive upon us. the plaintiff the right to amend his complaint, the said order was erroneous; and
this error was compounded when the motion to accept the amended complaint was
HERNAEZ V DELOS ANGELES denied in the subsequent order of 3 October 1966. Petitioner-plaintiff was within her
REYES; April 30, 1969 rights in filing her so-called second motion for reconsideration, which was actually a
first motion against the refusal to admit the amended complaint.
NATURE - The second motion for reconsideration was addressed to the court's refusal to
Petition for a writ of certiorari to set aside certain orders of the Court of First allow an amendment to the original complaint, and this was a ground not invoked in
Instance of Quezon City (Branch IV), in its Civil Case No. Q-10288, dismissing a the first motion for reconsideration. Thus, the second motion to reconsider was
complaint for breach of contract and damages, denying reconsideration, refusing to really not pro forma, as it was based on a different ground, even if in its first part it
admit an amended complaint, and declaring the dismissal final and unappealable. 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
FACTS had filed their opposition to the second motion to reconsider; so that even if it were
- Petitioner Marlene Dauden Hernaez, a motion picture actress, filed a complaint true that respondents were not given the full 3 days' notice, they were not deprived
against Hollywood Far East Productions, Inc., and its President and General of any substantial right. Therefore, the claim that the first order of dismissal had
Manager, Ramon Valenzuela, to recover P14,700.00 representing a balance become final and unappealable must be overruled.
allegedly due for her services as leading actress in two motion pictures produced by 2. YES
the company, and to recover damages. The ruling contested betrays a basic and lamentable misunderstanding of the role
- CFI QC (Judge Walfrido delos Angeles, presiding) ordered the complaint dismissed, of the written form in contracts, as ordained in the Civil Code. In general, contracts
mainly because the "claim of plaintiff was not evidenced by any written document, are valid and binding from their perfection regardless of form, whether they be oral
either public or private" and the complaint "was defective on its face" for violating or written. This is plain from Articles 1315 and 1356 of the Civil Code.
Articles 1356 and 1358 of the Civil Code of the Philippines, and for containing "ART. 1315. Contracts are perfected by mere consent, and from that moment the
defective allegations. parties are bound not only to the fulfillment of what has been expressly stipulated
- Plaintiff sought reconsideration of the dismissal and for admission of an amended but also to all the consequences which, according to their nature, may be in
complaint. The court denied reconsideration and the leave to amend. A second keeping with good faith, usage and law."
motion for reconsideration was filed, which the court also denied for being pro "ART. 1356. Contracts shall be obligatory in whatever form they may have been
forma, as its allegations "are, more or less, the same as the first motion," and for entered into, provided all the essential requisites for their validity are present.. . ."
not being accompanied by an affidavit of merits, and further declared the dismissal - These essential requisites referred to in Art 1356 CC are normally (1) consent, (2)
final and unappealable. 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
Obligations and Contracts A2010 page
163 Prof. Labitag
obligatory, regardless of the form, whether oral or written, in which they are - Defendants denied having executed the alleged deed of sale and pleaded
couched. prescription as a defense
- To this general rule, the Code admits exceptions, set forth in the second portion of - Without trial on the merits and merely upon motion, the lower court dismissed the
Article 1356: case on the ground that plaintiff's action had already prescribed. From this order
"However, when the law requires that a contract be in some form in order that it plaintiff has appealed directly to the SC
may be valid or enforceable, or that a contract be proved in a certain way, that
requirement is absolute and indispensable ….” ISSUES
- There are thus two exceptions to the general rule: (a) Contracts for which the law 1. WON the action for reformation of instruments has already prescribed
itself requires that they be in some particular form (writing) in order to make them 2. WON the action for reformation of instruments may prosper
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 HELD
provable by mere oral testimony (unless wholly or partly executed), these contracts 1. NO
are exceptional in requiring a writing embodying the terms thereof for their - Both appellant and appellees apparently regard the present action as one for the
enforceability by action in court. reformation of an instrument under Chapter 4, Title II, Book IV of the new Civil Code.
- The contract sued upon by petitioner, i.e. compensation for services, does not Specifically, the object sought is the correction of an alleged mistake in a deed of
come under either exception. It is true that it appears included in Article 1358, last sale covering a piece of land. The action. being upon a written contract, it should
clause, providing that "all other contracts where the amount involved exceeds five prescribe in ten years counted from the day it could have been instituted.
hundred pesos must appear in writing, even a private one." But Article 1358 Obviously, appellant could not have instituted his action to correct an error in a
nowhere provides that the absence of written form in this case will make the deed until that error was discovered. There being nothing in the pleadings to show
agreement invalid or unenforceable. On the contrary, Article 1357 clearly indicates that the error was discovered more than ten years before the present action was
that contracts covered by Article 1358 are binding and enforceable by action or suit filed on May 20, 1952, while, on the other hand, there is allegation that the error
despite the absence of writing. was discovered "only recently", we think the action should not have been dismissed
"ART. 1357. If the law requires a document or other special form, as in the acts and as having already prescribed before the factual basis for prescription had been
contracts enumerated in the following article, the contracting parties may compel established and clarified by evidence.
each other to observe that form, once the contract has been perfected. This right 2. NO
may be exercised simultaneously with the action upon the contract. - Appellant's complaint states no cause of action, for it fails to allege that the
- NOTE: It is not enough that the law should require that the contract be in writing, instrument to the reformed does not express the real agreement or intention of the
as it does in Article 1358. The law must further prescribe that without the writing parties. Such allegation is essential since the object sought in an action for
the contract is not valid or not enforceable by action. reformation is to make an instrument conform to the real agreement or intention of
Disposition The order dismissing the complaint is set aside, and the case is the parties. But the complaint does not even allege what the real agreement or
ordered remanded to the court of origin for further proceedings not at variance with intention was. Moreover, courts do not reform instruments merely for the sake of
the decision. Costs to be solidarily paid by private respondents Hollywood Far East reforming them, but only to enable some party to asserts right under them as
Productions, Inc., and Ramon Valenzuela. reformed.
Disposition Order of dismissal is affirmed not because of prescription but because
GARCIA V BISAYA of failure to state the cause of action
REYES; 1955
BENTIR AND PORMIDA V LEANDA AND LEYTE GULF
FACTS TRADERS, INC.
- On May 20, 1952, plaintiff filed a complaint against the defendants in the Court of KAPUNAN; April 12, 2000
First Instance of Oriental Mindoro, alleging that: On November 12, 1938, defendants
executed in favor of plaintiff a deed of sale covering a parcel of land therein NATURE
described. Certiorari with prayer for a writ of preliminary injunction
- That the said land "was erroneously designated by the parties in the deed of sale
as an unregistered land (not registered under Act 496, nor under the Spanish FACTS
Mortgage Law) when in truth and in fact said land is a portion of a big mass of land - May 15, 1992- Leyte Gulf Traders, Inc. filed a complaint for reformation of
registered under Original Certificate of Title No. 6579 in the Office of the Register of instrument, specific performance, annulment of conditional sale and damages with
Deeds of Oriental Mindoro" prayer for writ of injunction against Yolanda Rosello-Bentir and the spouses Samuel
- That despite persistent demand from plaintiff to have the error corrected, and Charito Pormida.
defendants have refused to do so. Plaintiff, therefore, prayed for judgment ordering - LGT Inc alleged that it entered into a contract of lease of a parcel of land with
defendants to make the aforesaid correction in the deed of sale. Bentir for a period of 20 years starting May 5, 1968.
Obligations and Contracts A2010 page
164 Prof. Labitag
- LGT Inc said the lease was extended for another 4years or until May 31, 1992. jurisprudence set such limitations, among which is laches. A suit for reformation of
- May 5, 1989- Bentir sold the leased premises to spouses Samuel and Charito an instrument may be barred by lapse of time.
Pormada. - The prescriptive period for actions based upon a written contract and for
- LGT Inc questioned the sale alleging that it had a right of first refusal. It sought the reformation of an instrument is ten (10) years under Article 1144 of the Civil Code.
reformation of the expired contract of lease on the ground that its lawyer - Prescription is intended to suppress stale and fraudulent claims arising from
inadvertently omitted to incorporate in the contract of lease executed in 1968, the transactions like the one at bar which facts had become so obscure from the lapse
verbal agreement or understanding between the parties that in the event Bentir of time or defective memory.
leases or sells the lot after the expiration of the lease, LGT Inc has the right to equal - In the case at bar, respondent corporation had 10 years from 1968, the time when
the highest offer. the contract of lease was executed, to file an action for reformation. Sadly, it did so
- In due time, petitioners filed their answer alleging that the inadvertence of the only on May 15, 1992 or twenty-four (24) years after the cause of action accrued,
lawyer who prepared the lease contract is not a ground for reformation. hence, its cause of action has become stale, hence, time-barred.
- They further contended that respondent corporation is guilty of laches for not - If, according to LGT Inc., there was an agreement between the parties to extend
bringing the case for reformation of the lease contract within the prescriptive period the lease contract for 4 years after the original contract expired in 1988, then Art.
of 10 years from its execution. 1670 would not apply as this provision speaks of an implied new lease (tacita
- LGT Inc then filed its reply and on November 18, 1992, filed a motion to admit reconduccion) where at the end of the contract, the lessee continues to enjoy the
amended complaint. Said motion was granted by the lower court. thing leased "with the acquiescence of the lessor", so that the duration of the lease
- Thereafter, Petitioners filed a motion to dismiss reiterating that the complaint is "not for the period of the original contract, but for the time established in Article
should be dismissed on the ground of prescription. 1682 and 1687." In other words, if the extended period of lease was expressly
- Dec. 15, 1995- TC through Judge Pedro S. Espina issued an order dismissing the agreed upon by the parties, then the term should be exactly what the parties
complaint premised on its finding that the action for reformation had already stipulated, not more, not less.
prescribed. - Even if the supposed 4-year extended lease be considered as an implied new
- Dec. 29, 1995- LGT Inc filed a MR of the order dismissing the complaint. lease under Art. 1670, "the other terms of the original contract" contemplated in
- Jan 11, 1996, LGT Inc filed an urgent ex-parte motion for issuance of an order said provision are only those terms which are germane to the lessee's right of
directing the petitioners, or their representatives or agents to refrain from taking continued enjoyment of the property leased. The prescriptive period of 10 years
possession of the land in question. provided for in Art. 1144 applies by operation of law, not by the will of the parties.
- March 28, 1996 - the case was re-raffled and assigned to RTC, Tacloban City, Therefore, the right of action for reformation accrued from the date of execution of
presided by herein respondent judge Mateo M. Leanda. the contract of lease in 1968.
- May 10, 1996 – Leanda reversed the order of dismissal on the grounds that the - Even if we were to assume for the sake of argument that the instant action for
action for reformation had not yet prescribed and the dismissal was "premature and reformation is not time-barred, LGT Inc's action will still not prosper because under
precipitate", denying LGT Inc of its right to procedural due process. Sec 1, Rule 64 of the New Rules of Court, an action for the reformation of an
- June 10, 1996- Leanda issued an order for status quo ante, enjoining petitioners to instrument is instituted as a special civil action for declaratory relief.
desist from occupying the property. - Purpose of an action for declaratory relief- to secure an authoritative statement of
- Jan. 17, 1997- CA affirmed the assailed decision of Leanda; denied MR the rights and obligations of the parties for their guidance in the enforcement or
compliance and not to settle issues arising from an alleged breach thereof.
ISSUE - Here, LGT Inc. brought the present action for reformation after an alleged breach
WON the complaint for reformation has prescribed and has not, WON LGT Inc is or violation of the contract was already committed by Bentir. Consequently, the
entitled to the remedy of reformation sought remedy of reformation no longer lies.
Disposition Petition is GRANTED. J. Leanda’s decision is reversed and set aside. J.
HELD Espina’s decision dismissing the reformation is reinstated.
YES, it has prescribed. LGT Inc is no longer entitled to the reformation sought. _____________________
Reasoning The remedy of reformation of an instrument is grounded on the Art. 1144. The following actions must be brought within ten years from the time the
principle of equity where, in order to express the true intention of the contracting right of action accrues:
parties, an instrument already executed is allowed by law to be reformed. (1) Upon a written contract;
- The right of reformation is necessarily an invasion or limitation of the parol (2) Upon an obligation created by law;
evidence rule since, when a writing is reformed, the result is that an oral agreement (3) Upon a judgment.
is by court decree made legally effective.
- Consequently, the courts, as the agencies authorized by law to exercise the power Art. 1670. If at the end of the contract the lessee should continue enjoying the thing
to reform an instrument, must necessarily exercise that power sparingly and with leased for fifteen days with the acquiescence of the lessor, and unless a notice to
great caution and zealous care. Moreover, the remedy, being an extraordinary one, the contrary by either party has previously been given, it is understood that there is
must be subject to limitations as may be provided by law. Our law and an implied new lease, not for the period of the original contract, but for the time
Obligations and Contracts A2010 page
165 Prof. Labitag
established in articles 1682 and 1687. The other terms of the contract shall be - The trial court rendered judgment for the plaintiffs since the property was
revived. registered under the Land Registration Act the defendants could not acquire it
ATILANO V ATILANO through prescription. There can be no dispute as to the correctness of this legal
MAKALINTAL; May 21, 1969 proposition; but the defendants, aside from alleging adverse possession in their
answer and counterclaim, also alleged error in the deed of sale of May 18, 1920
NATURE
Appeal from the decision of the Court of First Instance ISSUE
WON the trial court rendered proper judgment for the plaintiffs since the property
FACTS was registered under the Land Registration Act the defendants could not acquire it
- In 1916, Eulogio Atilano I acquired, by purchase from one Gerardo Villanueva, lot through prescription
No. 535 of the then municipality of Zamboanga. The vendee thereafter obtained
transfer certificate of title No. 1134 in his name. In 1920 he had the land subdivided HELD
into five parts. On May 18 of the same year, after the subdivision had been NO. The court erred in granting the plaintiffs the lot.
effected, Eulogio Atilano I, for the sum of P150.00, executed a deed of sale covering Reasoning When one sells or buys real property, one sells or buys the property as
lot No. 535-E in favor of his brother Eulogio Atilano II, who thereupon obtained he sees it, in its actual setting and by its physical metes and bounds, and not by the
transfer certificate of title No. 3129 in his name. Three other portions, namely lots mere lot number assigned to it in the certificate of title. The portion correctly
Nos. 535-B, 535-C and 535-D, were likewise sold to other persons, the original referred to as lot No. 535-A was already in the possession of the vendee, Eulogio
owner, Eulogio Atilano I, retaining for himself only the remaining portion of the land, Atilano II, who had constructed his residence therein, even before the sale in his
presumably covered by the title to lot No. 535-A. Upon his death the title to this lot favor even before the subdivision of the entire lot No. 535 at the instance of its
passed to Ladislao Atilano, defendant in this case, in whose name the owner, Eulogio Atillano I. In like manner the latter had his house on the portion
corresponding certificate (No. T-5056) was issued. correctly identified, after the subdivision, as lot No. 535-E, even adding to the area
- On December 6, 1952, Eulogio Atilano II and his children obtained transfer thereof by purchasing a portion of an adjoining property belonging to a different
certificate of title No. 4889 over lot No. 535-E in their names as co-owners. Then, on owner. The two brothers continued in possession of the respective portions the rest
July 16, 1959, desiring to put an end to the co-ownership, they had the land of their lives, obviously ignorant of the initial mistake in the designation of the lot
resurveyed so that it could properly be subdivided; and it was then discovered that subject of the 1920 until 1959, when the mistake was discovered for the first time.
the land they were actually occupying on the strength of the deed of sale executed - The real issue here is not adverse possession, but the real intention of the parties
in 1920 was lot No. 535-A and not lot 535-E, as referred to in the deed, while the to that sale. From all the facts and circumstances we are convinced that the object
land which remained in the possession of the vendor, Eulogio Atilano I, and which thereof, as intended and understood by the parties, was that specific portion where
passed to his successor, defendant Ladislao Atilano, was lot No. 535-E and not lot the vendee was then already residing, where he reconstructed his house at the end
No. 535-A. of the war, and where his heirs, the plaintiffs herein, continued to reside thereafter:
- On January 25, 1960, the heirs of Eulogio Atilano II, who was by then also - The new Civil Code provides a remedy for such a situation by means of
deceased, filed the present action in the CFI of Zamboanga, alleging, that they had reformation of the instrument. This remedy is available when, there having been a
offered to surrender to the defendants the possession of lot No. 535-A and meeting of the funds of the parties to a contract, their true intention is not
demanded in return the possession of lot No. 535-E, but that the defendants had expressed in the instrument purporting to embody the agreement by reason of
refused to accept the exchange. The plaintiffs' insistence is quite understandable, mistake, fraud, inequitable conduct on accident (Art. 1359, et seq.) In this case, the
since lot No. 535-E has an area of 2,612 sq m, as compared to the 1,808 square- deed of sale executed in 1920 need no longer reformed. The parties have retained
meter area of lot No. 535-A. possession of their respective properties conformably to the real intention of the
- In their answer to the complaint the defendants alleged that the reference to lot parties to that sale, and all they should do is to execute mutual deeds of
No. 535-E in the deed of sale of May 18, 1920 was an involuntary error; that the conveyance.
intention of the parties to that sale was to convey the lot correctly identified as lot Disposition WHEREFORE, the judgment appealed from is reversed. The plaintiffs
No. 535-A; that since 1916, when he acquired the entirety of lot No. 535, and up to are ordered to execute a deed of conveyance of lot No. 535-E in favor of the
the time of his death, Eulogio Atilano I had been possessing and had his house on defendants, and the latter in turn, are ordered to execute a similar document,
the portion designated as lot No. 535-E, after which he was succeeded in such covering lot No. 595-A, in favor of the plaintiffs. Costs against the latter.
possession by the defendants herein; and that as a matter of fact Eulogio Atilano I
even increased the area under his possession when on June 11, 1920 he bought a SARMING V DY
portion of an adjoining lot, No. 536, from its owner Fruto del Carpio. On the basis of QUISUMBING; June 6, 2002
the foregoing allegations the defendants interposed a counterclaim, praying that
the plaintiffs be ordered to execute in their favor the corresponding deed of transfer NATURE
with respect to lot No. 535-E. Petition for review on certiorari of decision of CA
Obligations and Contracts A2010 page
166 Prof. Labitag
FACTS Reasoning While it is not required that a party participate to determine the
- Respondents are the successors in interest of the original plaintiff Alejandra existence of a cause of action, in the case at bar, it was shown that Silveria in fact
Delfino while the petitioners are successors in interest of the original defendant participated therein as part of the deed is the sale of her three coconut trees to
Silveria Flores. Alejandra. Silveria’s name did not appear as seller as she did not in fact sell her half
- Silveria Flores and her brother Jose jointly owned a piece of land denominated as of the property to the buyer. The buyer bought the half of the lot belonging to the
Lot 4163 covered by OCT 3129-A. Said property was inherited from their parents. heirs of Silveria’s brother. It was likewise shown during the hearing that it was
The other inherited property designated as Lot 5734 covered by OCT 4918 were Silveria and her children who turned over the property to Allejadra .It was
jointly owned by Silveria, Jose, and Venancio with each occupying a third of the said established that the wrong title was given to the lawyer when the deed was being
lot. prepared. So the document was done by reason of mistake, and the document did
- In January 1956, the grandchildren of Jose and then owners of the half interest in not express the tru intention of the parties.
Lot 4163 sold said half interest to Alejandra Delfino when Silveria declined to 2. YES
purchase same. Ratio Reformation is that remedy in equity by means of which a written instrument
- Prior to the preparation of the documents, the lawyer, Atty. Pinili, called a is made or construed so as to express or conform to the real intention of the parties
conference of all the parties concerned to a conference. In this conference, Silveria as provided in Article 1359 of the Civil Code. Due to the mistake in the designation
declared that she owned half of the property and that the grandchildren of Jose of the lot subject of the deed, reformation of the deed is the proper remedy to
were owners of the other half. Silveria confirmed that she was selling also to reflect the true intent of the parties.
Alejandra three tree of coconut at the property of the heirs of Jose for P15.00. It was Reasoning The claim of Silveria that she owned Lot 4163 cannot be given
further noted that the natural division of the property two rows of coconut trees credence in view of the fact that one of the stipulations in the hearing is the fact
planted in the middle of the property. that Silveria is occupying half of the said property. The Court questioned this as
- The lawyer requested for the title of the land to draw up the Settlement of Estate they did not find it usual that Silveria would not have objected to Alejandra
and Sale contract between the parties. Instead of delivering OCT 3129-A, the occupying half of what she claims as hers alone from the very beginning.
daughter of Silveria instead gave OCT 4918. The lawyer drafted the document 3. NO
based on this title. Same was signed in the presence of Silveria. Ratio There is no evidentiary support to grant the award of actual damages. In the
- The buyer of the property took possession of the lot where she introduced absence of showing that the petitioners acted in bad faith or with malice, the ward
improvements. Silveria, on the other hand, continued to reside on the other half. of moral damages is improper.
- Two years later, when Alejandra purchased the adjoining property, it was
discovered the error in her title on the original property. The error was confirmed BORROMEO V COURT OF APPEALS
through subsequent checking at the Registry of Deeds. With money from Alejandra, FERNANDO; September 28, 1972
the title to Lot 4163 was released to Silveria who promised to give said title to Atty
Pinili so that a reformation of the deed of sale could be prepared. Silveria never NATURE
complied with the promise. Alejandra then filed with the RTC a suit for reformation PETITION for review by certiorari of a decision of the Court of Appeals
of contract with damages before the RTC of Negros Oriental.
- The RTC ruled in favor of Alejandra in 1992. On appeal to the CA, the decision of FACTS
the lower court was affirmed. Hence the appeal to the SC. - 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.
ISSUES Defendant being a friend and former classmate of plaintiff [Canuto O. Borromeo]
1. WON there is cause of action for reformation of instrument against Silveria as she used to borrow from the latter certain amounts from time to time.
was not a party to the sale - On one occasion, defendant borrowed from plaintiff a large sum of money for
2. WON reformation of subject deed is proper by reason of mistake in designating which he mortgaged his land and house in Cebu City to pay some pressing
the correct lot number obligation with Mr. Miller.
3. WON the heirs of Alejandra Delfino are entitled to actual and moral damages - Mr. Miller filed a civil action against the defendant and attached his properties
including attorney’s fees including those mortgaged to plaintiff, inasmuch as the deed of mortgage in favor
of plaintiff could not be registered because not properly drawn up.
HELD - Plaintiff then pressed the defendant for settlement of his obligation, but defendant
1. YES instead offered to execute a document promising to pay his indebtedness even
Ratio Participation is not an element to determine the existence of a cause of after the lapse of ten years. Liquidation was made and defendant was found to be
action. The rule is that only the allegations in the complaint may properly be indebted to plaintiff in the sum of P7,220.00, for which defendant signed a
considered in ascertaining the existence of a cause of action. The test of the promissory note therefor on November 29, 1933 with interest at the rate of 12% per
sufficiency of the facts found in the complaint as constituting a cause of action is annum, agreeing to pay as soon as I have money'.
whether or not, admitting the facts alleged, the court can render a valid judgment
upon the same in accordance with the prayer in the complain.
Obligations and Contracts A2010 page
167 Prof. Labitag
- The note further stipulates that defendant 'hereby relinguish, renounce, or November 29, 1953 to start judicial proceedings. After deducting the first tenyear
otherwise waive my rights to the prescriptions established by our Code of Civil period which expired on November 29, 1943, there was the additional period of still
Procedure for the collection or recovery of the above sum of P7,220.00. * * * at any another ten years.29 Nor could there be any legal objection to the complaint by the
time even after the lapse of ten years from the date of this intrument'. creditor Borromeo of January 7, 1953 embodying not merely the fixing of the period
- After the execution of the document, plaintiff limited himself to verbally requesting within which the debtor Villamor was to pay but likewise the collection of the
defendant to settle his indebtedness from time to time. Plaintiff did not file any amount that until then was not paid.
complaint against the defendant within ten years from the execution of the Disposition Wherefore, the decision of respondent Court of Appeals of March 7,
document as there was no property registered in defendant's name, who 1964 is reversed, thus giving full force and effect to the decision of the lower court
furthermore assured him that he could collect even after the lapse of ten years. of November 15, 1956. With costs against private respondents.
After the last war, plaintiff made various oral demands, but defendants failed to
settle his account KASILAG V RODRIGUEZ
- CFI: Villamor ordered to pay Borromeo (represented by his heirs) the sum of IMPERIAL; December 7, 1939
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 NATURE
period. Appeal from the decision of the Court of Appeals
- CA: reversed CFI ruling
FACTS
ISSUE - On May 16, 1932, Emiliana Ambrosio and Marcial Kasilag executed a public deed
WON the CA erred in reversing the ruling of the CFI in finding the lack of validity of (Exhibit 1) saying that Kasilag bought Lot no. 285 (6.7540 hectares) under
the stipulation amounting to a waiver in line with the principle "that a person cannot Homestead Certificate Title No. 325, with the assessed value of P940, from
renounce future prescription" Ambrosio for the sum of P1000. Other stipulations are as follows:
> that Ambrosio encumbers and hypothecates by way of mortgage the land
HELD improvements, consisting of 4 mango trees, 110 hills of bamboo trees, 1 tamarind
YES and 6 boñga trees, of which Ambrosio is the absolute owner. The condition of said
Ratio Between two possible interpretations, that which saves rather than destroys mortgage is such that if the party of Ambrosio shall pay, Kasilag, his heirs, assigns,
is to be preferred. It is a fundamental principle in the interpretation of contracts or executors, on or before the 16th day of November, 1936, or 4½ years after date
that while ordinarily the literal sense of the words employed is to be followed, such of the execution of the instrument, the sum of P1,000 with interest at 12 per cent
is not the case where they "appear to be contrary to the evident intention of the per annum, then the mortgage shall become null and void; otherwise the same shall
contracting parties," which "intention shall prevail." The terms, clauses and remain in full force and effect, and subject to foreclosure in the manner and form
conditions contrary to law, morals and public order (in this case the contested provided by law for the amount due thereunder, with costs and also attorney's fees
stipulation) should be separated from the valid and legal contract when such in the event of such foreclosure.
separation can be made because they are independent of the valid contract which (Art VI) Ambrosio shall also pay all taxes and assessments which are or may
expresses the will of the contracting parties. become due on the land and improvements during the term of the agreement
Reasoning There is nothing implausible in the view that such language (Art VII) Within 30 days after execution of agreement, Ambrosio shall file a motion
renouncing the debtor's right to the prescription established by the Code of Civil before the Court of First Instance at Balanga, Bataan, P. I., requesting cancellation
Procedure should be given the meaning, as noted in the preceding sentence of the of Homestead Certificate of Title No. 325, in lieu thereof, of a certificate of title
decision of respondent Court, that the debtor could be trusted to pay even after the under the provisions of Land Registration Act No. 496, as amended by Act 3901.
termination of the ten-year prescriptive period. (so CA should have interpreted the (Art VIII) If upon the expiration of the period of time 4 years stipulated in this
stipulation based on the context of the friendship between the two parties) mortgage, the mortgagor should fail to redeem this mortgage, she would execute a
- 'Where an agreement founded on a legal consideration contains several promises, deed of absolute sale of the property herein described for the same amount as this
or a promise to do several things, and a part only of the things to be done are mortgage, including all unpaid interests at the rate of 12 per cent per annum, in
illegal, the promises which, can be separated, or the promise, so far as it can be favor of the mortgagee.
separated, from the illegality, may be valid. The rule is that a lawful promise made (Art IX) In the event the land transfer is not approved by the Court, the foregoing
for a lawful consideration is not invalid merely because an unlawful promise was contract of sale shall automatically become null and void, and the mortgage
made at the same time and for the same consideration, and this rule applies, stipulated shall remain in full force and effect
although the invalidity is due to violation of a statutory provision, unless the statute - In 1933, Ambrosio was unable to pay the stipulated interests as well as the tax on
expressly or by necessary implication declares the entire contract void. the land and its improvements. For this reason, she and the Kasilag entered into
- The first ten years after November 29, 1933 should not be counted in determining another verbal contract whereby she conveyed to the latter the possession of the
when the action of creditor, now represented by petitioners, could be filed. From the land on condition that the latter would not collect the interest on the loan, would
joint record on appeal, it is undoubted that the complaint was filed on January 7, attend to the payment of the land tax, would benefit by the fruits of the land, and
1953. If the first ten-year period was to be excluded, the creditor had until
Obligations and Contracts A2010 page
168 Prof. Labitag
would introduce improvements thereon. By virtue of this verbal contract, the by necessary implication declares the entire contract void. The contract set out in
petitioner entered upon the possession of the land, gathered the products thereof, the agreement should be interpreted in accordance with these rules.
did not collect the interest on the loan, introduced improvements upon the land - As the terms thereof are clear and leave no room for doubt, it should be
valued at P5,000, according to him and on May 22, 1934 the tax declaration was interpreted according to the literal meaning of its clauses. The parties entered into
transferred in his name and on March 6, 1936 the assessed value of the land was a contract of mortgage of the improvements on the land acquired as homestead, to
increased from P1,020 to P2,180. secure the payment of the indebtedness for P1,000 and the stipulated interest
- The children and heirs of the deceased Ambrosio, commenced this civil case to thereon. The principal contract is that of loan and the accessory that of mortgage of
recover from Kasilag the possession of the land and its improvements; that the the improvements upon the land acquired as a homestead. There is no question
petitioner pay to them the sum of P650 being the approximate value of the fruits that the first of this contract is valid as it is not against the law. The second, or the
which he received from the land; that the petitioner sign all the necessary mortgage of the improvements, is expressly authorized by section 116 of Act No.
documents to transfer the land and its possession to the respondents; that the 2874, as amended by section 23 of Act No. 3517.
petitioner be restrained, during the pendency of the case, from conveying or - The subsequent verbal pacts made by the parties independently were calculated
encumbering the land and its improvements; that the registrar of deeds of Bataan to alter the mortgage a contract clearly entered into, converting the latter into a
cancel certificate of title No. 325 and issue in lieu thereof another in favor of the contract of antichresis. (Article 1881 of the Civil Code.) The contract of antichresis,
respondents, and that the petitioner pay the costs of suit being a real encumbrance burdening the land, is illegal and void as expressly
- The CA held that the contract is entirely null and void and without effect; that the prohibited by section 116 of Act No. 2874.
heirs of Ambrosio, are the owners of the disputed land, with its improvements, in 2. NO
common ownership with their brother Gavino Rodriguez; that Kasilag acted in bad Ratio Gross and inexcusable ignorance of law may not be the basis of good faith,
faith and should yield possession of the land in their favor, with all the but possible, excusable ignorance may be such basis.
improvements; that the plaintiffs-respondents jointly and severally pay to the Reasoning The Civil Code does not expressly define what is meant by bad faith,
defendant-petitioner the sum of P1,000 with interest at 6 percent per annum from but section 433 provides that "Every person who is unaware of any flaw in his title,
the date of the decision. It also ordered the registrar of deeds of Bataan to to issue or in the manner of its acquisition, by which it is invalidated, shall be deemed a
another certificate of title in favor of the plaintiffs-respondents and their brother possessor in good faith"; and provides further, that "Possessors aware of such flaw
Gavino Rodriguez, as undivided owners in equal parts, free of all liens and are deemed possessors in bad faith". It is a fact that the petitioner is not conversant
incumbrances except those expressly provided by law, without special with the laws because he is not a lawyer. In accepting the mortgage of the
pronouncement as to the cost. 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
ISSUES in consenting to receive its fruits, he did not know, as clearly as a jurist does, that
1. WON the contract entered into between the parties was one of absolute sale of the possession and enjoyment of the fruits are attributes of the contract of
the land and its improvements and that the agreement is null and void antichresis and that the latter, as a lien, was prohibited by section 116. These
2. WON petitioner acted in bad faith in taking possession of the land 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
HELD basis of his good faith.
1. NO Disposition The appealed decision is reversed, and we hereby adjudge: (1) that
Ratio In the interpretation of contracts, the intention of the contracting parties the contract of mortgage of the improvements, set out in Exhibit 1, is valid and
should always prevail because their will has the force of law between them. binding; (2) that the contract of antichresis agreed upon verbally by the parties is a
Furthermore, terms, clauses and conditions contrary to law, morals and public order real incumbrance which burdens the land and, as such, is a null and without effect;
should be separated from the valid and legal contract and when such separation (3) that the petitioner is a possessor in good faith; (4) that the respondents may
can be made because they are independent of the valid contract which expresses elect to have the improvements introduced by the petitioner by paying the latter
the will of the contracting parties. the value thereof, P3,000, or to compel the petitioner to buy and have the land
Reasoning Art 1281 of the Civil Code: if the terms of a contract are clear and where the improvements or plants are found, by paying them its market value to be
leave no doubt as to the intention of the contracting parties, the literal sense of its filed by the court of origin, upon hearing the parties; (5) that the respondents have
stipulations shall be followed; and if the words appear to be contrary to the evident a right to the possession of the land and to enjoy the mortgaged improvements;
intention of the contracting parties, the intention shall prevail. Where an agreement and (6) that the respondents may redeem the mortgage of the improvements by
founded on a legal consideration contains several promises, or a promise to do paying to the petitioner within three months the amount of P1,000, without interest,
several things, and a part only of the things to be done are illegal, the promises as that stipulated is set off by the value of the fruits of the mortgaged
which can be separated, or the promise, so far as it can be separated, from the improvements which petitioner received, and in default thereof the petitioner may
illegality, may be valid. The rule is that a lawful promise made for a lawful ask for the public sale of said improvements for the purpose of applying the
consideration is not invalid merely because an unlawful promise was made at the proceeds thereof to the payment of his said credit.
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
Obligations and Contracts A2010 page
169 Prof. Labitag
SEPARATE OPINION his right of intention over the same provided that he may remove the
improvements which he had introduced in good faith
VILLA- REAL [ concur & dissent] - As a result of the nullity of the contract of antichresis the petitioner should return
-The obligation contracted by said mortgagor was no more than a conditional to the respondents the products of the mortgaged improvements, and the latter
promise to sell. Now, then, is this a promise to sell valid? Like any other onerous, should pay to the petitioner the amount of the loan plus interest due and unpaid at
consensual and mutually binding contract, that of promise to sell requires for its the rate of 12 per cent per annum from the date of the contract until fully paid
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 LAUREL [ concur in the result]
such promise to sell. Assuming that it was the economic impotence of the - It is, evident that the projected sale has and may never come into being, because
mortgagor to redeem the mortgaged improvements, before she could be compelled under Article IX of Exhibit 1, it became automatically null and void. This view,
to comply with her obligation to sell, there is need to wait until she should fail of incidentally, precludes further consideration of the validity or invalidity of the sale
funds or to abandonment. The cause will come into being only upon the happening clause of Exhibit 1, as it will purely academic to dwell upon the nature and effect of
of said event after the four and half years and only then will the said contract of a contract that has passed out of existence in the contemplation of the parties
promise to sell have juridical existence. The P1,000 and its interest, should the - Exhibit 1 is essentially and fundamentally a mortgage upon the improvements
mortgagor fail to redeem the improvements upon the maturity of the indebtedness, found on the questioned homestead, with a conditional clause for the future sale of
would be the consideration of the sale; because the promise to sell is a contract said homestead and improvements which has become a "dead twig" still attached
different and distinct from that of sale and each requires a consideration for its to a living tree because the condition has never been performed
existence and validity - The question next at hand is whether or not the mortgage constituted upon the
- The terms of the contract are clear and explicit and do not leave room for doubt improvement's of the homestead is valid. It is, under express provisions of section
that the intention of the contracting parties was to constitute a mortgage on the 116 of the Public Land Act, before and after its amendment, reading pertinently that
improvements of the land in litigation to secure the payment of the loan for P1,000, "the improvements or crops on the land may be mortgaged or pledged to qualified
within interest thereon at 12 per cent per annum. It cannot be said that this persons, associations, or corporations." I find no occasion to dispute this legislative
contract is simulated because the assessed value of the improvements is P860 only. policy however mistaken it may be. It is sufficient to observe that what the law
It is well known that rural properties are valued for assessment purposes not less permits may be done. Upon the other hand, I find no occasion to test the legality of
than half of their market value the sale provisions of Exhibit 1, as I have heretofore said, this question is, in my
- The fact that after one year the contracting parties had novated the contract of opinion, moot. Moreover, the petitioner, technically, is barred from raising this
loan secured by a mortgagee, converting the same into a contract of anti-chresis question, as he did not appeal from and, therefore, abided by the decision of the
because of the mortgagor's failure to pay the accrued interest, does not show that trial court which outlawed this sale clause as violative of the provisions of section
they intended to enter into a contract of sale, because the conversion in this case of 116 of the Public Land Act.
the contract of loan secured by a mortgage into one of antichresis was accidental, - We may concede, as assumed by the appealed decision, that the petitioner was
due to the mortgagor's default in the payment of unpaid interest for the first year. If cognizant of said section 116, but this is not saying that petitioner knew that his
the parties' intention from the beginning had been to sell the property, the possession came under the phrase "incumbrance or alienation" prohibited by law,
mortgagee would have immediately entered upon the possession of the land and that the petitioner, therefore, knew that his possession was illegal. The import
instead of waiting until after the expiration of one year. of the phrase "incumbrance or alienation" is a subject upon which "men of reason
- The verbal contract of antichresis, entered into by the petitioner Marcial Kasilag may reasonably differ," in the same way that we ourselves have differed in the
and Emiliana Ambrosio, being null and void ab initio and without any legal effect deliberation of this case. It is not correct to assume that the petitioner had
because it is in violation of the express prohibition of section 116 of Act No. 2874 as knowledge of the illegality of his possession. The contrary assumption, namely, that
amended by section 23 of Act No. 3517, (article 4 of the Civil Code), the contracting petitioner had no idea of such illegality, would have been more in accord with the
parties should restore to each other the things which have been the subject-matter experience of everyday, for petitioner would not have invested money and labor in
of the contract, together with their fruits, and the price paid therefor, together with the land and assumed obligations incumbent upon the homesteader if he had even
interest, pursuant to Article 1303 of the same Code the least suspicion that all his efforts would count for nothing and would in the end
- As to the improvements introduced upon the land by the petitioner, having done entangle him in a mild scandal. As possession in bad faith does not necessarily
so with the knowledge and consent of its owner Emiliana Ambrosio, the former mean possession illegal under the law, it being necessary that the possessor be
acted in good faith, and under article 361 of the Civil Code, the owner of the land aware of such illegality, it follows that the petitioner's possession of the homestead
may have the said improvements upon paying the indemnity provided in articles of the respondents was in good faith.
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 CONCEPCION [ dissent]
Obligations and Contracts A2010 page
170 Prof. Labitag
- I believe that the contract which the parties intended to execute is a promise to - Magdalo V Francisco discovered or invented a formula for the manufacture of a
sell the land, for which reason Ambrosio retained the right of ownership of the land food seasoning (sauce) derived from banana fruits popularly known as MAFRAN
and its improvements while the deed of the promised sale had not been executed. sauce
- Under these circumstances, the conclusion of law that Kasilag acted in bad faith is - The manufacture of this product was used in commercial scale in 1942, and in the
not supported by the established facts same year registered his trademark in his name as owner and inventor with the
- Wherefore, the plaintiffs are bound to comply with the contract as heirs of Bureau of Patents
Ambrosio, by executing in favor of Kasilag the deed of sale of the land, but should - Due to lack or sufficient capital to finance the expansion of the business, he
the sale, for any reason, be not approved, Kasilag may collect the amount of P1,000 secured the financial assistance of Tirso T. Reyes who, after a series of negotiations,
with all the interest thereon, and may execute the judgment obtained by him upon formed with other defendant Universal Food Corporation eventually leading to the
the land and all its improvements, deducting, however, in his favor the value of the execution of Bill of Assignment
improvements which he introduced upon the land in good faith - Magdalo V Francisco was appointed Chief Chemist with a salary of P300.00 a
month, and Victoriano V Francisco was appointed auditor and superintendent with
MORAN [ dissent] a salary of P250.00 a month.
- Although the document Exhibit 1 states that it is a mortgage of the improvements, - Magdalo V Francisco when preparing the secret materials inside the laboratory,
with a stipulation regarding a future sale of the land in case of failure to comply never allowed anyone, not even his own son, or the President and General Manager
with the mortgage obligations, in reality the true contract between the parties is Reyes or defendant, to enter the laboratory in order to keep the formula secret to
one of absolute sale in the light of the circumstances of the case himself.
- The Homestead Act has been enacted for the welfare and protection of the poor. - He expressed a willingness to give the formula to defendant provided that the
The law gives a needy citizen a piece of land where he may build a modest house same should be placed or kept inside a safe to be opened only when he is already
for himself and family and plant what is necessary for subsistence and for the incapacitated to perform his duties as Chief Chemist, but defendant never acquired
satisfaction of life's other needs. The right of the citizens to their homes and to the a safe for that purpose.
things necessary for their subsistence is as vital as the right to life itself. They have - Reyes wrote him to permit one or two members of his family to observe the
a right to live with a certain degree of comfort as become human beings, and the preparation of the 'Mafran Sauce', but said request was denied
State which looks after the welfare of the people's happiness is under a duty to - Due to the alleged scarcity and with prices or raw materials, Secretary-Treasurer
safeguard the satisfaction of this vital right. Moreover, a man with a home and a Ciriaco L. de Guzman that only Supervisor Ricardo Francisco should be retained in
means of subsistence is a lover of peace and order and will profess affection for his the factory and that the salary of Magdalo V Francisco, should be stopped for the
country, whereas one without a home and in penury is not only a social parasite but time being until the corporation should resume its operation.
also a dangerous element in the social order. The Homestead Act at once aims at - Reyes issued a memorandum to Victoriano Francisco ordering him to report to the
the promotion of wholesome and happy citizenship and the wiping out of the germs factory and produce a 'Mafran Sauce' at the rate of not less than 100 cases a day so
of social discontent found everywhere. Considering the social and economic ends of as to pope with the orders of the corporation's various distributors and dealers, and
the Homestead Act, the courts should exercise supreme care and strict vigilance with Instructions to take only the necessary daily employees without employing
towards faithful compliance with all its benign provisions and against the defeat, permanent employees
directly or indirectly, of its highly commendable purposes. And it is my firm - Another memorandum was issued by Reyes instructing the Assistant Chief
conviction that where, as in the present case, a rich and clever man attempts to Chemist Ricardo Francisco to recall all daily employees connected in the production
wrest a homestead granted to a poor and ignorant woman, the slightest tokens of of Mafran Sauce and also some additional daily employees for the production of
illegality should be enough to move the courts to apply the strong arm of the law Porky Pops
- Another memorandum instructing Ricardo Francisco, as Chief Chemist, and Porfirio
AVANCEÑA [ dissent] Zarraga, as Acting Superintendent, to produce Mafran Sauce and Porky Pops with
I concur in this dissenting opinion of Justice Moran. further instructions to hire daily laborers in order to cope with the full blast
production
- Magdalo V Francisco received his salary as Chief Chemist in the amount of
UNIVERSAL FOOD CORP V COURT OF APPEALS P300.00 a month only until his services were terminated.
CASTRO; May 13, 1970 - Reyes authorized Zarraga and de Bacula to look for a buyer of the corporation
Including its trademarks, formula and assets at a price of not less than P300.000.00
NATURE - Due to these successive memoranda, without Magdalo, V Francisco being recalled
Petition for certiorari by the Universal Food Corporation against the decision of the back to work, the letter riled the present action
Court of Appeals
ISSUES
FACTS 1. WON by virtue of the term of the Bill of Assignment, Magdalo V Francisco ceded
and transferred to the petitioner corporation the formula for Mafran sauce
Obligations and Contracts A2010 page
171 Prof. Labitag
2. WON Magdalo V Francisco was dismissed from his position as chief chemist of the 4. YES
corporation without justifiable cause, and in violation of paragraph 5-(a) of the Bill The corporation could not escape liability to pay the patentee his agreed monthly
of Assignment which in part provides that his appointment is "permanent in salary, as long as the use, as well as the right to use, the formula for Mafran sauce
character" remained with the corporation.
3. WON rescission of the Bill of Assignment is proper - The contract placed the use of the formula for Mafran sauce with the petitioner,
4. WON the corporation is liable to pay the patentee his agreed monthly salary, as subject to defined limitations. One of the considerations for the transfer of the use
long as the use, as well as the right to use, the formula for Mafran sauce remained thereof was the undertaking on the part of the petitioner corporation to employ the
with the corporation patentee as the Second Vice President and Chief Chemist on a permanent status, at
5. WON it can bbe inferred from the appellate court’s decision that what was meant a monthly salary of P300, unless "death or other disabilities" supervened.
to be returned to the patentee is not the formula itself, but only its use and the right 5. YES
to such use It is a logical inference from the appellate court's decision that what was meant to
be returned to the patentee is not the formula itself, but only its use and the right to
HELD such use.
1. What was actually ceded and transferred by the patentee Magdalo V Francisco in Article 1385 of the New Civil Code provides that rescission creates the obligation to
favor of the petitioner corporation was only the use of the formula. The Bill of return the things which were the object of the contract.
Assignment vested in the petitioner corporation no title to the formula.
- One of the principal considerations of the Bill of Assignment is the payment of ORIA V MCMICKING
"royalty of 2% of the net annual profit" which the petitioner corporation may realize MORELAND; January 18, 1912
by and/or out of its production of Mafran sauce and other food products, etc. The
word "royalty," when employed in connection with a license under a patent, means NATURE
the compensation paid for the use of a patented invention. Appeal from a judgment of the CFI of Manila
- The intention of the patentee at the time of its execution was to part, not with the
formula for Mafran sauce, but only its use, to preserve the monopoly and to FACTS
effectively prohibit anyone from availing of the invention. - Aug. 1909- Gutierrez Hermanos brought action against Oria Hermanos for the
- Should dissolution or the petitioner corporation eventually take place, "the recovery of P147,204.28 (CASE NO. 7289)
property rights and interests over said trademark and formula shall automatically - Mar. 1910- Gutierrez Hermanos began another action against Oria Hermanos for
revert" to the patentee. recovery of P12,318.57 (CASE NO. 7719)
- Facts of the case compellingly demonstrate continued possession of the Mafran - Apr. 1910- members of the company of Oria Hermanos dissolved their relations
sauce formula by the patentee. and entered into liquidation
- A conveyance should be interpreted to effect "the least transmission of rights." - The managing partner in liquidation Tomas Oria y Balbas entered into contract
2. YES with the plaintiff in this case Manuel Oria Gonzalez
The petitioner, acting through its corporate officers, schemed and maneuvered to - Contract was for the purpose of selling and transferring to the plaintiff all the
ease out, separate and dismiss the said from the service as permanent property owned by Oria Hermanos.
chief chemist, in flagrant violation of the Bill of Assignment. The fact that a month - Among goods transferred: Steamship Serantes, the subject of this litigation
after the institution of the action for rescission, the petitioner corporation, thru - Sep. 17, 1910- Case 7719 resolved by CFI in favor of Gutierrez, against Oria.
Reyes requested the patentee to report for duty, is of no consequence. Affirmed by SC.
3. YES - Sheriff demanded that Tomas Oria y Balbas make payment of the judgment.
Appellees had no alternative but to rile the present action for rescission and -Tomas replied there were no funds to pay
damages. - Sheriff levied upon Steamship Serantes, took possession, announced it for sale at
- The power to rescind obligations is implied in reciprocal ones, in case one of the public auction.
obligors should not comply with what is incumbent upon him. The injured party may - 3 days before the sale, the plaintiff in this action presented to the sheriff a written
choose between fulfillment and rescission of the obligation, with payment of statement claiming to be the owner of the Steamship, to have the right of
damages in either case. possession by reason of the sale to him by Oria Hermanos of all the property of said
- There is no controversy that the provisions of the Bill of Assignment are reciprocal company, including the steamer Serantes
in nature. - Sheriff required Gutierrez Hermanos to present a bond for his protection, and
The general rule is that rescission of a contract will not be permitted for a slight or proceeded to sell the steamship to the Gutierrez Hermanos.
casual breach, but only for such substantial and fundamental breach as would - Oct. 19, 1911- plaintiff began present action: (1) for the issuance of a preliminary
defeat the very object of the parties in making the agreement. injunction to prevent the sale of said steamship, (2) for the declaration that the
- The dismissal of Magdalo V Francisco as the permanent chief chemist of the plaintiff is the owner of the steamship and is that the defendant be required to
corporation is a fundamental and substantial breach of the Bill of Assignment. He restore the same to the plaintiff and to pay P10,000 in damages for its detention
was dismissed without any fault or negligence on his part.
Obligations and Contracts A2010 page
172 Prof. Labitag
- Trial court found in favor of defendant. Complaint was dismissed. From that NATURE
judgment this appeal is taken. Appeal from the judgment of the CFI of Negros Occidental
ISSUES FACTS
WON the sale from Oria Hermanos to Manuel Oria y Gonzalez is fraudulent against - On January 30, 1951 the defendants Leon Garibay, Margarita G. Saldejeno, and
the creditors of Oria Hermanos, making the transfer of the steamship void as to the Timoteo Tubungbanua entered into a Contract of Partnership under the firm name
creditors, and as to Gutierrez Hermanos in particular "Isabela Sawmill"
- On April 25, 1958, an action to dissolve the partnership was filed by the spouses
HELD Cecilio Saldajeno and Margarita G. Saldajeno against Isabela Sawmill, Leon Garibay,
YES and Timoteo Tubungbanua
Ratio A conveyance is fraudulent if it is a trick and contrivance to defeat creditors, - On April 27, 1958 the defendants Leon Garibay, Timoteo Tubungbanua and
or if it conserves to the debtor a special right. If defective in either of these Margarita G. Saldajeno entered into a "Memorandum of Agreement”
particulars, although good between the parties involved in the conveyance, it is - On May 26, 1958 the defendants Leon Garibay, Timoteo Tubungbanua and
voidable as to creditors. Margarita G. Saldajeno executed a document entitled "Assignment of Rights with
Reasoning The following are some of the circumstances attending sales which Chattel Mortgage" in favor of Saldejano
have been denominated by the courts badges of fraud: - Thereafter the defendants Leon Garibay and Timoteo Tubungbanua did not divide
> the fact that the consideration of the conveyance is fictitious/inadequate the assets and properties of the "Isabela Sawmill" between them, but they
> a transfer made by a debtor after suit has been begun, and while it is pending continued the business of said partnership under the same firm name "Isabela
against him Sawmill".
> a sale upon credit by an insolvent debtor - The chattel mortgage was later foreclosed
> evidence of large indebtedness or complete insolvency - On May 18, 1959 the Provincial Sheriff of Negros Occidental published two (2)
> the transfer of all or nearly all of his property by a debtor, especially when he is notices that he would sell at public auction on June 5, 1959 at Isabela, Negros
insolvent or greatly embarrassed financially Occidental certain trucks, tractors, machinery, office equipment and other things
> the fact that the transfer is made between father and son, when there are - On October 15, 1969 the Provincial Sheriff of Negros Occidental executed a
present other of the above circumstances Certificate of Sale in favor of the defendant Margarita G. Saldajeno
> the failure of the vendee to take exclusive possession of all the property - On October 20, 1959 the defendant Margarita G. Saldajeno executed a deed of
- The case at bar presents every one of the badges of fraud above enumerated. sale in favor of the Pan Oriental Lumber Company transferring to the latter for the
Tested by the inquiry, does the sale prejudice the rights of creditors, the result is sum of P45,000.00 the trucks, tractors, machinery, and other things that she had
clear. The sale in the form in which it was made leaves the creditors substantially purchased at a public auction
without recourse. The property of the company is gone, its income is gone, the - Plaintiffs herein are creditors of the defendant partnership
business itself is likely to fail, the property is being dissipated, and is depreciating in - Breakdown of Outstanding Balance
value. As a result, even if the claims of the creditors should live twelve years and a. Oppen, Esteban, Inc.- P1,288.89
the creditors themselves wait that long, it is more than likely that nothing would be b. Agustin E. Tonssay- P933.73
found to satisfy their claims at the end of the long wait c. Manuel G. Singsong- P3,580.50, P143.00
- Since the record shows that there was no property with which the judgment in d. Jose L. Espinos- P1,579.44
question could be paid, the defendants were obliged to resort to and levy upon the e. Bacolod Southern Lumber Yard- P1,048.78
steamer in suit. The court below was correct in finding the sale fraudulent and void f. Jose Balzunce- P2,052.10
as to Gutierrez Hermanos in so far as was necessary to permit the collection of its - They sued the defendants to recover the sums of money they have advanced to
judgment. As a corollary, the court below found that the evidence failed to show the partnership, and asked for the nullity of the chattel mortgage.
that the plaintiff was the owner or entitled to the possession of the steamer in - CFI of Negros Occidental ruled in favor of plaintiffs, saying that plaintiffs, as
question at the time of the levy and sale complained of, or that he was damaged creditors of the defendant partnership, have a preferred right over the assets of the
thereby. Defendant had the right to make the levy and test the validity of the sale said partnership, and over the proceeds of their sale at the public auction.
in that way, without first resorting to a direct action to annul the sale. The creditor - Saldejanos appealed
may attack the sale by ignoring it and seizing under his execution the property, or - CA certified the case to SC considering that the resolution of appeal involves
any necessary portion thereof, which is the subject of the sale. purely questions of law
Disposition Judgment affirmed.
ISSUES
SINGSONG V ISABELA SAWMILL 1. WON the Court of First Instance of Negros Occidental had no jurisdiction over the
FERNANDEZ; February 28, 1979 case because the plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos
and the Bacolod Southern Lumber Yard sought to collect sums of money, the
Obligations and Contracts A2010 page
173 Prof. Labitag
biggest amount of which was less than P2,000.00 and, therefore, within the 4. NO
jurisdiction of the municipal court Ratio There will be no liability for attorney’s fees absent a showing of wanton
2. WON the chattel mortgage may no longer be annulled because it had been disregard of the rights of the plaintiffs.
judicially approved by the Court of First Instance of Negros Occidental and said Disposition The decision appealed from is hereby affirmed with the elimination of
chattel mortgage had been ordered foreclosed by the same court (different branch the portion ordering appellants to pay attorney's fees and with the modification that
from that which gave the judgment subject of this appeal) the defendants, Leon Garibay and Timoteo Tubungbanua, should reimburse the
3. WON plaintiffs cannot bring an action to annul the chattel mortgage of the defendants-appellants, Margarita G. Saldajeno and her husband Cecilio Saldajeno,
properties of the partnership executed by Leon Garibay and Timoteo Tubungbanua whatever they shall pay to the plaintiffs-appellees.
in favor of Margarita G. Saldajeno
4. WON appellants are liable for attorney’s fees
HELD
1. NO
This contention is devoid of merit because all the plaintiffs also asked for the nullity
of the assignment of right with chattel mortgage.
-This cause of action is not capable of pecuniary estimation and falls under the
jurisdiction of the Court of First Instance.
Ratio Where the basic issue is something more than the right to recover a sum of
money and where the money claim is purely incidental to or a consequence of the CADWALLER & CO. V SMITH, BELL, AND CO.
principal relief sought, the action is as a case where the subject of the litigation is TRACEY; February 9, 1907
not capable of pecuniary estimation and is cognizable exclusively by the Court of
First Instance. NATURE
2. NO Appeal from a judgment of the C FI of Manila
Ratio One branch of the Court of First Instance of Negros Occidental can take
cognizance of an action to nullify a final judgment of the other two branches of the FACTS
same court. Cadwaller & Co. as assignees of the Pacific Export Lumber Company (PELC) asks for
Reasoning On the question of whether a court may nullify a final judgment of the amount of $3,486 which is the sum differential of the money that turned over to
another court of co-equal, concurrent and coordinate jusridiction, this Court them and the money actually received. PELC exported cedar piles to be bought by
originally ruled that a court has no power to interfere with the judgments or decrees Peabody & Company (defendant/appellee) for the amount of $12 apiece however
of a court of concurrent or coordinate jurisdiction having equal power to grant the later on it was found out that P&C was able to negotiate with the government and
relief sought by the injunction. sold the piles for $19 apiece. Hence this case.
-This was pursuant to the policy of judicial stability
-In December 1971, however, this court re-examined and reversed its earlier ISSUE
doctrine on the matter. In Dupla V Court of Appeals, the SC declared that a court of WON there is a breach of duty from which the defendant should not benefit from
first instance or a branch thereof has the authority and jurisdiction to take
cognizance of, and to act in, suit to annul final and executory judgment or order HELD
rendered by another court of first instance or by another branch of the same court. YES, there is a breach of duty. The concealment from their principal of the
3. NO negotiation with the Government resulted in a sale at $19 apiece and in
Ratio A contract cannot be assailed by one who is not a party thereto. However, misrepresenting the condition of the market is a breach of duty. The contract of sale
when a contract prejudices the rights of a third person, he may file an action to is founded on fraud and is subject to the annulment of the aggrieved party (CC Arts.
annul the contract. 1265 and 1269). The defendants are not entitled to retain their commission realized
Reasoning This Court has held that a person, who is not a party obliged principally upon the piles included under the annulled contract. However this is only for those
or subsidiarily under a contract, may exercise an action for nullity of the contract if that are subsequently sold at the time of the negotiation with the Government and
he is prejudiced in his rights with respect to one of the contracting parties, and can its selling at the amount of $19 apiece.
show detriment which would positively result to him from the contract in which he Disposition Judgment modified
has no intervention.
-The plaintiffs-appellees were prejudiced in their rights by the execution of the UY SOO LIM V TAN UNCHUAN
chattel mortgage over the properties of the partnership "Isabela Sawmill" in favor of
FISHER; September 7, 1918
Margarita G. Saldajeno by the remaining partners, Leon Garibay and Timoteo
Tubungbanua, hence, they have a right to file an action to nullify the chattel
NATURE
mortgage.
Obligations and Contracts A2010 page
174 Prof. Labitag
APPEAL from a judgment of the CFI of Cebu
PHILIPPINE NATIONAL BANK V PHILIPPINE VEGETABLE
FACTS OIL CO.
- In this case, the legitimate children (Francisca and Concepcion), the legal wife MALCOLM; January 14, 1927
(Candida Vivares) and the second wife (Chan Quieg) of the deceased Santiago
Pastrano Uy Toco are questioning the fairness and legality of the lion's share
NATURE
received by Uy Soo Lim, the illegitimate child of the deceased. Santiago, in his last
Appeal from a judgment of the CFI of Manila
will and testament gave the 7/9 share of his large estate to Uy Soo Lim, leaving his
legal heirs with so litte to enjoy.
FACTS
- The court issued an order requiring Benito Tan Unchuan, as executor of the
- In 1920, Phil Vegetable was in debt to the extent of around P30M. PNB was the
testamentary estate of Santiago pastrano, to deliver to Basilio Uy Bundan, guardian
largest creditor, w/ Phil Vegetable owing it P17M. The PNB loan was secured by a
of minors Francisca, Concepcion, Uy Soo Lim, the property .
real and chattel mortgage for P3.5M. Phil Vegetable executed another chattel
- The abovementioned heirs opposed the distribution of the property in accordance
mortgage in favor of the bank on its vessels to guarantee around P4M.
with what was stipulated in the will. At the end, an agreement was reached
- Bankruptcy was imminent. Phil Vegetable General Manager Whitaker made his
between Choa Tek Hee (lawyer of the plaintiff) and the the plaintiff, of the one part,
first offer to pledge certain private properties to secure creditors of Phil Vegetable.
and Tan Unchuan and Del Rosario, an attorney of Cebu, representing the interest of
A creditors’ meeting was held and a receiver for the Phil Vegetable was appointed
Candida, Francisca and Concepcion, on the other, to submit the entire matter in
by the CFI.
dispute to the judgment of three respectable Chinese merchants/lawyers
- During the period when receiver was in control of Phil Vegetable’s property, an
designated.
agreement was perfected by Phil Vegetable, Whitaker, and some creditors whereby
- These advisers came to the conclusion that the sum of P82,500 should be
creditors transferred to Whitaker a part of their claims against Phil Vegetable. PNB
accepted by plaintiff in full satisfaction and relinquisment of all his right, title, and
was not a direct party to the agreement though the officials had full knowledge of
interest in and to the estate of the deceased Santiago Pastrano, and this
its accomplishment and its GM placed his OK at the end of the final draft.
recommendation was accepted by Choa Tek Hee and plaintiff and by Tan Unchuan
- The next move of PNB was to obtain a new mortgage fr Phil Vegetable.
and Del Rosario.
(2/20/1922)
- Candida and Concepcion later sold their shares to Francisca. But after the agreed
- Receivership for Phil Vegetable was terminated. Phil Vegetable’s plant was
amount was paid in installments by the Francisca and after the plaintiff spent most
definitely closed.
of it, Uy Soo Lim, three (3) years after attaining the age of majority, commenced
- PNB filed action to foreclose its mortgage on Phil Vegetable’s property. Phil
this present action to rescind and annul the contract by which he had sold and
Vegetable countered with special defenses.
trasferred to Francisca Pastrano his interest in the estate of Santiago Pastrano.
ISSUES
ISSUE
1. WON mortgage was null bec at time of its execution all the properties of Phil
WON the plaintiff might have the right to rescind this contract on the ground of
Vegetable was under receiver and neither the approval of the receiver nor the court
minority
had been obtained
2. WON PNB failed to comply w/ contract that it was alleged to have celebrated w/
HELD
Phil Vegetable that it would furnish funds to the company so that it could continue
NO.
operating its factory and WON Whitaker has established his right to recover
The right of the minor to rescind, upon attaining his majority, a contract entered
damages fr PNB by reason of the latter’s alleged refusal to finance the operation of
into during his minority is subject to to the conditions (1) that the election to rescind
Phil Vegetable
must be made within a reasonable time after majority and (2) that all of the
consideration which was in the minor's possession upon his reaching the majority
HELD
must be returned. The disposal of any part of th econsideration after the
1. NO (It is merely voidable or valid until annulled)
attainment of majority imports an affirmance of the contract.
- PNB challenged the right of Whitaker as intervenor. PNB is right. Phil Vegetable
Reasoning Because, with full knowledge of his rights in the premises, he failed to
is the defendant, the corporation has not appealed. Whitaker was one of the largest
disaffirm his contract within a reasonable time after reaching majority; and
individual stockholders. It was he who asked for appointment of receiver. It was he
Because he not only failed to tender, or offer, to produce and pay the consideration
who was the leading figure in the negotiations. It was he who pledged own property
in esse when he reached majority, and when he filed his action, but proceeded,
to assist in rehab of Phil Vegetable. Whitaker is more vitally interested in case than
after such events, to demand, collect and dispose of such consideration, when
Phil Vegetable. If the mortgage had been the free act of Phil Vegetable, it could not
according to his own statement under oath he had no other funds with which to
be heard to allege its own fraud, and only a creditor could take advantage of fraud
make reimbursement.
to intervene to avoid conveyance.
Disposition The judgment of the trial court is without erro and it is therefore,
AFFIRMED.
Obligations and Contracts A2010 page
175 Prof. Labitag
- Mssrs. Wilson and Cuaderno, PNB Directors, were serving as Phil Vegetable LIMKETKAI V COURT OF APPEALS
Directors after Wilson suggested reorganization of Phil Vegetable so that the bank MELO; December 1, 1995
might have close working relationship w/ Phil Vegetable. Wilson became Pres of
Phil Vegetable. FACTS
- Mortgage was not ratified before notary public until 3/8/22 and was not recorded - May 14, 1976 – Philippine Remnants Co., Inc. constituted BPI as its trustee to
in registry of property until 3/21/22. In other words, mortgage was executed by manage, administer and sell its real estate property. This includes the disputed
PNB thru its GM and another corp before the termination of receivership of the said parcel of land in Bagong Ilog, Pasig.
corp, but was not acknowledged or recorded until after termination of the - June 23, 1988 – Revilla, a licensed broker, was given the authority by BPI to sell
receivership. the land for P1000 per square meter.
- It must be evident that PNB could secure no new mortgage while the prop of Phil - Lim of Limketkai Milling agreed to buy the property and by July 1988, Lim and
Vegetable was in custodia legis. Phil Vegetable was then inhibited fr giving Limketkai visited BPI to confirm the sale.
mortgage on its property. The receiver was not a party to the mortgage. Court had - They were entertained by BPI VP Albano and AVP Aromin. Limketkai requested
not authorized receiver to consent to the execution of a new mortgage. The Court that the price be lowered to P900 per square meter while Albano said that the price
would want to protect rights of all creditors and not just one particular creditor. was P1100 per square meter. They finally agreed to the price of P1000 per square
- While the mortgage could not have been executed w/o dissolution of the meter and that the payment be given in cash.
receivership, dissolution was apparently secured through representations that PNB - Lim requested if it was possible to draw up payment terms, despite the previous
would continue to finance the operations of Phil Vegetable. Instead of so doing, the agreement to pay in cash. The BPI officials responded by saying that it would be all
bank within less than 2 mos after the mortgage was recorded, withdrew its support. right to try to apply for payment terms but if the said payment terms were to be
- Another reason is that the mortgage was accomplished when PNB was an disapproved, payment would have to be in cash.
influence in affairs of Phil Vegetable thru Wilson and Cuaderno. On one hand was - July 11, 1988 – Albano dictated the terms through which the installment payment
PNB in person and on the other hand was PNB by proxy. It is unconscionable to would be approved. Lim wrote BPI through Albano, embodying the initial payment
allow the bank after the hands of the creditors were tied, to appropriate to itself all at 10% and the remaining 90% payable within 90 days.
the property of Phil Vegetable. - Lim later learned that his offer to pay on terms had been frozen.
- The setting aside of this mortgage does not mean PNB is left w/o security. Even - July 18, 1988 – Lim went to BPI to pay the total amount (P33,056,000) in cash to
before the receivership, PNB already had 3 mortgages on property of Phil Albano but Albano refused to accept it, saying that he no longer had the authority
Vegetable. They’re still in effect and can be foreclosed. to sell the property. Lim then went to VP Bona who also would not accept the
2. NO payment.
- As disclosed in docs such as minutes of mtgs, there has been no promise made by - Aug. 25, 1988 – Limketkai filed an action for specific performance with damages.
PNB to continue indefinitely its backing of the Phil Vegetable. - BPI already issued a deed of sale for the land to National Bookstore.
- Whitaker was in no way personally responsible for obligations of Phil Vegetable. - Trial court ruling:
Nevertheless, he signed in creditors’ agreement. Now the creditors have large amt - Declare the deed of sale to NBS null and void
of his property. The Court sympathizes with him but said that sympathy cannot be - Ordered BPI to issue deed of sale in favor or Limketkai
transmuted into legal authoritativeness. - Ordered BPI and NBS to pay actual and consequential
damages to Limketkai
SEPARATE OPINION - The CA reversed the decision of the trial court thus the appeal.
Petitioners’ Claim
AVANCEÑA AND VILLAMOR [ concur & dissent] - The contract to sell and to buy was perfected on July 11, 1988 when its top
- The alleged fraud in the mortgage is unsupported by the record. Fraud is never officials and broker Revilla finalized the details with BPI Vice-Presidents Merlin
presumed. Albano and Rolando V Aromin at the BPI offices,
Respondents’ Comments
JOHNSON [ dissent] - What transpired on this date were part of continuing negotiations to buy the land
- The mortgage is a valid and subsisting contract. and not the perfection of the sale.
- PNB promised to furnish sufficient funds. - Vice-Presidents Aromin and Albano had no authority to bind BPI on this particular
transaction.
STREET [ concur & dissent] - The subsequent attempts of petitioner to pay under terms instead of full payment
- Intervenor can’t recover damages fr PNB. in cash constitutes a counter-offer which negates the existence of a perfected
- I agree w/ CJ that judgment of foreclosure should be affirmed contract.
ISSUES
1. WON the contract between BPI and Limketkai had been perfected
Obligations and Contracts A2010 page
176 Prof. Labitag
2. WON the bank officials were authorized to transact and enter into such contract Instead of the vendee insisting that the vendor guarantee its title to the land and
3. WON competent evidence is available to support the contention that the contract recognize the right of the vendee to proceed against the vendor if the title to the
was indeed perfected land turns out to be defective as when the land belongs to another person, the
4.WON the sale of the land to NBS pending litigation was effected in good faith reverse is found in the deed of sale between BPI and NBS. Any losses which NBS
may incur in the event the title turns out to be vested in another person are to be
HELD borne by NBS alone. BPI is expressly freed under the contract from any recourse of
1. YES. NBS against it should BPI's title be found defective.
The contract had already been perfected. Reasoning NBS ignored the notice of lis pendens when it bought the lot.
Ratio A contract undergoes various stages that include its negotiation or - NBS and BPU conspired to prevent Limketkai from acquiring the property.
preparation, its perfection and, finally, its consummation. Negotiation covers the - The sale was supposed to be done by a broker but top BPI officials took over when
period from the time the prospective contracting parties indicate interest in the a close friend became interested.
contract to the time the contract is concluded (perfected). The perfection of the - BPI Senior VP Barcelon admitted that he and NBS President Ramos were friends.
contract takes place upon the concurrence of the essential elements thereof. A - Feliciano, in behalf of NBS, tried to pay off Limketkai so that the latter would drop
contract which is consensual as to perfection is so established upon a mere meeting the case
of minds, i.e., the concurrence of offer and acceptance, on the object and on the
cause thereof. SWEDISH MATCH V COURT OF APPEALS
Reasoning The negotiation or preparation stage started with the authority given TINGA; October 20, 2004
by Philippine Remnants to BPI to sell the lot, followed by (a) the authority given by
BPI and confirmed by Philippine Remnants to broker Revilla to sell the property, (b) NATURE
the offer to sell to Limketkai, (c) the inspection of the property and finally (d) the Petitioners seek a reversal of the order of the CA which overturned the trial court’s
negotiations with Aromin and Albano at the BPI offices. order] dismissing the respondents’ complaint for specific performance and
- The perfection of the contract took place when Aromin and Albano, acting for BPI, remanded the case to the trial court for further proceedings.
agreed to sell and Alfonso Lim with Albino Limketkai, acting for petitioner Limketkai, FACTS
agreed to buy the disputed lot at P1,000.00 per square meter. Aside from this there - Swedish Match, AB (SMAB) is a Swedish corporation that had three subsidiary
was the earlier agreement between petitioner and the authorized broker. There was corporations in the Philippines: Phimco Industries, Inc. (Phimco), Provident Tree
a concurrence of offer and acceptance, on the object, and on the cause thereof. Farms, Inc. (PTFI), and OTT/Louie, Inc.
- The fact that the deed of sale still had to be signed and notarized does not mean - Sometime in 1988, STORA, the then parent company of SMAB, decided to sell
that no contract had already been perfected. SMAB and the latter’s worldwide match, lighter and shaving products operation to
2. YES Eemland Management Services, now known as Swedish Match NV of Netherlands,
The bank officials were authorized to transact with Limketkai for the sale of the (SMNV).
parcel of land. - Enriquez, VP of SMSA - the management company of the Swedish Match group,
Ratio Accordingly a banking corporation is liable to innocent third persons where was commissioned and granted full powers to negotiate by SMNV Enriquez was
the representation is made in the course of its business by an agent acting within held under strict instructions that the sale of Phimco shares should be executed on
the general scope of his authority even though, in the particular case, the agent is or before 30 June 1990, in view of the tight loan covenants of SMNV Enriquez came
secretly abusing his authority and attempting to perpetrate a fraud upon his to the Philippines in November 1989 and informed the Philippine financial and
principal or some other person for his own ultimate benefit. business circles that the Phimco shares were for sale.
Reasoning Revilla (the broker) was authorized by BPI to transact business in their - Several interested parties tendered offers to acquire the Phimco shares, among
stead. whom was respondent ALS Management & Development Corporation and with its
- If Revilla were given the authority, it would be senseless to doubt whether or not President and GM Antonio Litonjua. Litonjua submitted to SMAB a firm offer to buy
the bank officials were given the same authority. Aromin had been with the bank all of the latter’s shares in Phimco and all of Phimco’s shares in PTFI and OTT/Louie
for a relatively long period of time (since 1969) and had handled real estate matters (Phils.), Inc. for the sum of P750M..
since 1985. - Through its CEO Rossi, SMAB informed respondents that their price offer was
- There is no proof that Aromin was acting for his own benefit. below their expectations but urged them to undertake a comprehensive review and
3. YES analysis of the value and profit potentials of the Phimco shares, with the assurance
The evidence presented was substantial. that respondents would enjoy a certain priority although several parties had
Ratio Any document or writing which satisfies the requirements of a statute as to indicated their interest to buy the shares. Thereafter, an exchange of
content and signature can be regarded as a memorandum or a note. correspondence ensued between petitioners and respondents regarding the
4. YES projected sale of the Phimco shares. Litonjua offered to buy the disputed shares,
The sale of the land to NBS was done in bad faith. excluding the lighter division for $30.6M, which per another letter of the same date
Ratio It is the very nature of the deed of absolute sale between BPI and NBS which, was increased to US$36 million. Litonjua stressed that the bid amount could be
however, clearly negates any allegation of good faith on the part of the buyer.
Obligations and Contracts A2010 page
177 Prof. Labitag
adjusted subject to availability of additional information and audit verification of the with damages, with a prayer for the issuance of a writ of preliminary injunction,
company finances. against defendants, now petitioners.
- Rossi sent a letter informing Litonjua that ALS should undertake a due diligence - SMAB alleged that respondents have no cause of action, contending that no
process or pre-acquisition audit and review of the draft contract for the Match and perfected contract, whether verbal or written, existed between them. Petitioners
Forestry activities of Phimco at ALS’ convenience. However, Rossi made it clear added that respondents’ cause of action, if any, was barred by the Statute of Frauds
that at the completion of the due diligence process, ALS should submit its final offer since there was no written instrument or document evidencing the alleged sale of
in US dollar terms not later than 30 June 1990, for the shares of SMAB the Phimco shares to respondents.
corresponding to ninety-six percent (96%) of the Match and Forestry activities of - The RTC dismissed respondents’ complaint. The CA reversed the trial court’s
Phimco. Rossi added that in case the global deal presently under negotiation for decision.
the Swedish Match Lights Group would materialize, SMAB would reimburse up to
US$20,000.00 of ALS’ costs related to the due diligence process. ISSUES
- Litonjua informed Rossi that it may not be possible for them to submit their final 1. WON the CA erred in reversing the trial court’s decision dismissing the complaint
bid on 30 June 1990, citing the advice to him of the auditing firm that the financial for being unenforceable under the Statute of Frauds
statements would not be completed until the end of July. Litonjua added that he 2. WON there was a perfected contract of sale between petitioners and respondents
would indicate in their final offer more specific details of the payment mechanics with respect to the Phimco shares.
and consider the possibility of signing a conditional sale at that time.
- Two days prior to the deadline for submission of the final bid, Litonjua again HELD
advised Rossi that they would be unable to submit the final offer by 30 June 1990, 1. YES.
considering that the acquisition audit of Phimco and the review of the draft The Statute of Frauds embodied in Article 1403, paragraph (2), of the Civil Code[22]
agreements had not yet been completed. He said, however, that they would be requires certain contracts enumerated therein to be evidenced by some note or
able to finalize their bid on 17 July 1990 and that in case their bid would turn out memorandum in order to be enforceable. The term “Statute of Frauds” is
better than any other proponent, they would remit payment within 10 days from the descriptive of statutes which require certain classes of contracts to be in writing.
execution of the contracts. The Statute does not deprive the parties of the right to contract with respect to the
- Enriquez sent notice to Litonjua that they would be constrained to entertain bids matters therein involved, but merely regulates the formalities of the contract
from other parties in view of Litonjua’s failure to make a firm commitment for the necessary to render it enforceable.[23] Evidence of the agreement cannot be
shares of Swedish Match in Phimco by 30 June 1990. received without the writing or a secondary evidence of its contents.
- In a letter dated 3 July 1990, Rossi informed Litonjua that on 2 July 1990, they - The Statute, however, simply provides the method by which the contracts
signed a conditional contract with a local group for the disposal of Phimco. He told enumerated therein may be proved but does not declare them invalid because they
Litonjua that his bid would no longer be considered unless the local group would fail are not reduced to writing. By law, contracts are obligatory in whatever form they
to consummate the transaction on or before 15 September1990. may have been entered into, provided all the essential requisites for their validity
- Irked by SMAB’s decision to junk his bid, Litonjua asserted that, for all intents and are present. However, when the law requires that a contract be in some form in
purposes, the US$36 million bid which he submitted on 21 May 1990 was their final order that it may be valid or enforceable, or that a contract be proved in a certain
bid based on the financial statements for the year 1989. He pointed out that they way, that requirement is absolute and indispensable. Consequently, the effect of
submitted the best bid and they were already finalizing the terms of the sale. He non-compliance with the requirement of the Statute is simply that no action can be
stressed that they were firmly committed to their bid of US$36 million and if ever enforced unless the requirement is complied with.Clearly, the form required is for
there would be adjustments in the bid amount, the adjustments were brought about evidentiary purposes only. Hence, if the parties permit a contract to be proved,
by SMAB’s subsequent disclosures and validated accounts, such as the aspect that without any objection, it is then just as binding as if the Statute has been complied
only 96% of Phimco shares was actually being sold and not 100%. with.
- More than two months from receipt of Litonjua’s last letter, Enriquez advised the - The purpose of the Statute is to prevent fraud and perjury in the enforcement of
former that the proposed sale of SMAB’s shares in Phimco with local buyers did not obligations depending for their evidence on the unassisted memory of witnesses, by
materialize. Enriquez then invited Litonjua to resume negotiations with SMAB for requiring certain enumerated contracts and transactions to be evidenced by a
the sale of Phimco shares. He indicated that SMAB would be prepared to negotiate writing signed by the party to be charged. However, for a note or memorandum to
with ALS on an exclusive basis for a period of fifteen (15) days from 26 September satisfy the Statute, it must be complete in itself and cannot rest partly in writing
1990 subject to the terms contained in the letter. Additionally, Enriquez clarified and partly in parol. The note or memorandum must contain the names of the
that if the sale would not be completed at the end of the fifteen (15)-day period, parties, the terms and conditions of the contract, and a description of the property
SMAB would enter into negotiations with other buyers. sufficient to render it capable of identification. Such note or memorandum must
- Litonjua expressed his objections to the totally new set of terms and conditions for contain the essential elements of the contract expressed with certainty that may be
the sale of the Phimco shares and emphasized that the new offer constituted an ascertained from the note or memorandum itself, or some other writing to which it
attempt to reopen the already perfected contract of sale of the shares in his favor. refers or within which it is connected, without resorting to parol evidence.
He intimated that he could not accept the new terms and conditions contained - Contrary to the CA’s conclusion, the exchange of correspondence between the
therein. Thus, ALS filed before the RTC of Pasig a complaint for specific performance parties hardly constitutes the note or memorandum within the context of Art 1403.
Obligations and Contracts A2010 page
178 Prof. Labitag
Rossi’s letter, heavily relied upon by respondents, is not complete in itself. First, it manner of payment of the purchase price is an essential element before a valid and
does not indicate at what price the shares were being sold. In paragraph (5) of the binding contract of sale can exist since the agreement on the manner of payment
letter, respondents were supposed to submit their final offer in U.S. dollar terms, at goes into the price such that a disagreement on the manner of payment is
that after the completion of the due diligence process. The paragraph undoubtedly tantamount to a failure to agree on the price.
proves that there was as yet no definite agreement as to the price. Second, the - Granting arguendo, that the amount of US$36 million was a definite offer, it would
letter does not state the mode of payment of the price. In fact, Litonjua was remain as a mere offer in the absence of evidence of its acceptance. To produce a
supposed to indicate in his final offer how and where payment for the shares was contract, there must be acceptance, which may be express or implied, but it must
planned to be made. not qualify the terms of the offer. The acceptance of an offer must be unqualified
2. NO and absolute to perfect the contract. In other words, it must be identical in all
In the case of a contract of sale, required is the concurrence of three elements, to respects with that of the offer so as to produce consent or meeting of the minds.
wit: (a) consent or meeting of the minds, that is, consent to transfer ownership in Respondents’ attempt to prove the alleged verbal acceptance of their US$36 million
exchange for the price; (b) determinate subject matter, and (c) price certain in bid becomes futile in the face of the overwhelming evidence on record that there
money or its equivalent. Such contract is born from the moment there is a meeting was in the first place no meeting of the minds with respect to the price. It is
of minds upon the thing which is the object of the contract and upon the price. dramatically clear that the US$36 million was not the actual price agreed upon but
- In general, contracts undergo three distinct stages, to wit: negotiation; perfection merely a preliminary offer which was subject to adjustment after the conclusion of
or birth; and consummation. Negotiation begins from the time the prospective the audit of the company finances. Respondents’ failure to submit their final bid on
contracting parties manifest their interest in the contract and ends at the moment the deadline set by petitioners prevented the perfection of the contract of sale. It
of agreement of the parties. Perfection or birth of the contract takes place when the was not perfected due to the absence of one essential element which was the price
parties agree upon the essential elements of the contract. Consummation occurs certain in money or its equivalent.
when the parties fulfill or perform the terms agreed upon in the contract, - Respondents’ plea of partial performance should likewise fail. The acquisition
culminating in the extinguishment thereof. audit and submission of a comfort letter, even if considered together, failed to
A negotiation is formally initiated by an offer. A perfected promise merely tends to prove the perfection of the contract. Quite the contrary, they indicated that the sale
insure and pave the way for the celebration of a future contract. An imperfect was far from concluded. Respondents conducted the audit as part of the due
promise (policitacion), on the other hand, is a mere unaccepted offer. Public diligence process to help them arrive at and make their final offer. On the other
advertisements or solicitations and the like are ordinarily construed as mere hand, the submission of the comfort letter was merely a guarantee that
invitations to make offers or only as proposals. At any time prior to the perfection respondents had the financial capacity to pay the price in the event that their bid
of the contract, either negotiating party may stop the negotiation. The offer, at this was accepted by petitioners.
stage, may be withdrawn; the withdrawal is effective immediately after its - The Statute of Frauds is applicable only to contracts which are executory and not
manifestation, such as by its mailing and not necessarily when the offeree learns of to those which have been consummated either totally or partially. If a contract has
the withdrawal. been totally or partially performed, the exclusion of parol evidence would promote
- An offer would require, among other things, a clear certainty on both the object fraud or bad faith, for it would enable the defendant to keep the benefits already
and the cause or consideration of the envisioned contract. Consent in a contract of derived by him from the transaction in litigation, and at the same time, evade the
sale should be manifested by the meeting of the offer and the acceptance upon the obligations, responsibilities or liabilities assumed or contracted by him thereby. This
thing and the cause which are to constitute the contract. The offer must be certain rule, however, is predicated on the fact of ratification of the contract within the
and the acceptance absolute. A qualified acceptance constitutes a counter-offer.[41] meaning of Article 1405 of the Civil Code either (1) by failure to object to the
- Quite obviously, Litonjua’s letter proposing the acquisition of the Phimco shares for presentation of oral evidence to prove the same, or (2) by the acceptance of
US$36 million was merely an offer. This offer, however, in Litonjua’s own words, “is benefits under them. In the instant case, respondents failed to prove that there
understood to be subject to adjustment on the basis of an audit of the assets, was partial performance of the contract within the purview of the Statute.
liabilities and net worth of Phimco and its subsidiaries and on the final negotiation
between ourselves.” CARBONNEL V PONCIO
Litonjua repeatedly stressed in his letters that they would not be able to submit CONCEPCION; May 12,1958
their final bid by 30 June 1990. With indubitable inconsistency, respondents later
claimed that for all intents and purposes, the US$36 million was their final bid. If NATURE
this were so, it would be inane for Litonjua to state, as he did, in his letter dated 28 APPEAL from an order of the Court of First Instance of Rizal. Caluag, J.
June 1990 that they would be in a position to submit their final bid only on 17 July
1990. The lack of a definite offer on the part of respondents could not possibly FACTS
serve as the basis of their claim that the sale of the Phimco shares in their favor - Plaintiff Rosario Carbonnel filed this case with the Court of First Instance of Rizal
was perfected, for one essential element of a contract of sale was obviously wanting alleging that on January 27, 1955, she purchased from defendant Jose Poncio, at
—the price certain in money or its equivalent. The price must be certain, otherwise P9.50 a square meter, a parcel of land of about 195 square meters, more or less,
there is no true consent between the parties.[44] There can be no sale without a located in San Juan del Monte, Rizal. Plaintiff allegedly paid P247.26 on account of
price. Quite recently, this Court reiterated the long-standing doctrine that the
Obligations and Contracts A2010 page
179 Prof. Labitag
the price and assumed Poncio's obligation with the Republic Savings Bank - In the words of former Chief Justice Moran: "The reason is simple. In executory
amounting to P1,177.48, with the understanding that the balance would be payable contracts there is a wide field for fraud because unless they be in writing there is no
upon execution of the corresponding deed of conveyance. Poncio however palpable evidence of the intention of the contracting parties. The statute has
allegedly refused to convey the title to the plaintiff and conveyed the same precisely been enacted to prevent fraud." (Comments on the Rules of Court, by
property to defendants Infante spouses who knew of the first sale to plaintiff. Moran, Vol. 111 [1957 ed.], p. 178.) However, if a contract has been totally or
- Plaintiff prayed, therefore, that she be declared owner of the land in question; that partially performed, the exclusion of parol evidence would promote fraud or bad
the sale to the Infantes be annulled; that Poncio be required to execute the faith, for it would enable the defendant to keep the benefits already derived by him
corresponding deed of conveyance in plaintiff's favor; that the Register of Deeds of from the transaction in litigation, and, at the same time, evade the obligations,
Rizal be directed to issue the corresponding title in plaintiff's name; and that responsibilities or liabilities assumed or contracted by him thereby.
defendants be sentenced to pay damages. Defendants moved to dismiss said - For obvious reasons, it is not enough for a party to allege partial performance in
complaint upon the ground that plaintiff's claim is unenforceable under the Statute order to hold that there has been such performance and to render a decision
of Frauds, and that said pleading does not state facts sufficient to constitute a declaring that the Statute of Frauds is inapplicable. But neither is such party
cause of action. The motion was denied, "without prejudice to considering, when required to establish such partial performance by documentary proof before he
this case is decided on the merits, whether the same falls under the Statute of could have the opportunity to introduce oral testimony on the transaction. Indeed,
Frauds." such oral testimony would usually be unnecessary if there were documents proving
- As the case came up for trial, on February 23, 1956, plaintiff introduced the partial performance. Thus, the rejection of any and all testimonial evidence on
testimony of one Constancio Meonada, who corroborated the existence of a partial performance, would nullify the rule that the Statute of Frauds is inapplicable
document written in Ivatan (Batanes language) purporting to effect the sale, which to contracts which have been partly executed, and lead to the very evils that the
was translated as follows: "From this date, January 27, Jose Poncio may stay in this statute seeks to prevent.
lot that I bought from him until one year without payment. After that one year and - The true basis of the doctrine of part performance according to the overwhelming
he cannot find any place where to transfer his house, he can also stay in this lot weight of authority, is that it would be a fraud upon the plaintiff if the defendant
and he will pay according to agreement. were permitted to escape performance of his part of the oral agreement after he
- Then, taking the witness stand, plaintiff testified that she has known Poncio since has permitted the plaintiff to perform in reliance upon the agreement. The oral
childhood, he being related to her mother; that Poncio's lot adjoins her lot, in San contract is enforced in harmony with the principle that courts of equity will not allow
Juan, Rizal; that one day Poncio told her that he wanted to sell his property; that, the statute of frauds to be used as all instrument of fraud. In other words, the
after both had agreed on its price, he said that his lot is mortgaged to the Republic doctrine of part performance was established for the same purpose for which the
Savings Bank; and that, at noon time, on the same clay, he came back stating that statute of frauds itself was enacted, namely, for the, prevention of, and fraud, and
both would "go to the bank to pay the balance in arrears." At this juncture, defense arose from the necessity of preventing, the statute from becoming an agent of
counsel moved to strike out the statement of the witness, invoking, in support of fraud for it could not have been the intention of the statute to enable any party to
the motion, the Statute of Frauds. Later on, the lower court issued an order commit a fraud with impunity." (49 Am. Jur., 725-726; italics supplied.)
dismissing plaintiff's complaint, without costs, upon the ground that her cause of - When the party concerned has pleaded partial performance, such part is entitled
action is unenforceable under the Statute of Frauds. The counterclaims were, also, to a reasonable chance to establish by parol evidence the truth of this allegation, as
dismissed. well as the contract itself. "The recognition of the exceptional effect of part
- Hence, this appeal by plaintiff with the theory that the Statute of Frauds cannot be performance in taking an oral contract out of the statute of frauds involves the
invoked by respondents because it only applies to executory contracts. As borne by principle that oral evidence is admissible in such cases to prove both the contract
the evidence, there was already partial performance. The nature of the contract in and the part performance of the contract" (49 Am. Jur., 927).
this case is therefore no longer covered by the term “executory.” - Upon submission of the case for decision on the merits, the Court should
determine whether said allegation is true, bearing in mind that parol evidence is
ISSUE easier to concoct and more likely to be colored or inaccurate than documentary
WON the lower court erred in holding that the Statute of Frauds bars the plaintiff’s evidence. If the evidence of record fails to prove clearly that there has been partial
cause of action. performance, then the Court should apply the Statute of Frauds, if the cause of
action involved falls within the purview thereof. If the Court is, however, convinced
HELD that the obligation in question has been partly executed and that the allegation of
YES partial performance was not resorted to as a devise to circumvent the Statute, then
Ratio The Statute of Frauds is applicable only to executory contracts not to the same should not be applied.
contracts that are totally or partially performed. - Apart from the foregoing, there are in the case at bar several circumstances
Reasoning “It is well settled in Great Britain and in this country, with the indicating that plaintiff's claim might not be entirely devoid of factual basis. Thus,
exception of a few states, that a sufficient part performance by the purchaser under for instance, Poncio admitted in his answer that plaintiff had offered several times
a parol contract for the sale of real estate removes the contract from the operation to purchase his land. The fact that Poncio’s bank book is with the plaintiff should be
of the statute of frauds." (49 Am. Jur. 722-723.) also clarified in a full trial.
Obligations and Contracts A2010 page
180 Prof. Labitag
- Without expressing any opinion on the merits of plaintiff's claim, it is clear, the parties where it finds them. This doctrine finds expression in the maxims “ex
therefore, that she is entitled, legally as well as from the viewpoint of equity, to an dolo malo non oritur actio' and 'in pari delicto potior est conditio defendentis.”
opportunity to introduce parol evidence in support of the allegations of her second - The Court found the application of the pari delicto theory in a criminal case to be
amended complaint. Wherefore, the order appealed from is hereby set aside, and strange, to say the least. In the first place, the rule on pari delicto is a rule in civil
let this case be REMANDED to the lower court for further proceedings not law. It is principally governed by Articles 1411 and 1412 of the Civil Code under the
inconsistent with this decision, with the costs of this instance against defendants- Chapter on Void or Inexistent Contracts, and presupposes a situation where the
appellees. It is so ordered. parties are in culpability similarly situated, i.e., in eodem loco.
- That this rule can by no means apply in a criminal ease is evidenced by the
UBARRA V MAPALAD aforesaid Article 1411 which provides in part that "When the nullity proceeds from
PER CURIAM; March 22,1993 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
NATURE each other, and both shall be prosecuted." Secondly, in view of the broader grounds
ADMINISTRATIVE MATTER in the Supreme Court. Grave Misconduct. of public policy, the rule may not be invoked against the State. Thirdly, in the
prosecution of public crimes, the complainant is the State while the private
FACTS offended party is but a complaining witness. Any criminal act perpetrated by the
- Complainant Atty. Manuel T. Ubarra, on behalf of his client Juanito A. Calderon, latter on the occasion of the commission of the crime, or which may have given rise
charges respondent, the Presiding Judge of the MTC of Pulilan, Bulacan, with grave to the criminal act imputed to the accused is not the act or conduct of the State and
misconduct, knowingly rendering an unjust judgment, the violation of the Canons of can by no means bind it under the doctrine of pari delicto. To rule otherwise would
Judicial Ethics and the failure to decide within the mandated ninety-day period be to establish a dangerous doctrine which would irreparably weaken the very
Criminal Case No. 89-3905. foundations of the criminal justice system and frustrate the administration of
- Juanito A. Calderon, the offended party in said Criminal Case No. 89-3905 and justice. Whatever wrongful act may have been committed by the offended party
Criminal Case No. 90-4056, another action for Grave Threats. may only be invoked to justify the accused's own act or mitigate his liability.
- Calderon alleges in his affidavit that in the course of the trial of Criminal Case No. - In spite of all this, however, the respondent may not necessarily be liable for
89-3905 before the MTC, he noted that accused Roberto Crude worked as a rendering an unjust judgment as there is no convincing evidence on record to show
houseboy of the respondent; by that time, he (Calderon) had already observed the that she knew such judgment to be unjust and that she rendered the same with the
latter's partiality in favor of the said accused conscious and deliberate intent to commit an injustice. She could only be, as she is
- Criminal Case No. 89-3905 was submitted for decision on 27 March 1990; on 9 hereby found, guilty of gross ignorance of the law.
August 1991, Roberto Crude married Annabelle V Manlangit, respondent's youngest - The Court noted with grave concern the respondent's revelation in her Answer that
sister; it was the respondent herself who solemnized that marriage at her office, as "she interceeded in the settlement of the cases pending against" Roberto Cruda. By
evidenced by the marriage contract; despite such marriage, respondent did not such admission, it is clear that the respondent acted as counsel for the accused. It
inhibit herself from hearing Criminal Case No 89-3905 and instead proceeded to is therefore evident that she is guilty of improper conduct, which could only serve to
render and promulgate, on 17 October 1991, a judgment acquitting Cruda, her diminish public confidence in the integrity and impartiality of the judiciary. Her
brother-in-law. behavior amounted to a violation of Rule 2.01, Canon 2 of the Code of Judicial
- The answer to the letter-complaint, filed by the respondent was devoted mostly to Conduct.
a narration of her sincere and honest efforts to reform and rehabilitate Roberto Disposition For grave misconduct, gross inefficiency and neglect of duty, gross
Cruda. ignorance of the law and conduct prejudicial to the best interest of the service,
- She denies having knowingly rendered an unjust judgment in favor of her brother- respondent JUDGE LUZVIMINDA M. MAPALAD was DISMISSED from the service with
in-law because she "was persuaded to dismiss the same not on account that the forfeiture of all benefits, except for the monetary value of her accrued leaves, and
guilt of Cruda was not proven beyond reasonable doubt but by the very reason that with prejudice to re-employment in any branch or service of the government,
both the private complainant and the accused therein were in pari delicto." including government owned or controlled corporations.
- The Court referred the case to the Executive Judge of the RTC of Malolos, Bulacan
who recommended that proper penalty be imposed upon the respondent Judge. MODINA V COURT OF APPEALS
YNARES-SANTIAGO; April 30, 2003
ISSUE
WON the respondent have knowingly rendered an unjust judgment NATURE
Petition for certiorari to review CA decision affirming the RTC decision in the case
HELD entitled “Serafin Modina v Ernesto Hontarciego, Paulino Figueroa and Ramon Chiang
NO. Under the pari delicto doctrine, where the parties to a controversy are equally v Merlinda Plana Chiang, intervenors”, which declared as void and inexistent the
culpable or guilty, they shall have no action against each other, and it shall leave deed of definite sale dated December 17, 1975 as well as the Certificates of Title
Nos. T-86912, T-86913, T-86914 in the name of Ramon Chiang.
Obligations and Contracts A2010 page
181 Prof. Labitag
matter, whether the attendant facts constitute an offense or misdemeanor or
FACTS whether the consideration involved is merely rendered illegal.
-The parcels of land in question are those under the name of Ramon Chiang Reasoning RTC & CA’s statements that it is likewise null and void for being
(CHIANG). He theorized that subject properties were sold to him by his wife, violative of Article 1490 should just be treated as an obiter dictum as the issue of
Merlinda Plana Chiang (MERLINDA), as evidenced by a Deed of Absolute Sale dated whether the parcels of land in dispute are conjugal in nature or they fall under the
December 17, 1975, and were subsequently sold by CHIANG to petitioner Serafin exceptions provided for by law, was neither raised nor litigated upon before the
Modina (MODINA), as shown by the Deeds of Sale, dated August 3, 1979 and August lower court.
24, 1979, respectively. 1b. YES
-MODINA brought a Complaint for Recovery of Possession with Damages against the Since one of the characteristics of a void or inexistent contract is that it does not
private respondents Ernesto Hontarciego, Paul Figueroa and Teodoro Hipalla before produce any effect, MERLINDA can recover the property from petitioner who never
the Iloilo City RTC. MERLINDA presented a Complaint-in-intervention, seeking the acquired title thereover.
declaration of nullity of the Deed of Sale between her husband and MODINA on the 2. NO
ground that the titles of the parcels of land in dispute were never legally transferred MODINA is not a purchaser in good faith. CA found that there were circumstances
to her husband. Fraudulent acts were allegedly employed by him to obtain a known to MODINA which rendered their transaction fraudulent under the attendant
Torrens Title in his favor. However, she confirmed the validity of the lease contracts circumstances.
with the other private respondents. - There are circumstances which are indicia of bad faith on his part.
-MERLINDA also admitted that the said parcels of land were those ordered sold by (1) He asked his nephew, Placido Matta, to investigate the origin of the property
Branch 2 of CFI Iloilo in “Intestate Estate of Nelson Plana” where she was appointed and the latter learned
as the administratix, being the widow of the deceased, her first husband. An (a) that the same formed part of the properties of MERLINDA’s first husband;
Authority to Sell was issued by the said Probate Court for the sale of the same (b) that the said sale was between the spouses; and
properties. (2) When the property was inspected, MODINA met all the lessees who informed
-RTC decided in favor of MERLINDA: that subject lands belong to MERLINDA and they had no knowledge that the same
(1) declaring as void and inexistent the sale of subject lots by MERLINDA in favor of lots were sold to the husband.
CHIANG as well as the Certificates of Title in the name of Ramon Chiang; Ratio As a general rule, in a sale under the Torrens system, a void title cannot give
(2) declaring as void and inexistent the sale of the same properties by CHIANG in rise to a valid title. The exception is when the sale of a person with a void title is to
favor of MODINA as well as Certificates of Title in the name of Serafin Modina; a third person who purchased it for value and in good faith.
(3) ordering the Register of Deeds of Iloilo to cancel said certificates of title in the - A purchaser in good faith is one who buys the property of another without notice
names of Ramon Chiang and Serafin Modina and to reinstate the original that some other person has a right to or interest in such property and pays a full
Certificates of Title in the name of Nelson Plana; and fair price at the time of the purchase or before he has notice of the claim or
(4) ordering MODINA to vacate and restore possession of the lots in question to interest of some other person in the property.
MERLINDA; - A purchaser cannot close his eyes to facts which would put a reasonable man
(5) ordering CHIANG to restitute and pay to MODINA the sum of P145.8k; and upon his guard to make the necessary inquiries, and then claim that he acted in
(6) ordering MODINA to pay Ernesto Hontarciego the sum of P44.5k (actual and good faith. His mere refusal to believe that such defect exists, or his wilful closing
compensatory damages) +P5k (attorney’s fees), with costs in favor of said of his eyes to the possibility of the existence of a defect in his vendor’s title, will not
defendants against the plaintiff. make him an innocent purchaser for value, if it afterwards develops that the title
CA affirmed RTC decision in toto. was in fact defective, and it appears that he had such notice of the defect as would
have led to its discovery had he acted with that measure of precaution which may
ISSUES reasonably be required of a prudent man in a like situation.
1a. WON MERLINDA is barred by the principle of in pari delicto from questioning 3. YES
subject Deed of Sale Ratio A CFI (now RTC) has jurisdiction over a case brought to rescind a sale made
1b. WON the sale of subject lots should be nullified upon prior authority of a Probate Court. This does not constitute an interference or
2. WON MODINA was a purchaser in good faith review of the order of a co-equal Court since the Probate Court has no jurisdiction
3. WON RTC decision was tainted with excess of jurisdiction over the question of title to subject properties. Consequently, a separate action
4. WON only 3/4 of subject lots should be returned to the private respondent may be brought to determine the question of ownership
4. NO
HELD Ratio In a Petition for Review, only questions of law may be raised. An issue which
1a. NO was neither averred in the Complaint nor raised during the trial before the lower
Ratio As the contracts under controversy are inexistent contracts within legal court cannot be raised for the first time on appeal, as such a recourse would be
contemplation, Articles 1411 and 1412 of the New Civil Code are inapplicable. In offensive to the basic rules of fair play, justice, and due process.
pari delicto doctrine applies only to contracts with illegal consideration or subject - This issue was never an issue before the lower court and therefore, the petitioner
cannot do it now.
Obligations and Contracts A2010 page
182 Prof. Labitag
Disposition Petition denied. CA decision affirmed. - The law that should govern the particular transaction is not the above directive
but the Constitution adopted by the then Republic of the Philippines on September
RELLOSA V GAW CHEEN HUM 4, 1943, because the transaction was executed on February 2, 1944.
BAUTISTA-ANGELO; September 29, 1953 Article VIII, Sec. 5. No private agricultural land shall be transferred or assigned
except to individuals, corporations, or associations qualified to acquire or hold lands
NATURE of the public domain in the Philippines.
Petition for review by certiorari of a decision of the Court of Appeals - Private agricultural land includes residential lands, as this has already been
interpreted in the affirmative by this court in the recent case of Krivenko v.
FACTS Register of Deeds, 79 Phil. 461, wherein this court held that "under the
- On February 2, 1944, Dionisio Rellosa sold to Gaw Chee Hun a parcel of land, Constitution aliens may not acquire private or public agricultural lands, including
together with the house erected thereon, situated in the City of Manila, Philippines, residential lands."
for the sum of P25,000. The vendor remained in possession of the property under a - ‘In Pari delicto potior est conditio defendentis’:
contract of lease entered into on the same date between the same parties. The proposition is universal that no action arises, in equity or at law, from an illegal
- The sale was executed subject to the condition that the vendee, a Chinese citizen, contract; no suit can be maintained for its specific performance, or to recover the
would obtain the approval of the Japanese Military Administration in accordance property agreed to be sold or delivered, or the money agreed to be paid, or
with Seirei No. 6 issued on April 2, 1943, by the Japanese authorities. The said damages for its violation. No affirmative relief of any kind will be given to one
approval has not been obtained. Even if said requirement were met, the sale would against the other.
at all events be void under article XIII, section 5, of our Constitution, - The doctrine is subject to one important limitation: whenever public policy is
Seirei No. 6. Prohibits an alien from acquiring any private land not agricultural in considered as advanced by allowing either party to sue for relief against the
nature during the occupation unless the necessary approval is obtained from the transaction. The cases in which this limitation may apply include the class of
Director General of the Japanese Military Administration. contracts which are intrinsically contrary to public policy, contracts in which the
Petitioner’s Claim illegality itself consists in their opposition to public policy, and any other species of
- The sale in question cannot have any validity under Seirei 6 in view of the failure illegal contracts in which, from their particular circumstances, incidental and
of respondent to obtain the requisite approval; collateral motives of public policy require relief, e.g. usurious contracts, marriage-
- It was error for the Court of Appeals to declare said directive without any binding brokerage contracts and gambling contracts.
effect because the occupation government could not have issued it under article 43 - The contract in question does not come under this exception because it is not
of the Hague Regulations which command that laws that are municipal in character intrinsically contrary to public policy, It is illegal because it is against the
of an occupied territory should be respected and cannot be ignored unless Constitution. Nor may it be contended that to apply the doctrine of pari delicto
prevented by military necessity. would be tantamount to contravening the fundamental policy embodied in the
Respondent’s Comment constitutional prohibition in that it would allow an alien to remain in the illegal
The sale referred to in the complaint was absolute and unconditional and was in possession, of the land, because in this case the remedy is lodged elsewhere. To
every respect valid and binding between the parties, it being not contrary to law, adopt the contrary view would be merely to benefit petitioner and not to enhance
morals and public order, and that plaintiff is guilty of estoppel in that, by having public interest.
executed a deed of lease over the property, he thereby recognized the title of 2.
defendant to that property. Ratio The petitioner is prohibited from invoking Pari Delicto.
Reasoning There are at present two ways by which this situation may be
ISSUES remedied:
1. WON the sale in question is valid action for reversion;
2. If it were valid, WON an action may be maintained under the principle of pari escheat to the state.
delicto - Escheat proceedings may be instituted as a consequence on a violation of article
XIII, section 5 of our Constitution, which prohibits transfers of private agricultural
HELD lands to aliens, whereas an action for reversion is expressly authorized by the Public
1. Land Act. Escheat is an incident or attribute of sovereignty, and rests on the
Ratio The plaintiffs are now prevented from invoking the Constitution or the principle of the ultimate ownership by the state of all property within its jurisdiction.
doctrine in the Krivenko case so if their purpose is to recover the lands that they - If escheat lies against aliens holding lands in those states of the Union where
have voluntarily parted with, because of their guilty knowledge that what they were common law prevails or where similar constitutional or statutory prohibitions exist,
doing was in violation of the Constitution no cogent reason is perceived why similar proceedings may not be instituted in this
Reasoning A party to an illegal contract cannot come into a court of law and ask to jurisdiction.
have his illegal objects carried out. The law will not aid either party to an illegal - By following either of these remedies, or by approving an implementary law as
agreement; it leaves the parties where it finds them. above suggested, we can enforce the fundamental policy of our Constitution
regarding our natural resources without doing violence to the principle of pari
Obligations and Contracts A2010 page
183 Prof. Labitag
delicto. With these remedies there is no justifiable reason for pursuing the extreme - On NoV 18, 1958 she executed 2 other contracts, one extending the term of the
unusual remedy now vehemently urged by the amici curiae. lease to 99 yrs., and another fixing the term of the option at 50 yrs.
Disposition The sale in question is null and void, but plaintiff is barred from taking - In two wills executed on Aug 24 and 29, 1959, she bade her legatees to respect
the present action under the principle of pari delicto. the contracts she had entered into with Wong, but in a codicil (a post-script) of a
later date (NoV 4, 1959) she appears to have a change of heart. Claiming that the
PHILIPPINE BANKING CORPORATION V LUI SHE various contracts were made by her because of machinations and inducements
CASTRO; September 12, 1967 practiced by him, she now directed her executor to secure the annulment of the
contracts.
NATURE Note: both Santos and Wong died while case was pending, and both were replaced
APPEAL from judgment of the Court of First Instance of Manila by Phil. Banking Corp. (PBC) and Lui She (the wife) respectively.
Lower court declared contracts null and void save for the lease contract executed
FACTS Nov 15, 1957. Both parties appealed.
- Justina Santos and her sister Lorenza were the owners of a piece of land in Manila Petitioner’s arguments
located on Rizal Avenue and opens into Florentino Torres street at the back and - the contracts were obtained by Wong “through fraud, misrepresentation,
Katubusan street on one side. In it are two residential houses with entrance on inequitable conduct, undue influence and abuse of confidence and trust of and (by)
Florentino Torres street and the Hen Wah Restaurant with entrance on Rizal taking advantage of the helplessness of the plaintiff and were made to circumvent
Avenue. The sisters lived in one of the houses, while Wong Heng, a Chinese, lived the constitutional prohibition prohibiting aliens from acquiring lands in the
with his family in the restaurant. Wong had been a long-time lessee of a portion of Philippines and also of the Philippine Naturalization Laws.”
the property, having a monthly rental of P2,620. - lease contract should have been annulled with the 4 other contracts because it
- On Sept. 22, 1957 Justina Santos became the owner of the entire property as her lacks mutuality; because it included a portion which, at the time, was in custodia
sister died with no other heir. Then already well advanced in yrs., being at the time legis because the contract was obtained in violation of the fiduciary relations of
90 yrs. old, blind, crippled and an invalid, she was left with no other relative to live parties; because her consent was obtained through undue influence, fraud and
with. Her only companions in the house were her 17 dogs and 8 maids (kamusta misrepresentation; and because the lease contract, like the other contracts, is
naman.). Wong himself was the trusted man to whom she delivered various absolutely simulated.
amounts for safekeeping, including rentals from her property at the corner of Respondent’s arguments
Ongpin and Salazar streets and the rentals which Wong himself paid as lessee of a - admitted he enjoyed her trust and confidence as proof of which he volunteered
part of the Rizal Avenue property. Wong also took care of the payment, in her the information that, in addition to the sum of P3,000 which he said she had
behalf, of taxes, lawyers’ fees, funeral expenses, masses, salaries of maids and delivered to him for safekeeping, another sum of P22,000 had been deposited in a
security guard, and her household expenses. joint account which he had with one of her maids. But he denied having taken
- “In grateful acknowledgement of the personal services of the Lessee to her,” advantage of her trust in order to secure the execution of the contracts in question.
Santos executed on NoV 15, 1957, a contract of lease in favor of Wong, covering
the portion then already leased to him and another portion fronting Florentino ISSUES
Torres street. The lease was for 50 yrs., although the lessee was given the right to 1. WON the provision “lessee may at any time withdraw from the agreement”
withdraw at any time from the agreement; the monthly rental was P3,120. The makes the contract invalid
contract covered only a portion of the land. 10 days later (NoV 25), the contract was 2. WON the property cannot be leased for being in custodio legis, thus making
amended so as to make it cover the entire property, including the portion on which contract of lease void
the house of Santos stood, at an additional monthly rental of P360. For his part 3. WON contracts are void for being violative of fiduciary relationship, contrary to
Wong undertook to pay, out of the rental due from him, an amount not exceeding Art. 16468
P1,000 a month for the food of her dogs and the salaries of her maids. 4. WON consent of Santos was valid
- On Dec. 21 she executed contract giving Wong the option to buy the leased 5. WON the contracts are void for trying to circumvent Philippine laws against
premises for P120,000, payable within ten yrs. at a monthly installment of P1,000. alienation of property to foreigners
The option, written in Tagalog, imposed on him the obligation to pay for the food of
the dogs and the salaries of the maids in her household, the charge not to exceed HELD
P1,800 a month and was conditioned on his obtaining Philippine citizenship, a 1. NO
petition for which was then pending in the CFI of Rizal. However, this application for Ratio The stipulation in the contract does not violate Art.1308 CC, for it is
naturalization was withdrawn when it was discovered that he was not a resident of considered as a resolutory condition to the contract, permitting the cancellation of
Rizal. On Oct 28, 1958 she filed a petition to adopt him and his children on the such contract.
erroneous belief that adoption would confer on them Philippine citizenship. The
error was discovered and the proceedings were abandoned. 8
Disqualifies agents from leasing the property whose administration or sale may
have been entrusted to them
Obligations and Contracts A2010 page
184 Prof. Labitag
Reasoning It is claimed that the stipulation offends Art. 1308 CC which provides Ratio The collection of contracts, as well as the intentions of Santos, shows a
that "the contract must bind both contracting parties; its validity or compliance scheme to circumvent the Constitutional prohibition against the transfer of land of
cannot be left to the will of one of them." aliens, thus making each contract void.
As was held in Taylor v Uy Tiong Piao, “art. 1256 [now art. 1308] CC in our opinion Reasoning “The illicit purpose then becomes the illegal cause rendering the
creates no impediment to the insertion in a contract for personal service of a contracts void.” Taken singly, the contracts show nothing that is necessarily illegal,
resolutory condition permitting the cancellation of the contract by one of the but considered collectively, they reveal an insidious pattern to subvert by
parties. Such a stipulation, as can be readily seen, does not make either the indirection what the Constitution directly prohibits. To be sure, a lease to an alien
validity or the fulfillment of the contract dependent upon the will of the party to for a reasonable period is valid, so is an option giving an alien the right to buy real
whom is conceded the privilege of cancellation; for where the contracting parties property on condition that he is granted Philippine citizenship.
have agreed that such option shall exist, the exercise of the option is as much in However, if an alien is given not only a lease of, but also an option to buy, a piece of
the fulfillment of the contract as any other act which may have been the subject of land, by virtue of which the Filipino owner cannot sell or otherwise dispose of his
agreement, Indeed, the cancellation of a contract in accordance with conditions property, this to last for 50 years, then it becomes clear that the arrangement is a
agreed upon beforehand is fulfillment.” virtual transfer of ownership whereby the owner divests himself in stages not only
The right of the lessee to continue the lease or to terminate it is so circumscribed of the right to enjoy the land (jus possidendi, jus utendi, jus fruendi and jus
by the term of the contract that it cannot be said that the continuance of the lease abutendi), but also of the right to dispose of it (jus disponendi) rights the sum total
depends upon his will. At any rate, even if no term had been fixed in the of which make up ownership. It is just as if today the possession is transferred,
agreement, this case would at most justify the fixing of a period but not the tomorrow, the use, the next day, the disposition, and so on, until ultimately all the
annulment of the contract. rights of which ownership is made up are consolidated in an alien. And yet this is
2. NO just exactly what the parties in this case did within this pace of one year, with the
Ratio Ownership of the property (that used to belong to her sister) transferred to result that Santos’ ownership of her property was reduced to a hollow concept. If
Santos upon the death of the sister, thus enabling her to bind such in contracts this can be done, then the Constitutional ban against alien landholding in the Phil,
Reasoning Santos became the owner of the entire property upon the death of her as announced in Krivenko, is in grave peril.
sister Lorenza on September 22, 1957 by force of art. 777 CC. Hence, when she Disposition: Contracts annulled and set aside.
leased the property on NoV15, she did so already as owner thereof.
3. NO
Ratio Art.1646 is not violated for Wong was never an agent for Santos.
Reasoning The relationship of the parties, although admittedly close and
confidential, did not amount to an agency so as to bring the case within the
prohibition of the law. SEPARATE OPINION
Atty. Yumol testified that she signed the lease contract in the presence of her close
friend and her maid who was constantly by her side. Any of them could have FERNANDO [ concur]
testified on the undue influence that Wong supposedly wielded over Santos, but -he is in full agreement with the majority opinion. He wrote this separate opinion
neither of them was presented as a witness. The truth is that even after giving his only to discuss the consequences of the ruling of the Krivenko case (wherein alien
client time to think the matter over, the lawyer could not make her change her ownership of Philippine land is declared illegal)
mind. -the Krivenko case interpreted the provision in the Constitution that prohibited alien
4. YES land ownership. The provision took effect on NoV 15, 1935 when the
Ratio Consent given by her voluntarily and on well-informed bases, as shown by Commonwealth Government was established. The interpretation as set forth in the
the testimonies of her lawyer, is valid. Krivenko decision was only handed down on NoV 15, 1947. Prior to that date there
Reasoning There is no merit in the claim that her consent to the lease contract, as were many who were of the opinion that the phrase agricultural land should be
well as to the rest of the contracts in question, was given out of a mistaken sense of construed strictly and not be made to cover residential and commercial lots. Acting
gratitude to Wong who, she was made to believe, had saved her and her sister from on that belief, several transactions were entered into transferring such lots to alien
a fire that destroyed their house during the liberation of Manila. vendees by Filipino vendors. After the Krivenko decision, some Filipino vendors
As it was with the lease contract so it was with the rest of the contracts - the sought recovery of the lots in question on the ground that the sales were null and
consent of Santos was given freely and voluntarily. void.
As Atty. Alonzo, testifying for her, said: “In nearly, all documents, it was either -No definite ruling was made by this Court until September of 1953, when Rellosa V
Wong or Judge Torres [who] … used to tell me what the documents should contain. Gaw Chee Hun, Bautista V Uy Isabelo, Talento V Makiki, Caoile V Chiao Peng, were
But, … , I would always ask the old woman about them and invariably the old decided.
woman used to tell me: “That’s okay. It’s all right.” -in Rellosa, it was held that while the sale by a Filipino-vendor to an alien-vendee of
5. YES, contracts are void a residential or a commercial lot is null and void as held in the Krivenko case, still
the Filipino-vendor has no right to recover under a civil law doctrine, the parties
Obligations and Contracts A2010 page
185 Prof. Labitag
being in pari delicto. The only remedy to prevent this continuing violation of the WON the transactions are illegal per se or merely prohibited, as Frenzel contends,
Constitution is either escheat or reversion. thereby entitling him to recover under Art 1416
- Had the sale by and between Filipino-vendor and alien-vendee occurred after the
decision in the Krivenko case, then the above view would be correct that both HELD
Filipino-vendor and alien-vendee could not be considered as innocent parties within Ratio The sales of three parcels of land in favor of the petitioner who is a foreigner
the contemplation of the law. Both of them should be held equally guilty of evasion is illegal per se. The transactions are void ab initio because they were entered into
of the Constitution. According to the Rellosa opinion, both parties are equally guilty in violation of the Constitution. Thus, to allow the petitioner to recover the
of evasion of the Constitution, based on the broader principle that "both parties are properties or the money used in the purchase of the parcels of land would be
presumed to know the law." subversive of public policy. Art 1416 applies only to those contracts which are
- After the Krivenko decision, there is no doubt that continued possession by alien- merely prohibited, in order to benefit private interests. It does not apply to
vendee of property acquired before its promulgation is violative of the Constitution. contracts void ab initio
The question then as now, therefore, was and is how to divest the alien of such Reasoning Lands of the public domain, which include private lands, may be
property rights on terms equitable to both parties. transferred or conveyed only to individuals or entities qualified to acquire or hold
- Alien-vendee is incapacitated or disqualified to acquire and hold real estate. That private lands or lands of the public domain. Aliens, whether individuals or
incapacity and disqualification should date from the adoption of the Constitution on corporations, have been disqualified from acquiring lands of the public domain
NoV 15, 1935. Such incapacity and disqualification, however, was made known to - The said transactions are in violation of the Constitution; hence, are null and void
Filipinovendor and to alien-vendee only upon the promulgation of the Krivenko ab initio. A contract that violates the Constitution and the law, is null and void and
decision on NoV 15, 1947. Alien-vendee therefore, cannot be allowed to continue vests no rights and creates no obligations. The law will not aid either party to an
owning and exercising acts of ownership over said property, when it is clearly illegal contract or agreement; it leaves the parties where it finds them
included within the Constitutional prohibition. Alien-vendee should thus be made to Disposition The petition is DISMISSED. The decision of the Court of Appeals is
restore the property with its fruits and rents to Filipino vendor, its previous owner, if AFFIRMED in toto
it can be shown that in the utmost good faith, he transferred his title over the same
to alien-vendee, upon restitution of the purchase price. VILLARROEL V ESTRADA
- It ought to follow then, if such a continuing violation of the fundamental law is to EN BANC; December 19, 1940
be put an end to, that the Filipino-vendor, who in good faith entered into a contract
with an incapacitated person, transferring ownership of a piece of land after the NATURE
Constitution went into full force and effect, should, in the light of the ruling in the Petition to review the decision of the CFI.
Krivenko case, be restored to the possession and ownership thereof, where he has
filed the appropriate case or proceeding. Any other construction would defeat the FACTS
ends and purposes not only of this particular provision in question but the rest of - On May 9, 1912, Alexander F. Callao, mother of Juan F. Villarroel, obtained from
the Constitution itself. the spouses Mariano Estrada and Severina debt of P1,000, payable after seven
years.
FRENZEL V CATITO - Alejandra, passed away, leaving Villaroel as sole heir. The spouses Mariano
CALLEJO; July 11, 2003 Estrada and Severina also passed away, leaving Bernardino Estrada as sole heir.
- On August 9, 1930, Villaroel gave a document to Estrada, in which he declared in
NATURE owing the amount of P1,000, with an interest of 12 percent per year. This action
Petition for review of the decision of the CA ordering the dismissal of Frenzel’s turns on the collection of this amount.
complaint against Catito. - The Court of First Instance of Lagoon, in as interposed this action, and decided for
Villaroel to pay the amount demanded of P1,000 with its legal interests of 12
percent from August 9, 1930 to its complete payment. Villaroel appealed.
FACTS
- Frenzel is a rich Australian guy legally married to a Filipina ISSUE
- Catito is a Filipina legally married to a German guy WON Villaroel should pay the amount despite the prescription of the original debt
- They hooked up. Frenzel buys Catito businesses and land, all of which are
registered under Catito’s name (i.e. deeds of sale, receipts, TCTs). HELD
- The relationship goes sour. Frenzel filed a complaint against Catito for recovery of - The present action is not based on the original obligation contracted by the
real and personal property. mother Villaroel, which has prescribed, but on that which he contracted on August
9, 1930 when assuming the fulfillment of that obligation. Being the sole heir of the
ISSUE indebted one, with right her inheritance, that debt which was contracted by his
mother legally, although no longer effective by prescription, now is, nevertheless, a
Obligations and Contracts A2010 page
186 Prof. Labitag
moral obligation. That consideration is sufficient to create and to make his but simply because they had taken it upon themselves to do it; they felt they had a
obligation voluntarily contracted, effective August of 1930. personal responsibility to those who made their 2nd payments.
- The rule in which a new promise to pay a prescribed debt must be done only by - Finally, in the same letter, Robb stated that he was to receive certain shares for
the same person or another who is legally authorized by her, is not applicable to the his services as promoter of the new Philippine Racing Club & as soon as he receives
present case, because Villaroel voluntarily wanted to assume this obligation. it, he will be in a position to compensate the few others who made the 2nd payment.
Disposition The appealed sentence is confirmed, with costs to the apellant. He restated that the payments will come from his personal funds in an effort to
make things easier for those who were sport enough to try to save the Greyhound
FISHER V ROBB org. by making 2nd payments.
VILLAREAL; November 2, 1939
ISSUE
NATURE WON the promise made by defendant-appellant is the sufficient consideration
Appeal from a judgment of the CFI of Manila, which ordered defendant Robb to pay contemplated under Art. 1261 (as an essential element for the legal existence of an
plaintiff Fisher the sum of P 2,000 with interest onerous contract which would bind the promisor to comply with his promise)
FACTS HELD
- On Sept. 1935, defendant-appellant John Robb was asked by the board of directors NO
of the Philippine Greyhound Club Inc. (PGCI) to study the operation of a dog racing Ratio A mere moral obligation or conscientious duty arising wholly from ethical
course in Shanghai. motives or a mere conscientious duty unconnected with any legal obligation, will
- In Shanghai, he met plaintiff-appellee, A.O. Fisher who happened to be the not furnish a consideration for executory promise.
manager of the dog racing course. During their time together, Plaintiff became Reasoning The promise made by an organizer of a dog racing course to a
interested in the PGCI and asked to become a stockholder. He later on subscribed to stockholder to return to him certain amounts paid by the latter in satisfaction of his
PGCI and sent a payment of P 3,000 for the 1 st installment of his subscription. Robb subscription upon the belief of said organizer that he was morally responsible
returned to Manila from Shanghai shortly thereafter. because of the failure of the enterprise, is not the consideration required by article
- After a few months, the PGCI Board issued a call for the 2nd installment of Fisher’s 1261 of the Civil Code as an essential element for the legal existence of an onerous
subscription, hence, defendant-appellant Robb sent a radiogram requesting contract which would bind the promisor to comply with his promise.
payment of the 2nd installment. Fisher duly complied and sent P 2,000 directly to -The promise which defendant-appellant made to the plaintiff-appellee was
PGCI. prompted by a feeling of pity, resulting from the loss which the latter had suffered
- The PGCI however, due to the manipulations of some of its members, crumbled because of the failure of the enterprise. The obligation which said defendant-
not too long after. appellant had contracted with the plaintiff-appellee is, therefore, purely moral and,
- Defendant-appellant Robb, who was organizing a new company called the as such, not demandable in law but only in conscience, over which human judges
Philippine Racing Club, immediately endeavored to save the investment of those have no jurisdiction.
who had subscribed to the PGCI, by having the Philippine Racing Club acquire the Disposition The appealed judgment is reversed and the defendant is absolved
remaining assets of the PGCI. from the complaint with costs to the plaintiff.
- Robb wrote a letter to Fisher explaining in detail the critical condition of the PGCI,
and outlining his plans to save the properties and assets of the plaintiff-appellee KALALO V LUZ
and that he felt morally responsible to the stockholders who had paid their second ZALDIVAR; July 31, 1970
installment.
- In answer to said letter, the plaintiff-appellee wrote the defendant-appellant FACTS
requiring him to return the entire amount paid by him to the PGCI. Upon receiving - On November 17, 1959, plaintiff-appellee Octavio A. Kalalo hereinafter referred to
this letter, the defendant-appellant answered the plaintiff-appellee on March 16, as appellee), a licensed civil engineer doing business under the firm name of O. A.
1936, to the effect that it was not his duty under the law to reimburse the plaintiff- Kalalo and Associates, entered into an agreement (Exhibit A ) 1 with defendant-
appellee for any loss which he might have suffered in connection with the PGCI in appellant Alfredo J . Luz (hereinafter referred to as appellant), a licensed architect,
the same way that he could not expect anyone to reimburse him for his own losses doing business under firm name of A. J. Luz and Associates, whereby the former was
which were much more than those of the plaintiff-appellee. to render engineering design services to the latter for fees, as stipulated in the
- In his letter dated March 16, 1936, defendant-appellant stated that he felt a moral agreement. The services included design computation and sketches, contract
responsibility for the 2nd payments which were made to carry out his plan and that drawing and technical specifications of all engineering phases of the project
he, along with a certain Mr. Hilscher, would see to it that the stockholders who designed by O. A. Kalalo and Associates bill of quantities and cost estimate, and
made 2nd payments will be paid back as soon as possible out of their very own consultation and advice during construction relative to the work. The fees agreed
personal funds. He stressed that they were doing so not because of any obligation upon were percentages of the architect's fee, to wit: structural engineering, 12-½%;
electrical engineering, 2-%.
Obligations and Contracts A2010 page
187 Prof. Labitag
- On December 1 1, '1961, appellee sent to appellant a statement of account in Philippine currency measured at the prevailing rate of exchange at the time the
(Exhibit "1"), 3 to which was attached an itemized statement of defendant- obligation was incurred. As We have adverted to, Republic Act 529 was enacted on
appellant's account (Exh. "1-A"), according to which the total engineering fee asked June 16, 1950. In the case now before Us the obligation of appellant to pay appellee
by appellee for services rendered amounted to P116,565.00 from which sum was to the 20% of $140,000.00, or the sum of $28,000.00, accrued on August 25, 1961, or
be deducted the previous payments made in the amount of P57,000.00, thus after the enactment of Republic Act 529. It follows that the provision of Republic Act
leaving a balance due in the amount of P59,565.00. 529 which requires payment at the prevailing rate of exchange when the obligation
- On May 18, 1962 appellant sent appellee a resume of fees due to the latter. Said was incurred cannot be applied. Republic Act 529 does not provide for the rate of
fees, according to appellant. amounted to P10,861.08 instead of the amount exchange for the payment of obligation incurred after the enactment of said Act.
claimed by the appellee. On June 14, 1962 appellant sent appellee a check for said The logical Conclusion, therefore, is that the rate of exchange should be that
amount, which appellee refused to accept as full payment of the balance of the fees prevailing at the time of payment.
due him. - It is our considered view, therefore, that appellant should pay the appellee the
- Defendant Lus sent to plaintiff a resume of fees due to the latter by virtue of equivalent in pesos of the $28,000.00 at the free market rate of exchange at the
service agreement done by plaintiff Kalalo. Said fees, according to appellant- time of payment.
defendant amounted to P10,861.08, instead of the amount claimed by the plaintiff
which is P59,565.00, a balance due of the service rendered. A check for P10,861.08 MANILA LODGE NO. 761 BENEVELONT & PROTECTIVE
was sent by defendant, which appellee-plaintiff refused to accept as full payment of ORDER OF THE ELKS V CA
the balance of the fees due him. CASTRO; September 30, 1976
- On August 10, 1962, appellee filed a complaint against appellant, containing four
causes of action. In the first cause of action, appellee alleged that for services
NATURE
rendered in connection with the different projects therein mentioned there was due
Petitions for review on certiorari of the decision of the Court of Appeals
him fees in sum s consisting of $28,000 (U.S.) and P100,204.46, excluding interests,
of which sums only P69,323.21 had been paid, thus leaving unpaid the $28,000.00
FACTS
and the balance of P30,881.25. In the second cause of action, appellee claimed
- On June 26, 1905 the Philippine Commission enacted Act No. 1360 which
P17,000.00 as consequential and moral damages; in the third cause of action
authorized the City of Manila to reclaim a portion of Manila Bay. The reclaimed area
claimed P55,000.00 as moral damages, attorney's fees and expenses of litigation;
was to form part of the Luneta extension. The Act provided that the reclaimed area
and in the fourth cause of action he claimed P25,000.00 as actual damages, and
"shall be the property of the City of Manila" and that the City of Manila is authorized
also for attorney's fees and expenses of litigation.
to set aside a tract of the reclaimed land formed by the Luneta extension at the
- Trial Court held in favor of plaintiff that the defendant pay the sums of money
north end for a hotel site, and to lease the same, with the approval of the Governor
demanded. Defendant appealed to the SC.
General, to a responsible person or corporation for a term not to exceed 99 years.
Subsequently, the Philippine Commission passed on May 18, 1907 Act No. 1657,
ISSUE amending Act No. 1360, so as to authorize the City of Manila either to lease or to
WON the payment for the project rendered must be on the basis of the rate of sell the portion set aside as a hotel site.
exchange of the U.S. dollar to the Philippine peso at the time of payment of the - The total area reclaimed was a little over 25 hectares. The City of Manila applied
judgment for the registration of the reclaimed area, and on January 20, 1911, original
certificate of title was issued in the name of the City of Manila. The title described
the registered land as "un terreno conocido con el nombre de Luneta Extension,
HELD
situado en el distrito de la Ermita." [Translation: A land known under the name of
- We have taken note of the fact that on August 25, 1961, the date when appellant
Luneta Extension, situated in the district of Ermita.]
said his obligation to pay appellee's fees became due, there was two rates of
- The registration was subject, however, to the encumbrances mentioned in Article
exchange, to wit: the preferred rate of P2.00 to $1.00, and the free market rate. It
39 of the Land Registration Act as may be subsisting and "sujeto a las disposiciones
was so provided in Circular No. 121 of the Central Bank of the Philippines, dated
y condiciones inipuestas en la Ley No. 1360; y sujeto tambien a los contratos de
March 2, 1961. amending an earlier Circular No. 117, and in force until January 21,
venta, celebratlos y oborgados por ta Ciudad de Manila a favor del Army and Navy
1962 when it was amended by Circular No. 133
Club y la Manila Lodge No. 761. Benevolent and Protective Order of Elks, fechados
- Under the agreement, Exhibit A, appellee was entitled to 20% of $140,000.00, or
en 29 de Diciembre de 1908 y 16 de Enero de 1909."
the amount of $28,000.00. Appellee, however, cannot oblige the appellant to pay
[Translation: Subject to the dispositions and conditions provided by Act No. 1360;
him in dollars, even if appellant himself had received his fee for the IRRI project in
and subject also to contracts of sale celebrated and entered into by the City of
dollars. This payment in dollars is prohibited by Republic Act 529 which was enacted
Manila in favor of the Army and Navy Club and Manila Lodge No. 761 Benevolent
on June 16, 1950.
and Protective Order of Elks (BPOE for short), dated 29th of December 1908 and
- Under the above-quoted provision of Republic Act 529, if the obligation was
16th of January 1909.]
incurred prior to the enactment of the Act and require payment in a particular kind
of coin or currency other than the Philippine currency the same shall be discharged
Obligations and Contracts A2010 page
188 Prof. Labitag
- On July 13, 1911, the City of Manila conveyed 5,543.07 square meters of the 3. WON the CA has departed from the accepted and usual course of judicial
reclaimed area to the Manila Lodge No. 761, BPOE on the basis of which a transfer proceedings in that it did not make its own findings but simply recited those of the
certificate of title was issued to the latter over the "parcela de terreno que es parte lower court\
de la Luneta Extension, Situada en el Distrito de la Ermita."
[Translation: Parcel of land which is part of the Luneta Extension, situated in the HELD
District of Ermita] 1. NO
- At the back of this title was an annotated document which in part reads as follows: We hold that it is of public dominion, intended for public use.
"que la citada ciudad de Manila tendra derecho a su opcion de recompray la Reasoning Firstly, if the reclaimed area was granted to the City of Manila as its
expresada propiedad para fines puldicos solamente, en cualquier tiempo despues patrimonial property, the City could, by virtue of its ownership, dispose of the whole
de cincuenta anos desde el 13 de Julio de 1911, previo pago a la entidad reclaimed area without need of authorization to do so from the lawmaking body.
compradora, o a sus sucesores del precio de la venta de la misma propiedad, mas Thus Article 348 of the Civil Code of Spain provides that "ownership is the right to
el valor que entoces tengan las mejores." [Attempted Translation: That the said city enjoy and dispose of a thing without further limitations than those established by
of Manila has the legal option to repurchase the said property solely for public law." The right to dispose (jus disponendi) of one's property is an attribute of
purposes, at any time after fifty years from the 13th of July 1911, at the price ownership. Act No. 1360, as amended, however, provides by necessary implication,
previously paid to the buying entity or the future market price of the property, that the City of Manila could not dispose of the reclaimed area without being
whichever value is higher.] authorized by the lawmaking, body. Thus the statute provides that "the City of
- In January 1963 the BPOE petitioned the CFI of Manila, Branch IV, for the Manila is hereby authorized to set aside a tract at the north end, for a hotel site,
cancellation of the right of the City Manila to repurchase the property. This petition and to lease the same x x x should the municipal board x x x deem it advisable, it is
was granted on February 15, 1963. hereby authorized x x x to sell said tract of land x x x." If the reclaimed area were
- On November 19, 1963 the BPOE sold for the sum of P4,700,000 the land together patrimonial property of the City, the latter could dispose of it without need of the
with all the improvements thereon to the Tarlac Development Corporation (TDC, for authorization provided by the statute, and the authorization to set aside, lease, or
short) which paid P1,700,000 as down payment and mortgaged to the vendor the sell given by the statute would indeed be superfluous. To so construe the statute as
same realty to secure the payment of the balance to be paid in quarterly to render the term "authorize," which is repeatedly used by the statute, superfluous
installments. At the time of the sale, there was no annotation of any subsisting lien would violate the elementary rule of legal hermeneutics that effect must be given
on the title to the property. On December 12, 1963 TCT No. 73444 was issued to to every word, clause, and sentence of the statute and that a statute should be so
TDC over the subject land still described as "Una parcela de terreno, que es parte interpreted that no part thereof becomes inoperative or superflous. To authorize
de la Luneta Extension, situada en el Distrito de Ermita." means to empower, to give a right to act. Act No. 1360 furthermore qualifies the
- In June 1964 the City of Manila filed with the CFI of Manila a petition for the verb "authorize" with the adverb "hereby," which means "by means of this statue or
reannotation of its right to repurchase. The court, after hearing, issued an order, section." Hence without the authorization expressly given by Act No. 1360, the City
dated November 19, 1964, directing the Regrister of Deeds of the City of Manila to of Manila could not lease or sell even the northern portion; much less could it
reannotate in toto the entry regarding the right of the City of Manila to repurchase dispose of the whole reclaimed area. Consequently, the reclaimed area was granted
the property after fifty years. From this order TDC and BPOE appealed to this Court to the City of Manila, not as its patrimonial property. At most, only the northern
which on July 31, 1968 affirmed the trial court's order of reannotation, but reserved portion reserved as a hotel site could be said to be patrimonial property, for, by
to TDC the right to bring another action for the clarification of its rights. express statutory provision it could be disposed of, and the title thereto would
- After trial the court a quo rendered on July 14, 1972 its decision finding the subject revert to the City should the grantee fail to comply with the terms provided by the
land to be part of the "public park or plaza" and, therefore, part of the public statute.
domain. The court consequently declared that the sale of the subject land by the - Secondly. the reclaimed area is an "extension to the Luneta in the City of
City of Manila to Manila Lodge No. 761, BPOE, was null and void; that plaintiff TDC Manila." If the reclaimed area is an extension of the Luneta, then it is of the same
was a purchaser thereof in good faith and for value from BPOE and can enforce its nature or character as the old Luneta. Anent this matter, it has been said that a
rights against the latter; and that BPOE is entitled to recover from the City of Manila power to extend or continue an act or business cannot authorize a transaction that
whatever consideration it had paid the latter. is totally distinct. It is not disputed that the old Luneta is a public park or plaza and
- In its decision promulgated on June 30, 1975, the CA concurred in the findings and it is so considered by Section 859 of the Revised Ordinances of the City of Manila.
conclusions of the lower court. Hence the "extension to the Luneta" must be also a public park or plaza and for
public use. TDC, however, contends that the subject property cannot be considered
ISSUES an extension of the old Luneta because it is outside of the limits of the old Luneta
1. WON the property subject of the action was patrimonial property of the City of when extended to the sea. This is a strained interpretation of the term "extension,"
Manila and not a park or plaza for an "extension" it has been held, "signifies enlargement in any direction-in
2. WON the City of Manila is estopped from questioning the validity of the sale it length, breadth, or circumstances.
executed on July 13, 1911 conveying the subject property to the Manila Lodge No. - Thirdly, the reclaimed area was formerly a part of the Manila Bay. A bay is nothing
761, BPOE more than an inlet of the sea. Pursuant to Article 1 of the Law of Waters of 1866,
bays, roadsteads, coast sea, inlets and shores are parts of the national domain open
Obligations and Contracts A2010 page
189 Prof. Labitag
to public use. These are also property of public ownership devoted to public use, notice, being claimed by the TDC, does not apply where there is a total absence of
according to Article 339 of the Civil Code of Spain. When the shore or part of the title in the vendor, and the good faith of the purchaser TDC cannot create title
bay is reclaimed, it does not lose its character of being property for public use. where none exists. The restoration or restitution of what has been given is in order.
- Fourthly, Act 1360, as amended, authorized the lease or sale of the northern 3. NO. We have shown in our discussion of the first issue that the decision of the
portion of the reclaimed area as a hotel site. The subject property is not that trial court is fully in accordance with law. It follows that when such decision was
northern portion authorized to be leased or sold; the subject property is the affirmed by the CA, the affirmance was likewise in accordance with law. Hence, no
southern portion. Hence, applying the rule of expresio unius est exlusio alterius, the useful purpose will be served in further discussing this issue.
City of Manila was not authorized to sell the subject property. The application of this Disposition The petitions are denied for lack of merit and the decision of the CA is
principle of statutory construction becomes the more imperative in the case at bar affirmed, at petitioners' cost.
inasmuch as not only must the public grant of the reclaimed area to the City of
Manila be, as above stated, strictly construed against the City of Manila, but also MIGUEL V CATALINO
because a grant of power to a municipal corporation, as happens in this case where REYES; November 29, 1968
the city is authorized to lease or sell the northern portion of the Luneta extension, is
strictly limited to such as are expressly or impliedly authorized or necessarily NATURE
incidental to the objectives of the corporation. An Appeal from the judgment of the CFI of Baguio dismissing the plaintiff’s
- Fifthly, Article 344 of the Civil Code of Spain provides that property of public use, complaint for recovery of possession of a parcel of land and declaring the defendant
in provinces and in towns, comprises the provincial and town roads, the squares, the true owner thereof.
streets, fountains, and public waters, the promenades, and public works of general
service paid for by such towns or provinces." A park or plaza, such as the extension FACTS
to the Luneta, is undoubtedly comprised in said article. - The land in dispute is located in Benguet, Mountain Province and is covered by
- We have demonstrated that the Luneta extension was intended to be property of Original Certificate of Title No. 31 issued on Dec. 27, 1927 in the name of Bacaquio
the City of Manila for public use. But, could not said property later on be converted, (Bakekew), a widower, with no annotated encumbrances or sales.
as the petitioners contend, to patrimonial property? It could be. But this Court has - Plaintiff Grace Ventura is the only child of Bacaquio by his first wife, Debsay, and
already said, in Ignacio v. The Director of Lands that it is only the executive and the other appellants Simeon, Emilia and Marcelina Miguel are his children by his 3rd
possibly the legislative department that has the authority and the power to make wife, Cosamang. . The 3 successive wives have all died.
the declaration that said Property is no longer required for public use, and until such - Bacaquio, who died in 1943, acquired the land from his 2nd wife and sold it to
declaration is made the property must continue to form part of the public domain. Catalino Agyapao, father of the defendant, Florendo Catalino, for P300 in 1928. No
In the case at bar, there has been no such explicit or unequivocal declaration. It formal deed of sale was executed but for more than 30 years since 1928, Florendo
should be noted that courts are undoubtedly not primarily called upon, and are not and his father had been in possession of the land in the concept of owner, paying
in a position, to determine whether any public land is still needed for the purposes taxes and adding improvements. In 1949, Grace Ventura, alone, ‘sold’ the land
specified in Article 4 of the Law of Waters. anew for P300 to Agyapao who in turn sold it to his son, the defendant.
2. NO - On Jan. 22, 1962, appellants brought suit to the TC against Catalino for recovery of
Ratio The Government is never estopped by mistakes or errors on the part of its said land, claiming to be the children and heirs of the original registered owner,
agents and estoppel does not apply to a municipal corporation to validate a averring that defendant took the land and gathered its produce unlawfully w/o their
contract that is prohibited by law or its against public policy. consent. The defendant pleaded ownership and adverse possession for 30 years,
Reasoning The sale of July 13, 1911 executed by the City of Manila to Manila and counterclaimed for attorney’s fees. The court dismissed the complaint, ordering
Lodge was certainly a contract prohibited by law. Estoppel cannot be urged even if the Register of Deeds to issue a transfer certificate. Hence this appeal assailing the
the City of Manila accepted the benefits of such contract of sale and the Manila TC’s findings of fact and law. However, since this is a direct appeal from the TC,
Lodge No. 761 had performed its part of the agreement, for to apply the doctrine of where the property’s value does not exceed P200,000, only issues of law are
estoppel against the City of Manila in this case would be tantamount to enabling it reviewable by the SC.
to do indirectly what it could not do directly. The sale of the subject property
executed by the City of Manila to the Manila Lodge No. 761, BPOE, was void and ISSUE
inexistent for lack of subject matter. [a park is outside the commerce of man] It WON the TC erred in awarding the land in dispute to Catalino
suffered from an incurable defect that could not be ratified either by lapse of time
or by express ratification. The Manila Lodge No. 761 therefore acquired no right by HELD
virtue of the said sale. Hence to consider now the contract inexistent as it always NO
has been, cannot be an impairment of the obligations of contracts, for there was in - The appellants assail the admission of evidence of an exhibit with a decision in
contemplation of law, no contract at all. The inexistence of said sale can be set up favor of the defendant by the council of Barrio of San Pascual. The Court concurs
against anyone who asserts a right arising from it, not only against the first vendee, that the decision is ultra vires since barrio councils have no judicial powers (AVIII S1,
the Manila Lodge No. 761, BPOE, but also against all its Successors, including the Constitution; S12 Barrio Charter). The sale by Bacaquio to Catalino Agyapao is null
TDC, which are not protected by law. The doctrine of bone fide purchaser without
Obligations and Contracts A2010 page
190 Prof. Labitag
and void for lack of executive approval, hence, in law, Bacaquio remained the view appeared to have been adopted in at least 3 cases decided subsequent to the
owner until it was passed on to his heirs by succession upon his death. Diaz doctrine
- Notwithstanding these errors, the Court believes that the judgment in favor of - In Juan et al v Zuñiga: When an heir through fraudulent representation, or by
Agyapao should be sustained. Despite the invalidity of the sale, Bacaquio suffered pretending to be the sole heir of the deceased, succeeded in having the title over a
Agyapao to enter, posses and enjoy the land without protest from 1928-1943, and real property registered in his name to the exclusion of the other heirs, a
the appellants in turn took no steps to reivindicate the lot from 1944-1962. As held constructive trust is created in favor of the defrauded heir and grants to the latter
in Mejia de Lucas v. Gamponia, even granting that the title does not prescribe, their the right to vindicate the property regardless of the lapse of time.
inaction of 34 years justifies the defendant’s equitable defense of laches, wherein - In Caladiao v Vda de Blas: SC declared that an action to compel reconveyance of
the original owner’s right to recover the property has been converted into a stale property with Torrens Title does not prescribe if the registered owner had obtained
demand. registration in bad faith and the property is still in the latter's name., bec the
- As in the Gamponia case, the four elements of laches are present in the case at registration is in the nature of a continuing and subsisting trust
bar, namely: (a) conduct on the part of the defendant, or of one under whom he - The consensus of opinion: The prescription of action for recvonveyance based on
claims, giving rise to the situation of which complaint is made and for which the implied or constructive trust is now a settled question in our jurisdiction.
complaint seeks a remedy; (b) delay in asserting the complainant's rights, the Correspondingly, where implied trust is present, the action to recover the
complainant having had knowledge or notice, of the defendant's conduct and propertyprescribes after the lapse of 10 years unless a fiduciary relation exists and
having been afforded an opportunity to institute a suit; (c) lack of knowledge or the trustee recognizes the trust.
notice on the part of the defendant that the complainant would assert the right on
which he bases his suit; and (d) injury or prejudice to the defendant in the event SALAO V SALAO
relief is accorded to the complainant, or the suit is not held to be barred. AQUINO; Martch 16, 2003
- In the present case, the appellants knew the 1928 sale was invalid and did not
have to wait for 34 years to institute a suit, clearly bringing prejudice to the NATURE
defendant who was made to feel secure of his ownership over the lot. Appeal from the decision of the trial court
- As held in Nielson & Co. v. Lepanto Consolidated Mining Co., prescription is
concerned with the fact of delay (matter of time), while laches with the effect of FACTS
delay (a question of inequity), and thus both apply independently of each other. - Manuel Salao and Valentina Ignacio begot 4 children, Patricio, Alejandra, Juan
- Since the appellants are barred from recovery, the Court was justified in ordering that Bacaquio’s (Banli) and Ambrosia. Manuel died in 1885. Patricio died in 1886 and was survived
certificate be cancelled and the new transfer certificate in defendant’s name be issued by the Register of by his son Valentin.
Deeds. - When Valentina died, her estate was administered by Ambrosia. It was partitioned
Disposition FOR THE FOREGOING REASONS, the appealed decision is hereby extra-judicially to Alejandra, Juan, Ambrosia and Valentin. Valentin was given lad
affirmed, with costs against the plaintiffs-appellants. which has an appraised value of 13,501 which exceeded Valentin's distributive
share. So in the deed of partition he was directed to pay to his co-heirs the sum of
ANNOTATION 32 SCRA 542 P5,365.75
- In 1911, prior to Valentina’s death, Juan and Ambrosia secured a Torrens title for a
- The Annotation is about the "Significant Applications of Extinctive Prescription." It forty-seven-hectare fishpond located at Sitio Calunuran, Lubao, Pampanga. The
starts at 32 SCRA 526. For our puposes, what is significant is the part that is Calunuran fishpond is the bone of contention in this case
discussed from 32 SCRA 542. - Plaintiffs aver that Valentin Salao and Alejandra Salao also participated in the
- Limitation of Actions in Implied or Constructive Trust acquisition of the said fishpond. Defendants contend that the Calunuran fishpond
- In a long line of cases, the Supreme Court used to adopt the view that the right of consisted of lands purchased by Juan Y. Salao, Sr. and Ambrosia Salao
action of a cestui que trust against the trustee in an implied or constructive trust - However, there can be no controversy as to the fact that after Juan Y. Salao, Sr.
does not prescribe. But as early as 1956 a minority in the SC viewed with doubt the and Ambrosia Salao secured a Torrens title for the Calunuran fishpond in 1911 they
continued validity of the principle of imprescriptibility of actions based on exercised dominical rights over it to the exclusion of their nephew, Valentin Salao
constructive or implied trusts. - On May 27, 1911 Ambrosia Salao bought for four thousand pesos from the heirs of
- In a 1958 case, SC through JBL Reyes, expressed the view that in a constructive Engracio Santiago a parcel of swampland. Ambrosia Salao and Juan Salao filed an
trust, imposed as it is by law, where no promise or fiduciary relation exists, the so- application for the registration of that land in their names and it was granted by the
called trustee does not recognize any trust and has no interest to hold for the CFI. That Pinanganacan or Lewa fishpond adjoins the Calunuran fishpond.
beneficiary; thus, the beneficiary can be barred to enforce the trust, unless there's - Juan Y. Salao, Sr. died on November 3, 1931. Valentin Salao died on February 9,
concealment of the facts giving rise to the trust. 1933. His estate, which consists of 2 fishponds he had inherited in 1918 from his
- Despite SC view in Diaz v Gorricho and reiterated in subsequent cases, to the grandmother, Valentina Ignacio, was partitioned to her two daughters, Benita Salao-
effect that an action upon a constructive trust is subject to prescription, a contrary Marcelo and Victorina Salao-Alcuriza. No mention of the alleged 1/3 interest in the
Calunuran and Lewa fishponds was mentioned.
Obligations and Contracts A2010 page
191 Prof. Labitag
trust. Their claim that in the oral partition in 1919 of the two fishponds the
- On April 8, 1940 Ambrosia Salao donated to her grandniece, plaintiff Benita Salao. Calunuran fishpond was assigned to Valentin Salao is legally untenable.
On that occasion she could have asked Ambrosia Salao to deliver to her and to the - Parol evidence cannot be used to prove an express trust concerning realty
children of her sister, Victorina, the Calunuran fishpond if it were true that it was - Plaintiffs' pleadings and evidence cannot be relied upon to prove an implied trust.
held in trust by Ambrosia as the share of Benita's father in the alleged joint venture. The trial court's firm conclusion that there was no community of property during the
But she did not make any such demand. It was only after Ambrosia Salao's death lifetime of Valentina; Ignacio or before 1914 is substantiated by defendants'
that she thought of filing an action for the reconveyance. documentary evidence
- About a year before Ambrosia Salao's death on September 14, 1945. she donated - The existence of the alleged co-ownership over the lands supposedly inherited
her one-half proindiviso share in the two fishponds in question to her nephew, Juan from Manuel Salao in 1885 is the basis of plaintiffs' contention that the Calunuran
S. Salao, Jr. (Juani). He was already the owner of the the other half of the said fishpond was held in trust for Valentin Salao.
fishponds, having inherited it from his father, Juan Y. Salao, Sr. - But that co-ownership was not proven by any competent evidence. It is quite
- The lawyer of Benita Salao and the Children of Victorina Salao in a letter dated improbable because the alleged estate of Manuel Salao was likewise not
January 26, 1951 informed Juan S. Salao, Jr. that his clients had a one-third share in satisfactorily proven. There were inconsistencies in the plaintiff’s original complaint,
the two fishponds. Juani did not refused to give their alleged share. amended complaint and brief over the number of hectares which were under co-
- Benita Salao and her nephews and niece filed a complaint against Juani. They ownership (2,7 and 11 hectares respectively). They theorized that the eleven
asked for the annulment of the donation to Juan S. Salao, Jr. and for the hectares "were, and necessarily, the nucleus, nay the very root, of the property now
reconveyance to them of the Calunuran fishpond. . Salao, Jr. in his answer pleaded in litigation. But the eleven hectares were not proven by any trustworthy evidence
as a defense the indefeasibility of the Torrens title secured by his father and aunt. - The 1919 partition of Valentina Ignacio's estate covered about 17 hectares of
He also invoked the Statute of Frauds, prescription and laches. fishponds and ricelands. If at the time that partition was made there were 11
- Juan S. Salao, Jr. died in 1958 at the age of seventy-one. He was substituted by his hectares of land belonging to Manuel Salao those eleven hectares would have been
widow, Mercedes Pascual and his six children and by the administrator of his estate. partitioned in writing like Valentina’s estate.
In the intestate proceedings for the settlement of his estate the two fishponds in It is incredible that the 47 hectare fishpond would be adjudicated to Valentin by
question were adjudicated to his seven legal heirs in equal shares with the condition mere word of mouth, when the partition for the 17 hectare estate of Valentina was
that the properties would remain under administration during the pendency of this put into writing.
case. - The improbability of the alleged oral partition becomes more evident when it is
- The trial court found that there was no community of property among Juan Y. borne in mind that the two fishponds were registered land. That means that any
Salao, Sr., Ambrosia Salao and Valentin Salao when the Calunuran and transaction affecting the registered land should be evidenced by a registerable
Pinanganacan (Lewa) lands were acquired. There was however, co-ownership deed. The fact that Valentin Salao and his successors-in-interest never bothered in
between 1914, the time of Valentina’s death, thru 1918, the time the estate was 40 years to procure any documentary evidence to establish their alleged interest is
partitioned. The trial court surmised that the co-ownership which existed from 1914 very suggestive of the absence of such interest.
to 1918 misled the plaintiffs and their witnesses and caused them to believe - The matter can also be viewed in another way. In the partition of Valentina
erroneously that there was a co-ownership in 1905 or thereabouts. They also Ignacio's estate, Valentin was obligated to pay P3,355.25 to Ambrosia Salao. If
rationalized that Valentin's omission during his lifetime to assail the Torrens titles of Valentin really had a share in the fishponds, Ambrosia could have just deducted
Juan and Ambrosia signified that "he was not a co-owner" of the fishponds. It also from his share of earnings of the fishponds. However, there was no such stipulation.
held that the donation to Juani was validly executed. - A Torrens title is generally a conclusive of the ownership of the land referred to
- Both parties appealed. The plaintiffs appealed because their action for therein (Sec. 47, Act 496). A strong presumption exists that Torrens titles were
reconveyance was dismissed. The defendants appealed because their counterclaim regularly issued and that they are valid.
for damages was dismissed - There was no resulting trust in this case because there never was any intention on
the part of Juan Y. Salao, Sr., Ambrosia Salao and Valentin Salao to create any trust.
ISSUES There was no constructive trust because the registration of the two fishponds in the
1. WON the Calunuran fishpond was held in trust for Valentin Salao by Juan Y. Salao, names of Juan and Ambrosia was not vitiated by fraud or mistake.
Sr. and Ambrosia Salao 2. YES
2. WON plaintiffs' action for reconveyance had already prescribed. - Plaintiffs' action is clearly barred by prescription or laches. Under Act No. 190,
3. WON the defendant’s are entitled to damages whose statute of limitation would apply if there were an implied trust in this case,
the longest period of extinctive prescription was only ten years.
HELD - The Calunuran fishpond was registered in 1911. The written extrajudicial demand
1. NO for its reconveyance was made by the plaintiffs in 1951. Their action was filed in
- Not a scintilla of documentary evidence was presented by the plaintiffs to
1952 or after the lapse of more than forty years from the date of registration
prove that there was an express trust over the Calunuran fishpond in favor of 3. NO
Valentin Salao. Purely parol evidence was offered by them to prove the alleged
Obligations and Contracts A2010 page
192 Prof. Labitag
- Although the defendant’s causes of action turned out to be unfounded, the - The lower court rendered judgment on June 28, 1962, declaring that the
pertinacity and vigor with which they pressed their claim indicate their sincerity and defendants spouses had acquired a valid and complete title to the property by
good faith. (incurred expenses, presented 15 witnesses) acquisitive prescription, and accordingly dismissed the complaint, with costs
- There is the further consideration that the parties were descendants of common against the plaintiffs.
ancestors, the spouses Manuel Salao and Valentina Ignacio, and that plaintiffs'
action was based on their honest supposition that the funds used in the acquisition ISSUES
of the lands in litigation were earnings of the properties allegedly inherited from 1. WON Pablo Fabian was the owner of lot 164 at the time of his death, in the face
Manuel Salao. of the fact, admitted by the defendants-appellees, that he had not then paid the
- Considering those circumstances, it cannot be concluded with certitude that entire purchase price thereof
plaintiffs' action was manifestly frivolous or was primarily intended to harass the 2. WON laches may bar an action to enforce a constructive trust
defendants. An award for damages to the defendants does not appear to be just 3. WON title to the land has vested in the appellees through the mode of acquisitive
and proper. prescription
Disposition Decision affirmed
HELD
FABIAN v FABIAN 1. YES
CASTRO; January 29, 1968 Ratio Lot 164 was a part of the Friar Lands Estate of Muntinlupa, Rizal; its sale to
Pablo Fabian was therefore governed by Friar Lands Act. While under section 15 of
NATURE the said Act, title to the land sold is reserved to the Government until the purchaser
Appeal taken from the decision of the CFI dismissing plaintiff’s complaint for makes full payment of all the required installments and the interest thereon, this
reconveyance legal reservation refers to the bare, naked title. The equitable and beneficial title
really went to the purchaser the moment he paid the first installment and was given
FACTS a certificate of sale. The assignment and sale of the lot to the defendants. Silbina
- On January 1, 1909, Pablo Fabian bought from the Philippine Government lot 164 and Teodora were therefore null and void as to that portion sold to Teodora, and as
of the Friar Lands Estate in Muntinlupa, Rizal. He died on August 2, 1928, survived well as to that portion which lawfully devolved in favor of the appellants. To the
by four children, namely, Esperanza, Benita I, Benita II, and Silbina. extent of the participation of the appellants, application must be made of the
- On October 5, 1928 Silbina Fabian and Teodora Fabian, niece of the deceased, principle that if property is acquired through fraud, the person obtaining it is
executed an affidavit and on November 14, 1928 the acting Director of Lands, on considered a trustee of an implied trust for the benefit of the person from whom the
behalf of the Government, sold lot 164, under deed 17272, to Silbina and Teodora property comes.
Fabian. Reasoning The reservation of the title in favor of the Government is made merely
- In 1929, the vendees took physical possession thereof, cultivated it, and to protect the interest of the Government so as to preclude the purchaser from
appropriated the produce therefrom (and concededly have up to the present been encumbering or disposing of the lot purchased before the payment in full of the
appropriating the fruits from the land exclusively for themselves). In that same purchase price. Outside of this protection the Government retains no right as an
year, they declared the lot in their names for taxation purposes under tax owner. And when said purchaser finally pays the final installment on the purchase
declaration 3374. Since 1929 up to the present, they have been paying the real price and is given a deed of conveyance and a certificate of title, the title at least in
estate taxes thereon. equity, retroacts to the time he first occupied the land, paid the first installment and
- On July 18, 1960 the plaintiffs filed the present action for reconveyance against was issued the corresponding certificate of sale.
the defendants spouses, averring that Silbina and Teodora, through fraud 2. YES
perpetrated in their affidavit, made it appear that "el finado Pablo Fabian no dejo Ratio In constructive trusts, the rule is that laches constitutes a bar to actions to
ningun otro heredero sino los declarantes con derecho a heredar el lote No. 164 de enforce the trust, and repudiation is not required, unless there is a concealment of
la hacienda de Muntinlupa", which is a false narration of facts because Silbina knew the facts giving rise to the trust.
that she is not the only daughter and heir of the deceased Pablo Fabian, and Reasoning Assignment of sale certificate 547 was effected on October 5, 1928;
Teodora likewise knew all along that, as a mere niece of the deceased, she was and the actual transfer of lot 164 was made on the following November 14. It was
precluded from inheriting from him in the presence of his four surviving daughters. only on July 8, 1960, 32 big years later, that the appellants for the first time came
- The defendants claim that Pablo Fabian was not the owner of lot 164 at the time of forward with their claim to the land. It is not seriously asserted that the appellees
his death on August 2, 1928 because he had not paid in full the amortizations on concealed the facts giving rise to the trust. On the contrary, the stipulation of facts
the lot; that they are the absolute owners thereof, having purchased it from the of the parties states with striking clarity "that defendants herein have been in
Government for the sum of P120, and from that year having exercised all the possession of the land in question since 1928 up to the present publicly and
attributes of ownership thereof up to the present; and that the present action for continuously under claim of ownership; they have cultivated it, harvested and
reconveyance has already prescribed. appropriated the fruits for themselves."
3. YES
Obligations and Contracts A2010 page
193 Prof. Labitag
Ratio An action for reconveyance of real property based upon a constructive or ISSUES
implied trust, resulting from fraud, may be barred by the statute of limitations, and WON the action for reconveyance prescribes in 10 years
the action therefor may be filed within four years from the discovery of the fraud,
the discovery in that case being deemed to have taken place when new certificates HELD
of title were issued exclusively in the names of the respondents therein. Yes
Reasoning Upon the undisputed facts in the case at bar, not only had laches set in Reasoning
when the appellants instituted their action for, reconveyance in 1960, but as well - The appellants counter argument is untenable.
their right to enforce the constructive trust had already prescribed. Ten years
actual adverse possession by any person claiming to be the owner for that time of
- What was apparently designed to be an express trust was for the late Francisco
H. Reyes to file an answer in the cadastral proceeding and to obtain title to the
any land or interest in land, uninterruptedly continued for ten years by occupancy,
land for and in behalf of all the heirs of Jorge Bueno. But such express trust failed
descent, grants, or otherwise, in whatever way such occupancy may have
to materialize.
commenced or continued, shall vest in every actual occupant or possessor of such
- If any trust can be deduced at all from the foregoing facts it was an implied one
land a full and complete title.
- While there are some decisions which hold that an action upon a trust is
Disposition The judgment a quo, dismissing the complaint, is affirmed. No
imprescriptible, without distinguishing between express and implied trusts, the
pronouncement as to costs.
better rule, as laid down by this Court in other decisions, is that prescription does
Voting Concepcion, C.J., Reyes, J.B.L., Dizon, Bengzon, J.P., Zaldivar, Sanchez,
supervene where the trust is merely an implied one.
Angeles and Fernando, JJ., concur. Makalintal, J., concurs in the result.
- Upon the general proposition that an action for reconveyance such as the present
is subject to prescription in ten years the appellees and the court a quo are
BUENO V REYES
correct. The question here, however is: from what time should the prescriptive
MAKALINTAL; April 28, 1969 period be counted, in the light of the allegations in the complaint?
- the cause of action upon such trust must be deemed to have accrued only upon
NATURE the discovery of such bad faith or mistake, or to put it more specifically, upon the
An appeal from the decision of the CFI dismissing the plaintiff’s complaint discovery by the appellants that Francisco H. Reyes, in violation of their
agreement with him, had obtained registration of the disputed property in his
FACTS own name and in the names of his brothers.
- In January 1936, FRANCISO REYES filed an answer in a cadastral case claiming - It would not do to say that the cadastral proceeding itself, by virtue of its nature
LOT NO. 2357 to be his and his 2 brothers Juan and Mateo. as a proceeding in rem, was constructive notice to the appellants, for as far as
- 23 yrs. later the plaintiffs in this case filrd an action of reconveyance of Lot 2357. they were concerned the cadastral answer they had authorized Francisco H.
They said that the land did not belong to Reyes and his brothers Reyes to file was not adverse to them; and neither he nor the appellee may
- the land was originally owned by Jorge Bueno. When he died, his 3 children invoke the constructive-notice rule on the basis of their own breach of the
inherited it: Brigida, Eugenia and Rufino. BRigida and Eugenia then died authority thus given. On top of all this, it was the appellants and not the appellees
leavingthe land to their respective children and Rufino who are now the plaintiffs who were in possession of the property as owners, continuously up to 1962, when
in this case. Francisco was Eugenia’s husband. Thus, it is claimed that the land for the first time the latter appeared upon the scene and tried to get such
should belong to his children and his wife’s siblings, Brigida nd Rufino\ possession, thereby revealing to them the fact of the mistaken or fraudulent
- The defendants Juan and Mateo Reyes filed their answer (Francisco died registration.
already) , in which they raised a number of defenses, including laches, - But the foregoing are not facts already established by evidence. They are merely
imprescriptibility of title, and prescription of action. The last defense was upheld alleged in the complaint. These are matters of defense that must be
by the court and now subject of this appeal substantiated at the trial.
- Upon appeal, the appellants/plaintiffs assigned the ff. errors: (1) in the dismissal - With this view we take of the case, it is unnecessary to take Lip the second error
of the complaint on the ground of prescription; and (2) in the dismissal of the assigned.
complaint "even in relation to appellants surnamed Reyes, the children of Ratio
Francisco Reyes - If any trust can be deduced at all from the foregoing facts it was an implied one,
- Both the appellees and the court below proceeded on the theory that the action arising by operation of law not from any presumed intention of the parties but to
for reconveyance was predicated on the existence of an implied trust, and that satisfy the demands of justice and equity and as A protection against unfair
such an action prescribes in 10 years. The appellants counter, in this appeal, that dealing or downright fraud. Indeed, in this kind of implied trust, commonly
the trust was not implied but express, and that in any case even an implied trust, denominated constructive, as distinguished from resulting, trust, there exists a
according to some decisions of this Court, is imprescriptible. On the other hand, certain antagonism between the cestui que trust and the trustee.
the appellants counter by saying that the trust was not implied but express, and - Thus, for instance, under Article 1456 of the Civil Code, "if property is acquired
is in any case imprescriptible through mistake or fraud, the person obtaining it is, by force of law, considered a
trustee of a" implied trust for the benefit of the person from whom the property
Obligations and Contracts A2010 page
194 Prof. Labitag
comes." In a number of cases this Court has held that registration of property by - Callejo asked Mariano Tamayo to cause to be excluded the land held by the
one person in his name, whether by mistake or fraud, the real owner being former, but the latter refused to do so.
another person, impresses upon the title so acquired the character of a - Then Callejo filed his present complaint for reconveyance and damages
constructive trust for the real owner, which would justify an action for - Having failed to answer the amended complaint, defendant Marcos Tamayo was
reconveyance. declared in default, whereas defendant Mariano Tamayo filed his answer with
- J.B.L. Reyes in J.M. Tuason and Co., Inc. v. Magdangal: "Under Section 40 of the counterclaim. His main defense was that the land claimed by Callejo is outside the
old Code of the Civil Procedure, all actions for recovery of real property prescribes perimeter of the area covered by the aforementioned certificates of title.
in 10 years, excepting actions based on continuing or subsisting trusts that were - Mariano Tamayo pleaded also the statute of limitations.
considered by Section 38 as imprescriptible. As held in the case of Diaz v. - CFI rendered a decision dismissing the complaint, upon the ground that the land
Gorricho, however, the continuing or subsisting trusts contemplated in Section 38 Purchased by Fernando Domantay from the parents of Mariano and Marcos Tamayo
of the Code of Civil Procedure referred only to express unrepudiated trusts, and is not included in said titles
did not include constructive trusts where no fiduciary relation exists and the - this decision was reversed by CA which found that the land claimed by Callejo is
trustee does not recognize the trust of all." part of the land covered by the aforementioned certificates of title held by Tamayo,
Disposition the order appealed from is set aside and the case is remanded for and overruled the plea of prescription set up by Mariano Tamayo, upon the theory
further proceedings. that the title to said portion of land now claimed by Callejo, and, before, by
Fernando Domantay, is held in trust by the Tamayos and that the action to enforce
said trust does not prescribe.
- Tamayo maintains that the Court of Appeals has erred: (1) "in not holding that the
TAMAYO V CALLEJO respondent Aurelio Callejo's cause of action, if any, had already prescribed"; (2) "in
CONCEPCION; July 28, 1972 holding that the petitioner's failure to appeal from the decision that did not grant
him affirmative relief on the matter of possession, constituted res adjudicata
FACTS thereon"; (3) "in disregarding the judicial admission made by the respondent Callejo
- This action was brought by Aurelio Callejo, originally against Mariano Tamayo only, and his counsel"; (4) "in making conclusions not supported by the facts on record",
and, later, against his brother Marcos Tamayo, also, for the reconveyance of the (5) "in not affirming the decision rendered by the trial court."
northern portion of a parcel of land in the names of said brothers. CFI dismissed the
complaint. Court of Appeals reversed and the land was declared reconveyed unto ISSUES
him 1. WON Callejo’s cause of action had already prescribed
- It appears that the spouses Vicente Tamayo and Cirila Velasco Tamayo owned a 2. WON petitioner’s failure to appeal from the decision that did not grant him
parcel of land in the barrio of Oalsic or Gualsic. Prior to Feb. 1, 1912, said spouses affirmative relief constituted res judicata
sold part of the northern portion of said land to Fernando Domantay, who took 3. WON the judicial admission made by Callejo and his counsel should have been
possession thereof. disregarded
- Sometime after this sale, but before said date, Vicente Tamayo died. His widow 4. WON the court made conclusions not supported by facts
having waived her rights to the remaining portion of their original property in favor 5. WON the Callejo has the right to demand a reconveyance
of her children Mariano Tamayo and Marcos Tamayo, these brothers were, on
February 1, 1912, declared sole heirs of the deceased. The brothers applied for the HELD
registration in their names, of a tract of land of about 383,509 square meters, 1. NO
alleging that they had thus inherited the same from their deceased father. Ratio Where an implied trust was created in favor of Domantay by the erroneous
- judgment was rendered, directing the registration, in the name of Mariano Tamayo inclusion in the Tamayo brothers' certificate of title of the parcel of land formerly
and Marcos Tamayo, of 205,421 sqm only of the land applied for, said applicants sold by their parents to Domantay (who in turn sold it to Aurelio Callejo) and on June
having acknowledged that the remaining portion thereot belonged to the estate of 28, 1918, Mariano Tamayo, on his behalf and that of his brother Marcos, expressly
Gregorio Flor Mata, deceased. recognized the said previous sale by their parents to Domantay, such express
- Not long after Fernando Domantay sold his above-mentioned land of 22,125-1/3 recognition had the effect of imparting to the aforementioned trust the nature of an
square meters to Aurelio Callejo, who took possession thereof since then. express trust which is not subject to the statute of limitations, at least, until
- Subsequently, Marcos Tamayo sold his undivided share in the property (the 200k repudiated, in which event the period of prescription begins to run only from the
sqm land) to his brother Mariano Tamayo. Then, Mariano sold 70,000 sqm to time of the repudiation. In the instant case, repudiation took place only in early
Proceso Estacio, upon whose request surveyor Fidel Diaz went to the land for the June, 1952, when Mariano Tamayo rejected Callejo's demand that the disputed
purpose of preparing a subdivision plan and segregating the 7 hectares thus portion be excluded from TCT No. 5486 in the former's name. When the instant case
conveyed by Mariano Tamayo, but Diaz did not accomplish his purpose, for he was for reconveyance was filed on June 25, 1952, the period of prescription had barely
not allowed by Callejo to enter the portion held by the latter. begun to run.
Reasoning It should be noted that although the trust created by the application
for registration filed by Mariano and Marcos Tamayo, on or about September 29,
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195 Prof. Labitag
1913, and the inclusion in OCT No. 2612, issued in their names, on November 15, made without a survey defining with precision the metes and bounds of the area to be segregated for
1915, of the tract of land previously sold by their parents to Fernando Domantay - herein respondent, Aurelio Callejo.
and later conveyed by him to Aurelio Callejo - may have had a constructive or Disposition Accordingly, this case should be remanded to the court of origin for
implied nature, its status was substantially affected on June 28, 1918, by the the preparation of a subdivision plan of the portion thus to be segregated and the
following facts, namely: On the date last mentioned, Fernando Domantay and judicial approval of such plan, and only after such approval has become final and
petitioner Mariano Tamayo executed the public instrument whereby Mariano executory may the reconveyance be either made or deemed effected. So modified,
explicitly acknowledged that his deceased parents had sold to Domantay the parcel the appealed decision of the Court of Appeals is hereby affirmed in all other
of land of about 22,125/13 square meters. then held by the latter, and stipulating respects, with the costs of this instance against petitioner Mariano Tamayo.
that Domantay is the absolute owner of said land, free from any lien or
encumbrance thereon. This express recognition by Mariano Tamayo of the previous
sale, made by their parents, to Fernando Domantay had the effect of imparting to
the aforementioned trust the nature of an express trust - it having been created by
the will of the parties, "no particular words" being "required for the creation of an
express trust, it being sufficient that a trust is clearly intended" - which express
trust is a "Continuing and subsisting" trust, not subject to the statute of
limitations, at least, until repudiated, in which event the period of prescription
begins to run only from the time of the repudiation. The latter did not take place
until early in June, 1952, when Mariano Tamayo rejected Aurelio Callejo's demand.
But, then, the case at bar was filed weeks later when the period of prescription had
barely begun to run.
2.
Ratio Petitioner's pretense is manifestly devoid of merit, for the Court of Appeals
had explicitly acknowledged Callejo's title over the disputed land and declared the
same reconveyed to him. This necessarily implied that Callejo is entitled to remain
in possession of said land.
3.
Ratio The finding of the Court of Appeals to the effect that the land sold by
petitioner's parents to Domantay is within the perimeter of the property covered by
TCT No. 5486 is essentially a question of fact, and, consequently, the finding to this
effect is final and not subject to review in the present appeal on certiorari. (Note:
see the original for the factual finding of the CA. Bottomline, the land in question is
shown to be Callejo’s and not Tamayo’s.)
4.
Ratio Petitioner's argument that the conclusion of the Court of Appeals to the
effect that Lot No, 12340 was acquired by respondent Callon from Maximo Rico "is
not supported by any direct testimonial evidence", is in the nature of a negative
pregnant. It does not deny the existence of indirect testimonial evidence, such as
the circumstances considered by the Court of Appeals. Neither does it assail the
existence of direct documentary evidence. In short, it does not deny the existence
of substantial evidence in support of the contested conclusion of fact of the Court of
Appeals.
5.
Ratio Petitioner questions the right of Callejo to demand a reconveyance, insofar
as it may affect the portion of 70,000 square meters sold by him to Proceso Estacio,
upon the ground that the latter is a purchaser in good faith for value. This is,
however, a defense not available to petitioner herein, aside from the fact that he
has not even pleaded it in the trial court or otherwise raised it either in that court or
in the Court of Appeals.
- We note that the Disposition part of the decision of the Court of Appeals declares that the land in
question is "declared reconveyed" to said respondent. Such reconveyance cannot, however, be deemed
Obligations and Contracts A2010
page 196 Prof. Labitag