CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS
GEORGE W. BATCHELDER
vs.THE CENTRAL BANK OF THE PHILIPPINES
G.R. No. L-25071 March 29, 1972
FACTS:
Monetrary Board Res No 857 requires Filipino
and American resident contractors for US Military
bases in the Phils to surrender to the Central Bank
their dollar earnings under their respective
contracts but were entitled to utilize 90% of their
surrendered dollars for importation at the
preferred rate of commodities for use within or
outside US Military bases. Resolution 695
moreover denies their right to reacquire at the
preferred rate of 90% of the foreign exchange and
sold or surrendered earnings to CB for the
purpose of determining whether the imports
against proceeds of contracts entered into prior
April 25, 1960 are classified as dollar-to-dollar
transactions or not.
George Batchelder, an American Citizen permane
ntly residing in the Philippines who is
engaged in the Construction Business, surrender
ed to the Central Bank his dollar earnings
amounting to U.S. $199,966.00. He compels Cent
ral Bank of the Philippines to resell to hi
$170,210.60 at the preferred rate of exchange of
two Philippine pesos for one American dollar,mo
re specifically P2.00375 which was denied by the
court.He then contended that
said decision failed to consider that if there was
no contract obligating the bank to resell to him at
the preferred rate, the judgment of the lower co
urt canand should nevertheless be sustained on
the basis of there being such an obligation arisin
g fromlaw.
ISSUE:
Whether or not the CB has the obligation arising
from Law to resell the dollars to Batchelder at the
preferred rate.
RULING:
ARELLANO UNIVERSITY SCHOOL OF LAW
CB was intended to attain basic objectives in the
field of currency and finance. “It shall be the
responsibility of the CB of the Phils to administer
the monetary and banking system of the Republic.
It shall be the duty of the CB to use the powers
granted to it under
Central Bank was intended to attain basic objecti
ves in the field of currency and finance.
“It shall be the responsibility of the Central Bank of the Ph
ilippines to administer the monetary
and banking system of the Republic. It shall be th
e duty of the Central Bank to use the powers
granted to it under this Act to achieve the followi
ng objectives: (a) to maintain monetarystability i
n the Philippines; (b) to preserve the internation
al value of the peso and theconvertibility of the p
eso into other freely convertible currencies; and
(c) to promote a risinglevel of production, emplo
yment and real income in the Philippines."It is, of
course, true that obligations arise from 1) law; 2
) contracts; 3) quasi-
contracts;4) acts or omissions punished by law a
nd 5) quasi-
delicts. One of the sources an obligation thenis a l
aw. A legal norm could so require that a particula
r party be chargeable with a prestation orundert
aking to give or to deliver or to do or to render s
ome service. It is an indispensablerequisite thou
gh that such a provision, thus in fact exists. There
must be a showing to that effect.As early as 1909
in Pelayo v. Lauron, Court through Justice Torres
, categorically declared:"Obligation arising from l
aw are not presumed." For in the language of Just
ice Street in LeungBen v. O'Brien, a 1918 decisio
n, such an obligation is "a creation of the positive
law." They areordinarily traceable to code or sta
tute. It is true though, as noted in the motion forr
econsideration following People v. Que Po Lay, th
at a Central Bank circular may have the forceand
effect of law, especially when issued in pursuanc
e of its quasi-
legislative power. That of itself, however, is no ju
stification to conclude that it has thereby assume
d.
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CONTRACTS
REPUBLIC VS PLDT
G.R. NO. L-18841
FACTS: Soon after its creation in 1947, the Bureau
of Telecommunications set up its own
Government Telephone System by utilizing its
own appropriation and equipment and by renting
trunk lines of the PLDT to enable government
offices to call private parties. Its application for
the use of these trunk lines was in the usual form
of applications for telephone service, containing a
statement, above the signature of the applicant,
that the latter will abide by the rules and
regulations of the PLDT which are on file with the
Public Service Commission. One of the many rules
prohibits the public use of the service furnished
the telephone subscriber for his private use. The
Bureau has extended its services to the general
public since 1948, using the same trunk lines
owned by, and rented from, the PLDT, and
prescribing its (the Bureau's) own schedule of
rates. Through these trunk lines, a Government
Telephone System (GTS) subscriber could make a
call to a PLDT subscriber in the same way that the
latter could make a call to the former.
The plaintiff, through the Director of
Telecommunications, entered into an agreement
with RCA Communications, Inc., for a joint
overseas telephone service whereby the Bureau
would convey radio-telephone overseas calls
received by RCA's station to and from local
residents.
The defendant Philippine Long Distance
Telephone Company, complained to the Bureau of
Telecommunications that said bureau was
violating the conditions under which their Private
Branch Exchange (PBX) is inter-connected with
the PLDT's facilities, referring to the rented trunk
lines, for the Bureau had used the trunk lines not
only for the use of government offices but even to
serve private persons or the general public, in
competition with the business of the PLDT; and
gave notice that if said violations were not
ARELLANO UNIVERSITY SCHOOL OF LAW
stopped by midnight of 12 April 1958, the PLDT
would sever the telephone connections. When the
PLDT received no reply, it disconnected the trunk
lines being rented by the Bureau at midnight on
12 April 1958. The result was the isolation of the
Philippines, on telephone services, from the rest
of the world, except the United States.
Plaintiff Republic commenced suit against the
defendant, Philippine Long Distance Telephone
Company, in the Court of First Instance of Manila
(Civil Case No. 35805), praying in its complaint
for judgment commanding the PLDT to execute a
contract with plaintiff, through the Bureau, to
restrain the severance of the existing telephone
connections and/or restore those severed.
After trial, the lower court rendered judgment
that it could not compel the PLDT to enter into an
agreement with the Bureau because the parties
were not in agreement; that under Executive
Order 94, establishing the Bureau of
Telecommunications, said Bureau was not limited
to servicing government offices alone, nor was
there any in the contract of lease of the trunk
lines, since the PLDT knew, or ought to have
known, at the time that their use by the Bureau
was to be public throughout the Islands, hence the
Bureau was neither guilty of fraud, abuse, or
misuse of the poles of the PLDT; and, in view of
serious public prejudice that would result from
the disconnection of the trunk lines, declared the
preliminary injunction permanent, although it
dismissed both the complaint and the
counterclaims. Both parties appealed.
ISSUE: Whether or not the plaintiff can compel
the defendant to enter into a contract with it,
because the parties could not agree on the terms
and conditions of the interconnection?
HELD: No, the plaintiff cannot coerce PLDT to
enter into a contract where no agreement is had
between them as to the principal terms and
conditions of the contract. Freedom to stipulate
such terms and conditions is of the essence of our
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CONTRACTS

contractual system, and by express provision of

the statute, a contract may be annulled if tainted
by violence, intimidation, or undue influence
(Articles 1306, 1336, 1337, Civil Code of the
Philippines). But the court a quo has apparently
overlooked that while the Republic may not
compel the PLDT to celebrate a contract with it,
the Republic may, in the exercise of the sovereign
power of eminent domain, require the telephone
company to permit interconnection of the
government telephone system and that of the
PLDT, as the needs of the government service may
require, subject to the payment of just
compensation to be determined by the court.

ARELLANO UNIVERSITY SCHOOL OF LAW Page 3

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CONTRACTS

CORPUS VS. CA WE reiterated this rule in Pacific Merchandising

Corp. vs. Consolacion Insurance & Surety Co., Inc.
FACTS: (73 SCRA 564 [1976]) citing the case of Perez v.
David accepted the case of Corpus though there Pomar, supra thus:
was no express agreement regarding attorney’s Where one has rendered services to another, and
fees. Corpus was administratively charged. He these services are accepted by the latter, in the
employed the services of David. David won the absence of proof that the service was rendered
administrative case For Copuz. Corpus gave a gratuitously, it is but just that he should pay a
check to David, but was returned by David with reasonable remuneration therefor because 'it is a
the intention of getting paid after the case is ruled well-known principle of law, that no one should
with finality by the SC and Corpus gets his back be permitted to enrich himself to the damage of
salaries and wages. (Your appreciation of the another.
efforts I have invested in your case is enough
compensation therefor, however, when you shall
have obtained a decision which would have
finally resolved the case in your favor,
remembering me then will make me happy. In the
meantime, you will make me happier by just
keeping the check) David continued to fight for
Corpus’ case and got a favorable judgment.
Corpus refused to pay David contending that
since David refused the first check given by him,
he gave his services gratuitously.

HELD: While there was no express agreement

between petitioner Corpus and respondent David
as regards attorney's fees, the facts of the case
support the position of respondent David that
there was at least an implied agreement for the
payment of attorney's fees.

Payment of attorney's fees to respondent David

may be justified by virtue of the innominate
contract of facio ut des (I do and you give which is
based on the principle that "no one shall unjustly
enrich himself at the expense of another."
Innominate contracts have been elevated to a
codal provision in the New Civil Code by
providing under Article 1307 that such contracts
shall be regulated by the stipulations of the
parties, by the general provisions or principles of
obligations and contracts, by the rules governing
the most analogous nominate contracts, and by
the customs of the people.

ARELLANO UNIVERSITY SCHOOL OF LAW Page 4

 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS
EJERCITO vs ORIENTAL ASSURANCE
CORPORATION,
G.R. No. 192099 July 8, 2015
FACTS: Respondent Oriental Assurance
Corporation issued a Surety Bond in favor of FFV
Travel & Tours, Inc. (Company). The bond was
intended to guarantee the Company’s payment of
airline tickets purchased on credit from
participating members of International Air
Transport Association (IATA) to the extent of
3million.
On the same day, petitioners and Merissa
C. Somes (Somes) executed a Deed of Indemnity
in favor of respondent. FFV Travel & Tours, Inc.
has been declared in default for failure to pay its
obligations amounting 5,484,086.97 and USD
18,760.98. Consequently, IATA demanded
payment of the bond, and respondent heeded the
demand on 28 November 2000. IATA executed a
Release of Claim acknowledging payment of the
surety bond. The Surety Bond was effective for
one year from its issuance and it was renewed for
another year.
Respondent sent demand letters to
petitioners and Somes for reimbursement of the
3 million pursuant to the indemnity agreement.
For their failure to reimburse respondent, the
latter filed a collection suit.
RTC dismissed the complaint and held
Somes liable to pay the amount of 3 million and
interest per annum at the rate of 12% of the
principal obligation. The RTC found that there
was no written agreement to show the intention
of petitioners to renew the Deed of Indemnity.
The absence thereof was evidenced by the
nonappearance of any signature on the Renewal
Notice, which was not signed by Somes. The CA
reversed the finding of the RTC and ruled that
petitioners could not escape liability as they had
authorized respondent to grant any renewals or
extensions pursuant to the indemnity agreement.
ISSUE: Whether petitioners, by renewing the
contract through Somes, expressly bound
ARELLANO UNIVERSITY SCHOOL OF LAW
themselves to indemnify the respondent under
the deed of indemnity.
HELD: Yes. Petition denied. The contract of
indemnity is the law between the parties. it is a
cardinal rule in the interpretation of a contract
that if its terms are clear and leave no doubt on
the intention of the contracting parties, the literal
meaning of its stipulation shall control. The CA
aptly found provisions in the contract that could
not exonerate petitioners from their liability.
Clearly, as far as respondent is concerned,
petitioners have expressly bound themselves to
the contract, which provides for the term granting
authority to the company to renew the original
bond. The terms of the contract are clear, explicit
and unequivocal. Therefore, the subsequent acts
of the Company, through Somes, the led to the
renewal of the surety bond are binding on
petitioners as well.
The intention of Somes to renew the bond
cannot be denied, as she paid the renewal
premium and even submitted the renewed bond
to IATA.
The claim of petitioners that they only
consented to the one-year validity of the surety
bond must be directed against Somes in a
separate action. She allegedly convinced them
that the bond was valid for on year only. The
allegation of petitioners is an agreement outside
of the contract. In other words, respondent is not
privy to the alleged agreement between Somes
and petitioners. For respondent, there was a valid
indemnity agreement executed by the parties,
and contained a proviso that became the basis for
the authority to renew the original bond.
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CONTRACTS
DAISY B. TIU vs. PLATINUM PLANS PHIL.,
INC.,
G.R. No. 163512
NATURE: Autonomy of Contracts, Action for
Damages
PONENTE: QUISUMBING, J.:
DATE:February 28, 2007
DOCTRINE: a non-involvement clause is not
necessarily void for being in restraint of trade as
long as there are reasonable limitations as to
time, trade, and place.
RELATED ARTICLE:Article 1306 of the Civil
Code provides that parties to a contract may
establish such stipulations, clauses, terms and
conditions as they may deem convenient,
provided they are not contrary to law, morals,
good customs, public order, or public policy.
Article 1159 of the same Code also provides
that obligations arising from contracts have the
force of law between the contracting parties and
should be complied with in good faith. Courts
cannot stipulate for the parties nor amend their
agreement where the same does not contravene
law, morals, good customs, public order or public
policy, for to do so would be to alter the real intent
of the parties, and would run contrary to the
function of the courts to give force and effect
thereto.
FACTS:
Respondent Platinum Plans Philippines, Inc. is
a domestic corporation engaged in the pre-need
industry. From 1987 to 1989, petitioner Daisy B.
Tiu was its Division Marketing Director. On
January 1, 1993, respondent re-hired petitioner
as Senior Assistant Vice-President and
Territorial Operations Head in charge of its
Hongkong and Asean operations. The parties
executed a contract of employment valid for five
years. On September 16, 1995, petitioner stopped
reporting for work. In November 1995, she
became the Vice-President for Sales of
ARELLANO UNIVERSITY SCHOOL OF LAW
Professional Pension Plans, Inc., a corporation
engaged also in the pre-need industry.
Consequently, respondent sued petitioner for
damages before the RTC of Pasig City. Respondent
alleged, among others, that petitioner’s
employment with Professional Pension Plans, Inc.
violated the non-involvement clause in her
contract of employment, to wit:
8. NON INVOLVEMENT PROVISION – The
EMPLOYEE further undertakes that during
his/her engagement with EMPLOYER and
in case of separation from the Company,
whether voluntary or for cause, he/she
shall not, for the next TWO (2) years
thereafter, engage in or be involved with
any corporation, association or entity,
whether directly or indirectly, engaged in
the same business or belonging to the
same pre-need industry as the EMPLOYER.
Any breach of the foregoing provision shall
render the EMPLOYEE liable to the
EMPLOYER in the amount of One Hundred
Thousand Pesos (P100,000.00) for and as
liquidated damages.5
Petitioner countered that the non-involvement
clause was unenforceable for being against public
order or public policy: First, the restraint
imposed was much greater than what was
necessary to afford respondent a fair and
reasonable protection. Petitioner contended that
the transfer to a rival company was an accepted
practice in the pre-need industry. Since the
products sold by the companies were more or less
the same, there was nothing peculiar or unique to
protect. Second, respondent did not invest in
petitioner’s training or improvement. At the time
petitioner was recruited, she already possessed
the knowledge and expertise required in the pre-
need industry and respondent benefited
tremendously from it. Third, a strict application
of the non-involvement clause would amount to a
deprivation of petitioner’s right to engage in the
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CONTRACTS
only work she knew. In upholding the validity of
the non-involvement clause, the trial court ruled
that a contract in restraint of trade is valid
provided that there is a limitation upon either
time or place. In the case of the pre-need industry,
the trial court found the two-year restriction to
be valid and reasonable.
On appeal, the Court of Appeals affirmed the trial
court’s ruling. It reasoned that petitioner entered
into the contract on her own will and volition.
Thus, she bound herself to fulfill not only what
was expressly stipulated in the contract, but also
all its consequences that were not against good
faith, usage, and law. The appellate court also
ruled that the stipulation prohibiting non-
employment for two years was valid and
enforceable considering the nature of
respondent’s business.
ISSUE: Whether the non-involvement clause is
valid.
HELD: YES, it is valid.
In this case, the non-involvement clause has a
time limit: two years from the time petitioner’s
employment with respondent ends. It is also
limited as to trade, since it only prohibits
petitioner from engaging in any pre-need
business akin to respondent’s.
More significantly, since petitioner was the Senior
Assistant Vice-President and Territorial
Operations Head in charge of respondent’s
Hongkong and Asean operations, she had been
privy to confidential and highly sensitive
marketing strategies of respondent’s business. To
allow her to engage in a rival business soon after
she leaves would make respondent’s trade
secrets vulnerable especially in a highly
competitive marketing environment. In sum, we
find the non-involvement clause not contrary to
public welfare and not greater than is necessary
to afford a fair and reasonable protection to
respondent.
ARELLANO UNIVERSITY SCHOOL OF LAW
In any event, Article 1306 of the Civil Code
provides that parties to a contract may establish
such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are
not contrary to law, morals, good customs, public
order, or public policy.
Article 1159 of the same Code also provides that
obligations arising from contracts have the force
of law between the contracting parties and should
be complied with in good faith. Courts cannot
stipulate for the parties nor amend their
agreement where the same does not contravene
law, morals, good customs, public order or public
policy, for to do so would be to alter the real intent
of the parties, and would run contrary to the
function of the courts to give force and effect
thereto. Not being contrary to public policy, the
non-involvement clause, which petitioner and
respondent freely agreed upon, has the force of
law between them, and thus, should be complied
with in good faith.
Thus, as held by the trial court and the Court of
Appeals, petitioner is bound to pay
respondent P100,000 as liquidated damages.
While we have equitably reduced liquidated
damages in certain cases, we cannot do so in this
case, since it appears that even from the start,
petitioner had not shown the least intention to
fulfill the non-involvement clause in good faith.
Page 7
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CONTRACTS

CUI VS ARELLANOUNIVERSITY 38, s. 1949, it should have not entered into a

2 SCRA 205, May 30, 1961 contract of waiver with Cui on September 10,
Ponente: J. Concepcion 1951, which is a direct violation of our
Memorandum and an open challenge to the
FACTS authority of the Director of Private Schools
Emeritio Cui was granted scholarship by the because the contract was repugnant to sound
defendant university on scholarship merit as a morality and civic honesty.
student of the College of Law. Stipulated in the
contract for the scholarship grant is the following:
“In consideration of the scholarship granted to me
by the University, I hereby waive my right to
transfer to another school without having
refunded to the University (defendant) the
equivalent of my scholarship cash.”

On his last semester on the University, Cui

transferred to Abad Santos University where his
uncle, the previous dean and legal adviser of
Arellano University, was now the dean of the
College of Law of Abad Santos University.

Before taking the bar, Cui petitioned the

defendant university for the release of his TOR.
The university refused until Cui refunded the
scholarship granted to him totaling the amount of
Php 1,033.87, which he did under protest.

Thereafter, he filed for recovery plus damages.

The Court of First Instance of Manila ruled in
favor or Arellano University. Hence, this petition
for review.

ISSUE
Whether or not the stipulation on waiver of right
to transfer without having refunded the
scholarship is void.

HELD
Yes. The stipulation contravenes both moral and
public policy. Scholarship grants are not for
propaganda purposes but are awards for merits.
If Arellano University understood clearly the real
essence of scholarships and the motives which
prompted this office to issue Memorandum No.
ARELLANO UNIVERSITY SCHOOL OF LAW Page 8
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CONTRACTS
RAMON E. SAURA VS ESTELA P. SINDICO
G.R. No. L-13403 March 23, 1960
Ramon E. Saura and Estela P. Sindico were
contesting for nomination as the official
candidate of the Nacionalista Party in the
congressional elections of November 12, 1957. On
August 23, 1957, the parties entered into a
written agreement bearing the same date,
containing among other matters stated therein, a
pledge that —
“Each aspirant shall respect the result of the
aforesaid convention, i.e., no one of us shall either
run as a rebel or independent candidate after
losing in said convention.”
In the provincial convention held by the
Nacionalista Party on August 31, 1957, Saura was
elected and proclaimed the Party's official
congressional candidate for the aforesaid district.
Nonetheless, Sindico, in disregard of the
covenant, filed, on her certificate of candidacy for
the same office with the Commission on Elections,
and she openly and actively campaigned for her
election. Plaintiff Saura commenced this suit for
the recovery of damages. Upon motion of the
defendant, the lower court, in its order of
November 19, 1957, dismissed the complaint on
the basis that the agreement sued upon is null and
void, because (1) the subject matter of the
contract, being a public office, is not within the
commerce of man; and (2) the "pledge" was in
curtailment of the free exercise of elective
franchise and therefore against public policy.
Hence, this appeal.
Issue:
Whether the agreement between both
parties is a nullity?
Held:
ARELLANO UNIVERSITY SCHOOL OF LAW
Yes. We agree with the lower court in
adjudging the contract or agreement in question
a nullity. Among those that may not be the subject
matter (object) of contracts are certain rights of
individuals, which the law and public policy have
deemed wise to exclude from the commerce of
man. Among them are the political rights
conferred upon citizens, including, but not limited
to, once's right to vote, the right to present one's
candidacy to the people and to be voted to public
office, provided, however, that all the
qualifications prescribed by law obtain. Such
rights may not, therefore, be bargained away
curtailed with impunity, for they are conferred
not for individual or private benefit or advantage
but for the public good and interest.
In the case at hand, plaintiff complains on account
of defendant's alleged violation of the "pledge" in
question by filing her own certificate o candidacy
for a seat in the Congress of the Philippines and in
openly and actively campaigning for her election.
In the face of the preceding considerations, we
certainly cannot entertain plaintiff's action, which
would result in limiting the choice of the electors
to only those persons selected by a small group or
by party boses. Appeal is dismissed.
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CONTRACTS
LEAL V. IAC
G.R. No. L-65425
November 5, 1987
FACTS:
Vicente Santiago and his brother, Luis Santiago
entered into a contract entitled “compraventa”
whereby the vendor sold t three parcels of land in
favor of Cirilio Leal Pursuant to this
"Compraventa," the title over the three parcels of
land in the name of the vendors was cancelled and
a new one was issued in the name of Cirilo Leal
who immediately took possession and exercised
ownership over the said lands. When Cirilo died
on December 10, 1959, the subject lands were
inherited by his six children, who are among the
petitioners, and who caused the consolidation
and subdivision of the properties among
themselves.
Between the years 1960 and 1965, the properties
were either mortgaged or leased by the
petitioners-children of Cirilo Leal — to their co-
petitioners.
Sometime before the agricultural year 1966-
1967, Vicente Santiago approached the
petitioners and offered re- repurchase the subject
properties. Petitioners, however, refused the
offer. Consequently, Vicente Santiago instituted a
complaint for specific performance before the
then Court of First Instance of Quezon City on
August 2, 1967.
ISSUE:
Whether the phrase in the “compraventa” gives
the Santiago a right to repurchase the land
HELD:
Contracts are generally binding between the
parties, their assigns and heirs; however, under
Art. 1255 of the Civil Code of Spain, which is
ARELLANO UNIVERSITY SCHOOL OF LAW
applicable in this instance, pacts, clauses, and
conditions which are contrary to public order are
null and void, thus, without any binding effect.
Parenthetically, the equivalent provision in the
Civil Code of the Philippines is that of Art. 1306,
which states: "That contracting parties may
establish such stipulations, clauses, terms and
conditions as they may deem convenient,
provided they are not contrary to law, morals,
good customs, public order, or public policy.
Public order signifies the public weal — public
policy. Essentially, therefore, public order and
public policy mean one and the same thing. Public
policy is simply the English equivalent of "order
publico" in Art. 1255 of the Civil Code of Spain.
One such condition which is contrary to public
policy is the present prohibition to self to third
parties, because the same virtually amounts to a
perpetual restriction to the right of ownership,
specifically the owner's right to freely dispose of
his properties. This, we hold that any such
prohibition, indefinite and stated as to time, so
much so that it shall continue to be applicable
even beyond the lifetime of the original parties to
the contract, is, without doubt, a nullity. In the
light of this pronouncement, we grant the
petitioners' prayer for the cancellation of the
annotations of this prohibition at the back of their
Transfer Certificates 'Title.
The law provides that for conventional
redemption to take place, the vendor should
reserve, in no uncertain terms, the right to
repurchase the thing sold. Thus, the right to
redeem must be expressly stipulated in the
contract of sale in order that it may have legal
existence.
In the case before us, we cannot and any express
or implied grant of a right to repurchase, nor can
we infer, from any word or words in the
questioned paragraph, the existence of any such
right. The interpretation in the resolution (Justice
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CONTRACTS

Sison) is rather strained. The phrase "in case

case" of should be construed to mean "should the
buyers wish to sell which is the plain and simple
import of the words, and not "the buyers should
sell," which is clearly a contorted construction of
the same phrase. The resort to Article 1373 of the
Civil Code of the Philippines is erroneous. The
subject phrase is patent and unambiguous, hence,
it must not be given another interpretation

But even assuming that such a right of repurchase

is granted under the "Compraventa," the
petitioner correctly asserts that the same has
already prescribed. Under Art. 1508 of the Civil
Code of Spain (Art,. 1606 of the Civil Code of the
Philippines), the right to redeem or repurchase, in
the absence of an express agreement as to time,
shall last four years from the date of the contract.
In this case then, the right to repurchase, if it was
at four guaranteed under in the "Compraventa,"
should have been exercise within four years from
March 21, 1941 (indubitably the date of execution
of the contract), or at the latest in 1945.

In the respondent court's resolution, it is further

ruled that the right to repurchase was given birth
by the condition precedent provided for in the
phrase "siempre y cuando estos ultimos pueden
hacer la compra" (when the buyer has money to
buy). In other words, it is the respondent court's
contention that the right may be exercised only
when the buyer has money to buy. If this were so,
the second paragraph of Article 1508 would apply
— there is agreement as to the time, although it is
indefinite, therefore, the right should be exercised
within ten years, because the law does not favor
suspended ownership. Since the alleged right to
repurchase was attempted to be exercised by
Vicente Santiago only in 1966, or 25 years from
the date of the contract, the said right has
undoubtedly expired.

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS
BANCO FILIPINO SAVINGS vs. NAVARRO
G.R. No. L-46591, July 28, 1987 (152 SCRA
346); MELENCIO-HERRERA, J.:
FACTS:
On May 20, 1975, respondent Florante del
Valle obtained a loan secured by a real estate
mortgage from petitioner BANCO FILIPINO in the
sum of Forty-one Thousand Three Hundred
(P41,300.00) Pesos, payable and to be amortized
within fifteen (15) years at twelve (12%) per cent
interest annually. Stamped on the promissory
note evidencing the loan is an Escalation Clause,
reading as follows:
“I/We hereby authorize Banco Filipino to
correspondingly increase the interest rate
stipulated in this contract without advance notice
to me/us in the event law should be enacted
increasing the lawful rates of interest that may be
charged on this particular kind of loan.”
On June 30, 1976, BANCO FILIPINO gave
notice to Mr. Del Valle increasing the interest rate
on the LOAN from 12% to 17% per annum
effective on March 1, 1976 pursuant to Central
Bank CIRCULAR No. 494 issued on January 2,
1976, which provides that, “…The maximum rate
of interest, including commissions, premiums, fees
and other charges on loans with maturity of more
than seven hundred thirty (730) days, by banking
institutions, including thrift banks and rural banks,
or by financial intermediaries authorized to
engage in quasi-banking functions shall be
nineteen percent (19%) per annum...Except as
provided in this Circular and Circular No. 493,
loans or renewals thereof shall continue to be
governed by the Usury Law, as amended."
On August 28, 1976, Mr. Del Valle sought
clarification from the Central Bank on Banco
Filipino's recent decision to raise interest rates on
lots bought on installment from 12% to 17% per
annum. Central Bank replied on September 24,
1976, as follows:
ARELLANO UNIVERSITY SCHOOL OF LAW
….please be advised that the Monetary
Board, in its Resolution No. 1155 dated June 11,
1976, adopted the following guidelines to govern
interest rate adjustments by banks and non-banks
performing quasi-banking functions on loans
already existing as of January 3, 1976, in the light
of Central Bank Circulars Nos. 492-498: (l) Only
banks and non-bank financial intermediaries
performing quasi-banking functions may increase
interest rates on loans already existing as of
January 2, 1976, provided that: a. The pertinent
loan contracts/documents contain escalation
clauses expressly authorizing lending bank or non-
bank performing quasi-banking functions to
increase the rate of interest stipulated in the
contract, in the event that any law or Central
Bank regulation is promulgated increasing the
maximum interest rate for loans; and b. Said loans
were directly granted by them and the remaining
maturities thereof were more than 730 days as of
January 2, 1976; and (2) The increase in the rate of
interest can be effective only as of January 2, 1976
or on a later date. The foregoing guidelines,
however, shall not be understood as precluding
affected parties from questioning before a
competent court of justice the legality or validity of
such escalation clauses.
Contending that CIRCULAR No. 494 is not
the law contemplated in the Escalation Clause of
the promissory note, Mr. Del Valle filed suit
against BANCO FILIPINO for "Declaratory Relief"
with respondent Court, praying that the
Escalation Clause be declared null and void and
that BANCO FILIPINO be ordered to desist from
enforcing the increased rate of interest on Mr. Del
Valle's real estate loan.
In its judgment, respondent Court nullified
the Escalation Clause and ordered BANCO
FILIPINO to desist from enforcing the increased
rate of interest on the BORROWER's loan. It
reasoned out that P.D. No. 116 does not
expressly grant the Central Bank authority to
maximize interest rates with retroactive effect
and that BANCO FILIPINO cannot legally impose a
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CONTRACTS

higher rate of interest before the expiration of the
15-year period in which the loan is to be paid
other than the 12% per annum in force at the time
of the execution of the loan. Hence, the petition for
review on Certiorari.
Issue:
Whether the Escalation Clause, to which
the BANCO FILIPINO based upon the increase in
the interest rate of the LOAN from 12% to 17%
per annum, was valid.
Whether the Central Bank CIRCULAR No.
494 is not the law contemplated in the Escalation
Clause of the promissory note.
Ruling:
rely thereon to raise the interest on the
borrower's loan from 12% to 17% per annum
because Circular No. 494 of the Monetary Board
was not the "law" contemplated by the parties.
It is clear from the stipulation between the
parties that the interest rate may be increased "in
the event a law should be enacted increasing the
lawful rate of interest that may be charged on this
particular kind of loan." The Escalation Clause was
dependent on an increase of rate made by "law"
alone. CIRCULAR No. 494, although it has the
effect of law, is not a law. An administrative
regulation adopted pursuant to law has the force
and effect of law.

The judgment appealed from is affirmed in The distinction between a law and an
so far as it orders petitioner Banco Filipino to administrative regulation is recognized in the
desist from enforcing the increased rate of Monetary Board guidelines quoted in the letter of
interest on petitioner's loan. Central Bank to Mr. Del Valle on September 24,
1976. According to the guidelines, for a loan's
The substantial question in this case is not interest to be subject to the increases provided in
really whether the Escalation Clause is a valid or CIRCULAR No. 494, there must be an Escalation
void stipulation. There should be no question that Clause allowing the increase "in the event that any
the clause is valid. Some contracts contain what is law or Central Bank regulation is promulgated
known as an "escalator clause," which is defined increasing the maximum interest rate for loans."
as one in which the contract fixes a base price but The guidelines thus presuppose that a Central
contains a provision that in the event of specified Bank regulation is not within the term "any law."
cost increases, the seller or contractor may raise
the price up to a fixed percentage of the base.
Attacks on such a clause have usually been based
on the claim that, because of the open price-
provision, the contract was too indefinite to be
enforceable and did not evidence an actual
meeting of the minds of the parties, or that the
arrangement left the price to be determined
arbitrarily by one party so that the contract
lacked mutuality. In most instances, however,
these attacks have been unsuccessful. The Court
further finds as a matter of law that the cost of
living index adjustment, or escalator clause, is not
substantively unconscionable.

However, while an escalation clause like

the one in question can ordinarily be held valid,
nevertheless, petitioner Banco Filipino cannot
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS
SPS FLORENDO VS. CA
G.R. No. 101771 December 17, 1996
FACTS:
Florendo was an employee of Land Bank. Before
her resignation, she applied for a housing loan
payable within 25 years. Together with the
Housing Loan Agreement, Florendo and Land
Bank also executed a Real Estate Mortgage and
Promissory Note.
Land Bank increased the interest rate on
Florendo's loan from 9% per annum to 17% to
take effect on March 19, 1985. The details of the
increase are embodied in Land Bank's ManCom
Resolution No. 85-08 and in a Provident Fund
Memorandum Circular No. 85-08, Series of 1985.
Land Bank first informed Florendo of the said
increase in a letter dated June 7, 1985. Florendo
protested the increase in a letter dated June 11,
1985 to which the bank replied through a letter
dated July 1, 1985.
Land Bank kept on demanding that Florendo pay
the increased interest or the new monthly
installments based on the increased interest rate,
but Florendo just as vehemently maintained that
the said increase is unlawful and unjustifiable.
Despite Land Bank's demand to pay the increased
interest or increased monthly installments,
Florendo has faithfully paid and discharged their
loan obligations, more particularly the monthly
payment of the original stipulated installment.
Disregarding the bank's repeated demand for
increased interest and monthly installment,
Florendo is presently up-to-date in the payments
of their obligations under the original contracts.
ISSUE: Did the respondent bank have a valid and
legal basis to impose an increased interest rate on
the petitioners' housing loan?
HELD:
ARELLANO UNIVERSITY SCHOOL OF LAW
In the case at bar, it may be said that previous
regulations had been taken into consideration by
the contracting parties when they first entered
into their loan contract. In light of the CB
issuances in force at that time, respondent bank
was fully aware that it could have imposed an
interest rate higher than 9% per annum rate for
the housing loans of its employees, but it did not.
In the subject loan, the respondent bank
knowingly agreed that the interest rate on
petitioners' loan shall remain at 9% p.a. unless a
CB issuance is passed authorizing an increase (or
decrease) in the rate on such employee loans and
the Provident Fund Board of Trustees acts
accordingly. Thus, as far as the parties were
concerned, all other onerous factors, such as
employee resignations, which could have been
used to trigger an application of the escalation
clause were considered barred or waived. If the
intention were otherwise, they — especially
respondent bank — should have included such
factors in their loan agreement.
ManCom Resolution No. 85-08, which is neither a
rule nor a resolution of the Monetary Board,
cannot be used as basis for the escalation in lieu
of CB issuances, since paragraph (f) of the
mortgage contract very categorically specifies
that any interest rate increase be in accordance
with "prevailing rules, regulations and circulars
of the Central Bank . . . as the Provident Fund
Board . . . may prescribe." As a matter of fact, the
said escalation clause further provides that the
increased interest rate "shall only take effect on
the date of effectivity of (the) increase/decrease"
authorized by the CB rule, regulation or circular.
Without such CB issuance, any proposed
increased rate will never become effective.
The unilateral determination and imposition of
increased interest rates by the herein respondent
bank is obviously violative of the principle of
mutuality of contracts ordained in Article 1308 of
the Civil Code. As this Court held in PNB:
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In order that obligations arising from contracts

may have the force of law between the parties,
there must be mutuality between the parties
based on their essential equality. A contract
containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will
of one of the contracting parties, is void (Garcia
vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even
assuming that the . . . loan agreement between the
PNB and the private respondent gave the PNB a
license (although in fact there was none) to
increase the interest rate at will during the term
of the loan, that license would have been null and
void for being violative of the principle of
mutuality essential in contracts. It would have
invested the loan agreement with the character of
a contract of adhesion, where the parties do not
bargain on equal footing, the weaker party's (the
debtor) participation being reduced to the
alternative "to take it or leave it" (Qua vs. Law
Union & Rock Insurance Co., 95 Phil 85). Such a
contract is a veritable trap for the weaker party
whom the courts of justice must protect against
abuse and imposition.

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS
NEW WORLD DEVELOPERS AND
MANAGEMENT, INC., PETITIONER, VS.
AMA COMPUTER LEARNING CENTER,
INC., RESPONDENT
G.R. No. 187930 February 23, 2015
FACTS:
New World is the owner of a commercial building
located at No. 1104-1118 España corner Paredes
Streets, Sampaloc, Manila. In 1998, AMA agreed to
lease the entire second floor of the building for its
computer learning center, and the parties entered
into a Contract of Lease 4 covering the eight-year
period from 15 June 1998 to 14 March 2006.
The monthly rental for the first year was set
at P181,500, with an annual escalation rate
equivalent to 15% for the succeeding years. 5 It
was also provided that AMA may preterminate
the contract by sending notice in writing to New
World at least six months before the intended
date.6 In case of pretermination, AMA shall be
liable for liquidated damages in an amount
equivalent to six months of the prevailing rent.
In compliance with the contract, AMA paid New
World the amount of P450,000 as advance rental
and another P450,000 as security deposit.7
For the first three years, AMA paid the monthly
rent as stipulated in the contract, with the
required adjustment in accordance with the
escalation rate for the second and the third years.
In a letter dated 18 March 2002, AMA requested
the deferment of the annual increase in the
monthly rent by citing financial constraints
brought about by a decrease in its enrollment.
New World agreed to reduce the escalation rate
by 50% for the next six months. The following
year, AMA again requested the adjustment of the
monthly rent and New World obliged by granting
a 45% reduction of the monthly rent and a 5%
reduction of the escalation rate for the remaining
term of the lease. For this purpose, the parties
ARELLANO UNIVERSITY SCHOOL OF LAW
entered into an Addendum to the Contract of
Lease.9
On the evening of 6 July 2004, AMA removed all
its office equipment and furniture from the leased
premises. The following day, New World received
a letter from AMA dated 6 July 200410 stating that
the former had decided to preterminate the
contract effective immediately on the ground of
business losses due to a drastic decline in
enrollment. AMA also demanded the refund of its
advance rental and security deposit.
New World replied in a letter dated 12 July
2004,11 to which was attached a Statement of
Account12 indicating the following amounts to be
paid by AMA: 1) unpaid two months’ rent in the
amount of P466,620; 2) 3% monthly interest for
the unpaid rent in the amount of P67,426.59; 3)
liquidated damages equivalent to six months of
the prevailing rent in the amount of P1,399,860;
and 4) damage to the leased premises amounting
to P15,580. The deduction of the advance rental
and security deposit paid by AMA still left an
unpaid balance in the amount of P1,049,486.59.
Despite the meetings between the parties, they
failed to arrive at a settlement regarding the
payment of the foregoing amounts. 13
On 27 October 2004, New World filed a complaint
for a sum of money and damages against AMA
before the Regional Trial Court of Marikina City,
Branch 156 (RTC).14
ISSUE:
Whether AMA is liable to pay six months’ worth of
rent as liquidated damages on the ground that
when the parties freely stipulate on the manner
by which one may preterminate the lease, that
stipulation has the force of law between them and
should be complied with in good faith?
RULING:
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CONTRACTS

AMA is liable for six months’ worth of rent as
liquidated damages.
Item No. 14 of the Contract of Lease states:
That [AMA] may pre-terminate this Contract of
Lease by notice in writing to [New World] at least
six (6) months before the intended date of
pretermination, provided, however, that in such
case, [AMA] shall be liable to [New World] for an
amount equivalent to six (6) months current
rental as liquidated damages;30
Art. 1306. The contracting parties may establish
such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are
not contrary to law, morals, good customs, public
order, or public policy.
The fundamental rule is that a contract is the law
between the parties. Unless it has been shown
that its provisions are wholly or in part contrary
to law, morals, good customs, public order, or
public policy, the contract will be strictly enforced
by the courts.

Quite notable is the fact that AMA never denied its

liability for the payment of liquidated damages in
view of its pretermination of the lease contract
with New World. What it claims, however, is that
it is entitled to the reduction of the amount due to
the serious business losses it suffered as a result
of a drastic decrease in its enrollment.

This Court is, first and foremost, one of law. While

we are also a court of equity, we do not employ
equitable principles when well-established
doctrines and positive provisions of the law
clearly apply.31

The law does not relieve a party from the

consequences of a contract it entered into with all
the required formalities.32 Courts have no power
to ease the burden of obligations voluntarily
assumed by parties, just because things did not
turn out as expected at the inception of the
contract.33 It must also be emphasized that AMA
is an entity that has had significant business
experience, and is not a mere babe in the woods.

Articles 1159 and 1306 of the Civil Code state:

Art. 1159. Obligations arising from contracts have

the force of law between the contracting parties
and should be complied with in good faith.

xxxx

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS
SALUDO vs SECURITY BANK CORP. Marcelo,
Emmanuel T.
G.R. NO. 184041 OCT. 13, 2010
Facts:
On May 1996, respondent Security Bank
Corp. (SBC) extended an omnibus line credit
facility amounting to P10,000.00 to Booklight Inc.
(Booklight) covered by Credit Agreement and a
Continuing Suretyship, with petitioner Saludo as
surety. On October 1997, SBC approved a renewal
of credit facility in favor of Booklight under the
prevailing security lending rate. Booklight failed
to settle the loans upon maturity, hence, demands
were made on Booklight and petitioner Saludo for
payment of the obligation but the duo failed to
pay.
SBC then filed with the RTC an action for
collection of money against Booklight and
petitioner Saludo. Booklight was declared in
default. Petitioner Saludo in his answer alleged
that under the Continuing Suretyship, it was the
parties understanding that his undertaking and
liability was merely as an accommodation
guaranty of Booklight. The RTC ruled that
petitioner Saludo is jointly and solidarily liable
with Booklight under the Continuing Suretyship
Agreement. On appeal, the CA affirmed in toto the
ruling of RTC and the motion for reconsideration
of the petitioner was denied. In the instant
petition before the Supreme Court, petitioner
Saludo argued that when the first credit facility
expired, its accessory contract, i.e. the Continuing
Security Agreement likewise expired,
accordingly, the second credit facility approved
by SBC in favor of Bookmark is not anymore
covered by the Continuing Suretyship. Petitioner
Saludo further argued that since he is the surety,
the approval of the second credit facility in favor
of Bookmark necessitates his consent before the
Continuing Suretyship Agreement for such
second credit facility be effective.
Issue:
ARELLANO UNIVERSITY SCHOOL OF LAW
Whether or not an approved second credit
facility under the same Credit Agreement is
covered by the Continuing Suretyship Agreement
executed to secure the said Credit Agreement,
hence, making the surety in such Continuing
Suretyship Agreement solidarily liable with the
debtor to whom the second credit facility was
extended.
Ruling:
The Supreme Court ruled in the
affirmative.
There is no doubt that Booklight was
extended two (2) credit facilities, each with a one-
year term, by SBC. Booklight availed of these two
(2) credit lines. While Booklight was able to
comply with its obligation under the first credit
line, it defaulted in the payment of the loan
obligation under the second credit line.
Under the Continuing Suretyship,
petitioner undertook to guarantee the following
obligations: (a) Guaranteed Obligations the
obligations of the Debtor arising from all credit
accommodations extended by the Bank to the
Debtor, including increases, renewals, roll-
overs, extensions, restructurings,
amendments or novations thereof, as well as
(i) all obligations of the Debtor presently or
hereafter owing to the Bank, as appears in the
accounts, books and records of the Bank, whether
direct or indirect, and (ii) any and all expenses
which the Bank may incur in enforcing any of its
rights, powers and remedies under the Credit
Instruments as defined hereinbelow:
Whether the second credit facility is
considered a renewal of the first or a brand new
credit facility altogether was indirectly answered
by the trial court when it invoked paragraph 10 of
the Continuing Suretyship which provides:
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CONTRACTS

10. Continuity of Suretyship. This nature, a continuing suretyship covers current

Suretyship shall remain in full force and future loans, provided that, with respect to
and effect until full and due payment future loan transactions, they are x x x within the
and performance of the Guaranteed description or contemplation of the contract of
Obligations. This Suretyship shall not guaranty.
be terminated by the partial payment
to the Bank of Guaranteed Petitioner argues that the approval of the second
Obligations by any other surety or
credit facility necessitates his consent
sureties of the Guaranteed
considering the onerous and solidary liability of a
Obligations, even if the particular
surety or sureties are relieved of surety. This is contrary to the express waiver of
further liabilities. his consent to such renewal, contained in
paragraph 12 of the Continuing Suretyship, which
Trial court concluded that the liability of provides in part:
petitioner did not expire upon the termination of
the first credit facility. This very renewal is 12. Waivers by the Surety. The
explicitly covered by the guaranteed obligations Surety hereby waives: x x x (v)
notice or consent to any
of the Continuing Suretyship.
modification, amendment, renewal,
extension or grace period granted
The essence of a continuing surety has been by the Bank to the Debtor with
highlighted in the case of Totanes v. China Banking respect to the Credit Instruments.
Corporation in this wise:
Comprehensive or continuing surety The petition was denied. The Decision of
agreements are, in fact, quite the CA was affirmed in toto.
commonplace in present day financial
and commercial practice. A bank or
financing company which anticipates
entering into a series of credit
transactions with a particular
company, normally requires the
projected principal debtor to execute a
continuing surety agreement along
with its sureties. By executing such an
agreement, the principal places itself in
a position to enter into the projected
series of transactions with its creditor;
with such suretyship agreement, there
would be no need to execute a separate
surety contract or bond for each
financing or credit accommodation
extended to the principal debtor.

In Gateway Electronics Corporation v. Asianbank

Corporation, the Court emphasized that [b]y its

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS
METROBANK VS REYNALDO & ADRANDEA
FACTS:
On January 31, 1997, petitioner METROBANK
charged respondents with the crime of estafa under
Article 315, paragraph 1(b) of the Revised Penal
Code. In the affidavit of petitioners audit officer, it was
alleged that the special audit uncovered
anomalous/fraudulent transactions by respondents
in connivance with client Universal which are as
follows;
 that respondents were the only voting
members of the branch’s credit committee
authorized to extend credit accommodation
to clients up to P200,000.00;
 that through the so-called Bills Purchase
Transaction, Universal, which has a paid-up
capital of only P125,000.00 and
actual maintaining balance of P5,000.00, was
able to make withdrawals
totaling P81,652,000.00[6] against uncleared
regional checks
 that, consequently, Universal was able to
utilize petitioners funds even before the
seven-day clearing period for regional checks
expired;
 that Universals withdrawals against
uncleared regional check deposits were
without prior approval of petitioners head
office; that the uncleared checks were later
dishonored by the drawee bank for the
reason Account Closed; and, that
respondents acted with fraud, deceit, and
abuse of confidence.
In their defense, respondents denied
responsibility in the anomalous transactions with
Universal and claimed that they only intended to help
the Port Area branch solicit and increase its deposit
accounts and daily transactions.
Meanwhile, on February 26, 1997, petitioner
and Universal entered into a Debt Settlement
Agreement[7] whereby the latter acknowledged its
indebtedness to the former in the total amount
ARELLANO UNIVERSITY SCHOOL OF LAW
of P50,990,976.27[8] as of February 4, 1997 and
undertook to pay the same in bi-monthly
amortizations in the sum of P300,000.00 starting
January 15, 1997, covered by postdated checks, plus
balloon payment of the remaining principal balance
and interest and other charges, if any, on December
31, 2001.[9]
The Prosecutor dismissed the case. According
to Prosecutor Edad, the execution of the Debt
Settlement Agreement puts complainant bank in
estoppel to argue that the liability is criminal. Since
the agreement was made even before the filing of this
case, the relations between the parties [have]
change[d], novation has set in and prevented the
incipience of any criminal liability on the part of
respondents. The petitioner appealed the Resolution
of Prosecutor Edad to the Department of Justice (DOJ)
by means of a Petition for Review.
The DOJ dismissed the petition ratiocinating
that it is evident that your client based on the same
transaction chose to file estafa only against its
employees and treat with kid gloves its big time client
Universal who was the one who benefited from this
transaction and instead, agreed that it should be paid
on installment basis. A Motion for
Reconsideration [15] was filed by petitioner, but the
same was denied on March 1, 2000 by then Acting
Secretary of Justice Artemio G. Tuquero. The
petitioner appealed the case to CA
The CA then affirmed the twin resolutions of
the Secretary of Justice. It ruled that while novation
does not extinguish criminal liability, it may prevent
the rise of such liability as long as it occurs prior to the
filing of the criminal information in court. Hence,
according to the CA, just as Universal cannot be held
responsible under the bills purchase transactions on
account of novation, private respondents, who acted
in complicity with the former, cannot be made liable
[for] the same transactions. Hence, this instant
petition before the Court.
ISSUE:
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Whether or not Novation and undertaking to pay the
amount embezzled extinguish criminal liability.
RULING:
Novation not a mode of extinguishing criminal liability
for estafa; Criminal liability for estafa not affected by
compromise or novation of contract.
Initially, it is best to emphasize that novation
is not one of the grounds prescribed by the Revised
Penal Code for the extinguishment of criminal
liability[
Criminal liability for estafa is not affected by a
compromise or novation of contract. In Firaza v.
People and Recuerdo v. People, this Court ruled that in
a crime of estafa, reimbursement or belated payment
to the offended party of the money swindled by the
accused does not extinguish the criminal liability of
the latter. We also held in People v. Moreno and
in People v. Ladera[ that criminal liability for estafa is
not affected by compromise or novation of contract,
for it is a public offense which must be prosecuted and
punished by the Government on its own motion even
though complete reparation should have been made
of the damage suffered by the offended
party. Similarly in the case of MetropolitanBank and
Trust Company v. Tondacited by petitioner, we held
that in a crime of estafa, reimbursement of or
compromise as to the amount misappropriated, after
the commission of the crime, affects only the civil
liability of the offender, and not his criminal liability.
Thus, the doctrine that evolved from the aforecited
cases is that a compromise or settlement entered into
after the commission of the crime does not extinguish
liability for estafa. Neither will the same bar the
prosecution of said crime. Accordingly, in such a
situation, as in this case, the complaint for estafa
against respondents should not be dismissed just
because petitioner entered into a Debt Settlement
Agreement with Universal.
Even if the instant case is viewed from the
standpoint of the law on contracts, the disposition
absolving the respondents from criminal liability
because of novation is still erroneous.
ARELLANO UNIVERSITY SCHOOL OF LAW
Under Article 1311 of the Civil Code, contracts
take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations
arising from the contract are not transmissible by
their nature, or by stipulation or by provision of
law. The civil law principle of relativity of contracts
provides that contracts can only bind the parties who
entered into it, and it cannot favor or prejudice a third
person, even if he is aware of such contract and has
acted with knowledge thereof.
In the case at bar, it is beyond cavil that
respondents are not parties to the agreement. The
intention of the parties thereto not to include them is
evident either in the onerous or in the beneficent
provisions of said agreement. They are not assigns or
heirs of either of the parties. Not being parties to the
agreement, respondents cannot take refuge
therefrom to bar their anticipated trial for the crime
they committed. It may do well for respondents to
remember that the criminal action commenced by
petitioner had its genesis from the alleged fraud,
unfaithfulness, and abuse of confidence perpetrated
by them in relation to their positions as responsible
bank officers. It did not arise from a contractual
dispute or matters strictly between petitioner and
Universal. This being so, respondents cannot rely on
subject settlement agreement to preclude
prosecution of the offense already committed to the
end of extinguishing their criminal liability or prevent
the incipience of any liability that may arise from the
criminal offense.
A close scrutiny of the substance of
Prosecutor Edads Resolution dated July 10, 1997
readily reveals that were it not for the Debt Settlement
Agreement, there was indeed probable cause to indict
respondents for the crime charged. From her own
assessment of the Complaint-Affidavit of petitioners
auditor, her preliminary finding is that Ordinarily, the
offense of estafa has been sufficiently
established.[45] Interestingly, she suddenly changed
tack and declared that the agreement altered the
relation of the parties and that novation had set in
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preventing the incipience of any criminal liability on

respondents. In light of the jurisprudence herein
earlier discussed, the prosecutor should not have
gone that far and executed an apparent somersault

WHEREFORE, the petition is GRANTED. The

assailed Decision of the Court of Appeals in CA-G.R. SP
No. 58548 promulgated on October 21, 2002
affirming the Resolutions dated June 22, 1998 and
March 1, 2000 of the Secretary of Justice, and its
Resolution dated July 12, 2004 denying
reconsideration thereon are hereby REVERSED and
SET ASIDE. The public prosecutor is ordered to file
the necessary information for estafa against the
respondents.

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ASIAN CATHAY FINANCE AND LEASING
CORPORATION VS SPS. CESARIO GRAVADOR
AND NORMA DE VERA AND SPS. EMMA
CONCEPTION G. DUMIGPI AND FREDERICO I.
DUMIGPI
FACTS:
On Appeal is The june 10 2008 Decision of CA, in
setting aside April 5, 2004 RTC decision
On October 22, 1999, petitioner extended a loan
of P800,000 to respondent CesarioGravador with
co respondents as co makers.
ISSUE: whether or not failure to disclose interest
rate prior to consummation of a loan transaction
will bind parties to the interest ratedeclared
subsequent to consummation
RULING: petition is denied. Authorizing the
imposition of iniquitous or unconscionable
interest is contrary to morals and against the law.
These contracts under art 1409 are inexistent and
void from the beginning.

The loan was payable in 60 monthly installments

of P24,400.00 each. Respondent executed a real
estate mortgage over his property on Sta. Maria,
Bulacan to secure the loan. The respondents paid
initial installment due in November 1999 but they
were unable to pay subsequent ones and on
February 1, 2000 they received a letter from
petitioner demanding payment of P1,871,480
within 5 days. Respondents requested for
additional period to settle the account but this
was denied. Petitioner filed a petition for
extrajudicial foreclosure of mortgage with the
office of the deputy sheriff in Malolos, Bulacan.
On April 7, 200, respondents filed a suit for the
annulment of the real estate mortgage and
promissory note with damages and prayer for
issuance of TRO and write of preliminary
injunction. Respondents claimed real estate
mortgage is null and void. Their reason was that
the mortgage does not make reference to the
promissory note dated October 22, 1999 which
does not specify the maturity date if the loan, the
interest rate and the mode of payment and it
illegally imposes liquidated damages. The
mortgage contains a waiver on the mortgagors
right of redemption, which is contrary to law and
public policy. As a result respondents claim that
the foreclosure lacks factual basis and prayed to
the court that the obligation be fixed at 800,000
pesos.

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VELASCO VS. CA
G.R. No. L-47544 January 28, 1980
Facts:
Alta Farms secured from the GSIS two loans to
finance a piggery project. These loans were
secured by two mortgages. Alta Farms defaulted
in the payment of its amortizations. It is
presumably because of this that Alta Farms
executed a Deed of Sale With Assumption of
Mortgage with Asian Engineering Corporation
but without the previous consent or approval of
the GSIS and in direct violation of the provisions
of the mortgage contracts. Even without the
approval of the Deed of Sale With Assumption of
Mortgage by the GSIS, Asian Engineering
Corporation executed an Exclusive Sales Agency,
Management and Administration Contract in
favor of Laigo Realty Corporation, with intention
of converting the piggery farm into a subdivision.
Asian Engineering executed another contract
with Laigo, whereby Laigo was to undertake the
development of the property into a subdivision.
Conformably with the two contracts, Laigo
started the development of the lot into a
subdivision. Laigo entered into contracts with
petitoners for the construction of houses for
home buyers. The checks paid by Laigo to the
petitioners were dishonored.
When the petitioners could not collect from Laigo
and the home buyers and after the GSIS
foreclosed the subdivision including the
improvements, the petitioners sent a letter of
demand GSIS to pay for the indebtedness of Laigo
Realty Corporation.
Petitioners filed a case against the GSIS for the
collection of sums of money representing labor
and materials used in the construction of houses
caused by home buyers through the intercession
of Laigo Realty Corporation.
Petitioners and the GSIS filed their ‘Joint
Manifestation’ which in substance is a stipulation
ARELLANO UNIVERSITY SCHOOL OF LAW
of facts where it was agreed that the witnesses of
GSIS would testify on the execution of the Deed of
Quit-Claim in favor of defendant GSIS by Laigo
Realty Corporation, freeing said defendant from
any and all claims arising out of the suppliers,
contractors and house builders.
Issue:
Whether GSIS is liable to petitioners?
Ruling:
Yes. Laigo admittedly has not paid petitioners.
The "bouncing" checks issued by it in their favor
is mentioned by GSIS itself in its statement of the
facts. Supreme Court holds that upon this
premise, it is a fair construction of the Deed of
Quitclaim aforementioned, that GSIS can be held
liable to petitioners, without prejudice to its
securing corresponding indemnity from Laigo. It
is obvious from the terms of said deed that GSIS
contemplated the possibility of its being liable for
Laigo’s account, otherwise there was no need for
the reservation. This is one such liability. In this
connection, while, indeed, Article 1729 refers to
the laborers and materialmen themselves, under
the peculiar circumstances of this case, it is but
fair and just that petitioners be deemed as suing
for the reimbursement of what they have already
paid the laborers and materialmen, as otherwise
they (petitioners) would be unduly prejudiced
while either Laigo, GSIS or the occupants of the
houses would enrich themselves at their expense.
It is a bad law that would allow such a result.
At this juncture, We need to add only that Article
1311 of the Civil Code which GSIS invokes is not
applicable where the situation contemplated in
Article 1729 obtains. The intention of the latter
provision is to protect the laborers and the
materialmen from being taken advantage of by
unscrupulous contractors and from possible
connivance between owners and contractors.
Thus, a constructive vinculum or contractual
privity is created by this provision, by way of
exception to the principle underlying Article 1311
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between the owner, on the one hand, and those

who furnish labor and/or materials, on the other.
As a matter of fact, insofar as the laborers are
concerned, by a special law, Act No. 3959, they are
given added protection by requiring contractors
to file bonds guaranteeing payment to them. And
under Article 2242 of the Civil Code, paragraphs
(3) and (4), claims of laborers and materialmen,
respectively, enjoy preference among the
creditors of the owner in regard to specific
immovable property.

As regards Article 526 of the Civil Code also

invoked by GSIS, suffice it to say that this
provision refers particularly to instances where
the bad faith or the good faith of the builder is the
decisive factor in determining liability. In the case
at bar, there is no necessity to pass on the
question of whether petitioners acted in good
faith or bad faith, for the simple reason that under
the Deed of Quitclaim, GSIS freely accepted the
benefits of what they have accomplished.

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GEORGE A. KAUFFMAN vs. THE PHILIPPINE
NATIONAL BANK
G.R. No. 16454 September 29, 1921
STREET, J.:
FACTS:
George A. Kauffman, was the president of a
domestic corporation engaged chiefly in the
exportation of hemp from the Philippine Islands
and known as the Philippine Fiber and Produce
Company, of which company the plaintiff
apparently held in his own right nearly the entire
issue of capital stock. He was based in New York
City and as the president of the said company, he
was entitled to receive a dividend; as per
instruction, Wicks who worked as the treasurer of
the company, went to the exchange department of
PNB and requested a telegraphic transfer of the
money to Kauffman.
The PNB agreed with additional charges for the
transaction. The treasurer issued a check to PNB
and it was accepted. The PNB’s representative in
New York sent a message suggesting the
advisability of withholding this money from
Kauffman, in view of his reluctance to accept
certain bills of the company. PNB acquiesced in
this and dispatched to its NY agency a message to
withhold the Kauffman payment as suggested.
Meanwhile, Wicks then informed Kauffman that
his dividends had been wired to his credit in the
NY agency of PNB. So Kauffman went to PNB
office in NYC and demanded the money, however,
he was refused payment. So he filed this
complaint.
ISSUE:
Whether or not Kauffman has a right of action
against PNB?
HELD:
Yes. It is a stipulation pour autrui.
ARELLANO UNIVERSITY SCHOOL OF LAW
Should the contract contain any stipulation in
favor of a third person, he may demand its
fulfillment, provided he has given notice of his
acceptance to the person bound before the
stipulation has been revoked. (Art. 1257, par. 2,
Civ. Code.) In the light of the conclusion thus
stated, the right of the plaintiff to maintain the
present action is clear enough; for it is undeniable
that the bank's promise to cause a definite sum of
money to be paid to the plaintiff in NYC is a
stipulation in his favor within the meaning of the
paragraph above quoted; and the circumstances
under which that promise was given disclose an
evident intention on the part of the contracting
parties that the plaintiff should have the money
upon demand in NYC. The recognition of this
unqualified right in the plaintiff to receive the
money implies in our opinion the right in him to
maintain an action to recover it.
It will be noted that under the paragraph cited a
third person seeking to enforce compliance with
a stipulation in his favor must signify his
acceptance before it has been revoked. In this
case the plaintiff clearly signified his acceptance
to the bank by demanding payment; and although
PNB had already directed its NY agency to
withhold payment when this demand was made,
the rights of the plaintiff cannot be considered to
as there used, must be understood to imply
revocation by the mutual consent of the
contracting parties, or at least by direction of the
party purchasing he exchange. Thus, it was said,
"Cable transfers, therefore, mean a method of
transmitting money by cable wherein the seller
engages that he has the balance at the point on
which the payment is ordered and that on receipt
of the cable directing the transfer his
correspondent at such point will make payment
to the beneficiary described in the cable. All these
transaction are matters of purchase and sale
create no trust relationship."
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CONTRACTS
BONIFACIO BROS., INC., ET.AL., v. ENRIQUE
MORA, ET.AL
G.R. No. L-20853, May 29, 1967
FACTS:
Enrique Mora owned an Oldsmobile sedan
which he mortgaged to H.S. Reyes Inc. (HSRI)
with the condition that Mora would insure the
sedan and H.S. Reyes would be the beneficiary.
The sedan was insured with State Bonding &
Insurance Co., Inc. (SBICI) and the pertinent
provisions of the policy are as follows:
1. The Company (referring to the State
Bonding & Insurance Co., Inc.) will,
subject to the Limits of Liability,
indemnify the Insured against loss of or
damages to the Motor Vehicle and its
accessories and spare parts whilst
thereon; (a) by accidental collision or
overturning or collision or overturning
consequent upon mechanical
breakdown or consequent upon wear
and tear,
xxx xxx xxx
2. At its own option the Company may
pay in cash the amount of the loss or
damage or may repair, reinstate, or
replace the Motor Vehicle or any part
thereof or its accessories or spare parts.
The liability of the Company shall not
exceed the value of the parts whichever
is the less. The Insured's estimate of
value stated in the schedule will be the
maximum amount payable by the
Company in respect of any claim for loss
or damage.1äwphï1.ñët
xxx xxx xxx
4. The Insured may authorize the repair
of the Motor Vehicle necessitated by
damage for which the Company may be
liable under this Policy provided that: —
(a) The estimated cost of such repair
does not exceed the Authorized Repair
Limit, (b) A detailed estimate of the cost
is forwarded to the Company without
ARELLANO UNIVERSITY SCHOOL OF LAW
delay, subject to the condition that "Loss,
if any is payable to H.S. Reyes, Inc.," by
virtue of the fact that said Oldsmobile
sedan was mortgaged in favor of the said
H.S. Reyes, Inc. and that under a clause in
said insurance policy, any loss was made
payable to the H.S. Reyes, Inc. as
Mortgagee;
xxx xxx xxx
The car was involved in an accident and
SBICI assigned the accident to Bayne Adjustment
Co for investigation and appraisal of the damage.
Mora authorized Bonifacio Bros Inc. (BBI) to
repair the sedan and Ayala Auto Parts Co. (AAPC)
supplied the materials. The amount for the labor
and the materials was PhP2,102.73. The car was
delivered to Mora even without the payment to
BBI and AAPC. SBICI issued a check amounting to
PhP2002.73 as the proceeds of the insurance
policy in favor of Mora or HSRI and entrusted the
check with Bayne Adjustment for the delivery to
the proper party.
BBI and AAPC filed a complaint for
collection of sum of money against Mora and
SBICI alleging that the insurance proceeds should
be paid directly to them. SBICI filed its Answer
with counterclaim for interpleader requiring BBI
and HSRI to interplead in order to determine who
has the better right over the insurance proceeds.
The Municipal Court declared HSRI as having the
better right. Upon appeal, the CFI affirmed the
decision. The Motion for Reconsideration was
denied.
ISSUE:
Whether there is privity of contract between
BBI/AAPC and SBICI since the latter and Mora
were the parties to the repair of the car based on
the following:
a. paragraph 4 of the contract which states
that:
“4. The Insured may authorize the repair
of the Motor Vehicle necessitated by
damage for which the Company may be
liable under this Policy provided that: —
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(a) The estimated cost of such repair does
not exceed the Authorized Repair Limit,
(b) A detailed estimate of the cost is
forwarded to the Company without delay”
b. Bayne Adjustment Company’s
recommendation of payment of BBI and
AAPC’s bill and the issuance of SBICI of the
check amounting to PhP2,002.73 indicates
that Mora and Bayne Adjustment acted for
and in representation for the insurance
company.
HELD:
No. The SC held that the arguments of BBI
and AAPC does not have merit and that the cause
of action rest exclusively upon the terms of the
insurance contract. BBI and AAPC sought to
recover the insurance proceeds and relied on
paragraph 4 of the insurance contract executed
by and between SBICI and Mora.
“The appellants are not mentioned in the contract
as parties thereto nor is there any clause or
provision thereof from which we can infer that
there is an obligation on the part of the insurance
company to pay the cost of repairs directly to
them. It is fundamental that contracts take effect
only between the parties thereto, except in some
specific instances provided by law where the
contract contains some stipulation in favor of a
third person.Such stipulation is known as
stipulation pour autrui or a provision in favor of a
third person not a pay to the contract. Under this
doctrine, a third person is allowed to avail himself
of a benefit granted to him by the terms of the
contract, provided that the contracting parties
have clearly and deliberately conferred a favor
upon such person. Consequently, a third person
not a party to the contract has no action against
the parties thereto, and cannot generally demand
the enforcement of the same. The question of
whether a third person has an enforceable
interest in a contract, must be settled by
determining whether the contracting parties
intended to tender him such an interest by
deliberately inserting terms in their agreement
ARELLANO UNIVERSITY SCHOOL OF LAW
with the avowed purpose of conferring a favor
upon such third person. In this connection, this
Court has laid down the rule that the fairest test
to determine whether the interest of a third
person in a contract is a stipulation pour autrui or
merely an incidental interest, is to rely upon the
intention of the parties as disclosed by their
contract. In the instant case the insurance
contract does not contain any words or clauses to
disclose an intent to give any benefit to any
repairmen or materialmen in case of repair of the
car in question. The parties to the insurance
contract omitted such stipulation, which is a
circumstance that supports the said conclusion.
On the other hand, the "loss payable" clause of the
insurance policy stipulates that "Loss, if any, is
payable to H.S. Reyes, Inc." indicating that it was
only the H.S. Reyes, Inc. which they intended to
benefit.”
“The SC likewise observe from the brief of SBICI
that it has vehemently opposed the assertion or
pretension of the appellants that they are privy to
the contract. If it were the intention of the
insurance company to make itself liable to the
repair shop or materialmen, it could have easily
inserted in the contract a stipulation to that effect.
To hold now that the original parties to the
insurance contract intended to confer upon the
appellants the benefit claimed by them would
require us to ignore the indespensable requisite
that a stipulation pour autrui must be clearly
expressed by the parties, which we cannot do.
As regards paragraph 4 of the insurance contract,
a perusal thereof would show that instead of
establishing privity between the appellants and
the insurance company, such stipulation merely
establishes the procedure that the insured has to
follow in order to be entitled to indemnity for
repair. This paragraph therefore should not be
construed as bringing into existence in favor of
the appellants a right of action against the
insurance company as such intention can
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FLORENTINO VS ENCARNACION
FACTS:
On May 22, 1964, the petitioners-appellants
Miguel Florentino, Remedios Encarnacion de
Florentino, Manuel Arce, Jose Florentino,
Victorino Florentino, Antonio Florentino,
Remedior, Encarnacion and Severina
Encamacion, and the Petitiners-appellees
Salvador Encamacion, Sr., Salvador Encamacion,
Jr. and Angel Encarnacion filed with the Court of
First Instance of ilocos Sur an application for the
registration under Act 496 of a parcel of
agricultural land located at Barrio Lubong
Dacquel Cabugao Ilocos Sur.
The application alleged among other things that
the applicants are the common and pro-indiviso
owners in fee simple of the said land with the
improvements existing thereon; that to the best of
their knowledge and belief, there is no mortgage,
lien or encumbrance of any kind whatever
affecting said land, nor any other person having
any estate or interest thereon, legal or equitable,
remainder, reservation or in expectancy; that said
applicants had acquired the aforesaid land thru
and by inheritance from their predecessors in
interest, lately from their aunt, Doña Encarnacion
Florentino who died in Vigan, Ilocos Sur in 1941,
and for which the said land was adjudicated to
them by virtue of the deed of extrajudicial
partition dated August 24, 1947; that applicants
Salvador Encarnacion, Jr. and Angel Encarnacion
acquired their respective shares of the land thru
purchase from the original heirs, Jesus, Caridad,
Lourdes and Dolores surnamed Singson one hand
and from Asuncion Florentino on the other.
The crucial point in controversy in this
registration case is centered in the stipulation
marked Exhibit O-1 embodied in the deed of
extrajudicial partition (Exhibit O) dated August
24, 1947.
ISSUE:
ARELLANO UNIVERSITY SCHOOL OF LAW
Whether the co-owners intended to benefit the
Church when in their extrajudicial partition of
several parcels of land inherited by them from
Doña Encarnacion Florendo they agreed that with
respect to the land situated in Barrio Lubong
Dacquel Cabugao Ilocos Sur, the fruits thereof
shall serve to defray the religious expenses
specified in Exhibit O-1.
RULING:
The evidence on record shows that the true intent
of the parties is to confer a direct and material
benefit upon the Church. The fruits of the
aforesaid land were used thenceforth to defray
the expenses of the Church in the preparation and
celebration of the Holy Week, an annual Church
function.
We find that the trial court erred in holding that
the stipulation, arrangement or grant (Exhibit O-
1) is revocable at the option of the co-owners.
While a stipulation in favor of a third person has
no binding effect in itself before its acceptance by
the party favored, the law does not provide when
the third person must make his acceptance. As a
rule, there is no time at such third person has
after the time until the stipulation is revoked. The
Court find that the Church accepted the
stipulation in its favor before it is sought to be
revoked by some of the co-owners, namely the
petitioners-appellants herein. It is not disputed
that from the time of the with of Doña
Encarnacion Florentino in 1941, as had always
been the case since time immemorial up to a year
before the firing of their application in May 1964,
the Church had been enjoying the benefits of the
stipulation. The enjoyment of benefits flowing
therefrom for almost seventeen years without
question from any quarters can only be construed
as an implied acceptance by the Church of the
stipulation pour autrui before its revocation. The
acceptance does not have to be in any particular
form, even when the stipulation is for the third
person an act of liberality or generosity on the
part of the promisor or promise. It need not be
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made expressly and formally. Notification of
acceptance, other than such as is involved in the
making of demand, is unnecessary. A trust
constituted between two contracting parties for
the benefit of a third person is not subject to the
rules governing donation of real property. The
beneficiary of a trust may demand performance of
the obligation without having formally accepted
the benefit of the this in a public document, upon
mere acquiescence in the formation of the trust
and acceptance under the second paragraph of
Art. 1257 of the Civil Code.
Hence, the stipulation (Exhibit O-1) cannot now
be revoked by any of the stipulators at their own
option. This must be so because of Article 1257,
Civil Code and the cardinal rule of contracts that
it has the force of law between the parties. Thus,
this Court ruled in Garcia v. Rita Legarda, Inc.,
"Article 1309 is a virtual reproduction of Article
1256 of the Civil Code, so phrased to emphasize
that the contract must bind both parties, based on
the principles (1) that obligation arising from
contracts have the force of law between the
contracting parties; and (2) that there must be
mutuality between the parties based on their
principle equality, to which is repugnant to have
one party bound by the contract leaving the other
free therefrom."
Consequently, Salvador Encarnacion, Sr. must
bear with Exhibit O-1, being a signatory to the
Deed of Extrajudicial Partition embodying such
beneficial stipulation. Likewise, with regards to
Salvador, Jr. and Angel Encarnacion, they too are
bound to the agreement. Being subsequent
purchasers, they are privies or successors in
interest; it is axiomatic that contracts are
enforceable against the parties and their privies.
Furthermore, they are shown to have given their
conformity to such agreement when they kept
their peace in 1962 and 1963, having already
bought their respective shares of the subject land
but did not question the enforcement of the
agreement as against them. They are also shown
to have knowledge of Exhibit O-1 as they had
ARELLANO UNIVERSITY SCHOOL OF LAW
admitted in a Deed of Real Mortgage executed by
them on March 8, 1962 involving their shares of
the subject land that, "This parcel of land is
encumbered as evidenced by the document No.
420, page 94, Book 1, series 1947, executed by the
heirs of the late Encarnacion Florentino, on
August 26, 1947, before M. Francisco Ante, Notwy
Public of Vigan, Ilocos Sur, in its page 10 of the
said document of partition, and also by other
documents."
The annotation of Exhibit O-1 on the face of the
title to be issued in this case is merely a guarantee
of the continued enforcement and fulfillment of
the beneficial stipulation. It is error for the lower
court to rule that the petitioners-appellants are
not the real parties in interest, but the Church.
That one of the parties to a contract pour autrui is
entitled to bring an action for its enforcement or
to prevent its breach is too clear to need any
extensive discussion. Upon the other hand, that
the contract involved contained a stipulation
pour autrui amplifies this settled rule only in the
sense that the third person for whose benefit the
contract was entered into may also demand its
fulfillment provoked he had communicated his
acceptance thereof to the obligor before the
stipulation in his favor is revoked
IN VIEW OF THE FOREGOING, the decision of the
Court of First Instance of Ilocos Sur in Land
Registration Case No. N-310 is affirmed but
modified to allow the annotation of Exhibit O-1 as
an encumbrance on the face of the title to be
finally issued in favor of all the applications
(herein appellants and herein appellees) in the
registration proceedings below.
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BANK OF AMERICA v. INTERMEDIATE
APPELLATE COURT, ET AL.
(G.R. No. 74521 November 11, 1986)
FACTS: Private respondent Air Cargo and Travel
Corporation (ACTC) is the owner of Account
Number 19842-01-2 with petitioner Bank of
America (BANKAMERICA). Toshiyuki Minami,
President of ACTC in Japan, is the owner of
Account Number 24506-01-7 with Bank.
On March 10, 1981, the BANKAMERICA received
a tested telex advise from Kyowa Bank of Japan
(KYOWA) stating, “ADVISE PAY USDLS 23,595. —
TO YOUR A/C NBR 24506-01-7 OF A. C. TRAVEL
CORPORATION MR. TOSHIYUKO MINAMI.” Thus,
BANKAMERICA credited the amount of
US$23,595.00 to Account Number 24506-07-1
(should be 24506-01-7) owned by Minami, who
then withdrew P180,000.00 (equivalent of
US$23,595.00) from his account at
BANKAMERICA. Evidently, there was a previous
contractual agreement between KYOWA and
BANKAMERICA that, from time to time, KYOWA
can ask BANKAMERICA to pay amounts to a third
party (beneficiary) with BANKAMERICA
afterwards billing KYOWA the indicated amount
given to the beneficiary.
Accdg to ACTC, Tokyo Tourist Corporation, Japan,
applied with KYOWA for telegraphic transfer of
US$23,595.00 payable to ACTC's account with
BANKAMERICA, Manila. Hence, ACTC claimed
that the amount should have been credited to its
account and demanded restitution, but
BANKAMERICA refused.
ACTC filed suit for damages against
BANKAMERICA and Minami before the RTC for
failure of BANKAMERICA to restitute. Minami was
declared in default. Thereafter, judgment was
rendered against BANKAMERICA and Minami.
Upon appeal, the CA "affirmed in toto, " except
that the dollar-peso rate of ex-change would be
that "at the time of payment."
ARELLANO UNIVERSITY SCHOOL OF LAW
ISSUE:
WON a third party may question the
identity/validity of the beneficiary
of a stipulation pour autrui.
HELD: No, the identity of the beneficiary should
be in accordance with the identification made by
the parties to the contract, and a third party not
privy to said contract cannot question that
identification as it is not a party to the
arrangement.
In this case, the SC noted that the tested telex
originated from KYOWA at the behest of Tokyo
Tourist Corporation with whom ACTC had
business dealings. Minami, on the other hand, was
the liaison officer of ACTC in Japan. As the entity
responsible for the tested telex was Tokyo Tourist
Corporation, it can reasonably be concluded that
if it had intended that the US$23,595.00 should be
credited to ACTC, upon learning that the amount
was credited to Minami, it should have gone,
together with the representatives of ACTC, in
protest to KYOWA and lodged a protest. Since that
was not done, it could well be that Tokyo Tourist
Corporation had really intended its remittance to
be credited to Minami. The identity of the
beneficiary should be in accordance with the
identification made by KYOWA, and ACTC cannot
question that identification as it is not a party to
the arrangement between KYOWA and
BANKAMERICA.
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CONTRACTS
MARIMPERIO VS CA
PARAS, J.:
FACTS: In 1964 Philippine Traders Corporation
and Union Import and Export Corporation
entered into a joint business venture for the
purchase of copra from Indonesia for sale in
Europe. Exequiel Toeg of Interocean was
commissioned to look for a vessel and he found
the vessel "SS Paxoi" of Marimperio available.
Philippine and Union authorized Toeg to
negotiate for its charter but with instructions to
keep confidential the fact that they are the real
charterers.
On March 21, 1965, in London England, a
"Uniform Time Charter" for the hire of vessel
"Paxoi" was entered into by the owner,
Marimperio Compania Naviera, S.A. through its
agents N. & J. Vlassopulos Ltd. and Matthews
Wrightson, Burbridge, Ltd. representing
Interocean Shipping Corporation, which was
made to appear as charterer, although it merely
acted in behalf of the real charterers, private
respondents.
On March 30, 1965 plaintiff Charterer cabled a
firm offer to P.T. Karkam. The Charterer was
however twice in default in its payments which
were supposed to have been done in advance.
On April 29, 1965, the shipowners entered into
another charter agreement with another
Charterer, the Nederlansche Stoomvart of
Amsterdam. Meanwhile, the original Charterer
again remitted on April 30, 1965, the amount
corresponding to the 3rd 15-day hire of the vessel
"PAXOI" but this time the remittance was refused.
On May 3, 1965, respondents Union Import and
Export Corporation and Philippine Traders
Corporation filed a complaint with the CFI against
the owners of the Vessel "SS Paxoi" for specific
performance with prayer for preliminary
attachment.
ARELLANO UNIVERSITY SCHOOL OF LAW
On March 16, 1966, respondent Interocean
Shipping Corporation filed a complaint-in-
intervention to collect what it claims to be its loss
of income by way of commission and expenses.
On November 22, 1969 the CFI rendered its
decision in favor of petitioner.
Plaintiffs filed a Motion for Reconsideration
and/or new trial. The trial court reversed its
decision on January 24, 1978.
Petitioner filed a motion for reconsideration
and/or new trial, which the court denied on
September 10, 1970.
On Appeal, the CA affirmed the amended decision
of the lower court except the portion granting
commission to the intervenor- appellee, which it
reversed thereby dismissing the complaint-in-
intervention.
ISSUE: Whether or not respondents have the legal
capacity to bring the suit for specific performance
against petitioner based on the charter party
RULING: According to Article 1311 of the Civil
Code, a contract takes effect between the parties
who made it, and also their assigns and heirs,
except in cases where the rights and obligations
arising from the contract are not transmissible by
their nature, or by stipulation or by provision of
law. Since a contract may be violated only by the
parties, thereto as against each other, in an action
upon that contract, the real parties in interest,
either as plaintiff or as defendant, must be parties
to said contract. Therefore, a party who has not
taken part in it cannot sue or be sued for
performance or for cancellation thereof, unless he
shows that he has a real interest affected thereby.
In the law of agency with an undisclosed
principal, the Civil Code in Article 1883 reads: If
an agent acts in his own name, the principal has
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CONTRACTS

no right of action against the persons with whom

the agent has contracted; neither have such
persons against the principal.

In such case the agent is the one directly bound in

favor of the person with whom he has contracted,
as if the transaction were his own, except when
the contract involves things belonging to the
principal.

The provisions of this article shall be understood

to be without prejudice to the actions between the
principal and agent.

While in the instant case, the true charterers of

the vessel were the private respondents herein
and they chartered the vessel through an
intermediary which upon instructions from them
did not disclose their names. Article 1883 cannot
help the private respondents, because although
they were the actual principals in the charter of
the vessel, the law does not allow them to bring
any action against the adverse party and vice,
versa.

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS

DAYWALT v LA CORPORACION DE LOS

PADRES AGUSTINOS RECOLETOS Issue: Whether Recoletos is liable to Daywalt?

Facts: Held: No, it is not liable.

In1902, Teodorica Endencia executed a The stranger who interferes in a contract

contract whereby she obligated herself to
conveyto Geo W. Daywalt a 452-hectare parcel of
land for P 4000. They agreed that a deed should
beexecuted as soon as Endencia’s title to the land
was perfected in the Court of Land
Registrationand a Torrens title issued in her
name. When the Torrens title was issued,
Endencia found outthat the property measured
1248 hectares instead of 452 hectares, as she
initially believed.Because of this, she became
reluctant to transfer the whole tract to Daywalt,
claiming that shenever intended to sell so large an
amount and that she had been misinformed as to
its area.Daywalt filed an action for specific
performance. The SC ordered Endencia to convey
the entiretract to Daywalt.Meanwhile, La
Corporacion de los Padres Agustinos Recoletos
(Recoletos), was a religiouscorp., w/c owned an
estate immediately adjacent to the property sold
by Endencia to Daywalt. Italso happened that Fr.
Sanz, the representative of the Recoletos, exerted
some influence andascendancy over Endencia,
who was a woman of little force and easily subject
to the influence of other people. Fr. Sanz knew of
the existence of the contracts with Daywalt and
discouraged her from conveying the entire tract.
between other parties cannot become more
extensively liable in damages for the non-
performance of the contract than the party in
whose behalf heintermediates. Hence, in order to
determine the liability of the Recoletos, there is
first a need toconsider the liability of Endencia to
Daywalt. The damages claimed by Daywalt from
Endenciacannot be recovered from her, first,
because these are special damages w/c were not
w/in thecontemplation of the parties when the
contract was made, and secondly, these damages
are tooremote to be the subject of recovery. Since
Endencia is not liable for damages to
Daywalt,neither can the Recoletos be held liable.
As already suggested, by advising Endencia not
toperform the contract, the Recoletos could in no
event render itself more extensively liable
thanthe principal in the contract.

Daywalt filed an action for damages

against the Recoletos on the ground that it
unlawfullyinduced Endencia to refrain from the
performance of her contract for the sale of the
land inquestion and to withhold delivery of the
Torrens title. Daywalt’s claim for damages against
theRecoletos was for the huge sum of P 500,000
[in the year 1919], since he claims that because
of the interference of the Recoletos, she failed to
consummate a contract with another person for
thesale of the property and its conversion into a
sugar mill.

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CONTRACTS
GILCHRIST VS. CUDDY
G.R. No. L-9356 February 18, 1915
Facts:
Cuddy was the owner of the film Zigomar, he
rented it to C. S. Gilchrist for a week for P125, and
it was to be delivered on the 26th of May. A few
days prior to this Cuddy sent the money back to
Gilchrist, which he had forwarded to him in
Manila, saying that he had made other
arrangements with his film. The other
arrangements was the rental to these defendants
Espejo and his partner for P350 for the week and
the injunction was asked by Gilchrist against
these parties from showing it for the week
beginning the 26th of May.
It appears from the testimony in this case,
conclusively, that Cuddy willfully violated his
contract, he being the owner of the picture, with
Gilchrist because the defendants had offered him
more for the same period. Mr. Espejo at the trial
on the permanent injunction on the 26th of May
admitted that he knew that Cuddy was the owner
of the film. He was trying to get it through his
agents Pathe Brothers in Manila. He is the agent
of the same concern in Iloilo. There is in evidence
in this case on the trial today as well as on the
26th of May, letters showing that the Pathe
Brothers in Manila advised this man on two
different occasions not to contend for this film
Zigomar because the rental price was prohibitive
and assured him also that he could not get the film
for about six weeks. The last of these letters was
written on the 26th of April, which showed
conclusively that he knew they had to get this film
from Cuddy and from this letter that the agent in
Manila could not get it, but he made Cuddy an
offer himself and Cuddy accepted it because he
was paying about three times as much as he had
contracted with Gilchrist for. Therefore, in the
opinion of the court, the defendants failed signally
to show the injunction against the defendant was
wrongfully procured.
ARELLANO UNIVERSITY SCHOOL OF LAW
The appellants take the position that if the
preliminary injunction had not been issued
against them they could have exhibited the film in
their theater for a number of days beginning May
26, and could have also subleased it to other
theater owners in the nearby towns and, by so
doing, could have cleared, during the life of their
contract with Cuddy, the amount claimed as
damages.
Thus, an appeal was filed before the Supreme
Court.
Issue:
Were the appellants likewise liable for interfering
with the contract between Gilchrist and Cuddy,
they not knowing at the time the identity of one of
the contracting parties?
Ruling:
Yes. It is said that the ground on which the liability
of a third party for interfering with a contract
between others rests, is that the interference was
malicious. The contrary view, however, is taken
by the Supreme Court of the United States in the
case of Angle vs. Railway Co. (151 U. S., 1). The
only motive for interference by the third party in
that case was the desire to make a profit to the
injury of one of the parties of the contract. There
was no malice in the case beyond the desire to
make an unlawful gain to the detriment of one of
the contracting parties.
In the case at bar the only motive for the
interference with the Gilchrist — Cuddy contract
on the part of the appellants was a desire to make
a profit by exhibiting the film in their theater.
There was no malice beyond this desire; but this
fact does not relieve them of the legal liability for
interfering with that contract and causing its
breach. It is, therefore, clear, under the above
authorities, that they were liable to Gilchrist for
the damages caused by their acts, unless they are
relieved from such liability by reason of the fact
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CONTRACTS

that they did not know at the time the identity of

the original lessee (Gilchrist) of the film.

The liability of the appellants arises from

unlawful acts and not from contractual
obligations, as they were under no such
obligations to induce Cuddy to violate his contract
with Gilchrist. So that if the action of Gilchrist had
been one for damages, it would be governed by
chapter 2, title 16, book 4 of the Civil Code. Article
1902 of that code provides that a person who, by
act or omission, causes damages to another when
there is fault or negligence, shall be obliged to
repair the damage do done. There is nothing in
this article which requires as a condition
precedent to the liability of a tort-feasor that he
must know the identity of a person to whom he
causes damages. In fact, the chapter wherein this
article is found clearly shows that no such
knowledge is required in order that the injured
party may recover for the damage suffered.

The Supreme Court affirmed the decision of the

trial court.

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS
ESTATE OF K. H. HEMADY, DECEASED,
VS.LUZON SURETY CO., INC., CLAIMANT-
APPELLANT
G.R. No. L-8437 November 28, 1956
FACTS: Luzon Surety filed a claim against the
estate of K.H. Hemady based on indemnity
agreements (counterbonds) subscribed by
distinct principals and by the deceased K.H.
Hemady as surety (solidary guarantor). As a
contingent claim, Luzon Surety prayed for the
allowance of the value of the indemnity
agreements it had executed. The lower court
dismissed the claim of Luzon Surety on the
ground that “whatever losses may occur after
Hemady’s death, are not chargeable to his estate,
because upon his death he ceased to be a
guarantor.”
ISSUES: Whether or not a party's contractual
rights and obligations are transmissible to the
successors?
HELD: Under the present Civil Code (Article
1311), the rule is that “Contracts take effect only
as between the parties, their assigns and heirs,
except in case where the rights and obligations
arising from the contract are not transmissible by
their nature, or by stipulation or by provision of
law.” While in our successional system the
responsibility of the heirs for the debts of their
decedent cannot exceed the value of the
inheritance they receive from him, the principle
remains intact that these heirs succeed not only
to the rights of the deceased but also to his
obligations. Articles 774 and 776 of the New Civil
Code expressly so provide, thereby confirming
Article 1311.
In Mojica v. Fernandez, the Supreme Court
ruled — “Under the Civil Code the heirs, by virtue
of the rights of succession are subrogated to all
the rights and obligations of the deceased (Article
661) and cannot be regarded as third parties with
respect to a contract to which the deceased was a
party, touching the estate of the deceased x xx
ARELLANO UNIVERSITY SCHOOL OF LAW
which comes in to their hands by right of
inheritance; they take such property subject to all
the obligations resting thereon in the hands of
him from whom they derive their rights.” The
third exception to the transmissibility of
obligations under Article 1311 exists when they
are ‘not transmissible by operation of law.’ The
provision makes reference to those cases where
the law expresses that the rights or obligations
are extinguished by death, as is the case in legal
support, parental authority, usufruct, contracts
for a piece of work, partnership and agency. By
contrast, the articles of the Civil Code that
regulate guaranty or suretyship contain no
provision that the guaranty is extinguished upon
the death of the guarantor or the surety.
The contracts of suretyship in favor of
Luzon Surety Co. not being rendered
intransmissible due to the nature of the
undertaking, nor by stipulations of the contracts
themselves, nor by provision of law, his eventual
liability therefrom necessarily passed upon his
death to his heirs. The contracts, therefore, give
rise to contingent claims provable against his
estate. A contingent liability of a deceased person
is part and parcel of the mass of obligations that
must be paid if and when the contingent liability
is converted into a real liability. Therefore,
the settlement or final liquidation of the estate
must be deferred until such time as the bonded
indebtedness is paid.
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CONTRACTS
SO PING BUN vs. COURT OF APPEALS
G.R. No. 120554. September 21, 1999,
QUISUMBING, J.:
Facts: In 1963, Tek Hua Trading Co, through its
managing partner, So Pek Giok, entered into lease
agreements with lessor Dee C. Chuan & Sons Inc.
(DCCSI). Subjects of four (4) lease contracts were
premises located at Nos. 930, 930-Int., 924-B and
924-C, Soler Street, Binondo, Manila. Tek Hua
used the areas to store its textiles. The contracts
each had a one-year term. They provided that
should the lessee continue to occupy the premises
after the term, the lease shall be on a month-to-
month basis.
When the contracts expired, the parties did not
renew the contracts, but Tek Hua continued to
occupy the premises. In 1976, Tek Hua Trading
Co. was dissolved. Later, the original members of
Tek Hua Trading Co. including Manuel C. Tiong,
formed Tek Hua Enterprising Corp., herein
respondent corporation.So Pek Giok, managing
partner of Tek Hua Trading, died in 1986. So Pek
Gioks grandson, petitioner So Ping Bun, occupied
the warehouse for his own textile business,
Trendsetter Marketing.
On August 1, 1989, lessor DCCSI sent letters
addressed to Tek Hua Enterprises, informing the
latter of the 25% increase in rent effective
September 1, 1989. The rent increase was later on
reduced to 20% effective January 1, 1990, upon
other lessees demand. Again on December 1,
1990, the lessor implemented a 30% rent
increase. Enclosed in these letters were new lease
contracts for signing. DCCSI warned that failure of
the lessee to accomplish the contracts shall be
deemed as lack of interest on the lessees part, and
agreement to the termination of the lease. Private
respondents did not answer any of these letters.
Still, the lease contracts were not rescinded until
the respondent send a notice to vacate to the
petitioner however Petitioner refused to vacate.
On March 4, 1992, petitioner requested formal
ARELLANO UNIVERSITY SCHOOL OF LAW
contracts of lease with DCCSI in favor Trendsetter
Marketing. So Ping Bun claimed that after the
death of his grandfather, So Pek Giok, he had been
occupying the premises for his textile business
and religiously paid rent. DCCSI acceded to
petitioners request.
Issue: Whether So Ping Bun is guilty of tortuous
interference of contract.
Held: Yes, The elements of tort interference are:
(1) existence of a valid contract; (2) knowledge on
the part of the third person of the existence of
contract; and (3) interference of the third person
is without legal justification or excuse.
Damage is the loss, hurt, or harm which results
from injury, and damages are the recompense or
compensation awarded for the damage
suffered.[6] One becomes liable in an action for
damages for a nontrespassory invasion of
anothers interest in the private use and
enjoyment of asset if (a) the other has property
rights and privileges with respect to the use or
enjoyment interfered with, (b) the invasion is
substantial, (c) the defendants conduct is a legal
cause of the invasion, and (d) the invasion is
either intentional and unreasonable or
unintentional and actionable under general
negligence rules.
A duty which the law of torts is concerned with is
respect for the property of others, and a cause of
action ex delicto may be predicated upon an
unlawful interference by one person of the
enjoyment by the other of his private property.
This may pertain to a situation where a third
person induces a party to renege on or violate his
undertaking under a contract. In the case before
us, petitioners Trendsetter Marketing asked
DCCSI to execute lease contracts in its favor, and
as a result petitioner deprived respondent
corporation of the latters property right. Clearly,
and as correctly viewed by the appellate court,
the three elements of tort interference above-
mentioned are present in the instant case.
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS
TONG BROTHERS CO vs. IAC and JULIANO AND
COMPANY
G.R. No. 73918 December 21, 1987
FACTS
Petitioners and the PrivateRespondents (PR) had
business relationship for over 10 years.
Petitioners used to repair the vessels owned by
(PR). The procedure was for these vessels to be
drydocked and repaired and after each job, a
statement of account would be sent to the (PR),
which remitted payments to the Petitioners in
varying amounts.The last vessel of (PR) which
was drydocked at the VARADERO DE RECODO
(business name of thepetitioners) was
Zamboanga- J.It was drydocked andpaid (PR)
P15,000.00, representing partial payment of its
old accounts (this amount paid is considered by
(PR)as their downpayment). Because of the
extensive repair to be done on the vessel,
Petitioners prepared a written contract for the
signature of (PR’s) authorized representative. In
said written contract, (PR) was to have deposited
with Petitionersthe amount of P50,000.00, among
others. Mr. Luis Canto man of (PR’s) in
Zamboanga City, was informed on several
occasions by Petitionersto get in touch with his
employer in Cotabato City, the purpose being was
(sic) (PR’s) representative to see for himself the
extent of the deterioration of the vessel and to
sign the written contract prepared by Petitioners.
No authorized representative of (PR) came to
Zamboanga City.It sent, however, several
telegrams to Petitionersdemanding, among
others, that Petitioners repair the vessel, there
being an earlier agreement between
Petitionersand Mr.ProtacioJuliano, authorized
representative of (PR).On the other hand,
Petitioners advised (PR) to send its authorized
representative to Zamboanga City to see for
himself the extent of the deterioration of the
vessel, and insisted, among others, that it had no
contract with (PR) for the repair of Zamboanga-J.
In addition thereto, (PR)never bothered to secure
the Job Order from the Coast Guard, it being its
ARELLANO UNIVERSITY SCHOOL OF LAW
duty to do so. Thevessel was not repaired.
Instead, it undocked the vessel and left it exposed
to the elements where it remained until it became
a total loss.
ISSUE
Whether or not there was a perfected contract
between the petitioner and the private
respondent to repair the vessel.
HELD
No, there was no perfected contract between the
petitioner and the private respondent to repair
the vessel Zamboanga-J. There was not yet a
meeting of the minds as to the cause of the
contract. The cause of a contract is the immediate,
direct and proximate reason which justifies the
creation of an obligation thru the will of the
contracting parties. For the private respondent,
the cause of the contract was the repair of its
vessel Zamboanga-J while for the petitioner the
cause would be its commitment to repair the
vessel and make it seaworthy.The telegrams
dated January 17, January 20, and January 28,
1975 sent by the petitioner to the private
respondent, however, indicate that the former
had not accepted the repair of Zamboanga-J, the
reason being that the extent of the repair to be
made necessitated a major expense so that the
petitioner insisted on the presence of the private
respondent for evaluation before it accepted the
repair of the wooden vessel. That the petitioner
had not yet consented to the contract is evident
when it sent a telegram stating: "... NO
AGREEMENT AS TO THE EX TENT OF REPAIRS
AND PAYMENT WILL UNDOCK VESSEL." The fact
that the private respondent who received this
telegram ignored it, confirms that there was no
perfected contract to repair.
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CONTRACTS
CLEMENTE VS. CA, JALANDOON
FACTS:
Adela owned three (3) adjoining parcels of land in
Scout Ojeda Street, Diliman, Quezon City,
subdivided as Lots 32, 34 and 35-B (the
"Properties"). During her lifetime, Adela allowed
her children, namely, Annie ShotwellJalandoon,
Carlos G. Shotwell ("Carlos Sr."), Anselmo G.
Shotwell and Corazon S. Basset, and her
grandchildren, the use and possession of the
Properties and its improvements.
Sometime in 1985 and 1987, Adela simulated the
transfer of Lots 32 and Lot 34 to her two
grandsons from Carlos Sr., namely, Carlos V.
Shotwell, Jr. ("Carlos Jr.") and Dennis V. Shotwell.
As a consequence, TCTs were issued in favor of
the two grandsons.It is undisputed that the
transfers were never intended to vest title to
Carlos Jr. and Dennis who both will return the lots
to Adela when requested.
On April 18, 1989, prior to Adela and Valentina
Clemente’s departure for the United States, Adela
requested Carlos Jr. and Dennis to execute a deed
of reconveyanceover Lots 32 and 34. The deed of
reconveyance was executed on the same day and
was registered with the Registry of Deeds on April
24, 1989.
On April 25, 1989, Adela executed a deed of
absolute sale over Lots 32 and 34, and their
improvements, in favor of Valentina, bearing on
its face the price of P250,000.00 and also
executed an SPA. Valentina’s authority under the
SPA included the power to administer, take
charge and manage, for Adela's benefit, the
Properties and all her other real and personal
properties in the Philippines. The deed of
absolute sale and the SPA were notarized on the
same day.
On April 29, 1989, Adela and petitioner left for the
United States. When Valentina returned to the
ARELLANO UNIVERSITY SCHOOL OF LAW
Philippines, she registered the sale over Lots 32
and 34, and TCTs were issued in her name.
After Adela died in the United States, Valentina
sought to eject Annie and Carlos Sr., who were
then staying on the Properties. Only then did
Annie and Carlos Sr. learn of the transfer of titles
to petitioner. Thus, on July 9, 1990, Annie, Carlos
Sr. and Anselmo, represented by Annie, filed a
complaint for reconveyance of propertyagainst
petitioner before Branch 89 of the RTC of Quezon
City.
In the course of the trial, private respondents
discovered that Adela and petitioner executed
another deed of absolute sale20 over Lot 35-B on
April 25, 1989 (collectively with the deed of
absolute sale over Lots 32 and 34, "Deeds of
Absolute Sale"), bearing on its face the price of
F60,000.00.21 This was notarized on the same
date by one OrancioGeneroso in Manila, but it was
registered with the Registry of Deeds only on
October 5, 1990.22 Thus, private respondents
amended their complaint to include Lot 35-B.
ISSUE:
Whether or not the Deed of Absolutesale between
Adela and Valentina is simulated.
HELD: Yes.
The Civil Code defines a contract as a meeting of
minds between two persons whereby one binds
himself, with respect to the other, to give
something or to render some service.43 Article
1318 provides that there is no contract unless the
following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of
the contract; and
(3) Cause of the obligation which is established.
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All these elements must be present to constitute a
valid contract; the absence of one renders the
contract void. As one of the essential elements,
consent when wanting makes the contract non-
existent. Consent is manifested by the meeting of
the offer and the acceptance of the thing and the
cause, which are to constitute the contract.44 A
contract of sale is perfected at the moment there
is a meeting of the minds upon the thing that is the
object of the contract, and upon the price.45
Here, there was no valid contract of sale between
petitioner and Adela because their consent was
absent. The contract of sale was a mere
simulation.
that she does not intend to claim exclusive
ownership of Lot 35-B; and that she is aware that
the ownership and control of the Properties are
intended to be consolidated in Dennis.
c) The SPA executed on the same day as the Deeds
of Absolute Sale appointing petitioner as
administratrix of Adela's properties, including the
Properties, is repugnant to petitioner's claim that
the ownership of the same had been transferred
to her.

In determining the true nature of a contract, the

primary test is the intention of the parties. If the
words of a contract appear to contravene the
evident intention of the parties, the latter shall
prevail. Such intention is determined not only
from the express terms of their agreement, but
also from the contemporaneous and subsequent
acts of the parties.

These were the following circumstances to

conclude that the Deed of Absolute Sale between
Adela and Valentina is simulated:

a) There was no indication that Adela intended to

alienate her properties in favor of petitioner. In
fact, the letter of Adela to Dennis dated April 18,
1989 reveals that she has reserved the ownership
of the Properties in favor of Dennis.

b) Adela continued exercising acts of dominion

and control over the properties, even after the
execution of the Deeds of Absolute Sale, and
though she lived abroad for a time. In Adela's
letter dated August 25, 1989to a certain Candy,
she advised the latter to stay in the big house.
Also, in petitioner's letter to her cousin Dennis
dated July 3, 1989, she admitted that Adela
continued to be in charge of the Properties; that
she has no "say" when it comes to the Properties;

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CONTRACTS
PENTACAPITAL INVESTMENT CORPORATION,
Vs. MAKILITO B. MAHINAY,
G.R. No. 171736
Justice Nachura, ponente
Dispositive portion:
WHEREFORE, premises considered, the petitions
are hereby GRANTED. The Decisions and
Resolutions of the Court of Appeals dated
December 20, 2005 and March 1, 2006, in CA-G.R.
SP No. 74851, and October 4, 2007 and January
21, 2008, in CA-G.R. CV No. 86939, are REVERSED
and SET ASIDE.
Respondent Makilito B. Mahinay is ordered to pay
petitioner Pentacapital Investment
Corporation P1,936,800.00 plus 12% interest per
annum, and 12% per annum penalty charge,
starting February 17, 1997. He is likewise
ordered to pay 10% of his outstanding obligation
as attorney’s fees. No pronouncement as to costs.
Facts:
Petitioner filed a complaint for a sum of money
against respondent Makilito Mahinay based on
two separate loans obtained by the latter,
amounting to P1,520,000.00 and P416,800.00, or
a total amount of P1,936,800.00. These loans
were evidenced by two promissory
notes dated February 23, 1996. Despite repeated
demands, respondent failed to pay the loans,
hence, the complaint.
In his Answer with Compulsory
Counterclaim, respondent claimed that petitioner
had no cause of action because the promissory
notes on which its complaint was based were
subject to a condition that did not occur. While
admitting that he indeed signed the promissory
notes, he insisted that he never took out a loan
and that the notes were not intended to be
evidences of indebtedness. By way of
counterclaim, respondent prayed for the payment
of moral and exemplary damages plus attorney’s
fees.
ARELLANO UNIVERSITY SCHOOL OF LAW
Respondent explained that he was the counsel of
Ciudad Real Development Inc. (CRDI). In 1994,
Pentacapital Realty Corporation (Pentacapital
Realty) offered to buy parcels of land known as
the Molino Properties, owned by CRDI, located in
Molino, Bacoor, Cavite. The Molino Properties,
with a total area of 127,708 square meters, were
sold atP400.00 per sq m. As the Molino Properties
were the subject of a pending case, Pentacapital
Realty paid only the down payment amounting
to P12,000,000.00. CRDI allegedly instructed
Pentacapital Realty to pay the formers creditors,
including respondent who thus received a check
worth P1,715,156.90. It was further agreed that
the balance would be payable upon the
submission of an Entry of Judgment showing that
the case involving the Molino Properties had been
decided in favor of CRDI.
Respondent, Pentacapital Realty and CRDI
allegedly agreed that respondent had a charging
lien equivalent to 20% of the total consideration
of the sale in the amount of P10,277,040.00.
Pending the submission of the Entry of Judgment
and as a sign of good faith, respondent
purportedly returned the P1,715,156.90 check to
Pentacapital Realty. However, the Molino
Properties continued to be haunted by the
seemingly interminable court actions initiated by
different parties which thus prevented
respondent from collecting his commission.
Issue: Whether or not respondent is bound by
the promissory notes.
Held:
To ascertain whether or not respondent is bound
by the promissory notes, it must be established
that all the elements of a contract of loan are
present. Like any other contract, a contract of loan
is subject to the rules governing the requisites
and validity of contracts in general. It is
elementary in this jurisdiction that what
determines the validity of a contract, in general, is
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the presence of the following elements: (1)
consent of the contracting parties; (2) object
certain which is the subject matter of the contract;
and (3) cause of the obligation which is
established.
In this case, respondent denied liability on the
ground that the promissory notes lacked
consideration as he did not receive the proceeds
of the loan.
Under Article 1354 of the Civil Code, it is
presumed that consideration exists and is lawful
unless the debtor proves the contrary. Moreover,
under Section 3, Rule 131 of the Rules of Court,
the following are disputable presumptions: (1)
private transactions have been fair and regular;
(2) the ordinary course of business has been
followed; and (3) there was sufficient
consideration for a contract. A presumption may
operate against an adversary who has not
introduced proof to rebut it. The effect of a legal
presumption upon a burden of proof is to create
the necessity of presenting evidence to meet the
legal presumption or the prima facie case created
thereby, and which, if no proof to the contrary is
presented and offered, will prevail. The burden of
proof remains where it is, but by the presumption,
the one who has that burden is relieved for the
time being from introducing evidence in support
of the averment, because the presumption stands
in the place of evidence unless rebutted.
In the present case, as proof of his claim of lack of
consideration, respondent denied under oath that
he owed petitioner a single centavo. He added
that he did not apply for a loan and that when he
signed the promissory notes, they were all blank
forms and all the blank spaces were to be filled up
only if the sale transaction over the subject
properties would not push through because of a
possible adverse decision in the civil cases
involving them (the properties). He thus posits
that since the sale pushed through, the
promissory notes did not become effective.
ARELLANO UNIVERSITY SCHOOL OF LAW
Contrary to the conclusions of the RTC and the CA,
we find such proof insufficient to overcome the
presumption of consideration. The presumption
that a contract has sufficient consideration cannot
be overthrown by the bare, uncorroborated and
self-serving assertion of respondent that it has no
consideration. The alleged lack of consideration
must be shown by preponderance of evidence.
As it now appears, the promissory notes clearly
stated that respondent promised to pay
petitioner P1,520,000.00 and P416,800.00, plus
interests and penalty charges, a year after their
execution. Nowhere in the notes was it stated that
they were subject to a condition. As correctly
observed by petitioner, respondent is not only a
lawyer but a law professor as well. He is,
therefore, legally presumed not only to exercise
vigilance over his concerns but, more
importantly, to know the legal and binding effects
of promissory notes and the intricacies involving
the execution of negotiable instruments including
the need to execute an agreement to document
extraneous collateral
conditions and/or agreements, if truly there wer
e such. This militates against respondents claim
that there was indeed such an agreement. Thus,
the promissory notes should be accepted as they
appear on their face.
Respondents liability is not negated by the fact
that he has uncollected commissions from the
sale of the Molino properties. As the records of the
case show, at the time of the execution of the
promissory notes, the Molino properties were
subject of various court actions commenced by
different parties. Thus, the sale of the properties
and, consequently, the payment of respondent’s
commissions were put on hold. The non-payment
of his commissions could very well be the reason
why he obtained a loan from petitioner.
A promissory note is a solemn acknowledgment
of a debt and a formal commitment to repay it on
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CONTRACTS

the date and under the conditions agreed upon by
the borrower and the lender. A person who signs
such an instrument is bound to honor it as a
legitimate obligation duly assumed by him
through the signature he affixes thereto as a token
of his good faith. If he reneges on his promise
without cause, he forfeits the sympathy and
assistance of this Court and deserves instead its
sharp repudiation.
Aside from the payment of the principal
obligation of P1,936,800.00, the parties agreed
that respondent pay interest at the rate of 25%
from February 17, 1997 until fully paid. Such rate,
however, is excessive and thus, void. Since the
stipulation on the interest rate is void, it is as if
there was no express contract thereon. To be
sure, courts may reduce the interest rate as
reason and equity demand. In this case, 12%
interest is reasonable.
Lastly, respondent promised to pay 25% of his
outstanding obligations as attorney’s fees in case
of non-payment thereof. Attorney’s fees here are
in the nature of liquidated damages. As long as
said stipulation does not contravene law, morals,
or public order, it is strictly binding upon
respondent. Nonetheless, courts are empowered
to reduce such rate if the same is iniquitous or
unconscionable pursuant to the above-quoted
provision. This sentiment is echoed in Article
2227 of the Civil Code, to wit:
Art. 2227. Liquidated damages, whether intended
as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.

The promissory notes likewise required the

payment of a penalty charge of 3% per month or
36% per annum. We find such rates
unconscionable. This Court has recognized a
penalty clause as an accessory obligation which
the parties attach to a principal obligation for the
purpose of ensuring the performance thereof by
imposing on the debtor a special prestation
(generally consisting of the payment of a sum of
money) in case the obligation is not fulfilled or is
irregularly or inadequately fulfilled. However, a
penalty charge of 3% per month is
unconscionable; hence, we reduce it to 1% per
month or 12% per annum, pursuant to Article
1229 of the Civil Code which states:

Art. 1229. The judge shall equitably reduce the

penalty when the principal obligation has been
partly or irregularly complied with by the
debtor. Even if there has been no performance, the
penalty may also be reduced by the courts if it is
iniquitous or unconscionable.

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CONTRACTS
AGUSTINO B. ONG YIU VS. CA
G.R. No. L-40597 June 29, 1979
FACTS
On August 26, 1967, Atty. Ong Liu was a fare
paying passenger of respondent Philippine
Airlines from Mactan, Cebu to Butuan City. He was
scheduled to attend a hearing on August 28-31,
1967 in Butuan City.
As passenger, he checked in a blue “maleta” for
which he was issued Claim Check No. 2106-R.
When the plane arrived in Butuan, he found out
that his luggage could not be found. According to
petitioner, it was only after reacting indignantly
to the loss that the matter was attended by the
porter clerk.
At about 3pm, PAL Butuan sent a message to PAL
Cebu inquiring about the missing luggage. The
same afternoon, PAL Manila wired PAL Cebu
advising that the luggage had been carried to
Manila and it would be forwarded to Cebu the
same day. Instructions were also given that the
luggage be immediately forwarded to Butuan City
on the first available flight.
The next morning, petitioner went to the airport.
However, he did not wait for the morning flight
which arrived at 10am. This flight carried his
luggage. The porter clerk paged the petitioner but
the latter had already left. It just so happen that
the driver of the petitioner was still there and he
delivered the luggage to the petitioner.
When petitioner received the same, the luggage
was opened and was missing the documents he
needed for trial. The driver informed him that
when he received the same from the porter clerk,
the luggage was already unlocked. Because of this,
petitioner refused to accept the luggage and
returned it PAL Cebu.
Petitioner then wrote a letter to PAL Cebu and
demanded that his luggage be produced intact,
ARELLANO UNIVERSITY SCHOOL OF LAW
and that he be compensated for actual and moral
damages, otherwise he would file a suit. Upon
letter reply, PAL stated that they did not know
who pilfered the baggage and they are regrettably
sorry for the incident.
Hence, petitioner filed a complaint against PAL
for breach of contract of transportation. The
lower court found the respondent liable for gross
negligence and ordered the respondent to pay
moral and exemplary damages because it had
acted in bad faith and with malice.
Both parties appealed with the CA. The appellate
court modified the judgment, rendering the
respondent liable only for simple negligence.
Respondent court also limited the liability of PAL
to 100php, as stipulated at the back of the ticket.
Hence, this petition.
ISSUE: Whether or not petitioner can claim for
damage baggage payment more than what is
limited for each passenger, as evidenced by the
ticket.
HELD:NO.
Petitioner argues that there is nothing in evidence
to show that he had entered into a contract with
PAL.
There is no dispute that petitioner did not declare
any higher value for his luggage, much less did he
pay any additional transportation charge
While it may be true that petitioner had not
signed the plane ticket, he is nevertheless bound
by the provisions thereof. Such provisions have
been held to be part of the contract of carriage,
and is valid and binding upon the passenger
regardless of the latter’s lack of knowledge or
assent to the regulation. It is what is known as a
contract of adhesion, in regards which it has been
said that contracts of adhesion wherein one party
imposes a ready made form of contract on the
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other, as the plane ticket in the case at bar, are

contracts not entirely prohibited. The one who
adheres to the contract is in reality free to reject
it entirely; if he adheres, he gives his consent. And
as held in Randolph v. American Airlines,"a
contract limiting liability upon an agreed
valuation does not offend against the policy of the
law forbidding one from contracting against his
own negligence.

Considering, therefore, that petitioner had failed

to declare a higher value for his baggage, he
cannot be permitted a recovery in excess of
P100.00.

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CONTRACTS
WELDON CONSTRUCTION CORPORATION vs.
COURT OF APPEALS
March 7, 1961
TOPIC: DUE OBSERVANCE OF PRESCRIBED
FORMALITIES
FACTS: The present controversy arose from the
construction of the Gay Theater building on the
corner of Herran and Singalong Streets in Manila.
Petitioner WELDON CONSTRUCTION
CORPORATION sued the private respondent
Manuel Cancio in the then Court of First Instance
of Manila to recover P62,378.82 Pesos, which is
ten per (10%) of the total cost of construction of
the building, as commission, and P23,788.32
Pesos as cost of additional works thereon. The
basis for the claim for commission is an alleged
contract of supervision of construction between
the theater owner Manuel Cancio, herein private
respondent, and the petitioner's predecessors-in-
interest, Weldon Construction, which the
petitioner seeks to enforce. The private
respondent refused to pay the amounts
demanded on the ground that the Gay Theater
building was constructed by Weldon
Construction for the stipulated price of
P600,000.00 Pesos which has already been fully
paid. The irreconcilable positions taken by the
parties brought the controversy before the courts.
Then Court of First, instance of Manila ruled that
the agreement between the parties is a contract of
supervision of construction found in Exhibit "A"
and ordered the theater-owner Cancio to pay the
ten per cent (10%) supervision fee or commission
provided for in said contract. On appeal by the
defendant Cancio, the Court of Appeals reversed
the lower court's Decision and dismissed the
Complaint. Both parties moved for the
reconsideration of the aforesaid Decision. The
same division of the Court of Appeals denied the
two Motions for Reconsideration. Not satisfied
with the Resolution of its Second Motion for
Reconsideration, plaintiff-appellee WELDON
CONSTRUCTION CORPORATION elevated its case
ARELLANO UNIVERSITY SCHOOL OF LAW
to this Tribunal by certiorari under Rule 45 of the
Rules of Court. . The modification by the Court of
Appeals of said Decision in its Resolution of
October 18, 1972 which dismissed the
defendant's counterclaims is likewise AFFIRMED.
Petition DISMISSED for lack of merit.
ISSUES:
1. WON the agreement between the parties is a
contract of supervision of construction on
commission basis, in which the case commission
will be legally demandable, or a construction
contract for a stipulated price which has already
been consummated?
2. WON petitioner can recover the cost of
additional works on the building?
HELD:
The inescapable conclusion is that Weldon
Construction assumed the obligation to construct
the building at the price fixed by the parties and
to furnish both the labor and materials required
for the project. It acted as an independent
contractor within the meaning of Article 1713 of
the New Civil Code, which states:
ART. 1713. By the contract for a piece of work the
contractor binds himself to execute a piece of
work for the employer, in consideration of a
certain price or compensation. The contractor
may either employ only his labor or skill or also
furnish the materials.
In view of all the foregoing considerations this
Court finds that the agreement between the
parties is the contract of construction for a
stipulated price contained in Exhibit "5" which is
akin to a contract for a piece of work defined in
the aforequoted article. Both parties having fully
performed their reciprocal obligations in
accordance with said contract, petitioner is
estopped from invoking an entirely different
agreement so as to demand additional
consideration. Once a contract has been
consummated, there is nothing left to be done or
to be demanded by the parties thereto. All
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obligations arising from the contract are
extinguished.
As set by the parties, the consideration for the
construction of the Gay Theater building is
P600,000.00 Pesos which amount has been fully
paid by the private respondent. There is no basis
for the petitioner's demand for the payment of
P62,378.83 Pesos as commission of ten per cent
(10%) of the total cost of construction.
Since the contract between the parties has been
established as a contract for a piece of work for a
stipulated price the right of the contractor to
recover the cost of additional works must be
governed by Article 1724 quoted as follows:
ART. 1724. The contractor who undertakes to
build a structure or any other work for a
stipulated price, in conformity with plans and
specifications agreed upon with the landowner
can neither withdraw from the contract or
demand an increase in the price on account of the
higher cost of labor or materials, save when there
has been a change in the plans and specifications,
provided:
(1) Such change has been authorized by the
proprietor in writing; and
(2) The additional price to be paid to the
contractor had been determined in writing by
both parties.
In addition to the owner's authorization for any
change in the plans and specifications, Article
1724 requires that the additional price to be paid
for the contractor be likewise reduced in writing.
Compliance with the two requisites in Article
1724, a specific provision governing additional
works, is a condition precedent to recovery (San
Diego v. Sayson, supra). The absence of one or the
other bars the recovery of additional costs.
Neither the authority for the changes made nor
the additional price to be paid therefor may be
proved by any other evidence for purposes of
recovery.
ARELLANO UNIVERSITY SCHOOL OF LAW
In the case before this Court, the records do not
yield any written authority for the changes made
on the plans and specifications of the Gay Theater
building. Neither can there be found any written
agreement on the additional price to be paid for
said "extra works." While the trial court may have
found in the instant case that the private
respondent admitted his having requested the
"extra works" done by the contractor (Record an
Appeal, p. 66 [C.F.I. Decision]), this does not save
the day for the petitioner. The private respondent
claims that the contractor agreed to make the
additions without additional cost. Expectedly, the
petitioner vigorously denies said claim of the
private respondent. This is precisely a
misunderstanding between parties to a
construction agreement which the lawmakers
sought to avoid in prescribing the two requisites
under Article 1724 (Report of the Code
Commission, p. 148). And this case is a perfect
example of a tedious litigation which had ensued
between the parties as a result of such
misunderstanding. Again, this is what the law
endeavors to prevent (San Diego v. Sayson,
supra).
In the absence of a written authority by the owner
for the changes in the plans and specifications of
the building and of a written agreement between
the parties on the additional price to be paid to
the contractor, as required by Article 1724, the
claim for the cost of additional works on the Gay
Theater building must be denied.
WHEREFORE, the judgment of the Court of
Appeals in its Decision of December 23, 1971
which was upheld in its Resolution of October 18,
1972 dismissing the complaint filed by Weldon
Construction Corporation is AFFIRMED. The
modification by the Court of Appeals of said
Decision in its Resolution of October 18, 1972
which dismissed the defendant's counterclaims is
likewise AFFIRMED. Petition DISMISSED for lack
of merit.
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C&C vs MENOR clearance certificate. It had a pending tax case in

AQUINO, J.:
FACTS:Judge Cloribel of the Court of First
Instance of Manila in his decision dated March 1,
1967 in Civil Case No. 66750, a mandamus case,
ordered the Acting General Manager of the
National Waterworks and Sewerage Authority
and the members of the Committee on Pre-
Qualification to allow C & C Commercial
Corporation to participate as a qualified bidder in
the public bidding for the supply of asbestos
cement pressure pipes to the Nawasa in spite of
the fact that it had a pending tax case and had no
tax clearance certificate.
By virtue of that judgment, which became final
because the Nawasa did not appeal, C & C
Commercial Corporation took part in the bidding.
When the bids were opened on May 18, 1967, it
was found to be the lowest bidder.
the Bureau of Internal Revenue. The award to C &
C Commercial Corporation would be in gross
contravention of Administrative Order No. 66.
The trial court erred in holding that
Administrative Order No. 66 could not be given a
retroactive effect to the bid of C & C, in spite of its
pending tax case.
A bidder whose bid is rejected has no cause for
complaint nor a right to dispute the award to
another bidder (Esguerra & Sons vs. Aytona, 114
Phil. 1189; Surigao Mineral Reservation Board vs.
Cloribel, L-27072, July 31, 1968, 24 SCRA 491).
It should be noted that "advertisements for
bidders are simply invitations to make proposals,
and the advertiser is not bound to accept the
highest or lowest bidder, unless the contrary
appears" (Art. 1326, Civil Code). No such contrary
intention appears in this case.

In a letter dated July 25, 1967, Antonio C. Menor,

the acting general manager of the Nawasa,
required C & C Commercial Corporation to submit
the tax clearance certificate required in
Presidential Administrative Order No. 66 dated
June 26, 1967. Menor said that the requirement as
to the tax clearance certificate was mandatory as
held by the Government Corporate Counsel in his
Opinion No. 159, Series of 1967. C & C Commercial
Corporation filed another action to enjoin the
award and implementation of the contract to
another party.

ISSUE/S:Whether or not C & C Commercial

Corporation should be allowed to take part in the
bidding even if it had no tax clearance certificate.

RULING: The court ruled in the negative .Nawasa

was justified in not awarding the contract to C &
C Commercial Corporation because it had no tax

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TANG VS. CA
90 SCRA 236
FACTS:
Vicente Tang is the nephew and beneficiary of
Lee Su Guat, a widow, 61 years old, an illiterate
and speaks only Chinese, in the 2 insurance
policies of the latter. The application for the 1st
insurance amounting to 60k is consisted of two
parts, which were both in English language.
The 2nd part dealt with Lee's state of health
where her answers showed that she's healthy.
Thus, Philam Life issued the policy.
Lee So Guat applied for additional insurance right
after the issuance of the first policy which was on
October 23,1965. Since it was only recent from
the time she first applied, no further medical
exam was made, but she accomplished and
submitted Part I of the application certifying the
truthfulness of statements and answers made in
Part II. After approval, the 2nd policy was then
issued. Subsequently, Lee Su Guat died of lung
cancer.
Vicente Tang claimed the amount of 100k but
Philamlife refused to pay on the ground of
concealment and misrepresentation. His
contention was, since Lee was illiterate and spoke
only Chinese, she could not be guilty of
concealment of her health history because the
application for insurance was in English language,
and the insurer has not proven that the terms
thereof had been fully explained to her as
provided in Art.1332 of Civil Code. Both the trial
court and CA ruled that Lee was guilty of
concealment and misrepresentation.
RULING:
Art. 1332 is not applicable. Under the said article,
the obligation to show that the terms of the
contract had been fully explained to the party
who is unable to read or understand the language
of the contract, when fraud or mistake is alleged,
devolves on the party seeking to enforce it. Here,
the insurance company is not seeking to enforce
the contract; on the contrary, it is seeking to avoid
its performance.
It is the petitioner who is seeking to enforce it,
even if fraud or mistake is
not alleged. Accordingly, Philamlife was under no
obligation to prove that the terms of the
insurance contract were fully explained to the
other party. Even if we were to say that the
insurer is the one seeking the performance of
the contracts by avoiding paying the claim, it has
to be noted that there has been no imputation of
mistake or fraud by the illiterate insured whose
personality is represented by her beneficiary. In
sum, Art. 1332 is inapplicable, and considering
the findings of both the trial court and the CA as
to the concealment of Lee, the SC affirms their
decisions.

ISSUE:
Whether or not Art. 1332 applies. (Art.
1332: 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 contract must show that the terms
thereof have been fully explained to him.)

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CARIÑO VS CA
PADILLA, J.:
Facts: On 22 January 1954, Pablo Encabo applied
with the Bureau of Lands to purchase a parcel of
land purchased by the government pursuant to
Commonwealth Act No. 539.
Thereafter, Encabo, through petitioner Cirila
Vicencio, supposedly as "agent" entered into an
agreement with Josue Quesada transferring rights
over the lot to the latter, provided it is approved
by the Land Tenure Administration (LTA). The
transfer of rights by Encabo to Quesada was not
put in writing but payment of the price for the
rights transferred was evidenced by receipts on
which Cirila Vicencio signed as a witness.
Unaware of the transfer of rights by Encabo to
Quesada, LTA adjudicated the lot in favor of
Encabo. LTA later came to know about the
"transfer" of rights, it disapproved the same on
the ground that Quesada was not qualified to
acquire the lot because he is already a lot
owner. However, before the LTA's disapproval of
the transfer, the Quesada had entered into
possession of the lot and also allowed Cirila
Vicencio to enter into possession and occupancy.
In November 1958, Encabo executed a Deed of
Sale of House and Transfer of Rights purportedly
conveying to herein petitioners (Juanito Cariño
and Cirila Vicencio), his rights over the lot. Juanito
Cariño filed a petition with the LTA seeking
approval of the transfer on the basis of the Deed
of Sale of House and Transfer of Rights executed
by Pablo Encabo. Pablo Encabo objected and filed
an Answer in opposition thereto. Essentially, both
parties (Encabo and the spouses Cariño) claimed
the right to purchase the lot in question from the
LTA.
Issue: WON the Deed of Sale on which the
petitioners have based their application (to
purchase) over the questioned lot, is simulated
and, therefore, an inexistent deed of sale.
ARELLANO UNIVERSITY SCHOOL OF LAW
Held: Yes. This Court finds that there is
substantial and convincing evidence that it was a
simulated deed of sale and transfer of rights. The
characteristic of simulation is the fact that the
apparent contract is not really desired or
intended to produce legal effects nor in any way
alter the judicial situation of the parties. Under
the circumstances surrounding their transaction,
the parties knew that the document was at once
fictitious and simulated where none of the parties
intended to be bound thereby.
There is merit to the Encabos' claim that the
simulated deed of sale in favor of the Cariños was
executed in order to protect the money Quesada
invested in the purchase of the rights to the lot in
question, which transfer of said lot to his name
was later on disapproved by the LTA. As can be
gleaned from the testimony of Josue Quesada, he
did this by putting Cirila Vicencio as the vendee in
the stipulated Deed of Sale, when in fact, Encabo
and Quesada meant her only as a dummy for the
latter. To this effect Quesada testified, despite the
warning given to him by the court that his
statement might incriminate him.
Contracts of sale are void and produce no effect
whatsoever where the price, which appears
therein as paid, has in fact never been paid by the
vendee to the vendor. A sale of land without
consideration, but intended merely to protect a
party to a joint venture for the cash advances he
was to make for the realty subdivision that the
parties wanted to put up, is null and void. 24 The
law is clear on this matter. The Civil Code
provides:
Art. 1409. The following contracts are
inexistent and void from the beginning:
xxx xxx xxx
(2) Those which are absolutely simulated
or fictitious;
xxx xxx xxx
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These contracts cannot be ratified. Neither

can the right to set up the defense of
illegality be waived.

The ownership of the lot by the Cariños is still

contingent on the approval of the LTA upon their
compliance with all the requirements of the latter.
Since no approval or due course has yet been
given by the LTA or LA to such transfer of rights,
the document is not enforceable against the latter.

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MANUEL LAGUNZAD vs. MARIA SOTO VDA. DE
GONZALES and THE COURT OF APPEALS
G.R. No. L-32066 August 6, 1979; MELENCIO-
HERRERA, J.:
Topic: due observance of prescribed formalities
FACTS:
The case is a Petition for Review by certiorari of
the Decision of the Court of Appeals in affirming
the Decision of the trial for a Sum of Money and
Attachment which stems from a "Licensing
Agreement" entered into by and between
petitioner Manuel M. Lagunzad and private
respondent Maria Soto Vda. de Gonzales on
October 5, 1961 based on the copyrighted but
unpublished book of Atty. Ernesto Rodriguez Jr
entitled “The Long Dark Night in Negros”
subtitled “The Moises Padilla Story”, the rights to
which petitioner had purchased from Atty.
Rodriguez in the amount of P2,000.00.
The book narrates the events which culminated in
the murder of Moises Padilla sometime between
November 11 and November 17, 1951. Padilla
was then a mayoralty candidate of the
Nacionalista Party (then the minority party) for
the Municipality of Magallon, Negros Occidental,
during the November, 1951 elections. Governor
Rafael Lacson, a member of the Liberal Party then
in power and his men were tried and convicted
for that murder in People vs. Lacson, et al. 3In the
book, Moises Padilla is portrayed as "a martyr in
contemporary political history."
Although the emphasis of the movie was on the
public life of Moises Padilla, there were portions
which dealt with his private and family life
including the portrayal in some scenes, of his
mother, Maria Soto Vda. de Gonzales, private
respondent herein, and of one "Auring" as his girl
friend.
On October 3, 1961, petitioner received a
telephone call from one Mrs. Nelly Amante, half-
ARELLANO UNIVERSITY SCHOOL OF LAW
sister of Moises Padilla, objecting to the filming of
the movie and the "exploitation" of his life. Shown
the early "rushes" of the picture, Mrs. Amante and
her sister, Mrs. Gavieres, objected to many
portions thereof notwithstanding petitioner's
explanation that the movie had been supervised
by Ernesto Rodriguez, Jr., based on his book "The
Long Dark Night in Negros." On October 5, 1961,
Mrs. Amante, for and in behalf of her mother,
private respondent, demanded in writing for
certain changes, corrections and deletions in the
movie. 5 Petitioner contends that he acceded to
the demands because he had already invested
heavily in the picture to the extent of mortgaging
his properties, 6 in addition to the fact that he had
to meet the scheduled target date of the premiere
showing.
On the same date, October 5, 1961, 7 petitioner
and private respondent, represented by her
daughters and Atty. Ernesto Rodriguez, at the law
office of Jalandoni and Jamir, executed a
"Licensing Agreement"
Petitioner takes the position that he was
pressured into signing the Agreement because of
private respondent's demand, through Mrs.
Amante, for payment for the "exploitation" of the
life story of Moises Padilla, otherwise, she would
"call a press conference declaring the whole
picture as a fake, fraud and a hoax and would
denounce the whole thing in the press, radio,
television and that they were going to Court to
stop the picture."
petitioner contended that the episodes in the life
of Moises Padilla depicted in the movie were
matters of public knowledge and occurred at or
about the same time that the deceased became
and was a public figure; that private respondent
has no property right over those incidents
ISSUE: Whether or not the prior consent and
authority from the deceased heirs is needed/
required in order to portray publicly episodes in
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said deceased’s life and in that of his mother and

the members of his family

HELD: Yes.

While it is true that petitioner had purchased the

rights to the book entitled "The Moises Padilla
Story," that did not dispense with the need for
prior consent and authority from the deceased
heirs to portray publicly episodes in said
deceased's life and in that of his mother and the
members of his family. As held in Schuyler v.
Curtis, 14"a privilege may be given the surviving
relatives of a deceased person to protect his
memory, but the privilege exists for the benefit of
the living, to protect their feelings and to prevent
a violation of their own rights in the character and
memory of the deceased."

In the case at bar, while it is true that petitioner

exerted efforts to present a true-to-life story of
Moises Padilla, petitioner admits that he included
a little romance in the film because without it, it
would be a drab story of torture and brutality.

Petitioner's averment that private respondent did

not have any property right over the life of Moises
Padilla since the latter was a public figure, is
neither well taken. Being a public figure ipso facto
does not automatically destroy in toto a person's
right to privacy. The right to invade a person's
privacy to disseminate public information does
not extend to a fictional or novelized
representation of a person, no matter how public
a figure he or she may be.

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LIAM LAW, vs. OLYMPIC SAWMILL CO. and
ELINO LEE CHI
PONENTE: MELENCIO-HERRERA, J.:
FACTS:
On or about September 7, 1957, plaintiff loaned
P10,000.00, without interest, to defendant
partnership and defendant Elino Lee Chi, as the
managing partner. The loan became ultimately
due on January 31, 1960, but was not paid on that
date, with the debtors asking for an extension of
three months, or up to April 30, 1960.
On March 17, 1960, the parties executed another
loan document. Payment of the P10,000.00 was
extended to April 30, 1960, but the obligation was
increased by P6,000.00 as follows:
That the sum of SIX THOUSAND PESOS
(P6,000.00), Philippine currency shall form part
of the principal obligation to answer for
attorney's fees, legal interest, and other cost
incident thereto to be paid unto the creditor and
his successors in interest upon the termination of
this agreement.
Defendants again failed to pay their obligation by
April 30, 1960 and, on September 23, 1960,
plaintiff instituted this collection case.
Defendants admitted the P10,000.00 principal
obligation, but claimed that the additional
P6,000.00 constituted usurious interest.
Upon application of plaintiff, the Trial Court
issued, on the same date of September 23, 1960, a
writ of Attachment on real and personal
properties of defendants located at Karanglan,
Nueva Ecija. After the Writ of Attachment was
implemented, proceedings before the Trial Court
versed principally in regards to the attachment.
On January 18, 1961, an Order was issued by the
Trial Court stating that "after considering the
manifestation of both counsel in Chambers, the
Court hereby allows both parties to
simultaneously submit a Motion for Summary
Judgment. 1 The plaintiff filed his Motion for
Summary Judgment on January 31, 1961, while
defendants filed theirs on February 2, 196l.
ARELLANO UNIVERSITY SCHOOL OF LAW
RTC’S DECISION
On June 26, 1961, the Trial Court rendered
decision ordering defendants to pay plaintiff "the
amount of P10,000.00 plus the further sum of
P6,000.00 by way of liquidated damages . . . with
legal rate of interest on both amounts from April
30, 1960." It is from this judgment that
defendants have appealed.
CA’S DECISION
AFFIRMED RTC DECISION
ISSUE: whether the agreement of the parties
relative to the P6,000.00 obligation is presumed
that it exists and lawful
HELD:
We have decided to affirm.
Under Article 1354 of the Civil Code, in regards to
the agreement of the parties relative to the
P6,000.00 obligation, "it is presumed that it exists
and is lawful, unless the debtor proves the
contrary". No evidentiary hearing having been
held, it has to be concluded that defendants had
not proven that the P6,000.00 obligation was
illegal. Confirming the Trial Court's finding, we
view the P6,000.00 obligation as liquidated
damages suffered by plaintiff, as of March 17,
1960, representing loss of interest income,
attorney's fees and incidentals.
The main thrust of defendants' appeal is the
allegation in their Answer that the P6,000.00
constituted usurious interest. They insist the
claim of usury should have been deemed
admitted by plaintiff as it was "not denied
specifically and under oath". 3
Section 9 of the Usury Law (Act 2655) provided:
SEC. 9. The person or corporation sued shall file
its answer in writing under oath to any complaint
brought or filed against said person or
corporation before a competent court to recover
the money or other personal or real property,
seeds or agricultural products, charged or
received in violation of the provisions of this Act.
The lack of taking an oath to an answer to a
complaint will mean the admission of the facts
contained in the latter.
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The foregoing provision envisages a complaint

filed against an entity which has committed
usury, for the recovery of the usurious interest
paid. In that case, if the entity sued shall not file
its answer under oath denying the allegation of
usury, the defendant shall be deemed to have
admitted the usury. The provision does not apply
to a case, as in the present, where it is the
defendant, not the plaintiff, who is alleging usury.
Moreover, for sometime now, usury has been
legally non-existent. Interest can now be charged
as lender and borrower may agree upon. 4 The
Rules of Court in regards to allegations of usury,
procedural in nature, should be considered
repealed with retroactive effect.
FALLO:
WHEREFORE, the appealed judgment is hereby
affirmed, without pronouncement as to costs.

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LAO SOK VS SABAYSABAY
G.R. No. L-61898 August 9, 1985 (Penned by:
GUTIERREZ, JR., J.:
This is a petition for review which seeks to set
aside for grave abuse of discretion the decision of
the National Labor Relations Commission dated
June 21, 1982 affirming the decision of Labor
Arbiter Apolonio L. Reyes ordering the petitioner
to pay the private respondents their separation
pay.
FACTS:
Petitioner Lao Sok was the owner and operator of
Shelton Department Store at Carriedo Street,
Quiapo, Manila and private respondents Lydia
Sabaysabay, Amparo Mangulat, Rosita Salviejo,
Nenita Ruinata, Vilma Capillo and Virginia
Sanorjo were all salesladies each earning P14.00
daily. On October 12, 1980, petitioner's store was
razed by fire. He did not report the loss of jobs as
result of the store burning to the Ministry of
Labor. He also promised them 1) transfer to
another dept. store but promise was not fulfilled,
2) give separation pay and other benefits upon
insurance collection from the fire razing, which
respondents accepted. Upon insurance collection,
they were neither paid nor re-hired in other
stores.On May 14, 1981, the private respondents
filed a complaint with the Ministry of Labor and
Employment charging the petitioner with illegal
dismissal and non-payment of their separation
pay, allowance and incentive leave pay.On July 23,
1981, Labor Arbiter (“LA”) Apolonio L. Reyes
rendered decision based on position papers
ordering petitioner to pay separation pay
equivalent to 1month per year of service at legal
rate of interest in the event of refusal. Other
issues were dismissed under res judicata. On Oct.
2, 1981, petitioner appealed on the NLRC, which
affirmed the LA decision and dismissed the
appeal and also denied the MR, hence this petition
for review.
ARELLANO UNIVERSITY SCHOOL OF LAW
ISSUE: The issue in this case is whether or not
petitioner Lao Sok is obligated to pay the private
respondents' separation pay.
HELD: The petitioner contends that under the
Labor Code, he is not required to give separation
pay for failing to make a report about the fire and
the dismissal of his employees which does not
need prior clearance. Compliance with rules is
only an administrative matter and the failure to
make a report does not make the dismissal illegal
per se, but only subjects him to administrative
penalties.However, the petitioner's obligation
to pay severance compensation is not based
on his failure to make a report or to ask for a
prior clearance. Under the Labor Code,
prescribed separation pay is called for whenever
there is a reduction of personnel caused by the
closure of an establishment. The department
store ceased operations not due to the fault of the
employer due to fire (fortuitous event), BUT his
acts after are equally deplorable as termination
w-o just cause. There is a need to alleviate their
plight of job loss and they were even given the run
around of unfulfilled promises (separation pay
and re-hiring in other dept. store).
Issue pertaining to Contracts under Special
Form of Contracts: Whether contract is
unenforceable under Statute of Frauds for
being an oral contract.
The Solicitor General affirmed the NLRC acted
properly in ordering petitioner to pay separation
pay as he was bound to comply with his
contractual obligations to the respondents. The
SolGen ALSO explained that this promise is not a
mere promise BUT A CONTRACT. because all the
essential requisites of a valid contract are
present, to wit: (1) consent was freely given by
the parties, (2) there was a subject matter, which
is the payment of the separation pay of private
respondents, and (3) a cause, which is the loss of
job of private respondents who had been
petitioner's salesladies for several years
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Lao Sok made an offer which was duly accepted compelled to put the offer in writing, a step no
by the private respondents. There was, therefore, longer necessary now because of this petition.
a meeting of the minds between two parties
whereby one bound himself with respect to the
other, to give something or to render some
service (Article 1305, Civil Code). By the
unconditional acceptance of the offer that they
would be paid separation pay, a contract was
therefore perfected. Petitioner contends that the
contract though orally made is unenforceable
since it does not comply with the Statute of
Frauds.

HELD: NO. Contracts in whatever form they

may have been entered into are binding on the
parties unless form is essential for the validity
and enforceability of that particular contract.

xxx xxx xxx

... Whether the agreement is in writing or not

is a question of evidence. Nevertheless, even
granting that the agreement is not in writing,
this circumstance does not militate against the
validity or enforceability of said agreement,
because contracts are binding upon the
parties in whatever form they may have been
entered into unless the law requires
otherwise. (Article 1356, Civil Code; Lopez v.
The Auditor General, et al., L-25859, July 13,
1967; Pilar Gil Vdan de Murciano v. The
Auditor General, et al., 103 Phil. 907). It is true
that Article 1358 of the Civil Code provides
that contracts involving more than P500.00
must appear in writing, but nothing is said
therein that such requirement is necessary for
their validity or enforceability. It has been
held that the writing required under Article
1358 is merely for convenience and so the
agreement alleged in the amended complaint
in the present case can be enforced even if it
may not be in writing.

The requirement of writing for the offer made by

Lao Sok is only for convenience and not
enforceability. In fact, the petitioner could be
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MELITON GALLARDO vs. IAC
G.R. No. L-67742 October 29, 1987
PARAS, J.:
FACTS: This is a petition for review on certiorari
seeking to set aside or reverse the decision * of
the Intermediate Appellate Court promulgated on
May 22, 1984 in AC-G.R. CV No. 69946 entitled
Meliton Gallardo and Teresa Villanueva v. Marta
Villanueva vda. de Agana, et al. affirming the
decision ** of the Court of First Instance of Laguna
8th Judicial District, Branch II, Sta. Cruz, Laguna
dated January 20, 1982, which dismissed the
complaint for Quieting of Title in Civil Case No. SC-
1492 and declared the plaintiff's (petitioner's
herein) Re-constituted Transfer Certificate of
Title RT-6293 (No. 23350) as null and void.
The subject matter of this controversy involves a
parcel of land situated in Cavinti, Laguna
consisting of 81,300 square meters, more or less,
initially covered by an original Certificate of Title
No. 2262, issued on April 2, 1924 owned and
registered in the name of the late Pedro.
Petitioners were nephew and niece of the late
Pedro Villanueva and first cousin of the private
respondent Marta Villanueva vda. de Agana, the
latter being the daughter of Pedro Villanueva.
On August 10, 1937, petitioner claimed that the
aforestated land was sold to them in a private
document, an unnotarized deed of sale written in
Tagalog that was allegedly signed by the late
Pedro Villanueva conveying and transfering the
property in question in favor of the petitioners.
Subsequently, the Original Certificate of Title was
cancelled on the basis of the private document of
sale (Exhibit "B") and a new certificate of title was
issued in the name of the petitioners covered by
Transfer Certificate of Title No. RT- 6293 (No.
23350) on January 4, 1944.
During the Second World War, the records as well
as the Office of the Register of Deeds of Laguna,
ARELLANO UNIVERSITY SCHOOL OF LAW
where the original of their new transfer
certificate of title was kept, were completely
burned. Accordingly, by virtue of an Affidavit of
Reconstitution dated December 2, 1958 and upon
presentation of the Owner's Duplicate Certificate
of Title, the title was administratively
reconstituted and the Register of Deeds of Laguna
issued Transfer Certificate of Title No. RT-6293
(No. 23350) in the name of the petitioners.
On November 17, 1976, defendant Marta
Villanueva together with Pedro Villanueva, Jr.,
and Restituto R. Villanueva executed and filed an
Affidavit of Adverse Claim with the Office of the
Register of Deeds of Laguna. However, on
December 6, 1976 a joint affidavit was filed by
Pedro G. Villanueva, Jr. and Restituto Villanueva
withdrawing their adverse claim on the said
parcel of land, with the Office of the Register of
Deeds of Laguna
.
When petitioners learned of this Affidavit of
Adverse Claim, attempt was made to settle said
controversy amicably. Several demands made by
herein petitioners upon private respondents
Marta Vda. de Agana to withdraw her adverse
claim, failed.
On December 9, 1976, said private respondent
executed a Deed of Conveyance and Release of
Claim wherein the parties agreed, among other
things, to the following:
That in consideration of the said
transfer and conveyance over a
1,000 square meter portion
mentioned in the next preceding
paragraph, the VENDEE (Marta V.
Agana) does hereby withdraw the
adverse claim mentioned above.
However, when private respondent Marta
Villanueva vda. de Agana refused to sign an
Affidavit of Quit-claim, petitioners instituted
court suit against the private respondent and her
husband, Dr. Marcelo S. Agana, Sr. by filing a
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complaint for Quieting of Title and Damages with
the Court of First Instance of Laguna on February
3, 1977, demanding that their title over the
questioned land be fortified by a declaration of
ownership in their favor and avoiding the
aforecited Deed of Conveyance and Release of
Claim. Accordingly, private respondents in their
answer countered that the Deed of Sale in Tagalog
and petitioners' title over the land be declared
void ab initio, among other demands
. enunciated in said Art. 1356 is that contracts
On January 20, 1982, the Court of First Instance of
Laguna rendered its decision declaring the deed
of sale of August 10, 1937, as well as the
reconstituted transfer certificate of title of
petitioners, void ab initio.
ISSUE: WHETHER AN UNNOTARIZED DEED OF
SALE ON A PARCEL OF LAND CAN BE
CONSIDERED A VALID INSTRUMENT TO
TRANSFER OWNERSHIP
The crux of the matter now centers on whether or
not the unnotarized deed of sale purportedly
executed on August 10, 1937 by the primitive
owner Pedro Villanueva, in favor of petitioners,
can be considered as a valid instrument for
effecting the alienation by way of sale of a parcel
of land registerd under the Torrens System.
Corollary thereto, it becomes necessary to
examine other matters surrounding the execution
of the alleged document of sale.
Petitioners claim that the sale although not in a
public document, is nevertheless valid and
binding citing this Court's rulings in the cases of
Cauto v. Cortes, 8 Phil. 459, 460; Guerrero v.
Miguel, 10 Phil. 52, 53; Bucton v. Gabar 55 SCRA
499 wherein this Court ruled that even a verbal
contract of sale of real estate produces legal
effects between the parties. The contention is
unmeritorious.
As the respondent court aptly stated in its
decision:
ARELLANO UNIVERSITY SCHOOL OF LAW
True, as argued by appellants, a private
conveyance of registered property is valid as
between the parties. However, the only right
the vendee of registered property in a
private document is to compel through
court processes the vendor to execute a
deed of conveyance sufficient in law for
purposes of registration. Plaintiffs-
appellants' reliance on Article 1356 of the
Civil Code is unfortunate. The general rule
are obligatory, in whatever form they may
have been entered, provided all the essential
requisites for their validity are present. The
next sentence provides the exception,
requiring a contract to be in some form
when the law so requires for validity or
enforceability. Said law is Section 127 of Act
496 which requires, among other things,
that the conveyance be executed "before the
judge of a court of record or clerk of a court
of record or a notary public or a justice of the
peace, who shall certify such
acknowledgment substantially in form next
hereinafter stated."
Such law was violated in this case. The
action of the Register of Deeds of Laguna in
allowing the registration of the private deed
of sale was unauthorized and did not lend a
bit of validity to the defective private
document of sale.
With reference to the special law, Section 127 of
the Land Registration Act, Act 496 (now Sec. 112
of P.D. No. 1529) provides:
Sec. 127. Deeds of Conveyance, ... affecting
lands, whether registered under this act or
unregistered shall be sufficient in law when
made substantially in accordance with the
following forms, and shall be as effective to
convey, encumber, ... or bind the lands as
though made in accordance with the more
prolix forms heretofore in use: Provided,
That every such instrument shall be signed
by the person or persons executing the
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same, in the presence of two witnesses,
who shall sign the instrument as witnesses
to the execution thereof, and shall be
acknowledged to be his or their free act and
deed by the person or persons executing the
same, before the judge of a court of record or
clerk of a court of record, or a notary public,
or a justice of the peace, who shall certify to
such acknowledgement substantially in the
form next hereinafter stated. (Emphasis
supplied).
It is therefore evident that Exhibit " E " in the case
at bar is definitely not registerable under the
Land Registration Act.
Likewise noteworthy is the case of Pornellosa and
Angels v. Land Tenure Administration and Guzman,
110 Phil. 986, where the Court ruled:
The deed of sale (Exhibit A), allegedly
executed by Vicente San Jose in favor of
Pornellosa is a mere private document and
does not conclusively establish their right
to the parcel of land. WhiIe it is valid and
binding upon the parties with respect to the
sale of the house erected thereon, yet it is
not sufficient to convey title or any right to
the residential lot in litigation. Acts and
contracts which have for their object the
creation, transmission, modification or
extinguishment of real rights over
immovable property must appear in a
public document.
Upon consideration of the facts and
circumstances surrounding the execution of the
assailed document, the trial court found that said
private document (Exhibit "B") was null and void
and that it was signed by somebody else not
Pedro Villanueva. Such findings of fact besides
being based on the records, were sustained by the
Court of Appeals.
The contention that ownership over registered
property may be acquired by prescription or
adverse possession is absolutely without merit.
ARELLANO UNIVERSITY SCHOOL OF LAW
No title to registered land in derogation of that of
the registered owner shall be acquired by
prescription or adverse possession. Prescription
is unavailing not only against the registered
owner but also against his hereditary successors
(Umbay vs. Alecha, 135 SCRA 427 [1985]). The
right to recover possession of registered land is
imprescriptible because possession is a mere
consequence of ownership (Umbay vs. Alecha,
supra, citing Atun v. Nuñuz 97 Phil. 762; Manlapas
and Tolentino v. Llorente, 48 Phil. 298, 308: J.M.
Tuazon & Co., Inc. v. Aguirre, 117 Phil. 110, 113-
114) where land has been registered under the
Torrens System (Alarcon v. Bidin, 120 SCRA 390;
Umbay v. Alecha, supra) because the efficacy and
integrity of the Torrens System must be protected
(Director of Lands v. CA, 120 SCRA 370). As
prescription is rightly regarded as a statute of
repose whose objective is to suppress fraudulent
and stale claims from springing up at great
distances of time and suprising the parties or
their representatives when the facts have become
obscure from the lapse of time or the defective
memory or death or removal of witnesses (
Senoan v. Sorongon, 136 SCRA 407 [1985]).
In the matter of laches, the Court aptly stated in
the case of Marcelo Sotto v. Pilar Teves, et al., 86
SCRA 155 [1978] that "in determining whether a
delay in seeking to enforce a right constitutes
laches, the existence of a confidential relationship
between the parties is an important circumstance
for consideration. A delay under such
circumstance is not as strictly regarded as where
the parties are strangers to each other. The
doctrine of laches is not strictly applied between
near relatives, and the fact that the parties are
connected by ties of blood or marriage tends to
excuse an otherwise unreasonable delay."
In the case of Esso Standard Eastern, Inc. v. Alfonso
Lim, 123 SCRA 464, 480 [1983]), the Court ruled
that laches cannot be asserted by a mere
possessor without claim of title, legal or equitable
because for laches to exist, there should be a
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showing of delay in asserting the complainant's

right. The complainant should have knowledge or
notice of the defendant's conduct and an
opportunity to institute a suit. Delay is not
counted from the date the lot was sold to the
buyer but from the time of entry of the defendant
or from the time the complainant came to know of
the occupancy for that is the only time it could
possibly have demanded that he get out of the
premises or could have instituted a suit.

In the case at bar, it will be noted that what

transpired was an administrative reconstitution,
essentially ex-parte and without notice, thereby
lending credence to the claim that private
respondent Marta Agana was unaware of such
reconstitution and possession until she
discovered the same in the Office of the Register
of Deeds in 1976. As such it cannot be claimed
that she slept on her right as from that time on, it
is undeniable that she filed her adverse claim on
the said lot.

After a careful perusal of the case, there appears

to be no cogent reason to disturb the findings of
fact of the Court of Appeals which affirmed the
findings of the trial court.
PREMISES CONSIDERED, the petition is DENIED
and the assailed decision of the Intermediate
Appellate Court is AFFIRMED.

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CIRILO PAREDES vs JOSE L. ESPINO
G.R. No. L-23351 ; March 13, 1968
FACTS:
Cirilo Paredes filed an action to compel Jose
Espino to execute a deed of sale and to pay
damages. The complaint alleged that Espino "had
entered into the sale" to plaintiff of Lot No. 67 of
the Puerto Princesa Cadastre; that the deal had
been "closed by letter and telegram" but the
actual execution of the deed of sale and payment
of the price were deferred to the arrival of Espino
at Puerto Princesa; that Espino upon arrival had
refused to execute the deed of sale although
Paredes was able and willing to pay the price.
The letter purportedly signed by Espino is as
follows:
106 Gonzaga St.
Tuguegarao,Cagayan
May18,1964
Mr.CiriloParedes
Pto.Princesa,Palawan
Dear Mr. Paredes:
So far I received two letters from you, one
dated April 17 and the other April 29, both 1964.
In reply thereto, please be informed that after
consulting with my wife, we both decided to
accept your last offer of Four (P4.00) pesos per
square meter of the lot which contains 1826
square meters and on cash basis.
In order that we can facilitate the
transaction of the sale in question, we (Mrs.
Espino and I), are going there (Puerto Princess,
Pal.) to be there during the last week of the
month, May. I will send you a telegram, as per
your request, when I will reach Manila before
taking the boat for Pto. Princess. As it is now,
there is no schedule yet of the boats plying
between Manila and Pto. Princess for next week.
Espino filed a motion to dismiss upon the ground
that the complaint stated no cause of action, and
that the Paredes’ claim upon which the action was
ARELLANO UNIVERSITY SCHOOL OF LAW
founded was unenforceable under the Statute of
Frauds.
The lower court dismissed the Complaint on the
ground that there being no written contract,
under Article 1403 of the Civil Code of the
Philippines — Although the contract is valid in
itself, the same cannot be enforced by virtue of the
Statute of Frauds
ISSUE:
Whether or not the enforcement of the contract
pleaded in the Complaint is barred by the Statute
of Frauds.
RULING:
The lower court plainly erred in holding that the
contract was unenforceable.
The Statute of Frauds, embodied in Article 1403
of the Civil Code of the Philippines, does not
require that the contract itself be in writing. The
plain text of Article 1403, paragraph (2) is clear
that a written note or memorandum, embodying
the essentials of the contract and signed by the
party charged, or his agent, suffices to make the
verbal agreement enforceable, taking it out of the
operation of the statute.
Art. 1403. — The following contracts are
unenforceable, unless they are ratified:
(1) . . .
(2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the
following cases an agreement hereafter made
shall be unenforceable by action, unless the same,
or some note or memorandum thereof, be in
writing, and subscribed by the party charged, or
by his agent; evidence, therefore, of the
agreement cannot be received without the
writing, or a secondary evidence of its contents:
xxx xxx xxx
(e) An agreement for the leasing for a longer
period than one year, or for the sale of real
property or of an interest therein.
xxx xxx xxx
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The letter transcribed above and the previous

letter of Espino referring to the lot as the one
covered by Certificate of Title No. 62 constitute an
adequate memorandum of the transaction. They
are signed by Espino; refer to the property sold as
a lot in Puerto Princesa, Palawan, covered, by TCT
No. 62; given its area as 1826 square meters and
the purchase price of four (P4.00) pesos per
square meter payable in cash.

The Court had in them therefore, all the essential

terms of the contract, and they satisfy the
requirements of the Statute of Frauds. A sufficient
memorandum may also be contained in two or
more documents.

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LIM YHI LUYA vs.COURT OF APPEALS and
HIND SUGAR COMPANY
G.R. No. L-40258 September 11, 1980
GUERRERO, J.:
Facts:
Petitioner Lim Yhi Luya (Lim) is a businessman,
resident of Lingayen, Pangasinan where he
operates a grocery store, hardware store and
gasoline station. Private respondent Hind Sugar
Company (Hind Sugar) is engaged in the
manufacturing and marketing of sugar, its
principal office located in Manaoag, Pangasinan.
Vice President and General Manager of Hind
Sugar is Atty. Emiliano Abalos. His assistant is
Generoso Bongato, while the cashier and
accountant of the company is Teodoro Garcia.
Lim and Hind Sugar since 1958 have had business
dealings with each other, the company selling
sugar to the Lim and the latter has been supplying
the company with diesoline, gasoline, muriatic
acid, sulfuric acid, other supplies and materials
ordered on credit. On November 12, 1970,
petitioner received a telegram from Manager
Abalos in the following tenor: "Please come
tomorrow morning without fail." The following
day, November 13, 1970, Lim proceeded to the
company and in the office of Manager Abalos, the
latter offered to sell sugar at P37.00 per picul. The
parties agreed to the purchase of 4,085 piculs of
sugar at P35.00 per picul. The specific terms of the
contract (Exhibit “A”) are as follows:
CONTRACT OF SALE OF SUGAR
Seller : Hind Sugar Company
Manaoag, Pangasinan
Buyer : Lim Yhi Luya
Lingayen, Pangasinan
Quantity: Four Thousand Eighty-
Five (4,085)
piculs of Hind-2 sugar, 1969-70
crop
ARELLANO UNIVERSITY SCHOOL OF LAW
Price : Thirty Five (?35.00) Pesos
per
picul, f.o.b. Manaoag
Terms : Cash upon signing of this
contract.
Manaoag, Pangasina, Nov. 13, 1970.
On the same day, November 13, 1970, in
compliance with the contract, four delivery were
issued to Lim by cashier Garcia upon instructions
of Manager Abalos covering the total quantity of
sugar sold, 4,085 piculs. Between November 13,
1970 to January 27, 1971, Lim withdrew from the
company warehouse in varying quantities a total
amount of 3,735 piculs under substitute delivery
orders, leaving a balance of 350 piculs
undelivered.
On January 22, 1971, the question of payment
cropped out between the parties. Lim claimed
that he had paid P142,975.00 to the company
officials, Cashier Garcia and Manager Abalos on
November 13. 1970 and as proof of his payment,
he referred to the contract Exhibit "A",
particularly to the stipulation stating "Terms:
Cash upon signing of this contract." Hind Sugar
officials denied the claim of the Lim, alleging that
Lim never paid for the sugar on November 13,
1970 or at any time thereafter. An audit report or
examination of the books of the company made by
an external auditor showed no payment by Lim.
Issue:
Whether or not the Lim has paid the sum of
P142,975.00 which is the purchase price of 4,085
piculs of sugar covered by the contract of sale
between the parties.
Ruling:
Yes. The issue may be resolved by tile rules on the
interpretation of contracts,.
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The Court laid down cardinal rules in the
interpretation of contracts as provided in the New
Civil Code, thus —
Art. 1370. If the terms of a contract are Clear
and leave no doubt upon the intention of the
contracting parties. the literal meaning of its
stipulation shall control.
If the words appear to be contrary to the
evident intention of the parties, the latter shall
prevail over the former.
Art. 1371. In order to judge the intention. Of
the contracting parties, their
contemporaneous and subsequent acts shall
be principally considered.
Art. 1375. Words which may have different
significations shall be understood in that
which is most in keeping with the nature and
object of the contract.
Art. 1377. The interpretation of obscure
words or stipulations in a contract shall not
favor the party who caused the obscurity.
Considering the admitted fact that the contract of
sale (Exhibit "A") was prepared in the office of
Hind Sugar by Generoso Bongato, Assistant to the
Manager of the company, upon instruction of
General Manager Emiliano L. Abalos who is a
lawyer, and the Court was confronted with the
varying or conflicting interpretations of the
parties thereto, Hind Sugar contending that the
stipulation "Terms: Cash upon signing of this
contract" does not mean that the agreement was
a cash transaction because no money was paid by
the petitioner at the time of the signing
thereof,Lim insists that it was a cash transaction
inasmuch as he paid cash amounting to
P142,975.00 upon the signing of the contract, the
payment having been made at around 1:30 in the
afternoon of November 13, 1970 to the cashier,
Teodoro Garcia, and Manager Abalos although the
sale was agreed to in the morning of the same day,
ARELLANO UNIVERSITY SCHOOL OF LAW
November 13, 1970, the conflicting
interpretations have shrouded the stipulation
with ambiguity or vagueness. Then, the cardinal
rule should and must apply, which is that the
interpretation shall not favor the party who
caused the ambiguity (Art. 1377, New Civil Code).
The Court ruled that in the instant case, the
interpretation to be taken shall not favor the Hind
Sugar since it is the party who caused the
ambiguity in its preparation.
In truth the stipulation in the contract which
reads: "Terms: Cash upon signing of this contract"
is very clear and simple in its meaning, leaving no
doubt in the Court’s minds upon the intention of
the contracting parties, hence, the first rule of
contract interpretation that the literal meaning of
its stipulation shall control, is the governing rule
at hand. Resorting to Webster's Third New
International Dictionary, p. 2515, for the
definition of the word "upon" which literally
means, among others, "10a (1): immediately
following on; very soon after; ... b: on the occasion
of at the time of; ... " the clear import of the
stipulation is that payment was made on the
occasion of or at the time of the signing of the
contract and not that payment will follow the
signing. The Court said that it must adopt the
former meaning because it is such an
interpretation that would most adequately
render the contract effectual, following Article
1373 of the New Civil Code which provides:
Art. 1373. If some stipulation of any contract
should admit of several meanings, it shall be
understood as bearing that import which is
most adequate to render it effectual.
The evidence for the Lim establishes that after
paying the cash consideration to Cashier Garcia
and Manager Abalos, the parties signed the
contract and thereafter a signed copy of said
contract was given to Lim and also the four (4)
delivery orders covering the 4,085 piculs of sugar
sold. The questioned stipulation recites exactly
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the act of payment which is the paying of the

money on the occasion of or at the time of the
signing. Hind Sugar would have the Court
believed that the stipulation does not mean what
it conveys because Lim has not paid cash after the
signing of the contract nor at any time thereafter.
The Court did not agree with Hind Sugar for
otherwise the sanctity of the written contract can
easily be violated and impugned, for otherwise
oral testimony would prevail over a written
document to vary, alter or modify the written
terms, and most importantly, respondent's
interpretation would render the stipulation
ineffectual as a mere agreement.

(Furthermore, the issuance of and delivery to Lim

of the said four delivery orders covering all the
4,085 piculs of sugar placed the control and
possession of the thing sold to the vendee, Lim,
and pursuant to Article 1497 of the New Civil
Code, the sugar sold is understood as delivered to
the Lim. The thing sold shall be understood as
delivered when it is placed in the control and
possession of the vendee. Therefore, when the
thing subject of the sale is placed in the control
and possession of the vendee, delivery is
complete.

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REPUBLIC VS. CASTELLVI
[GR L-20620, 15 August 1974]
Zaldivar (J):
Facts:
The Republic of the Philippines through the
Armed Forced of the Philippines, particularly the
Philippine Air Force occupied the land of Carmen
M. vda. de Castellvi, the judicial administratrix of
the estate of the late Alfonso de Castellvi, from 1
July 1947, by virtue of a contract of lease, on a
year to year basis (from July 1 of each year to June
30 of the succeeding year). Before the expiration
of the contract of lease on 30 June 1956, the
Republic sought to renew the same but Castellvi
refused, informing the latter that the heirs of the
property had decided not to continue leasing the
property in question.
The Chief of Staff refused, saying that it was
difficult for the army to vacate the premises, and
that, there being no other recourse, expropriation
proceedings would be necessary. Castellvi then
brought suit to eject the Philippine Air Force from
the land. While this ejectment case was pending,
the Republic filed on 26 June 1959 complaints for
eminent domain against Castellvi over the 3
parcels of land. For purposes of determining the
amount of just compensation, the Republic
argued that it had taken the property when the
contract of lease commenced and not when the
expropriation proceedings began.
Issue:
Whether or not the taking of the property has
taken place when the Republic has entered and
occupied the property as lessee.
Held:
No, the taking of the property should not be
reckoned as of the year 1947 when the Republic
first occupied the same pursuant to the contract
of lease, and that the just compensation to be paid
for the property should not be determined on the
basis of the value of the property as of that year.
ARELLANO UNIVERSITY SCHOOL OF LAW
Untenable is the Republic’s contention that
although the contract of lease was on a year to
year basis, it was in reality a more or less
permanent right to occupy premises under the
guise of lease with the right and privilege to buy
the property should the lessor wish to terminate
the lease, ... so much so that the fair market value
has been agreed upon, not, as of the time of
purchase, but as of the time of occupancy". The
Court cannot accept the Republic's contention
that a lease on a year to year basis can give rise to
a permanent right to occupy, since by express
legal provision a lease made for a determinate
time, as was the lease of Castellvi's land in the
instant case, ceases upon the day fixed, without
need of a demand (Article 1669, Civil Code). To
sustain the contention of the Republic is to
sanction a practice whereby in order to secure a
low price for a land which the government
intends to expropriate (or would eventually
expropriate) it would first negotiate with the
owner of the land to lease the land (for say ten or
twenty years) then expropriate the same when
the lease is about to terminate, then claim that the
"taking" of the property for the purposes of the
expropriation be reckoned as of the date when
the Government started to occupy the property
under the lease, and then assert that the value of
the property being expropriated be reckoned as
of the start of the lease, in spite of the fact that the
value of the property, for many good reasons, had
in the meantime increased during the period of
the lease.
The Republic's claim that it had the "right and
privilege" to buy the property at the value that it
had at the time when it first occupied the property
as lessee nowhere appears in the lease contract.
What was agreed expressly in paragraph No. 5 of
the lease agreement was that, should the lessor
require the lessee to return the premises in the
same condition as at the time the same was first
occupied by the AFP, the lessee would have the
"right and privilege" (or option) of paying the
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lessor what it would fairly cost to put the

premises in the same condition as it was at the
commencement of the lease, in lieu of the lessee's
performance of the undertaking to put the land in
said condition. The "fair value" at the time of
occupancy, mentioned in the lease agreement,
does not refer to the value of the property if
bought by the lessee, but refers to the cost of
restoring the property in the same condition as of
the time when the lessee took possession of the
property. Such fair value cannot refer to the
purchase price, for purchase was never intended
by the parties to the lease contract. It is a rule in
the interpretation of contracts that "However
general the terms of a contract may be, they shall
not be understood to comprehend things that are
distinct and cases that are different from those
upon which the parties intended to agree" (Art.
1372, Civil Code).

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EASTERN SHIPPING LINES, INC vs. adhesion as embodied in the printed bill of lading
MARGARINE-VERKAUFS-UNION issued by petitioner for the shipment to which
G.R. No. L-31087 September 27, 1979 respondent as the consignee merely adhered,
having no choice in the matter, and consequently,
FACTS: Respondent corporation, a West any ambiguity therein must be construed against
German corporation not engaged in business in petitioner as the author.
the Philippines, was the consignee of 500 long
tons of Philippine copra in bulk with a total value
of US$ 108,750.00 shipped from Cebu City on
board petitioner's (a Philippine corporation)
vessel, the SS "EASTERN PLANET" for discharge
at Hamburg, Germany. Petitioner's bill of lading
for the cargo provided as follows:

... Except as otherwise stated herein

and in - the Charter Party, this
contract shag be governed by the
laws of the Flag of the Ship carrying
the goods. In case of average, same
shall be adjusted according to York-
Antwerp Rules of 1950.

While the vessel was off Gibraltar, a fire broke out

aboard and caused water damage to the copra
shipment in the amount of US$ 591.38. Petitioner
corporation rejected respondent's claim for
payment.
ISSUE: Whether or not petitioner is liable under
the terms of its own bill of lading for the damage
suffered by respondent's copra cargo on board
petitioner's vessel?

RULING: Yes. We hold that the lower court

correctly ruled that the cited codal article (Art.
848, Code of Commerce) to be "not applicable in
this particular case for the reason that the bill of
lading contains "an agreement to the contrary".
There is a clear and irreconcilable inconsistency
between the York-Antwerp Rules expressly
adopted by the parties as their contract under the
bill of lading which sustains respondent's claim
and the codal article cited by petitioner which
would bar the same.

Furthermore, as correctly contended by

respondent, what is here involved is a contract of
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ISIDORA CABALIW VS. SOTERO SADORRA
G.R. No. L-25650 June 11, 1975
FACTS:
Isidora Cabaliw was the wife of Benigno Sadorra
by his second marriage andhad a daughter named
Soledad. During their marriage, the spouses
acquiredtwo (2) parcels of land and one of the
land is issued in the name of Benigno.Having been
abandoned by her husband, Isidora Cabaliw
instituted an actionfor support and was granted.
Unknown to Isidora, Benigno executed two
(2)deeds of sale over the parcels of land to his
son-in-law Sotero.Because of herhusband's
failure to support, she filed a Civil Case and
the Court authorized her to take possession of
the parcels of land in payment for the support.
OnF e b r u a r y 1 , 1 9 4 0 , I s id o r a f il e d w ith
th e C o u r t o f F ir s t I n s ta n c e of
N u e v a Vizcaya Civil Case No. 449 against
herhusband and Sotero Sadorra for
therecovery of the lands in question on the
ground that the sale was fictitious; at the
same time a notice of lis pendens was filed with
the Register of Deedsof Nueva Vizcaya. In May
of 1940, Benigno Sadorra died. On June 7,
1948,the above-mentioned notice of lis pendens
was cancelled by the Register of Deeds of Nueva
Vizcaya upon the filing of an affidavit by
Sotero Sadorra tothe effect that Civil Case
No. 449 had been decided in his favor and
that hewas adjudged the owner of the land.
Isidora filed their counter claim. But theappellate
court dismissed the amended complaint of
Isidora.
ISSUE:
Whether the Honorable Court of Appeals gravely
erred in holding that the fraudcould not be
presumedin the transfer of the lots in question by
the late Benigno Sadorra to his son-in-law Sotero
Sadorra.
HELD:
ARELLANO UNIVERSITY SCHOOL OF LAW
The facts narrated in the first portion of this
Decision which are not disputed, convincingly
show or prove that the conveyances made by
Benigno Sadorra in favor of his son-in-law were
fraudulent. For the heart of the matter is that
about seven months after a judgment was
rendered against him in Civil Case No. 43192 of
the Court of First Instance of Manila and without
paying any part of that judgment, Benigno
Sadorra sold the only two parcels of land
belonging to the conjugal partnership to his son-
in-law. Such a sale even if made for a valuable
consideration is presumed to be in fraud of the
judgment creditor who in this case happens to be
the offended wife.
Article 1297 of the old Civil Code which was the
law in force at the time of the transaction
provides:
Contracts by virtue of which the debtor alienates
property by gratuitous title are presumed to be
made in fraud of creditors.
Alienations by onerous title are also presumed
fraudulent when made by persons against whom
some judgment has been rendered in any instance
or some writ of attachment has been issued. The
decision or attachment need not refer to the
property alienated and need not have been
obtained by the party seeking rescission.
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HONGKONG & SHANGHAI BANKING
CORPORATION vs. RALPH PAULI
G.R. No. L-38303 May 30, 1988
Facts: This appealed case was preceded by three
(3) other cases between the parties, to wit:
1. Civil Case No. 32799 in CFI Manila
On June 14, 1957, HSBC filed a complaint
against Pauli to collect P258,964.15. Judgment
was rendered in favor of HSBC. On appeal,
decision was upheld by the SC on March 31, 1962.
The writs of execution were returned unsatisfied
because there were no leviable assets of Pauli that
could be located. Unknown to HSBC, Pauli
purchased from PNB a sugar cane plantation,
Hacienda Riverside. To avoid discovery of the
transaction by his creditors, he did not register
the Deed of Sale. Six years later, he fraudulently
sold the hacienda to his daughter, defendant-
appellee Sally Garganera, and her husband Mateo
Garganera. The sale was registered on March 5,
1963. TCT was issued to the Garganera spouses.
2. Civil Case No. 626 in CFI Negros Occidental
At the instance of Warner Barnes & Co.,
another creditor of Pauli, the sale to the
Garganera spouses was declared fictitious for
being in fraud of creditors by the CFI of Negros
Occidental on October 15, 1968. The defendants
entered into a compromise agreement with the
Warner Barnes & Co., Ltd., by paying its judgment
credit of P28,962.11. The CA approved the
compromise and dismissed the case,
3. Civil Case No. 75319 in CFI Manila
Having discovered that the sugar
plantation belonged to Pauli, HSBC filed in CFI
Manila a complaint for revival of the 1962
judgment in its favor. A writ of preliminary
attachment was issued against Pauli's, rights,
interests and participation in Hacienda Riverside.
Under the pretext of amicably settling the case,
Pauli postponed hearings to enable the spouses to
ARELLANO UNIVERSITY SCHOOL OF LAW
intervene. Court decreed the revival of judgment.
No appeal was taken.
In the present case before the SC, HSBC
filed a new complaint in the CFI of Negros
Occidental to annul the Conditional Sale and Deed
of Sale of Hacienda Riverside to the Garganera
spouses and to annul TCT. Pauli and spouses filed
a Motion to Dismiss on the grounds of res
judicata, prescription, waiver and abandonment
of claim. The lower court granted the Motion to
Dismiss.
Issue: Whether or not the trial court erred in
dismissing the case? No.
(Has the action for annulment of the sale
to the Garganeras prescribed? Did prescription of
the action commence to run from the registration
of the sale, or from the discovery of the
transaction by the Bank?)
Ruling:
When a transaction involves registered
land, the four-year period fixed in Article 1391
within which to bring an action for annulment of
the deed, shall be computed from the registration
of the conveyance (March 5, 1963) on the familiar
theory that the registration of the document is
constructive notice of the conveyance to the
whole world.
Plaintiff's submission that the four-year
period commenced to run from the date when the
Bank obtained actual knowledge of the fraudulent
sale of Pauli's land to the Garganeras (sometime
in 1969) and that hence the four-year period for
bringing an action to annul the sale had not yet
expired when it filed the action for annullment on
February 17, 1971, is unacceptable. That theory
would diminish public faith in the integrity of
torrens titles and impair commercial transactions
involving registered lands for it would render
uncertain the computation of the period for the
prescription of such actions.
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Civil Case No. 465, the action for

annulment of the Sale is not barred by res
judicata, specifically, the prior judgment in Civil
Case No. 75319, for revival of the judgment in the
collection suit, Civil Case No. 32799, for the
subject matter and causes of action in the two
cases are different. The three (3) Identities
required for the application of the bar by prior
judgment: Identity of parties, of subject matter
and causes of action, are lacking.

Nevertheless, as the plaintiff's right of

action in Civil Case No. 465 had already
prescribed, the trial court did not err in
dismissing the case.

WHEREFORE, finding no reversible error

in the order dated June 15, 1971 of the trial court
dismissing Civil Case No. 465, the same is hereby
affirmed. SO ORDERED.

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FELIPE vs. HEIRS OF MAXIMO ALDON
FACTS:
Maximo Aldon married Gimena Almosara in
1936. They bought several pieces of land
sometime between 1948 and 1950. In 1951,
Gimena Almosara sold the lots to the spouses
Eduardo Felipe and Hermogena V. Felipe. The sale
was made without the consent of her husband.
On April 26, 1976, the heirs of Maximo Aldon,
namely his widow Gimena and their children
Sofia and Salvador Aldon filed a complaint that
alleged that the plaintiffs were the owners of Lots
1370, 1371 and 1415; that they had orally
mortgaged the same to the defendants; and an
offer to redeem the mortgage had been refused so
they filed the complaint in order to recover the
three parcels of land.
The trial court sustained the claim of the
defendants and rendered judgment in favor of
Spouses Felipe as lawful owners. The Court of
Appeals set aside the decision of CFI declaring the
parcels ‘were purchased by plaintiff Gimena
Almosara and her late husband Maximo Aldon’
(the lots having been purchased during the
existence of the marriage, the same are presumed
conjugal) and inferentially, by force of law, could
not, be disposed of by a wife without her
husband’s consent. Hence this petition.
ISSUE: WON the sale made by Gimena is a
defective contract but of what category?
HELD: It is a voidable contract. According to Art.
1390 of the Civil Code, among the voidable
contracts are “[T]hose where one of the parties is
incapable of giving consent to the contract.” (Par.
1.) In the instant case-Gimena had no capacity to
give consent to the contract of sale. The capacity
to give consent belonged not even to the husband
alone but to both spouses.
ARELLANO UNIVERSITY SCHOOL OF LAW
The case of Sofia and Salvador Aldon is different.
After the death of Maximo they acquired the right
to question the defective contract insofar as it
deprived them of their hereditary rights in their
father’s share in the lands. The father’s share is
one-half (1/2) of the lands and their share is two-
thirds (2/3) thereof, one-third (1/3) pertaining to
the widow.
The petitioners have been in possession of the
lands since 1951. It was only in 1976 when the
respondents filed action to recover the lands. In
the meantime, Maximo Aldon died.
As to the second question, the children’s cause of
action accrued from the death of their father in
1959 and they had thirty (30) years to institute it
(Art. 1141, Civil Code.) They filed action in 1976
which is well within the period.
WHEREFORE, the decision of the Court of Appeals
is hereby modified. Judgment is entered awarding
to Sofia and Salvador Aldon their shares of the
lands as stated in the body of this decision; and
the petitioners as possessors in bad faith shall
make an accounting of the fruits corresponding to
the share aforementioned from 1959 and
solidarity pay their value to Sofia and Salvador
Aldon; costs against the petitioners.
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HOUSE INTERNATIONAL VS IAC
GR No. 75287; June 30, 1987
FACTS:
Petitioner constitutes the great majority of more
than a hundred heads of families who are tenants
of long and good standing of the 14-storey House
International Building located at 777 Ongpin
Street, Binondo, Manila. The land and the
improvements thereon were formerly owned by
Atty. Felipe Ang who mortgaged the same to the
Government Service Insurance System
(hereinafter referred to as GSIS) to secure
payment of an obligation. After foreclosure of the
mortgage and for failure of Ang to exercise his
right of redemption over the foreclosed property,
the ownership thereof was consolidated with the
GSIS which subsequently sold it to Centertown
Marketing Corporation (CENTERTOWN, for
short) in a deed of conditional sale, without notice
to the tenants of the building and without
securing the prior clearance of the then Ministry
of Human Settlements.
As CENTERTOWN was not authorized by its
Articles of Incorporation to engage in the real
estate business, it organized a sister corporation,
with almost an the same incorporators and
stockholders, as CENTERTOWN'S, under the
corporate name of Manila Towers Development
Corporation (TOWERS, for short) for the primary
purpose of engaging in the real estate business.
Subsequently, CENTERTOWN assigned to its
sister corporation TOWERS all its rights and
obligations under the Deed of Conditional Sale,
with the consent and approval of the GSIS.
Thereafter, herein petitioner filed a complaint
with the Regional Trial Court of Manila against
CENTERTOWN, TOWERS and GSIS for annulment
of the deed of conditional sale and the subsequent
assignment thereof by CENTERTOWN to
TOWERS. The complaint alleged in part that the
Deed of Conditional Sale is null and void ab initio
for being ultra vires, since defendant
ARELLANO UNIVERSITY SCHOOL OF LAW
CENTERTOWN is not qualified to acquire real
estate property or to engage in real estate
transactions.
The court dismissed the complaint. Petitioner
appealed to the Court of Appeals after its motion
for reconsideration was denied by the trial court.
The order of dismissal was affirmed by the
appellate court
ISSUE:
Whether or not petitioner has cause of action on
the grounds that petitioner is not a party to the
contract.
RULING:
Petitioner has no cause of action. We agree with
the Court of Appeals that on this issues the
provision of Art. 1397 of the Civil Code is in point,
thus:
Art. 1397. The action for the annulment of
contracts may be instituted by all who are thereby
obliged principally or subsidiarily.
Petitioner is neither a party nor a privy to the
Deed of Conditional Sale and the assignment
thereof: thus, it cannot assail the validity of the
said contracts. In Ibañez vs. Hongkong and
Shanghai Bank:
From these legal provisions it is deduced that it is
the interest had in a given contract, that is the
determining reason of the right which lies in favor
of the party obligated principally or subsidiarily
to enable him to bring an action for the nullity of
the contract in which he intervened, and,
therefore, he who has no right in a contract is not
entitled to prosecute an action for nullity, for,
according to the precedents established by the
courts, the person who is not a party to a contract,
nor has any cause of action or representation
from those who intervened therein, is manifestly
without right of action and personality such as to
enable him to assail the validity of the contract.
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In the decision sought to be reviewed the court

agrees with the decision of the Court of Appeals
that:

The corollary issue is whether appellant has the

personality to assail the validity of the conditional
sale and its assignment. The answer is partly
supplied by the above discussion: further
arguments against the appellant are the
provisions of the Civil Code which say that
contracts take effect only between parties (Art.
131 1) hence the action for their annulment may
be instituted only by those who are thereby
obliged principally or subsidiarily (Art. 1397).
Appellant is not privy to either the deed of
conditional sale or the assignment. (Decision of
Court of Appeals, p. 3).

WHEREFORE, the petition is DENIED, with costs

against the petitioner.

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ORTEGA VS LEONARD of realty will not apply. Some circumstances

G.R. No. L-11311 May 28, 1958 indicating partial performance of an oral contract
of sale of realty are: relinquishment of rights,
FACTS: continued possession, building of improvements,
Maria Ortega averred that long before and until tender of payment rendition of services, payment
her house has been completely destroyed during of taxes, surveying of the land at the vendee's
the liberation of the City of Manila, she occupied expense, etc.
Lot 1, Block 3. Located at San Andres Street,
Malate, Manila. After the liberation, she re-
occupied it but Daniel Leonardo asserted that he
too had a right to a portion of the land. During the
occupation, Leonardo asked Ortega to desist from
pressing claims and he promised her if he
succeeded in getting the title to Lot 1, he would
sell her a portion thereof with an area of 55.60
square meters, at P25.00 per square meter. In
return, Ortega would pay for surveying and
subdivision of the lot and should continue holding
the lot by paying a monthly rental of P10 until said
portion has been segregated and the purchase
price fully paid. Ortega accepted the agreement
and desisted from further claims. Defendant
acquired the title and in return plaintiff caused
the survey and segregation of the portion which
defendant promised to sell. She also had a
subdivision plan, her lot known as 1B; had her
son’s house remodelled and it extended over said
lot; and tendered to defendant full purchase price
on July 1954. However, defendant refused to
accept payment. The lower court ruled that oral
agreement to sell is not enforceable. But the
plaintiff argued that the contract was already
partially performed due to the promise of
defendant, hence enforceable.

ISSUE:
Whether or not the contract entered into by the
parties is unforceable?

HELD:
The Supreme Court held that while, as a general
rule, an oral agreement to sell a piece of land is
not provable, however, where there is partial
performance of the sale contract, the principle
excluding evidence of parol contracts for the sale

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CARBONEL VS PONCIO
G.R. No. L-29972 January 26, 1976
FACTS:
On January 27, 1955, respondent Jose Poncio
executed a private memorandum of sale of his
parcel of land with improvements situated in San
Juan, Rizal in favor of petitioner Rosario Carbonell
who knew that the said property was at that time
subject to a mortgage in favor of the Republic
Savings Bank (RSB) for the sum of P1,500.00.
Four days later, Poncio, in another private
memorandum, bound himself to sell the same
property for an improved price to one Emma
Infante for the sum of P2,357.52, with the latter
still assuming the existing mortgage debt in favor
of the RSB in the amount of P1,177.48. Thus, in
February 2, Poncio executed a formal registerable
deed of sale in her (Infante's) favor. So, when the
first buyer Carbonell saw the seller Poncio a few
days afterwards, bringing the formal deed of sale
for the latter's signature and the balance of the
agreed cash payment, she was told that he could
no longer proceed with formalizing the contract
with her (Carbonell) because he had already
formalized a sales contract in favor of Infante.
To protect her legal rights as the first buyer,
Carbonell registered on February 8, 1955 with the
Register of Deeds her adverse claim as first buyer
entitled to the property. Meanwhile, Infante, the
second buyer, was able to register the sale in her
favor only on February 12, 1955, so that the
transfer certificate of title issued in her name
carried the duly annotated adverse claim of
Carbonell as the first buyer. The trial court
declared the claim of the second buyer Infante to
be superior to that of the first buyer Carbonell, a
decision which the Court of Appeals reversed.
Upon motion for reconsideration, however, Court
of Appeals annulled and set aside its first decision
and affirmed the trial court’s decision.
ARELLANO UNIVERSITY SCHOOL OF LAW
ISSUE:
Who has the superior right over the subject
property?
RULING:
The Supreme Court reversed the appellate court’s
decision and declared the first buyer Carbonell to
have the superior right over the subject property,
relying on Article 1544 of the Civil Code. Unlike
the first and third paragraphs of said Article 1544,
which accord preference to the one who first
takes possession in good faith of personal or real
property, the second paragraph directs that
ownership of immovable property should be
recognized in favor of one "who in good faith first
recorded" his right. Under the first and third
paragraphs, good faith must characterize the
prior possession, while under the second
paragraph, good faith must characterize the act of
anterior registration.
When Carbonell bought the lot from Poncio on
January 27, 1955, she was the only buyer thereof
and the title of Poncio was still in his name solely
encumbered by bank mortgage duly annotated
thereon. Carbonell was not aware - and she could
not have been aware - of any sale to Infante as
there was no such sale to Infante then. Hence,
Carbonell's prior purchase of the land was made
in good faith which did not cease after Poncio told
her on January 31, 1955 of his second sale of the
same lot to Infante. Carbonell wanted to meet
Infante but the latter refused so to protect her
legal rights, Carbonell registered her adverse
claim on February 8, 1955. Under the
circumstances, this recording of Carbonell’s
adverse claim should be deemed to have been
done in good faith and should emphasize Infante's
bad faith when the latter registered her deed of
sale 4 days later.
BABAO VS PEREZ
GR No. L-8334; December 28, 1957
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find unnecessary to discuss the other issues

FACTS: raised in appellants' brief.
Santiago Babao married the niece of Celestina
Perez. In 1924, Santi and Celestina allegedly had a The case is dismissed, with costs against appellee.
verbal agreement where Santi was bound to
improve the land of Celestina by leveling, clearing,
planting fruits and other crops; that he will act as
the administrator of the land; that all expenses for
labor and materials will be at his cost, in
consideration of which Celestina in turn bound
herself to convey to Santi or his wife ½ of the land
with all the improvements after the death of
Celestina. But, shortly before Celestina’s death,
she sold the land to another party. Thus, the
administratrix of the estate of the deceased
Santiago Babao filed a complaint alleging the sale
of the land as fraudulent and fictitious and prays
to recover the ½ land or the expenses he incurred
in improving the land.

ISSUE:
Whether or not the verbal agreement falls within
the Stature of Frauds

RULING:
Contracts which by their terms are not to be
performed within one year, may be taken out of
the statute through performance by one party
thereto. All that is required in such case is
complete performance within the year by one
party, however many tears may have to elapse
before the agreement is performed by the other
party. But nothing less than full performance by
one party will suffice, and it has been held that, if
anything remains to be done after the expiration
of the year besides the mere payment of money,
the statute will apply. It is not therefore correct to
state that Santiago Babao has fully complied with
his part within the year from the alleged contract
in question.

Having reached the conclusion that all the parol

evidence of appellee was submitted in violation of
the Statute of Frauds, or of the rule which
prohibits testimony against deceased persons, we

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CABAGUE VS. AUXILIO
G.R. No. L-5028. November 26, 1952
FACTS:
In the justice of the peace of court of Basud,
Camarines Norte, Felipe Cabague and his son
Geronimo sued the defendant Matias Auxilio and
his daughter Socorro to recover damages
resulting from defendants’ refusal to carry out the
previously agreed marriage between Socorro and
Geronimo. Alleging:
(a) that defendants promised such marriage to
plaintiffs, provided the latter would improve the
defendants’ house in Basud and spend for the
wedding feast and the needs of the bride;
(b) that relying upon such promises plaintiffs
made the improvement and spent P700; and
(c) that without cause defendants refused to
honor their pledged word.
This is such action, and evidence of such mutual
promise is admissible. However Felipe Cabague’s
action may not prosper, because it is to enforce an
agreement in consideration of marriage.
Evidently as to Felipe Cabague and Matias Auxilio
this action could not be maintained on the theory
of "mutual promise to marry." Neither may it be
regarded as action by Felipe against Socorro "on
a mutual promise to marry."
Consequently, we declare that Geronimo may
continue his action against Socorro for such
damages as may have resulted from her failure to
carry out their mutual matrimonial promises.

The defendants arguing that the contract was

oral, unenforceable under the rule of evidence
hereinbefore mentioned. And the court dismissed
the case.

ISSUE:
Whether or not the contract of promise to marry
is unenforceable, on the ground that it is an oral
contract?

RULING:
This is in the Negative. There is no question here
that the transaction was not in writing. The only
issue is whether it may be proved in court.

The understanding between the plaintiffs on one

side and the defendants on the other, really
involves two kinds of agreement. One, the
agreement between Felipe Cabague and the
defendants in consideration of the marriage of
Socorro and Geronimo. Another, the agreement
between the two lovers, as "a mutual promise to
marry." For breach of that mutual promise to
marry, Geronimo may sue Socorro for damages.

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SUGA SOTTO YUVIENCO VS HON. AUXENCIO C.
DACUYCUY
G.R. No. L-55048 May 27, 1981, SECOND
DIVISION; BARREDO, J.:
FACTS:
In essence, the theory of petitioners is that while
it is true that they did express willingness to sell
to private respondents the subject property (land
and building) for P6,500,000.00 provided the
latter made known their own decision to buy it
not later than July 31, 1978, the respondents'
reply that they were agreeable was not absolute,
so much so that when ultimately petitioners'
representative went to Cebu City with a prepared
and duly signed contract for the purpose of
perfecting and consummating the transaction,
respondents and said representative found
variance between the terms of payment
stipulated in the prepared document and what
respondents had in mind, hence the bank draft
which respondents were delivering to the
representative was returned and the document
remained unsigned by respondents.
The respondents, in their complaint, contended
“That on August 1, 1978 Pedro Gamboa arrived
Tacloban City bringing with him the prepared
contract to purchase and to sell referred to in his
telegram dated July 27, 1978 for the purpose of
closing the transactions referred to in paragraphs
8 and 9 hereof, however, to the complete surprise
of plaintiffs, the defendant without giving notice
to plaintiffs, changed the mode of payment with
respect to the balance of P4,500,000.00 by
imposing upon plaintiffs to pay same amount
within thirty (30) days from execution of the
contract instead of the former term of ninety (90)
days.”
ISSUE:
Whether or not the plaintiffs have alleged facts
adequately showing the existence of a perfected
contract of sale between herein petitioners and
ARELLANO UNIVERSITY SCHOOL OF LAW
the occupant represented by respondent Yao
King Ong.
RULING:
In this respect, the governing legal provision is, of
course, Article 1319 of the Civil Code which
provides:
ART. 1319. Consent is manifested by the meeting
of the offer and the acceptance upon the thing and
the cause which are constitute the contract. The
offer must be certain the acceptance absolute. A
qualified acceptance constitute a counter-offer.
Acceptance made by letter or telegram does not
bind offerer except from the time it came to his
knowledge. The contract, in a case, is presumed to
have been entered into in the place where the
offer was made.
In the instant case, We can lay aside, for the
moment, petitioners' contention that the letter of
July 12, 1978 of Atty. Pedro C. Gamboa to
respondents Yao King Ong and his companions
constitute an offer that is "certain", although the
petitioners claim that it was a mere expression of
willingness to sell the subject property and not a
direct offer of sale to said respondents. What We
consider as more important and truly decisive is
what is the correct juridical significance of the
telegram of respondents instructing Atty.
Gamboa to "proceed to Tacloban
to negotiate details." We underline the word
"negotiate" advisedly because to Our mind it is
the key word that negates and makes it legally
impossible for Us to hold that respondents'
acceptance of petitioners' offer, assuming that it
was a "certain" offer indeed, was the "absolute"
one that Article 1319 above-quoted requires.
Dictionally, the implication of "to negotiate" is
practically the opposite of the Idea that an
agreement has been reached. Webster's Third
International Dictionary, Vol. II (G. & C. Merriam
Co., 1971 Philippine copyright) gives the meaning
of negotiate as "to communicate or confer with
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another so as to arrive at the settlement of some
matter; meet with another so as to arrive through
discussion at some kind of agreement or
compromise about something; — to arrange for
or bring about through conference or discussion;
work at or arrive at or settle upon by meetings
and agreements or compromises — ".
Importantly, it must be borne in mind that Yao
King Ong's telegram simply says "we agree to buy
property". It does not necessarily connote
acceptance of the price but instead suggests that
the details were to be subject of negotiation.On
the other score of considering the supposed
agreement of paying installments as partly
supported by the letter and the telegram earlier
quoted herein, His Honor declared with well
studied ratiocination, albeit legally inaccurate,
that:
The next issue relate to the State of Frauds. It is
contended that plaintiffs' action for specific
performance to compel the defendants to execute
a good and sufficient conveyance of the property
in question (Sotto land and building) is
unenforceable because there is no other note
memorandum or writing except annexes "C", "C-
l" and "D", which by themselves did not give birth
to a contract to sell. The argument is not well
founded. The rules of pleading limit the statement
of the cause of action only to such operative facts
as give rise to the right of action of the plaintiff to
obtain relief against the wrongdoer. The details of
probative matter or particulars of evidence,
statements of law, inferences and arguments
need not be stated. Thus, Sec. 1 of Rule 8 provides
that 'every pleading shall contain in a methodical
and logical form, a plain concise and direct
statement of the ultimate facts on which the party
pleading relies for his claim or defense, as the case
may be, omitting the statement of mere
evidentiary facts.' Exhibits need not be attached.
The contract of sale sued upon in this case is
supported by letters and telegrams annexed to
the complaint and plaintiffs have announced that
they will present additional evidences during the
ARELLANO UNIVERSITY SCHOOL OF LAW
trial to prove their cause of action. The plaintiffs
having alleged that the contract is backed up by
letters and telegrams, and the same being
sufficient memorandum, the complaint states a
cause of action and they should be given their day
in court and allowed to substantiate their
allegations (Parades vs. Espino, 22 SCRA 1000).
(Pp 165-166, Record.)
The foregoing disquisition of respondent judge
misses at least two (2) juridical substantive
aspects of the Statute of Frauds insofar as sale of
real property is concerned. First, His Honor
assumed that the requirement of perfection of
such kind of contract under Article 1475 of the
Civil Code which provides that "(t)he contract of
sale is perfected at the moment there is a meeting
of the minds upon the thing which is the object of
the contract and upon the price", the Statute
would no longer apply as long as the total price or
consideration is mentioned in some note or
memorandum and there is no need of any
indication of the manner in which such total price
is to be paid.
We cannot agree. In the reality of the economic
world and the exacting demands of business
interests monetary in character, payment on
installments or staggered payment of the total
price is entirely a different matter from cash
payment, considering the unpredictable trends in
the sudden fluctuation of the rate of interest. In
other words, it is indisputable that the value of
money - varies from day to day, hence the
indispensability of providing in any sale of the
terms of payment when not expressly or
impliedly intended to be in cash.
Thus, We hold that in any sale of real property on
installments, the Statute of Frauds read together
with the perfection requirements of Article 1475
of the Civil Code must be understood and applied
in the sense that the idea of payment on
installments must be in the requisite of a note or
memorandum therein contemplated. Stated
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otherwise, the inessential elements" mentioned
in the case of Parades vs. Espino, 22 SCRA 1000,
relied upon by respondent judge must be deemed
to include the requirement just discussed when it
comes to installment sales. There is nothing in the
monograph re — the Statute of Frauds appearing
in 21 SCRA 250 also cited by His Honor indicative
of any contrary view to this ruling of Ours, for the
essence and thrust of the said monograph refers
only to the form of the note or memorandum
which would comply with the Statute, and no
doubt, while such note or memorandum need not
be in one single document or writing and it can be
in just sufficiently implicit tenor, imperatively the
separate notes must, when put together', contain
all the requisites of a perfected contract of sale. To
put it the other way, under the Statute of Frauds,
the contents of the note or memorandum,
whether in one writing or in separate ones merely
indicative for an adequate understanding of all
the essential elements of the entire agreement,
may be said to be the contract itself, except as to
the form.
Secondly, We are of the considered opinion that
under the rules on proper pleading, the ruling of
the trial court that, even if the allegation of the
existence of a sale of real property in a complaint
is challenged as barred from enforceability by the
Statute of Frauds, the plaintiff may simply say
there are documents, notes or memoranda
without either quoting them in or annexing them
to the complaint, as if holding an ace in the sleeves
is not correct. To go directly to the point, for Us to
sanction such a procedure is to tolerate and even
encourage undue delay in litigation, for the simple
reason that to await the stage of trial for the
showing or presentation of the requisite
documentary proof when it already exists and is
asked to be produced by the adverse party would
amount to unnecessarily postponing, with the
concomitant waste of time and the prolongation
of the proceedings, something that can
immediately be evidenced and thereby
ARELLANO UNIVERSITY SCHOOL OF LAW
determinable with decisiveness and precision by
the court without further delay.
In this connection, Moran observes that unlike
when the ground of dismissal alleged is failure of
the complaint to state a cause of action, a motion
to dismiss invoking the Statute of Frauds may be
filed even if the absence of compliance does not
appear an the face of the complaint. Such absence
may be the subject of proof in the motion stage of
the proceedings. (Moran, Comment on the Rules
of Court, Vol. 1, p. 494, 1979 ed.) It follows then
that when such a motion is filed and all the
documents available to movant are before the
court, and they are insufficient to comply with the
Statute, it becomes incumbent upon the plaintiff,
for the reasons of policy We have just' indicated
regarding speedy administration of justice, to
bring out what note or memorandum still exists
in his possession in order to enable the court to
expeditiously determine then and there the need
for further proceedings. In other words, it would
be inimical to the public interests in speedy
justice for plaintiff to play hide and seek at his
own convenience, particularly, when, as is quite
apparent as in the instant case that chances are
that there are no more writings, notes or
memoranda of the installment agreement alleged
by respondents. We cannot divine any reason
why any such document would be withheld if they
existed, except the unpermissible desire of the
respondents to force the petitioners to undergo
the ordeals, time, effort and expenses of a futile
trial.
In the foregoing premises, We find no alternative
than to render judgment in favor of petitioners in
this certiorari and prohibition case. If at all,
appeal could be available if the petitioners
subjected themselves to the trial ruled to be held
by the trial court. We foresee even at this point,
on the basis of what is both extant and implicit in
the records, that no different result can be
probable. We consider it as sufficiently a grave
abuse of discretion warranting the special civil
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actions herein the failure of respondent judge to

properly apply the laws on perfection of contracts
in relation to the Statute of Frauds and the
pertinent rules of pleading and practice, as We
have discussed above.

ACCORDINGLY, the impugned orders of

respondent judge of November 2, 1978 and
August 29, 1980 are hereby set aside and private
respondents' amended complaint, Annex A of the
petition, is hereby ordered dismissed and the
restraining order heretofore issued by this Court
on October 7, 1980 is declared permanent. Costs
against respondents.

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CLARIN VS RULONA
G.R. No. L-30786. February 20, 1984
This is a petition for review on certiorari of the
CA decision that there was a perfected contract
of sale between the CLARIN and RULONA with
regard to the disputed land.
Spouses RULONA purchased 10 hectares of land
from CLARIN. The sale was evidenced by 2
documents executed by CLARIN.
However, RULONA later filed a complaint for
specific performance and recovery of
improvements on the ground that CLARIN and his
wife violated the terms of the agreement of sale
"by returning by their own volition and without
the consent of plaintiff, the amount of P1,100.00
in six postal money orders, covering the
downpayment of P1,000.00 and first installment
of P100.00."
CLARIN, on the other hand, admitted the sale but
contended that such was subject to the following
conditions:
(1) that the contract would be realized only if his
co-heirs would give their consent to the sale of a
specific portion of their common inheritance from
the late Aniceto Clarin before partition of the said
common property and
(2) that should his co-heirs refuse to give their
consent, the projected contract would be
discontinued or would not be realized.
CLARIN further contended that the respondent
knew fully well the above terms and accepted
them as conditions precedent to the perfection or
consummation of the contract; that respondent
delivered the amount of P1,000.00 as earnest
money, subject to the above conditions and that
the amount was returned by the petitioner upon
his learning definitely that his co-heirs and co-
owners refused to give their consent to the
projected sale.
ARELLANO UNIVERSITY SCHOOL OF LAW
Trial court rendered judgment in favor of
RULONA, ruling that there was a perfected
contract of sale, the same being a pure sale and
not subject to condition.
Aggrieved, CLARIN appealed to the CA,
contending, among others, that Exhibit A was a
mere authority to survey. It is not addressed to
any definite party, it does not contain the proper
heading, there is no statement of the manner of
paying the purchase price, no personal
circumstances of the parties, and it is not
notarized.
On appeal, the CA affirmed the trial court
decision, ruling that a contract to be binding upon
the contracting parties need not be notarized.
Neither should it specify the manner of payment
of the consideration nor should it specify the
manner of payment of the consideration nor
should it contain the proper heading."
Hence, this petition for review on certiorari
before the SC, wherein CLARIN alleged, aside
from the above contention, that assuming there
was indeed a perfected contract of sale, the two
documents introduced in evidence could not
effectively convey title to the land because they
were not public documents.
ISSUE:
Whether the documents executed by CLARIN are
not valid and enforceable contracts of sale and as
such, cannot convey title of the disputed land to
RULONA
RULING:
The petitioner’s contentions are without merit.
While it is true that Exhibits A and B are, in
themselves, not contracts of sale, they are,
however, clear evidence that a contract of sale
was perfected between the petitioner and the
respondent and that such contract had already
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been partially fulfilled and executed. A contract

of sale is perfected at the moment there is a
meeting of minds upon the thing which is the
object of the contract and upon the price.
(Article 1475, Civil Code; Phil. Virginia Tobacco
Administration v. De los Angeles, 87 SCRA 210).
Such contract is binding in whatever form it
may have been entered into. (Lopez v. Auditor
General, 20 SCRA 655).

Construing Exhibits A and B together, it can be

seen that the petitioner agreed to sell and the
respondent agreed to buy a definite object,
that is, ten hectares of land which is part and
parcel of Lot 20 PLD No. 4, owned in common by
the petitioner and his sisters although the
boundaries of the ten hectares would be
delineated at a later date. The parties also
agreed on a definite price which is P2,500.00.
Exhibit B further shows that the petitioner has
received from the respondent as initial payment,
the amount of P800.00. Hence, it cannot be denied
that there was a perfected contract of sale
between the parties and that such contract
was already partially executed when the
petitioner received the initial payment of
P800.00. The latter’s acceptance of the
payment clearly showed his consent to the
contract thereby precluding him from
rejecting its binding effect. (See Federation of
United Namarco Distributors, Inc. v. National
Marketing Corporation, 4 SCRA 884). With the
contract being partially executed, the same is no
longer covered by the requirements of the Statute
of Frauds in order to be enforceable. (See Khan v.
Asuncion, 19 SCRA 996). Therefore, with the
contract being valid and enforceable, the
petitioner cannot avoid his obligation by
interposing that Exhibit A is not a public
document. On the contrary, under Article 1357 of
the Civil Code, the petitioner can even be
compelled by the respondent to execute a public
document to embody their valid and enforceable
contract. XXX

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BISAYA LAND TRANSPORTATION CO., INC., VS
MARCIANO C. SANCHEZ
G.R. No. 74623 August 31, 1987
Topic: Unenforceable contract:
What is the status of a Contract which a Receiver
entered into without the approval of the court
which appointed him receiver?
Unenforceable.
Paragraph 1. Article 1403 of the Civil Code
provides that contracts "entered into in the name
of another person by one who has been given no
authority or legal representation, or who has
acted beyond his powers" are unenforceable,
unless they are ratified.
Facts:
Petitioner Bisaya Land Transportation Company,
Inc. (BISTRANCO, for short) has been engaged in
the shipping business. As early as 1954, private
respondent Marciano Sanchez was an employee
of BISTRANCO, specifically, a quartermaster in
one of its vessels, In 1959, he ceased to be an
employee as he engaged in stevedoring services
in the port of Butuan City and rendered
steverdoring services for the vessels of
BISTRANCO. When BISTRANCO was under
receivership, Sanchez was appointed by its
Receiver, Atty. Adolfo V. Amor, as acting shipping
agent, also for M/V Doña Remedies, in addition to
M/V Doña Filomena, in the port of Butuan City.
After Sanchez found that Paragraph 16 of the
Contract of agency was quite prejudicial to him,
he executed with BISTRANCO a Supplemental
Shipping Agency Contract. By virtue of the
Contract of Agency and the Supplemental
Shipping Agency Contract Sanchez performed his
duties as shipping agent of BISTRANCO, and he
received his corresponding commissions as such
shipping agent.
While the shipping business of BISTRANCO in
Butuan City flourished, evidently to the mutual
ARELLANO UNIVERSITY SCHOOL OF LAW
benefit of both parties, on 26 December 1979, co-
petitioner Benjamin G. Roa, as Executive Vice-
President of BISTRANCO, wrote Sanchez a
letter advising him that, effective 1 January 1980,
BISTRANCO would commence operating its
branch office in Butuan City.
Pursuant to the letter (Exhibit "FF"), BISTRANCO
actually opened and operated a branch office in
Butuan City on 15 January 1980. BISTRANCO
through its new representative contacted the
shippers in Butuan City and neighboring towns,
advising them to transact their business directly
with its new branch office in Butuan City. Under
these circumstances, the business of Sanchez, as
shipping agent of BISTRANCO in Butuan City, was
seriously impaired and undermined He could not
solicit as many passengers as he used to, because
the passenger tickets issued to him by
BISTRANCO were limited. The cargoes solicited
by Sanchez were loaded on a "chance basis"
because those that were solicited by the branch
office were given priority.
Realizing that the letter, marked as Exhibit "FF",
was in effect a repudiation of the Contracts,
Sanchez filed an action for specific performance
with preliminary injunction and damages with
the Regional Trial Court of Cebu City.
Question: What then is the status of the Contracts
which Receiver Amor entered into with Sanchez,
without the approval of the court which
appointed him receiver?
The petitioners allege in their
Memorandum submitted to this Court that they
are void contracts under Article 1409(l) of the
Civil Code, whereas, in their Petition, they
labelled the contracts as unenforceable under
Article 1403(l) of the Civil Code.
ISSUE: Whether or not the contract entered with
Sanchez by Amor is an unenforceable contract.
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HELD:
In the case at bar, it is undisputed that Atty. Adolfo
Amor was entrusted, as receiver, with the
administration of BISTRANCO and it business. But
the act of entering into a contract is one which
requires the authorization of the court which
appointed him receiver. Consequently, the
questioned Contracts can rightfully be classified
as unenforceable for having been entered into by
one who had acted beyond his powers, due to
Receiver Amor's failure to secure the court's
approval of said Contracts.

The petitioners allege that the Contracts are void,

citing Article 1409(l) of the Civil Code which
provides that contracts whose cause, object or
purpose is contrary to law, morals, good customs,
public order or public policy, are inexistent and
void from the beginning. In the case at bar, the
contracts of agency were entered into for the
management and operation of BISTRANCO's
business in Butuan City. Said Contracts
necessarily imposed obligations and liabilities on
the contracting parties, thereby affecting the
disposition of the assets and business of the
company under receivership. But a perusal of the
Contracts in question would show that there is
nothing in their cause, object or purpose which
renders them void. The purpose of the Contracts
was to create an agency for BISTRANCO with
Marciano Sanchez as its agent in Butuan City.
Even as to the other provisions of the Contracts,
there is nothing in their cause or object which can
be said as contrary to law, morals, good customs,
public order or public policy so as to render them
void.

On the other hand, paragraph 1. Article 1403 of

the Civil Code provides that contracts "entered
into in the name of another person by one who
has been given no authority or legal
representation, or who has acted beyond his
powers" are unenforceable, unless they are
ratified.

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CLEMENTE VS CA
G.R. No. 175483; October 14, 2015
FACTS:
Adela owned three (3) adjoining parcels of land in
Scout Ojeda Street, Diliman, Quezon City. Among
the improvements on the Properties was Adela's
house. During her lifetime, Adela allowed her
children and her grandchildren, the use and
possession of the Properties and its
improvements.
Adela simulated the transfer of Lots 32 and Lot 34
to her two grandsons. Lot 35-B remained with
Adela. It is undisputed that the transfers were
never intended to vest title to Carlos Jr. and
Dennis who both will return the lots to Adela
when requested.
Prior to Adela and petitioner's departure for the
United States, Adela requested Carlos Jr. and
Dennis to execute a deed of reconveyance over
Lots 32 and 34. The deed of reconveyance was
executed on the same day and was registered
with the Registry of Deeds.
Adela executed a deed of absolute sale over Lots
32 and 34, and their improvements, in favor of
petitioner, bearing on its face the price of
P250,000.00. On the same day, Adela also
executed a special power of attorney (SPA) in
favor of petitioner. Petitioner's authority under
the SPA included the power to administer, take
charge and manage, for Adela's benefit, the
Properties and all her other real and personal
properties in the Philippines. The deed of
absolute sale and the SPA were notarized on the
same day.
Adela and petitioner left for the United
States. When petitioner returned to the
Philippines, she registered the sale over Lots 32
and 34 with the Registry of Deeds. Adela died in
the United States and was succeeded by her four
children.
ARELLANO UNIVERSITY SCHOOL OF LAW
Soon thereafter, petitioner sought to eject Annie
and Carlos Sr., who were then staying on the
Properties. Only then did Annie and Carlos Sr.
learn of the transfer of titles to petitioner. Thus,
Annie, Carlos Sr. and Anselmo filed a complaint
for reconveyance of property against petitioner.
In the course of the trial, private respondents
discovered that Adela and petitioner executed
another deed of absolute sale over Lot 35-B
bearing on its face the price of F60,000.00. Thus,
private respondents amended their complaint to
include Lot 35-B.
The trial court decided in favor of private
respondents. On appeal, the CA affirmed.
Petitioner filed a Motion for Reconsideration but
was denied by the CA. Hence, this petition.
ISSUE:
WON the Deeds of Absolute Sale between
petitioner and her late grandmother over the
Properties are simulated and without
consideration, and hence, void and inexistent.
RULING:
YES. The Deeds of Absolute Sale between
petitioner and the late Adela Shotwell are null and
void for lack of consent and consideration.
While the Deeds of Absolute Sale appear to be
valid on their face, the courts are not completely
precluded to consider evidence aliunde in
determining the real intent of the parties. This is
especially true when the validity of the contracts
was put in issue by one of the parties in his
pleadings.
Here, private respondents assail the validity of
the Deeds of Absolute Sale by alleging that they
were simulated and lacked consideration.
Here, there was no valid contract of sale
between petitioner and Adela because their
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consent was absent. The contract of sale was a
mere simulation.
Simulation takes place when the parties do not
really want the contract they have executed to
produce the legal effects expressed by its
wordings. Article 1345 of the Civil Code provides
that the simulation of a contract may either be
absolute or relative. The former takes place when
the parties do not intend to be bound at all; the
latter, when the parties conceal their true
agreement.
In short, in absolute simulation there appears
to be a valid contract but there is actually none
because the element of consent is lacking. This
is so because the parties do not actually intend to
be bound by the terms of the contract.
In determining the true nature of a contract, the
primary test is the intention of the parties. If the
words of a contract appear to contravene the
evident intention of the parties, the latter shall
prevail. Such intention is determined not only
from the express terms of their agreement, but
also from the contemporaneous and subsequent
acts of the parties. This is especially true in a claim
of absolute simulation where a colorable contract
is executed.
In ruling that the Deeds of Absolute Sale were
absolutely simulated, the lower courts considered
the totality of the prior, contemporaneous and
subsequent acts of the parties. The following
circumstances led the RTC and the CA to conclude
that the Deeds of Absolute Sale are simulated, and
that the transfers were never intended to affect
the juridical relation of the parties:
a) There was no indication that Adela intended to
alienate her properties in favor of petitioner. In
fact, the letter of Adela to Dennis dated April 18,
1989 reveals that she has reserved the ownership
of the Properties in favor of Dennis.
ARELLANO UNIVERSITY SCHOOL OF LAW
b) Adela continued exercising acts of dominion
and control over the properties, even after the
execution of the Deeds of Absolute Sale, and
though she lived abroad for a time. In Adela's
letter dated August 25, 1989 52 to a certain Candy,
she advised the latter to stay in the big house.
Also, in petitioner's letter to her cousin Dennis
dated July 3, 1989,53 she admitted that Adela
continued to be in charge of the Properties; that
she has no "say" when it comes to the Properties;
that she does not intend to claim exclusive
ownership of Lot 35-B; and that she is aware that
the ownership and control of the Properties are
intended to be consolidated in Dennis.
c) The SPA executed on the same day as the Deeds
of Absolute Sale appointing petitioner as
administratrix of Adela's properties, including the
Properties, is repugnant to petitioner's claim that
the ownership of the same had been transferred
to her.
d) The previous sales of the Properties to Dennis
and Carlos, Jr. were simulated. This history,
coupled with Adela's treatment of petitioner, and
the surrounding circumstances of the sales,
strongly show that Adela only granted petitioner
the same favor she had granted to Dennis and
Carlos Jr.
We agree with the lower courts that the execution
of an SPA for the administration of the Properties,
on the same day the Deeds of Absolute Sale were
executed, is antithetical to the relinquishment of
ownership. The SPA shows that it is so worded as
to leave no doubt that Adela is appointing
petitioner as the administratrix of her properties
in Scout Ojeda. Had the SPA been intended only to
facilitate the processing of the reconstitution of
the titles, there would have been no need to
confer other powers of administration, such as
the collection of debts, filing of suit, etc., to
petitioner.
We affirm the conclusion reached by the RTC and
the CA that the evidence presented below prove
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that Adela did not intend to alienate the
Properties in favor of petitioner, and that the
transfers were merely a sham to accommodate
petitioner in her travel abroad.
Petitioner claims that we should consider that
there is only one heir of the late Adela who is
contesting the sale, and that out of the many
transactions involving the decedent's other
properties, the sale to petitioner is the only one
being questioned. In a contest for the declaration
of nullity of an instrument for being simulated,
the number of contestants is not determinative of
the propriety of the cause. Any person who is
prejudiced by a simulated contract may set up
its inexistence. In this instant case, it does not
matter if the contest is made by one, some or all
of the heirs.
Neither would the existence of other contracts
which remain unquestioned deter an action for
the nullity of an instrument. A contract is
rendered meaningful and forceful by the
intention of the parties relative thereto, and such
intention can only be relevant to that particular
contract which is produced or, as in this case, to
that which is not produced. That the deed of sale
in [petitioner's] favor has been held to be
simulated is not indicative of the simulation of
any other contract executed by the deceased
Adela de Guzman Shotwell during her lifetime.
Other alleged transactions made by Adela cannot
be used as evidence to prove the validity of the
conveyances to petitioner. For one, we are not
aware of any of these transactions or whether
there are indeed other transactions. More
importantly, the validity of these transactions
does not prove directly or indirectly the validity
of the conveyances in question.
B. No consideration for the sale
We also find no compelling reason to depart from
the court a quo's finding that Adela never received
ARELLANO UNIVERSITY SCHOOL OF LAW
the consideration stipulated in the simulated
Deeds of Absolute Sale.
Although on their face, the Deeds of Absolute Sale
appear to be supported by valuable
consideration, the RTC and the CA found that
there was no money involved in the sale. The
consideration in the Deeds of Absolute Sale was
superimposed on the spaces therein, bearing a
font type different from that used in the rest of the
document. The lower courts also found that the
duplicate originals of the Deeds of Absolute Sale
bear a different entry with regard to the price.
Article 1471 of the Civil Code provides that "if the
price is simulated, the sale is void." Where a deed
of sale states that the purchase price has been
paid but in fact has never been paid, the deed of
sale is null and void for lack of
consideration. Thus, although the contracts state
that the purchase price of P250,000.00 and
P60,000.00 were paid by petitioner to Adela for
the Properties, the evidence shows that the
contrary is true, because no money changed
hands. Apart from her testimony, petitioner did
not present proof that she paid for the Properties.
There is no implied trust.
We also affirm the CA's deletion of the
pronouncement of the trial court as to the
existence of an implied trust. The trial court found
that a resulting trust, a form of implied trust
based on Article 1453 of the Civil Code, was
created between Adela and petitioner.
Resulting trusts arise from the nature or
circumstances of the consideration involved in a
transaction whereby one person becomes
invested with legal title but is obligated in equity
to hold his title for the benefit of another. It is
founded on the equitable doctrine that valuable
consideration and not legal title is determinative
of equitable title or interest and is always
presumed to have been contemplated by the
parties. Since the intent is not expressed in the
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instrument or deed of conveyance, it is to be

found in the nature of the parties'
transaction. Resulting trusts are thus describable
as intention-enforcing trusts.6 An example of a
resulting trust is Article 1453 of the Civil Code.

We, however, agree with the CA that no implied

trust can be generated by the simulated transfers
because being fictitious or simulated, the
transfers were null and void ab initio — from the
very beginning — and thus vested no rights
whatsoever in favor of petitioner. That which is
inexistent cannot give life to anything at all.

Article 1453 contemplates that legal titles were

validly vested in petitioner. Considering,
however, that the sales lack not only the element
of consent for being absolutely simulated, but also
the element of consideration, these transactions
are void and inexistent and produce no effect.
Being null and void from the beginning, no
transfer of title, both legal and beneficial, was
ever effected to petitioner.

In any case, regardless of the presence of an

implied trust, this will not affect the disposition of
the case. As void contracts do not produce any
effect, the result will be the same in that the
Properties will be reconveyed to the estate of the
late Adela de Guzman Shotwell.

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VICTORINO HERNANDEZ V. COURT OF
APPEALS
G.R. No. L-41132, 27 April 1988; FIRST
DIVISION; NARVASA, J
FACTS:
The adjoining lots sold to Hernandez’s parents
and to Fr. Garcia were unregistered and
unsurveyed at the time of the transfer. There
were no dividing boundaries that existed thereon
until cadastral surveyors from the Bureau of
Lands laid down official monuments (“mojones”)
to mark the separation of the lots in 1956. These
monuments were set along a line which the
landowners had previously agreed upon as
representing the correct boundary between their
estates. Hernandez relied on the visible
landmarks installed by the government surveyors
precluded any overstepping of those limits. Yet
unknown to Hernandez, Fr. Garcia’s application
included 220 square meters of the former. It was
not until the court had already ordered the
registration of the lots in Fr. Garcia's name that
Hernandez discovered the anomaly in the
application. An Original Certificate of Title was
issued in favor of Fr. Garcia. Alleging fraud had
prevented him from proving their title to land
subject of registration proceedings in another's
name, Hernandez sought review of the decree of
registration by petition in the land registration
court. Fr. Garcia on the other hand insisted that
Hernandez’ claim over the parcel of land does not
bind them and is unenforceable under the Statute
of Frauds.
ISSUE:
What is the effect of including 220-square-meter
area in Original Certificate of Title (OCT) which is
neither contemplated by any written agreement
nor supported by the official monuments marking
the separation of the lots.
HELD:
AThe OCT issued should be declared null and
void.
ARELLANO UNIVERSITY SCHOOL OF LAW
It is of record, to begin with, that concrete
monuments or "mojones" were laid out by
government surveyors in 1956 between the
properties of Hernandez and Fr. Garcia.
Hernandez avows that these structures were
purposely installed to mark the limits of their
estates; his opponents could only let this
statement pass with telling silence. Neither did
they seriously dispute that these "mojones" were
installed along the line agreed upon by the parties
as marking their properties' boundaries. All they
averred in their defense is that the agreement did
not bind them. Lastly, they freely conceded the
presence of a fence along this line, but were quick
to point out that they had merely "permitted"
Hernandez to put up this "temporary" structure
"to stop the public (from) using ... this place as a
common madden shed." The excuse is lamentably
feeble.
The Statute of Frauds finds no application to this
case. Not every agreement "affecting land" must
be put in writing to attain enforceability. Under
the Statute of Frauds, Article 1403(2) (e) of the
Civil Code, such formality is only required of
contracts involving leases for longer than one
year, or for the sale of real property or of an
interest therein. Hernandez's testimony is thus
admissible to establish his agreement with Fr.
Garcia as to the boundary of their estates.
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RUBIAS VS BATILLER
G.R. No. L-35702 May 29, 1973
FACTS:
Francisco Militante claimed that he owned a
parcel of land located in Iloilo. He filed with the
CFI of Iloilo an application for the registration of
title of the land. This was opposed by the Director
of Lands, the Director of Forestry, and other
oppositors. The case was docked as a land case,
and after trial the court dismissed the application
for registration. Militante appealed to the Court of
Appeals.
Pending that appeal, he sold to Rubias (his son-in-
law and a lawyer) the land. The CA rendered a
decision, dismissing the application for
registration. Rubias filed a Forcible Entry and
Detainer case against Batiller.
In that case, the court held that Rubias has no
cause of action because the property in dispute
which Rubias allegedly bought from Militante was
the subject matter of a land case, in which case
Rubias was the counsel on record of Militante
himself. It thus falls under Article1491 of the Civil
Code. Hence, this appeal.
ISSUE:
Whether the sale of the land is prohibited under
Article 1491.
RULING:
YES. Article 1491 says that “The following
persons cannot acquire any purchase, even at a
public or judicial auction, either in person or
through the mediation of another…. (5) Justices,
judges, prosecuting attorneys, clerks of superior
and inferior courts, and other officers and
employees connected with the administration of
justice, the property and rights in litigation or
levied upon an execution before the court within
whose jurisdiction or territory they exercise their
respective functions; this prohibition includes the
act of acquiring by assignment and shall apply to
ARELLANO UNIVERSITY SCHOOL OF LAW
lawyers with respect to the property and rights
which may be the object of any litigation in which
they may take part by virtue of their profession.”
The present case clearly falls under this,
especially since the case was still pending appeal
when the sale was made.
ISSUE:
What is the Legal effect of a sale falling under
Article1491?
RULING:
NULL AND VOID. CANNOT BE RATIFIED.
Manresa considered such prohibited acquisitions
(which fell under the Spanish Civil Code) as
merely voidable because the Spanish Code did not
recognize nullity. But our Civil Code does
recognize the absolute nullity of contracts “whose
cause, object or purpose is contract to law,
morals, good customs, public order or public
policy” or which are “expressly prohibited or
declared void by law” and declares such contracts
“inexistent and void from the beginning.” The
nullity of such prohibited contracts is definite and
permanent, and cannot be cured by ratification.
The public interest and public policy remain
paramount and do not permit of compromise or
ratification. In this aspect, the permanent
disqualification of public and judicial officers and
lawyers grounded on public policy differs from
the first three cases of guardians agents and
administrators (under Art 1491). As to their
transactions, it has been opined that they may be
“ratified” by means of and
in “the form of a new contract, in which case its v
alidity shall be determined only by the
circumstances at the time of execution of such
new contract.” In those cases, the object which
was illegal at the time of the first contract may
have already become lawful at the time of the
ratification or second contract, or the intent, or
the service which was impossible. The ratification
or second contract would then be valid from its
execution; however, it does not retroact to the
date of the first contract. Decision affirmed.
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JAVIER VS VDA. DE CRUZ
GR NO. L-25891, November 29, 1977
FACTS:
This is an appeal by the plaintiff from the decision
of the Court of First Instance of Rizal in Civil Case
No. 5996 entitled "Benedicto M. Javier, etc. vs.
Dominga Vda. de Cruz, et al." the dispositive part
of which reads:
“IN VIEW OF THE FOREGOING, judgment is
hereby rendered one in favor of the defendants
and against the plaintiff dismissing the two
above-entitled cases, dissolving the writ of
preliminary injunction, ordering the plaintiff to
pay attorney's fees in the sum of One Thousand
Pesos (P1,000.00) and condemning the said
plaintiff to pay the costs of suit.
IT IS ORDERED. Pasig, Rizal, August 29, 1962.
(Sgd.) Andres Reyes”
The Court of Appeals, in a resolution promulgated
on March 19, 1966 certified to the Supreme Court
the case because "the value of the property in
question is more than half a million pesos ..."
hence "is beyond the jurisdiction of this Court."
On February 1, 1960 Benedicto M. Javier, as
administrator of the Estate of Eusebio Cruz,
instituted against Dominga Vda. de Cruz and her
children Civil Case No. 5996 to declare null and
void a deed of sale of a part of a parcel of land
located in Barrio San Isidro, Taytay, Rizal
containing an area of 182,959 square meters and
assessed at P4,310.00 under Tax No. 9136 under
Tax No. 9136 in the name of Estate of E. Cruz.
The amended complaint stated that Eusebio Cruz,
who died on February 2, 1941 at the age of 100
years without leaving any will nor compulsory
heirs, was the absolute and exclusive owner of a
parcel of mountainous and unimproved land
situated in sitio Matogalo, Taytay, Rizal which he
inherited from his forebears, described therein;
that during his lifetime, Eusebio Cruz had been
living with one Teodora Santos 'without the
sanction of marriage"; that Teodora Santos had
with her as distant relatives and protegees the
brothers Gregorio Cruz and Justo Cruz; that
ARELLANO UNIVERSITY SCHOOL OF LAW
Gregorio Cruz was the father of Delfin Cruz,
deceased husband of defendant Dominga Vda. de
Cruz and father of defendants Leonila, Roman,
Eliseo, Leberata and Melecio, all surnamed Cruz;
that on January 16, 1941 Delfin Cruz, by means of
deceit and in collusion with persons among them
his father Gregorio Cruz made Eusebio Cruz, who
could read and write, stamp his thumbmark on a
deed of sale of a portion of the land described in
the complaint consisting of 26,577 square meters
for the sum of P700.00 in favor of said Delfin Cruz;
that at that time Delfin Cruz did not have theithin
thirty days from submittal of the case for decision,
but the validity of the law cannot be seriously
challenged."
Petitioner fiscal, as already stated, filed the
informations in the ten cases with the Circuit
Criminal Court rather than with the respondent
judge's court to mitigate the latter court's
caseload in accordance with the purpose of the
Circuit Criminal Court law or at the request of the
offended parties and complainants. Since the
filing of the information or complaint "supplies -
the occasion for the exercise of jurisdiction vested
by law in a particular court" 15 and the law confers
concurrent jurisdiction in the Circuit Criminal
Court, the said court properly assumed
jurisdiction over the said cases and there is no
lawful basis for respondent judge's prayer that
said cases be returned to his court "for the lawful
actions which are needed on them" and to set at
naught the judgments of conviction already
rendered by the Circuit Criminal Court in some of
the cases and the other proceedings therein.
For administrative and record purposes,
however, petitioner fiscal should have promptly
and in due course advised the clerk of respondent
judge's court that the informations had been filed
with the Circuit Criminal Court. Petitioner fiscal
recognized this oversight and duly "apologized
humbly" to respondent judge and pleaded an
"acute lack of personnel in his office" in
extenuation. Under the circumstances and
considering that petitioner was only discharging
his duty according to his best lights, and could not
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be said to have in any way acted arbitrarily or in

bad faith in filing the informations with the Circuit
Criminal Court, his apology could have been
graciously accepted by respondent judge with an
admonition to exercise greater care in the future,
in lieu of the unwarranted imposition of punitive
fines in the total sum of P 1,000.00.
ACCORDINGLY, the questioned contempt orders
and fines imposed therein are annulled and set
aside. Without costs.

ISSUE:
Whether or not Javier, as administrator of the
Estate of Eusebio Cruz can declare null and void a
deed of sale of a part of a parcel of land located in
Barrio San Isidro said to be owned by Vda. de Cruz
and her children?

RULING:
Yes. As above cited, the deed of sale should be
declared null and void because it was found that
on January 16, 1941 Delfin Cruz, by means of
deceit and in collusion with persons among them
his father Gregorio Cruz made Eusebio Cruz, who
could read and write, stamped his thumbmark on
a deed of sale of a portion of the land described in
the complaint consisting of 26,577 square meters
for the sum of P700.00 in favor of said Delfin Cruz.

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CONTRACTS
MENIL VS. CA
G.R. No. L-43668-69; July 31, 1978
FACTS:
On November 3, 1955, Agueda Garan obtained a
homestead patent over the land in question. On
February 4, 1956, Original Certificate of Title was
issued by the Register of Deeds of Surigao under
her name.
On May 7, 1960, Garan then sold the land to
movant Patenciano Manil for P415.00. But, for
reasons not revealed in the records, the
contracting parties did not register the deed of
sale in the Registry of Deeds in Surigao. On August
30, 1964, Agueda Garan executed another deeds
of sale over the same parcel of land in favor of the
same vendee, Potenciano Menil, and for the same
price P415.00.
On August 30, 1965, the contracting parties
registered the second deed of sale in the Registry
of Deeds in Surigao. On February 28, 1966,
Potenciano Menil mortgaged the land to the
Development Bank of the Philippines to secure an
agricultural loan which the former obtained
fromthe latter. Petitioners were in possession of
the land in question until sometime in 1967 when
private respondents Agueda Garan, Francisco
Calanias, Miguel Nayve, Jr., Rufo Nayve, and Lucio
Calanias forcibly took possession of the said land,
and filed against petitioners Civil Case No. 1692
for "Quieting of Title" before Branch 11 of the
Court of First Instance of Surigao del Norte. The
said court dismissed the complaint, awarded
damages to the petitioners, and granted the writ
of execution prayed for by the latter. However,
upon the claim that the above decision was silent
on the issue of who are entitled to the possession
of the land under litigation, the private
respondents refused to vacate the land, thus,
forcing petitioners to file on July 8, 1968 Civil Case
No. 1810 for "Recovery of Possession" of the said
land before Branch 1 of the same Court of First
Instance of Surigao del Norte. During the
ARELLANO UNIVERSITY SCHOOL OF LAW
pendency of Civil Case No. 1810, private
respondents filed against the petitioners Civil
Case No. 1816 for the reconveyance of the land
litigated in Civil Case No. 1692 and Civil Case No.
1810 before the same court.
By agreement of the parties, Civil Case No. 1810
and Civil Case No. 1816 were jointly heard
Judgment dated June 13. 1970 was rendered
declaring that spouses Menil were legally entitled
to the possession of the land, ordering private
respondents to restore possession of the land in
litigation to petitioners.
On a motion for reconsideration filed by private
respondents, the appellate court set aside its
Decision which declared the sale of the
homestead in question to petitioners as nun and
void, ordered the cancellation of Transfer
Certificate of Title and the re-issuance of Original
Certificate of Title to Agueda Garan, and ordered
Garan to reimburse Menil the price of the sale, the
interest
ISSUE: Whether the Contract of Sale is Null and
void
HELD:
Yes. It is not disputed by the parties that the
contract of sale executed on May 7, 1960, having
been executed less than 5 years from May 7, 1960,
the date the homestead patent was awarded to
private respondent Agueda Garan, is null and void
for being violative of Section 118 of C.A. 141
[Public Land Act] which provides:
“Sec. 118. Except in favor of the government or any
of its branches, units, or institutions, lands acquired
under free patent or homestead provisions shall
not be subject to encumbrance or alienation from
the date of the approval of the application and for
a term of five years from and after the date of
issuance of the patent or grant, nor shall they
become liable to the satisfaction of any debt
contracted prior to the expiration of said period,
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but the improvements or crops on the land may be

mortgaged or pledged to qualified persons,
associations, or corporations.”

Petitioners contend, however, that the

subsequent approval thereof by the Secretary of
Agriculture and Natural Resources, and the
execution of the confirmatory deed of sale on
August 10, 1965, cured any defect that the first
sale may have suffered.

It cannot be claimed that there are two contracts:

one which is undisputably null and void, and
another, having been executed after the lapse of
the 5-year prohibitory period, which is valid. The
second contract of sale executed on March 3, 1964
is admittedly a confirmatory deed of sale. Even
the petitioners concede this point. Inasmuch as
the contract of sale executed on May 7, 1960 is
void for it is expressly prohibited or declared void
by law [CA- 141, Section 118], it therefore cannot
be confirmed nor ratified. Art 1409 are contracts
that cannot be ratified. Neither can the right to set
up the defense of illegality be waived.

Further, noteworthy is the fact that the second

contract of sale over the said homestead in favor
of the same vendee, petitioner Potenciano Menil,
is for the same price of P415.00. Clearly, the
unvarying term of the said contract is ample
manifestation that the same is simulated and that
no object or consideration passed between the
parties to the contract. It is evident from the
whole record of the case that the homestead had
long been in the possession of the vendees upon
the execution of the first contract of sale on May
7, 1960; likewise, the amount of P415.00 had long
been paid to Agueda Garan on that same occasion.
We find no evidence to the contrary.

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DIRECTOR OF LANDS VS. ABABA
Gr No. L-26096; February 27, 1979
FACTS:
 Maximo Abarquez filed a claim against her
sister (Agripina Abarquez) for the annulment
of a contract of sale with right of repurchase
and for the recovery of the land which was the
subject matter thereof.
 Litigating as a pauper in the lower court and
engaging the services of his lawyer (Atty.
Alberto B. Fernandez) on a contingent basis,
petitioner, unable to compensate his lawyer
whom he also retained for his appeal,
executed a document in the Cebuano-Visayan
dialect whereby he obliged himself to give to
his lawyer one half (½) of whatever he might
recover from Lots 5600 and 5602 should the
appeal prosper.
 Maximo Abarquez won the case.
 Atty. Alberto B. Fernandez (Maximo’s lawyer)
waited for Maximo to comply with his
undertaking, but instead, he sold the property
to the spouses Juan Larrazabal and Marta C. de
Larrazabal.
 In order to protect his interest, Atty. Alberto B.
Fernandez caused the annotation of “adverse
claim” on the TCT which appeared to the new
TCT obtained by the spouses Larrazabal.
 The spouses Larrazabal moved for the
cancellation of said annotation before the then
Court of First Instance or CFI.
1 “Article 1491. The following persons cannot acquire
by purchase even at a public or judicial auction, either
is person or through the mediation of another.
“x x x x x x
“(5) Justices, judges, prosecuting attorneys, clerks
of superior and inferior courts, and other officers and
employees connected with the administration of
ARELLANO UNIVERSITY SCHOOL OF LAW
 CFI denied the move to cancel the annotation.
 Spouses appealed. Their ground being that
contract for a contingent fee violates Article
14911 because it involves an assignment of a
property subject of litigation.
ISSUE:
Whether or not the contract for a contingent fee,
basis of the interest of Atty. Fernandez, is
prohibited by the Article 1491 of the New Civil
Code because it involves an assignment of a
property subject of litigation.
HELD:
 Negative.
 This contention is without merit. Article 1491
prohibits only the sale or assignment between
the lawyer and his client, of property which is
the subject of litigation. As WE have already
stated: “The prohibition in said article applies
only to a sale or assignment to the lawyer by
his client of the property which is the subject
of litigation. In other words, for the
prohibition to operate, the sale or
assignment of the property must take
place during the pendency of the litigation
involving the property.”
 In the instant case, the attorney’s fees of Atty.
Fernandez, consisting of one half (1/2) of
whatever Maximo Abarquez might recover
justice, the property and rights in litigation or levied
upon an execution before the court within whose
jurisdiction or territory they exercise their respective
functions; this prohibition includes the act of acquiring
by assignment and shall apply to lawyers, with respect
to the property and rights which may be the object of
any litigation in which they may take part by virtue of
their profession.” (Italics supplied).
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from his share in the lots in question, is

contingent upon the success of the appeal.
Hence, the payment of the attorney’s fees, that
is, the transfer or assignment of one-half (1/2)
of the property in litigation will take place
only if the appeal prospers. Therefore, the
transfer actually takes effect after the
finality of a favorable judgment rendered
on appeal and not during the pendency of
the litigation involving the property in
question.

 Consequently, the contract for a contingent

fee is not covered by Article 1491.

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FRANCISCO A. TONGOY VS COURT OF
APPEALS
G.R. No. L-45645 June 28, 1983
FACTS:
It will be noted that the foreclosure on the original
mortgage over Hacienda Pulo was instituted by
PNB as early as June 18, 1931, from which time
the members of the Tongoy-Sonora clan had been
in constant conference to save the property. At
that time all the respondents-Tongoys were still
minors (except Amado, who was already 23 years
old then), so that there could be truth to the
allegation that their exclusion in the Declaration
of Inheritance executed by Patricio and Luis
Tongoy on April 29, 1933 was made to facilitate
matters-as part of the general plan arrived at after
the family conferences to transfer the
administration of the property to the latter. The
events that followed were obviously in pursuance
of such plan, thus:
March 13, 1934 — An Escritura de Venta
(Exh. 2 or W) was executed in favor of Luis D.
Tongoy by Ana Tongoy, Teresa Tongoy,
Mercedes Sonora, Trinidad Sonora, Juan
Sonora and Patricio Tongoy, transferring
their rights and interests over Hacienda Pulo
to the former.
October 23, 1935 — An Escritura de Venta
(Exh. 3 or DD) was executed by Jesus Sonora,
likewise transferring his rights and interests
over Hacienda Pulo to Luis D. Tongoy;
November 5, 1935 — An Escritura de Venta
(Exh. 5 or AA) was also executed by Jose
Tongoy in favor of Luis D. Tongoy for the
same purpose; (Note: This was preceded by
the execution on October 14, 1935 of an
Assignment of Rights [4 or Z) in favor of Luis
D. Tongoy by the Pacific Commercial
Company as judgment lien-holder
[subordinate of the PNB mortgage] of Jose
Tongoy on Hacienda Pulo
ARELLANO UNIVERSITY SCHOOL OF LAW
November 5, 1935 — Hacienda Pulo was
placed in the name of Luis D. Tongoy married
to Ma. Rosario Araneta with the issuance of
TCT 20154 (Exh. 20);
June 22, 1936 — An Escritura de Venta was
executed by Basilisa Cuaycong over the
Cuaycong property in favor of Luis D. Tongoy,
thereby resulting in the issuance of TCT No.
21522 in the name of Luis D. Tongoy married
to Ma. Rosario Araneta;
June 26, 1936 — Luis D. Tongoy executed a
real estate mortgage over the Cuaycong
property in favor of the PNB to secure a loan
of P4,500.00; and
June 29, 1936 — Luis D. Tongoy executed a
real estate mortgage over Hacienda Pulo to
secure a loan of P21,000.00 payable for fifteen
years.
When the mortgages were constituted,
respondents Cresenciano Tongoy and Norberto
Tongoy were still minors, while respondent
Amado Tongoy became of age on August 19, 1931,
and Ricardo Tongoy attained majority age on
August 12, 1935. Still, considering that such
transfer of the properties in the name of Luis D.
Tongoy was made in pursuance of the master plan
to save them from foreclosure, the said
respondents were precluded from doing anything
to assert their rights. It was only upon failure of
the herein petitioner, as administrator and/or
successor-in-interest of Luis D. Tongoy, to return
the properties that the prescriptive period should
begin to run.
As above demonstrated, the prescriptive period is
ten year-from the date of recording on May 5,
1958 of the release of mortgage in the Registry of
Deeds.
ISSUE:
Whether or not the rights of herein respondents
over subject properties, which were the subjects
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of simulated or fictitious transactions, have

already prescribed.

HELD:
A void or inexistent contract is one which has no
force and effect from the very beginning, as if it
had never been entered into, and which cannot be
validated either by time or by ratification.

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CONTRACTS
LITA ENTERPRISES VS.
INTERMEDIATE APPELLATE COURT
G.R. No. L-64693 April 27, 1984
FACTS:
Spouses Nicasio Ocampo and Francisca Garcia
(private respondents) purchased in installment
from the Delta Motor Sales Corporation five (5)
Toyota Corona Standard cars to be used as taxi.
Since they had no franchise to operate taxicabs,
they contracted with petitioner Lita Enterprise,
Inc., through its representative Manuel
Concordia, for the use of the latter’s certificate of
public convenience for a consideration of P1,
000.00 and a monthly rental of P200.00/taxicab
unit. For the agreement to take effect, the cars
were registered in the name of Lita Enterprises,
Inc. The possession, however, remains with
spouses Ocampo and Garcia who operated and
maintained the same under Acme Taxi,
petitioner’s trade name.
A year later, one of the taxicabs, driven by their
employee, Emeterio Martin, collided with a
motorcycle. The driver of the motorcycle,
Florante Galvez died from the injuries it
sustained.
Criminal case was filed against Emeterio Martin,
while a civil case was filed by the heir of the victim
against Lita Enterprises. In the decision of the
lower court Lita Enterprises was held liable for
damages for the amount of P25, 000.00 and P7,
000.00 for attorney’s fees.
A writ of execution for the decision followed, 2 of
the cars of the respondent’s spouses were levied
and were sold to a public auction.
On March 1973, respondent Ocampo decided to
register his taxicabs in his own name. The
manager of petitioner refused to give him the
registration papers. Thus, making spouses file a
complaint against petitioner. In the decision, Lita
Enterprise was ordered to return the three
ARELLANO UNIVERSITY SCHOOL OF LAW
certificate of registration not levied in the prior
case.
Petitioner now prays that private respondent be
held liable to pay the amount they have given to
the heir of Galvez.
ISSUE:
Whether or not petitioner can recover from
private respondent, knowing they are in an
arrangement known as “kabit system”.
RULING:
“Kabit system” is defined as, when a person who
has been granted a certificate of convenience
allows another person who owns a motor vehicle
to operate under such franchise for a fee. This
system is not penalized as a criminal offense but
is recognized as one that is against public policy;
therefore it is void and inexistent.
It is fundamental that the court will not aid either
of the party to enforce an illegal contract, but will
leave them both where it finds them. Upon this
premise, it was flagrant error on the part of both
trial and appellate courts to have accorded the
parties relief from their predicament. Specifically
Article 1412 states that:
“If the act in which the unlawful or forbidden
cause consists does not constitute a criminal
offense, the following rules shall be observed:
“when the fault, is on the part of both contracting
parties, neither may recover what he has given by
virtue of the contract, or demand the
performance of the other’s undertaking.”
The principle of in pari delicto is evident in this
case. “the proposition is universal that no action
arises, in equity or at law, from an illegal contract;
no suit can be maintained for its specific
performance, or to recover the property agreed to
sold or delivered, or damages for its property
agreed to be sold or delivered, or damages for its
violation.” The parties in this case are in pari
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delicto, therefore no affirmative relief can be

granted to them.

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ARSENAL VS IAC (AMANTE)
FRANCISCA ARSENAL and REMEDIO ARSENAL
VS IAC
G.R. No. L-66696 July 14, 1986; GUTIERREZ, JR., J.:
FACTS:
Francisca Arsenal and Remedio Arsenal became
tenants of an adjoining land owned by Eusebio
Pabualan that is separated from the land in
question only by a public road. Filomeno Palaos
and his wife executed a notarial Deed of Sale in
consideration of the amount of P800.00
supposedly for the remaining three (3) hectares
of their land without knowing that the document
covered the entirety of Lot 81 including the four-
hectare portion previously deeded by them to the
plaintiff. The deed of sale was presented to the
Office of the Commission on National Integration
at Malaybalay for approval because Palaos and his
wife belong to the cultural minorities and
unlettered. The field representative and inspector
of that office subsequently approved the same
without inspecting the land to determine the
actual occupants thereon.
The Arsenal took possession of the three-hectare
portion of Lot 81 after their purchase and have
cultivated the same up to the present time but
they never disturbed the plaintiff's possession
over the four-hectare portion that he had
purchased in 1957. Francisca Arsenal caused the
tax declaration of the entire lot to be transferred
in her name. Torcuato Suralta learned of the
transfer of the tax declaration to Francisca
Arsenal and because of their good relations at the
time, he agreed with Arsenal to contribute in the
payment of the land taxes and paid yearly from
1968 to 1973 the amount of P10.00
corresponding to his four-hectare portion to
Francisca Arsenal.
However, the plaintiff saw for the first time the
Deed of Sale embracing the whole Lot 81 signed
by Filomeno Palaos in favor of Francisca Arsenal.
Immediately he asked Palaos for explanation but
ARELLANO UNIVERSITY SCHOOL OF LAW
the latter told him that he sold only three hectares
to Arsenal. Plaintiff approached Francisca Arsenal
for a satisfactory arrangement but she insisted on
abiding by her contract. Because of their
disagreement, Francisca Arsenal registered her
Deed of Sale on December 6, 1973 and obtained
Transfer Certificate of Title No. T-7879 for the
entire Lot 81 without the knowledge of the
plaintiff.
Plaintiff however learned of the cancellation of
the original certificate of title of Palaos and the
issuance of the Transfer Certificate to Arsenal so
he sought the help of the municipal authorities of
Kitaotao to reach an amicable settlement with
Francisca Arsenal who, on the other hand, refused
to entertain all overture to that effect.
Torcuato Suralta filed a case against Filomeno
Palaos, Mahina Lagwas, Francisca Arsenal,
Remedio Arsenal and the Register of Deeds of
Bukidnon for the annulment of Transfer
Certificate of Title No. T-7879 issued to the
Arsenals insofar as it covers the four-hectare
portion previously sold to him.
ISSUE:
Who among the two alleged purchasers of a four-
hectare portion of land granted in homestead has
acquired a valid title thereto.
RULING:
A contract which purports of alienate,
transfer, convey or encumber any homestead
within the prohibitory period of five years
from the date of the issuance of the patent is
void from its execution. In a number of cases,
this Court has held that such provision is
mandatory.
Under the provisions of the Civil Code, a void
contract is inexistent from the beginning. It
cannot be ratified neither can the right to set up
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the defense of its illegality be waived. (Art. 1409,
Civil Code).
Concededly, the contract of sale executed
between the respondents Palaos and Suralta
in 1957 is void. It was entered into three (3)
years and eight (8) months after the grant of the
homestead patent to the respondent Palaos in
1954.
Thus, it was erroneous for the trial court to
declare that the benefit of the prohibition in the
Public Land Act "does not inure to any third
party." Such a sweeping declaration does not find
support in the law or in precedents. A third
person who is directly affected by a void
contract may set up its nullity. In this case, it is
precisely the petitioners' interest in the disputed
land which is in question.
As to whether or not the execution by the
respondents Palaos and Suralta of another
instrument in 1973 cured the defects in their
previous contract, we reiterate the rule that an
alienation or sale of a homestead executed
within the five-year prohibitory period is void
and cannot be confirmed or ratified.
(b) Declaring null and void the sale of the same
portion of land to the petitioners Francisca
Arsenal and Remedio Arsenal:
(c) Ordering the Register of Deeds of Bukidnon to
cancel Transfer Certificate of Title No. T-7879 as
to the disputed four-hectare portion and to
reissue an Original Certificate of Title for the
portion designated as Lot 81-A of the Subdivision
Plan LRC-PLD-198451 prepared by Geodetic
Engineer Benito P. Balbuena and approved by the
Commission on Land Registration, in favor of the
respondents Filomeno Palaos and Mahina
Lagwas;
(d) Ordering the respondents Filomeno Palaos
and Mahina Lagwas to reimburse the heirs of the
respondent Torcuato Suralta the sum of EIGHT
HUNDRED NINETY PESOS (P890.00), the price of
the sale. The value of any improvements made on
the land and the interests on the purchase price
are compensated by the fruits the respondent
Suralta and his heirs received from their long
possession of the homestead.

The respondents Palaos and Suralta admitted that

they executed the subsequent contract of sole in
1973 in order to cure the defects of their previous
contract. The terms of the second contract
corroborate this fact as it can easily be seen from
its terms that no new consideration passed
between them. The second contract of sale being
merely confirmatory, it produces no effect and
can not be binding.

The decision of the Intermediate Appellate Court

is REVERSED and SET ASIDE. Judgment is hereby
rendered:
(a) Declaring null and void the sale of the four-
hectare portion of the homestead to respondent
Torcuato Suralta and his heirs;

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MANOTOK REALTY INC. v. CA
GR NO. L-45038; April 30, 1987
FACTS:
Felipe Madlangawa (private respondent) claims
that he has been occupying a parcel of land in the
Clara de Tambunting de Legarda Subdivision
since 1949 upon permission being obtained from
Andres Ladores, then an overseer of the
subdivision, with the understanding that
Madlangawa would eventually buy the lot.
On April 2, 1950, the owner of the lot, Clara
Tambunting, died and her entire estate, including
her paraphernal properties which covered the lot
occupied by the Madlangawa were placed
under custodia legis. On April 22, 1950,
Madlangawa made a deposit for the said lot in the
sum of P1,500.00 which was received by Vicente
Legarda, husband of the late owner. As evidenced
by the receipt issued by Vicente Legarda, the lot
consisted of an area of 240 square meters and was
sold at P30.00 per square meter. There, thus,
remained an unpaid balance of P5,700.00 but
Madlangawa did not pay or was unable to pay this
balance because after the death of the testatrix,
Clara Tambunting de Legarda, her heirs could not
settle their differences.
On April 28, 1950, Don Vicente Legarda was
appointed as a special administrator of the estate.
Meanwhile Madlangawa remained in possession
of the lot in question. Subsequently, the Manotok
Realty Inc. became the successful bidder and
vendee of the Tambunting de Legarda
Subdivision consisting of 44 parcels of land
spread out in the districts of Tondo and Sta. Cruz,
Manila, pursuant to the deeds of sale executed in
its favor by the Philippine Trust Company on
March 13 and 20, 1959, as administrator of the
Testate Estate of Clara Tambunting de Legarda, in
Special Proceeding No. 10809 of the Manila
probate court. The lot in dispute was one of those
covered by the sale. The Deed of Sale, among
ARELLANO UNIVERSITY SCHOOL OF LAW
others, provided for the following terms and
conditions:
1. — The VENDEE assumes the risk and
expenses of ejecting the tenants or squatters
on the said parcels of land if it decides to eject
them. Any rentals or damages that may be due
or collectible from the said tenants or
squatters for the period subsequent to the
date of this deed of sale shall belong to the
VENDEE but rentals due from the said tenants
or squatters prior to the execution of this deed
of sale shall belong to the VENDOR.
xxx xxx xxxx x x
3. — The VENDEE renounces the right to
warranty in case of eviction with the
knowledge of the risks of eviction and
assumes its consequences with respect not
only to the lots subject-of the above
mentioned cases and claims but also with
respect to any other lots subject of contracts
of sale or promises to sell that may have been
executed by the deceased, Clara Tambunting
de Legarda and/or Vicente L. Legarda, and it
hereby relieves the estate of Clara
Tambunting de Legarda and the Philippine
Trust Company, in its capacity as
Administrator thereof, of any and all liability
with respect thereto in case of eviction. All
sums of money that have been paid to the
deceased Clara Tambunting de Legarda
and/or Vicente L. Legarda and/or the
administrator of Clara Tambunting de
Legarda on account of the purchase price of
said lots shall belong to the estate, but any
sums of money that are or may be due as the
balance of the purchase price of said lots shall
belong to the VENDEE. (pp. 27-28, Rollo).
xxx xxx xxx
In its effort to clear the Tambunting Subdivision
of its squatters and occupants, petitioner caused
the publication of several notices in the Manila
Times issues of January 1, 1966 and
the Taliba issues of January 2, and March 16,
1966, advising the occupants to vacate their
respective premises, otherwise, court action with
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damages would follow. In addition to these
notices by publication, petitioner sent circulars to
the occupants to vacate.
Felipe Madlangawa was one of the many
occupants who refused to vacate the lots they
were occupying, so that on April 26, 1968, the
petitioner filed the action below to recover the
said lot. The trial court dismissed the petitioner's
action after finding that the Identity of the parcel
of land described in the complaint had not been
sufficiently established as the very same piece of
land in the material and physical possession of
Madlangawa. On appeal, the Court of Appeals
found the Identity of the lot sought to be
recovered by petitioner to be the same as that in
the physical possession of Madlangawa and ruled
that the only right remaining to petitioner is to
enforce the collection of the balance because
accordingly, it stepped into the shoes of its
predecessor; and that since the area now in
possession of the petitioner which is that
involved in the present case is only 115 square
meters, the balance after deducting the deposit of
P1,500.00 is P2,551.85, and as per order of the
CFI of Manila, the said balance should be paid in
18 equal monthly installments.
ISSUE:
Whether or not the sale by Don Vicente Legarda
in favor of Felipe Madlangawa is valid, binding,
and enforceable against Manotok Realty Inc.?
HELD:
NO. There is nothing in the records that wig show
that Don Vicente Legarda was the administrator
of the paraphernal properties of Dona Clara
Tambunting during the lifetime of the latter. Thus,
it cannot be said that the sale which was entered
into by the private respondent and Don Vicente
Legarda had its inception before the death of
Dona Clara Tambunting and was entered into by
the former for and on behalf of the latter, but was
only consummated after her death. Don Vicente
Legarda, therefore, could not have validly
ARELLANO UNIVERSITY SCHOOL OF LAW
disposed of the lot in dispute as a continuing
administrator of the paraphernal properties of
Dona Clara Tambunting. It is also undisputed that
the probate court appointed Don Vicente Legarda
as administrator of the estate only on August 28,
1950, more than three months after the
questioned sale had taken place.
We are, therefore, led to the inevitable conclusion
that the sale between Don Vicente Legarda and
the private respondent is void ab initio, the former
being neither an owner nor administrator of the
subject property. Such being the case, the sale
cannot be the subject of the ratification by the
Philippine Trust Company or the probate court.
As was held in the case of Arsenal v. Intermediate
Appellate Court (143 SCRA 40, 49):
Under the provisions of the Civil Code, a void
contract is inexistent from the beginning. It
cannot be ratified neither can the right to set
up the defense of its illegality be waived. (Art.
1409, Civil Code.
To further distinguish this contract from the
other kinds of contract, a commentator has
stated that.
The right to set up the nullity of a void or non-
existent contract is not limited to the parties
as in the case of annuable or voidable
contracts, it is extended to third persons who
are directly affected by the contract.
(Tolentino, Civil Code of the Philippines, Vol.
IV, p. 604, [1973]).
Any person may invoke the inexistence of the
contract whenever juridical affects founded
thereon are asserted against him.
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CONTRACTS
PORTUGAL VS IAC
G.R. No. 73564; March 25, 1988; SECOND
DIVISION; SARMIENTO, J.:
Nature of the Action: petition for review by
certiorari.
CIV II Topic covered: Articles 1350, 1352, and
1409 of the new Civil Code
FACTS:
Petitioner Cornelia Clanor and her late husband
Pascual Portugal, during the lifetime of the latter,
were able to accumulate several parcels of real
property. Among these were a parcel of
residential land situated in Poblacion, Gen. Trias,
Cavite, designated as Lot No. 3201, consisting of
2,069 square meters, more or less, and covered by
T.C.T. No. RT-9355, in their names, and an
agricultural land located at Pasong Kawayan, Gen.
Trias, Cavite, with an area of 43,587 square
meters, more or less, known as Lot No. 2337, and
also registered in their names under T.C.T. No.
RT-9356 of the Registry of Deeds for the Province
of Cavite.
Sometime in January, 1967, the private
respondent Hugo Portugal, a son of the spouses,
borrowed from his mother, Cornelia, the
certificates of title to the above-mentioned
parcels of land on the pretext that he had to use
them in securing a loan that he was negotiating.
Cornelia, the loving and helpful mother that she
was, assented and delivered the titles to her son.
The matter was never again brought up until after
Pascual Portugal died on November 17, 1974.
(Cornelia herself died on November 12, 1987.)
When the other heirs of the deceased Pascual
Portugal, the petitioners herein, for the purposes
of executing an extra-judicial partition of
Pascual's estate, wished to have all the properties
of the spouses collated, Cornelia asked the private
respondent for the return of the two titles she
previously loaned, Hugo manifested that the said
titles no longer exist. When further questioned,
Hugo showed the petitioners Transfer Certificate
ARELLANO UNIVERSITY SCHOOL OF LAW
of Title T.C.T. No. 23539 registered in his and his
brother Emiliano Portugal's names, and which
new T.C.T. cancelled the two previous ones. This
falsification was triggered by a deed of sale by
which the spouses Pascual Portugal and Cornelia
Clanor purportedly sold for P8,000.00 the two
parcels of land adverted to earlier to their two
sons, Hugo and Emiliano. Confronted by his
mother of this fraud, Emiliano denied any
participation. And to show his good faith,
Emiliano caused the reconveyance of Lot No.
2337 previously covered by TCT No. RT-9356 and
which was conveyed to him in the void deed of
sale. Hugo, on the other hand, refused to make the
necessary restitution thus compelling the
petitioners, his mother and his other brothers and
sisters, to institute an action for the annulment of
the controversial deed of sale and the
reconveyance of the title over Lot No. 3201 (the
residential land).
ISSUE:
What is the status of the Contract of Sale executed
by respondent Hugo
RULING:
There is really nothing novel in this case as an the
issues raised had been, on several occasions,
ruled upon by the Court. Apropos the first issue,
which is the timeliness of the action, the trial
court correctly ruled that the action instituted by
the petitioners has not yet prescribed. Be that as
it may, the conclusion was reached through an
erroneous rationalization, i.e., the case is purely
for reconveyance based on an implied or
constructive trust. Obviously, the trial court failed
to consider the lack of consideration or cause in
the purported deed of sale by which the
residential lot was allegedly transferred to the
private respondent by his parents. On the other
hand, the respondent Intermediate Appellate
Court held that since the action for reconveyance
was fathered by a fraudulent deed of sale, Article
1391 of the Civil Code which lays down the rule
that an action to annul a contract based on fraud
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prescribes in four years, applies. Hence, according inexistent, not merely voidable. And it is provided
to the respondent court, as more than four years in Article 1410 of the Civil Code, that '(T)he
had elapsed from January 23, 1967 when the action or defense for the declaration of the
assailed deed was registered and the petitioners' inexistence of a contract does not prescribe.
cause of action supposedly accrued, the suit has
already become stale when it was commenced on
October 26, 1976, in the Court of First Instance of
Cavite. For reasons shortly to be shown, we can
not give our imprimatur to either view.

The case at bar is not purely an action for

reconveyance based on an implied or
constructive trust. Neither is it one for the
annullment of a fraudulent contract. A closer
scrutiny of the records of the case readily
supports a finding that fraud and mistake are not
the only vices present in the assailed contract of
sale as held by the trial court. More than these, the
alleged contract of sale is vitiated by the total
absence of a valid cause or consideration. The
petitioners in their complaint, assert that they,
particularly Cornelia, never knew of the existence
of the questioned deed of sale. They claim that
they came to know of the supposed sale only after
the private respondent, upon their repeated
entreaties to produce and return the owner's
duplicate copy of the transfer certificate of title
covering the two parcels of land, showed to them
the controversial deed. And their claim was
immeasurably bolstered when the private
respondent's co-defendant below, his brother
Emiliano Portugal, who was allegedly his co-
vendee in the transaction, disclaimed any
knowledge or participation therein. If this is so,
and this is not contradicted by the decisions of the
courts below, the inevitable implication of the
allegations is that contrary to the recitals found in
the assailed deed, no consideration was ever paid
at all by the private respondent. Applying the
provisions of Articles 1350, 1352, and 1409 of
the new Civil Code in relation to the
indispensable requisite of a valid cause or
consideration in any contract, and what
constitutes a void or inexistent contract, we rule
that the disputed deed of sale is void ab initio or

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS
YANAS VS ACAYLAR
GR No. L54538; April 25, 1985
FACTS:
Yanas, also known as Sulung Subano, had
occupied, even before 1926, Lot No. 5408 located
at Sitio Dionom (Lower Gumay), Barrio Sianib,
Piñan (Dipolog), Zamboanga del Norte. Such land
was subsequently awarded to him on 1941 by a
judicial decree, adjudicating Lot No. 5408 to
Yanas “married to Maria Aglimot”.
After Yanas’ death, his son filed an adverse claim
for Yanas. His heirs Hamoy allegedly taking
advantage of his illiteracy, made Yanas affix his
thumbmark to a deed of sale in English. When
Yanas discovered that his title was cancelled, he
caused on August 28, 1958 an adverse claim to be
annotated on Acaylar’s title. He stated in his
adverse claim that he never sold his land and that
the price of P200 was grossly inadequate because
the land was worth not less than P6,000.
Yanas died in 1962. His widow, Maria Aglimot,
also a Subano, and his children filed an action to
declare void Acaylar’s title claiming that that deed
of sale is fictitious and fraudulent because what
Yanas thumbmarked on August 7, 1950 was
supposed to be a receipt attesting that he owed
Hamoy P200 for his legal services. The trial court
found the sale to be valid and binding. The
Appellate Court affirmed the trial court’s decision.
The heirs of Yanas appealed to this Court. They
contend that the Appellate Court erred in not
holding that the deed of sale was fabricated and
simulated and, therefore, void ab initio and that
Maria Aglimot as surviving spouse could recover
the lot.
The heirs of Acaylar, through counsel who did not
take part in the trial, maintain that the sale was
“true and faithful” and that the widow had no
right to recover onehalf of the lot.
ARELLANO UNIVERSITY SCHOOL OF LAW
ISSUE: WON the contract of sale is valid and
binding
HELD: NO.
1) Badges of fraud and fictitiousness – The SC
hold that the sale was fictitious and fraudulent.
Amongthe badges of fraud and fictitiousness
taken collectively are the
following: (1) the fact that the sale is in English,
the alleged vendor being illiterate; (2) the fact
that his wife did not join in the sale and that her
name is indicated in the deed as “Maria S. Yanas”
when the truth is that her correct name is Maria
Aglimot Yanas; (3) the obvious inade quacy of
P200 as price for a 13hectareland (P15.40 a
hectare); (4)
the notarization of the sale on the day following
the alleged thumbmarking of the document; (5)
the failure to state the boundaries of the lot sold;
(6) the fact that the governor approved it more
than two years after the alleged sale; (7) its
registration more than three years later, and (8)
the fact that the Acaylars were able to occupy only
four hectares out of the 13 hectares and were
eventually forcibly ousted therefrom by the
children and agents of the vendor. It was not a fair
and regular transaction done in the ordinary
course of business.
2) Patent contradictions in the testimonies of the
principal witnesses of the buyers fatal to their
alleged ownership of the land.—The grave flaws
in the evidence for defendants Acaylar are the
patent contradictions in the testimonies of
Antonio L. Acaylar and lawyer Hamoy, their
principal witnesses on the validity of the sale.
Acaylar testified that he signed the deed of sale
and that one Tupas was an instrumental witness
(1213 tsn May 4, 1970). The truth is that Acaylar
never signed the deed and Tupas was not a
witness. The instrumental witnesses were Hamoy
and Paulino Empeynado. Hamoy at first testified
on November 20, 1968 that on August 7, 1950 he
was a witness in the deed of sale executed by
Yanas who had requested him to look for a buyer
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of his lot (122124 tsn). That means that Hamoy

met Yanas in August, 1950. More than a year later,
or on June 22, 1970, Hamoy, testifying as a
rebuttal witness for Acaylar, declared on direct
and crossexamination that he last saw Yanas in
1946. He absurdly stated that his name appears
as an instrumental witness in the deed of sale but
he testified; “That is my name but I did not sign
that”.

3) Action or defense for the declaration of

inexistence of a contract does not prescribe.—
The fact that the alleged sale took place in 1950
and the action to have it declared void or
inexistent was filed in 1963 is immaterial. The
action or defense for the declaration of the
inexistence of a contract does not prescribe (Art.
1410, Civil Code).

ARELLANO UNIVERSITY SCHOOL OF LAW Page 115

 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS
BARSOBIA VS CUENCO
G.R. No. L-33048 April 16, 1982
Nature: This is a Petition for Review on Certiorari
of the CA decision declaring herein respondent,
Victoriano Cuenco, as the absolute owner the
disputed land.
FACTS:
Leocadia Balisado (original owner) sold the
disputed coconut land to SPOUSES Patricio
Barsobia and Epifania Sarsosa (petitioner), both
Filipino citizens.
When Patricio died, Epifania sold the land to a
Chinese National, Ong King Po, who later sold the
same to one Victoriano Cuenco, herein
respondent, a naturalized Filipino citizen.
Epifania, however, unilaterally repudiated the
sale to Ong King Po and later sold 1/2 portion of
the same land to Pacita Vallar (petitioner). She
claimed that it was not her intention to sell the
land to Ong King Po.
Cuenco then filed an action for recovery of
possession and ownership of the coconut land
against Epifania and Vallar. In their Answer, they
insisted, among others, that Epifania's sale to Ong
King Po, a Chinese national, was inexistent and/or
void ab initio.
ISSUE:
WON Vallar is the rightful owner of the coconut
land because the sale between Epifania and Ong
King Po is void and/or inexistent
RULING:
NO!
There should be no question that the sale of the
land in question in 1936 by Epifania to Ong King
Po was inexistent and void from the beginning
(Art. 1409 [7], Civil Code) because it was a
contract executed against the mandatory
ARELLANO UNIVERSITY SCHOOL OF LAW
provision of the 1935 Constitution, which is an
expression of public policy to conserve lands for
the Filipinos. XXX
Had this been a suit between Epifania and Ong
King Po, she could have been declared entitled to
the litigated land on the basis, as claimed, of the
ruling in Philippine Banking Corporation vs. Lui
She, reading:
... For another thing, and this is not only cogent
but also important. Article 1416 of the Civil
Code provides as an exception to the rule
on pari delicto that when the agreement is not
illegal per se but is merely prohibited, and the
prohibition by the law is designed for the
protection of the plaintiff, he may, if public
policy is thereby enhanced, recover what he
has sold or delivered. ...
But the factual set-up has changed. The litigated
property is now in the hands of a naturalized
Filipino. It is no longer owned by a disqualified
vendee. Respondent, as a naturalized citizen, was
constitutionally qualified to own the subject
property. There would be no more public policy
to be served in allowing petitioner Epifania to
recover the land as it is already in the hands of a
qualified person. XXX
While, strictly speaking, Ong King Po, private
respondent's vendor, had no rights of ownership
to transmit, it is likewise inescapable that
petitioner Epifania had slept on her rights for 26
years from 1936 to 1962. By her long inaction or
inexcusable neglect, she should be held barred
from asserting her claim to the litigated property
(Sotto vs. Teves, 86 SCRA 157 [1978]). XXX
Respondent, therefore, must be declared to be the
rightful owner of the property.
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CONTRACTS
GODINEZ VS. FONG
GR NO. L-36731; January 27, 1983
FACTS:
The plaintiffs filed a case to recover a parcel of land sold
by their father Jose Godinez to defendant Fong Pak Luen.
Said defendant executed a power of attorney in favour of
his co-defendant Kwan Pun Ming, who conveyed and
sold the above described parcel of land to co-defendant
Trinidad S. Navata. The latter is aware of and with full
knowledge that Fong Pak Luen is a Chinese citizen as well
as Kwan Pun Ming, who under the law are prohibited and
disqualified to acquire real property; that Fong
Pak Luen has not acquired any title or interest in
said parcel of land as purported contract of sale
executed by Jose Godinez alone was contrary to law and
considered non-existent.
The defendant filed her answer that the complaint does
not state a cause of action since it appears from the
allegation that the property is registered in the name of
Jose Godinez so that as his sole property he may dispose
of the same; that the cause of action has been barred by
the statute of limitations as the alleged document of sale
executed by Jose Godinez on November 27, 1941,
conveyed the property to defendant Fong Pak Luen as a
result of which a title was issued to said defendant;
that under Article 1144(1) of the Civil Code,
an action based upon a written contract must be
brought within 10 years from the time the right of
action accrues; that the right of action accrued on
November 27, 1941 but the complaint was filed only on
September 30, 1966, beyond the10-year period
provided by law. The trial court issued an order
dismissing the complaint. A motion for
reconsideration was filed by plaintiffs but was
denied.
ISSUE:
Whether or not the lower court erred in
dismissing the complaint on the ground that the
cause of action had prescribed
ARELLANO UNIVERSITY SCHOOL OF LAW
HELD:
There can be no dispute that the sale in 1941 by
Jose Godinez of his residential lot acquired from
the Bureau of Lands as part of the Jolo townsite to
Fong Pak Luen, a Chinese citizen residing in
Hongkong, was violative of Section 5, Article XIII
of the 1935 Constitution which provided:
Sec. 5. Save in cases of hereditary succession,
no private agricultural land will be
transferred or assigned except to individuals,
corporations, or associations qualified to
acquire or hold lands of the public domain in
the Philippines.
The meaning of the above provision was fully
discussed in Krivenko v. Register of Deeds of
Manila (79 Phil. 461) which also detailed the
evolution of the provision in the public land laws,
Act No. 2874 and Commonwealth Act No. 141.
The Krivenko ruling that "under the Constitution
aliens may not acquire private or agricultural
lands, including residential lands" is a declaration
of an imperative constitutional policy.
Consequently, prescription may never be invoked
to defend that which the Constitution prohibits.
However, we see no necessity from the facts of
this case to pass upon the nature of the contract
of sale executed by Jose Godinez and Fong Pak
Luen whether void ab initio, illegal per se or
merely pro-exhibited.
It is enough to stress that insofar as the vendee is
concerned, prescription is unavailing. But neither
can the vendor or his heirs rely on an argument
based on imprescriptibility because the land sold
in 1941 is now in the hands of a Filipino citizen
against whom the constitutional prescription was
never intended to apply. The lower court erred in
treating the case as one involving simply the
application of the statute of limitations.
From the fact that prescription may not be used
to defend a contract which the Constitution
prohibits, it does not necessarily follow that the
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appellants may be allowed to recover the

property sold to an alien. As earlier mentioned,
Fong Pak Luen, the disqualified alien vendee later
sold the same property to Trinidad S. Navata, a
Filipino citizen qualified to acquire real property.

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YAP VS. GRAGEDA

G.R. NO. L-31606, March 28, 1983

FACTS:
Sometime in April 1939, Maximo Rico, the father
of respondent Jose Rico, executed a Deed of
Absolute Sale over two (2) lots in favor of the
petitioner Donato Yap, a Chinese national.
After the lapse of almost 15 years from and after
the execution of the Deed of Absolute Sale,
petitioner Donato Yap became a naturalized
Filipino citizen.
Since 1939, Petitioner Donato Yap has been in
possession of subject lots, openly, publicly,
continuously, and adversely in the concept of
owner.

ISSUE:
Whether or not the sale of the lots to a Chinese
national who later became a naturalized Filipino
citizen is valid

RULING:
VALID. The litigated property is now in the hands
of a naturalized Filipino. It is no longer owned by
a disqualified vendee. Petitioner Donato Yap, as a
naturalized citizen, was constitutionally qualified
to own the subject property.

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS
PINEDA V. DELA RAMA
G.R. No. L-31831. April 28, 1983
FACTS:
The case involves a contract of loan between
Pineda and Atty. dela Rama, evidenced by a
promissory note amounting to Php 9,300.00, the
purpose of which is to stop or delay the institution
of criminal charges against Pineda who allegedly
misappropriated 11,000 cavans of palay
deposited at his ricemill in Concepcion, Tarlac
through Atty. Dela Rama who was purportedly an
intimate friend of the National Rice and Corn
Administration (NARIC) general manager. Atty.
Dela Rama files a complaint for collection on the
basis of said note but was denied by the trial on
the ground that the purpose of the promissory
note was illegal when appealed, the CA ruled in
favor of Atty. dela Rama on the ground of
presumption of valuable consideration.
ISSUE:
Whether the presumption of valuable
consideration may be relied upon though the
purpose for which the promissory note was
issued to stop or delay the institution of criminal
charges against Pineda?
RULING:
NO.
The Court of Appeals' reliance on the above
provision is misplaced. The presumption that a
negotiable instrument is issued for a valuable
consideration is only prima facie. It can be
rebutted by proof to the contrary. (Bank of the
Philippine Islands v. Laguna Coconut Oil Co. et al.,
48 Phil. 5)."
According to Dela Rama, he loaned the P9,300.00
to Pineda in two installments on two occasions
five days apart — first loan for P5,000.00 and
second loan for P4,300.00, both given in cash. He
also alleged that previously he loaned P3,000.00
ARELLANO UNIVERSITY SCHOOL OF LAW
but Pineda paid this other loan two days
afterward.
These allegations of Dela Rama are belied by the
promissory note itself. The second sentence of the
note reads — "This represents the cash advances
made by him in connection with my case for
which he is my attorney-in-law."
Considering the foregoing, we agree with the trial
court that the promissory note was executed for
an illegal consideration. Articles 1409 and 1412
of the Civil Code in part, provide:
Art. 1409. The following contracts are
inexistent and void from the beginning:
(1) Those whose cause, object or
purpose is contrary to law, morals, good
customs, public order and public policy;
xxx xxx xxx
Art. 1412. If the act in which the
unlawful or forbidden cause consists does
not constitute a criminal offense, the
following rules shall be observed:
(1) When the fault is on the part of both
contracting parties, neither may recover
what he has given by virtue of the contract,
or demand the performance of the other's
undertaking.
xxx xxx xxx
Whether or not the supposed cash advances
reached their destination is of no moment. The
consideration for the promissory note — to
influence public officers in the performance of
their duties — is contrary to law and public
policy. The promissory note is void ab initio and
no cause of action for the collection cases can
arise from it.
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CONTRACTS
LIGUEZ VS. COURT APPEALS
G.R. No. L-11240; 18 December 1957
FACTS:
Conchita Liguez filed a complaint against the
widow and heirs of the late Salvador P. Lopez to
recover a parcel of 51.84 hectares of land,
situated in barrio Bogac-Linot, of the municipality
of Mati, Province of Davao. Plaintiff averred to be
its legal owner, pursuant to a deed of donation of
said land, executed in her favor by the late owner,
Salvador P. Lopez, on 18 May 1943. The defense
interposed was that the donation was null and
void for having an illicit causa or consideration,
which was the plaintiff's entering into marital
relations with Salvador P. Lopez, a married man;
and that the property had been adjudicated to the
appellees as heirs of Lopez by the court of First
Instance, since 1949. The Court of Appeals held
that the deed was indeed inoperative, and null
and void.
In this appeal, Liguez contends such decisions by
the CFI and the CA, arguing that under Article
1274 of the Civil Code of 1889 (which was the
governing law in 1948, when the donation was
executed), "in contracts of pure beneficence the
consideration is the liberality of the donor", and
that liberality per se can never be illegal, since it
is neither against law or morals or public policy.
Furthermore, it was averred by Liguez that the CA
erred in the application of the principle of in pari
delicto. The principle was applied in the case,
barring the appellant from alleging the illegality
of the bargain.
ISSUE:
1. Whether or not the motive for the donation
determines the legality of the contract.
2. Whether or not the principle of impair delicto
was correctly applied in the case.
3. Whether or not the donation is valid.
RULINGS:
1. Yes.
ARELLANO UNIVERSITY SCHOOL OF LAW
Under Article 1274, liberality of the do or is
deemed causa in those contracts that are of
"pure" beneficence; that is to say, contracts
designed solely and exclusively to procure the
welfare of the beneficiary, without any intent of
producing any satisfaction for the donor;
contracts, in other words, in which the idea of
self-interest is totally absent on the part of the
transferor. For this very reason, the same Article
1274 provides that in remuneratory contracts,
the consideration is the service or benefit for
which the remuneration is given; causa is not
liberality in these cases because the contract or
conveyance is not made out of pure beneficence,
but "solvendi animo." The facts as found by the
Court of Appeals (and which we can not vary)
demonstrate that in making the donation in
question, the late Salvador P. Lopez was not
moved exclusively by the desire to benefit
appellant Conchita Liguez, but also to secure her
cohabiting with him, so that he could gratify his
sexual impulses.
In the present case, it is scarcely disputable that
Lopez would not have conveyed the property in
question had he known that appellant would
refuse to cohabit with him; so that the
cohabitation was an implied condition to the
donation, and being unlawful, necessarily tainted
the donation itself. Motive may be regarded as
causa when it predetermines the purpose of the
contract.
2. No.
The Court of Appeals erred in applying to the
present case the pari delicto rule. First, because it
can not be said that both parties here had equal
guilt when we consider that as against the
deceased Salvador P. Lopez, who was a man
advanced in years and mature experience, the
appellant was a mere minor, 16 years of age,
when the donation was made; that there is no
finding made by the Court of Appeals that she was
fully aware of the terms of the bargain entered
into by and Lopez and her parents; that, her
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acceptance in the deed of donation (which was

authorized by Article 626 of the Old Civil Code)
did not necessarily imply knowledge of
conditions and terms not set forth therein; and
that the substance of the testimony of the
instrumental witnesses is that it was the
appellant's parents who insisted on the donation
before allowing her to live with Lopez. These facts
are more suggestive of seduction than of immoral
bargaining on the part of appellant. It must not be
forgotten that illegality is not presumed, but must
be duly and adequately proved.

In the second place, the rule that parties to an

illegal contract, if equally guilty, will not be aided
by the law but will both be left where it finds
them, has been interpreted by this Court as
barring the party from pleading the illegality of
the bargain either as a cause of action or as a
defense.

3.
The right of the husband to donate community
property is strictly limited by law (Articles 1409,
1413, 1415, Civil Code of 1889;
Baello vs. Villanueva, 54 Phil. 213). However, the
donation made in contravention of the law is not
void in its entirety, but only in so far as it prejudices
the interest of the wife. The rule applies whether
the donation is gratuitous or for a consideration.
The forced heirs are entitled to have the donation
set aside in so far as inofficious; i.e., in excess of
the portion of free disposal (Civil Code of 1889,
Arts. 636, 654.

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS
PHILIPPINE BANKING CORPORATION VS. LUI
SHE
G.R. No. L-17587; September 12, 1967
FACTS:
Justina Santos y Canon Faustino, owner of a piece
of land in Manila. This parcel, with an area of
2,582.30 square meters, is located on Rizal
Avenue and opens into Florentino Torres street at
the back and Katubusan street on one side. Wong
Heng, a Chinese had been a long-time lessee of a
portion of the property, paying a monthly rental
of P2,620.
Justina Santos executed on November 15, 1957 a
contract of lease in favor of Wong. The lease was
for 50 years, although the lessee was given the
right to withdraw at any time from the
agreement.
On December 21 she executed another contract
giving Wong the option to buy the leased
premises for P120,000, payable within ten years
at a monthly installment of P1,000. 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 P1,800 a month. The option was
conditioned on his obtaining Philippine
citizenship, a petition for which was then pending
in the Court of First Instance of Rizal. It appears,
however, that this application for naturalization
was withdrawn when it was discovered that he
was not a resident of Rizal. On October 28, 1958
she filed a petition to adopt him and his children
on the erroneous belief that adoption would
confer on them Philippine citizenship. The error
was discovered and the proceedings were
abandoned.
On November 18, 1958 she executed two other
contracts, one extending the term of the lease to
99 years, and another fixing the term of the option
of 50 years. Both contracts are written in Tagalog.
ARELLANO UNIVERSITY SCHOOL OF LAW
In two wills executed on August 24 and 29, 1959,
she bade her legatees to respect the contracts she
had entered into with Wong, but in a codicil of a
later date (November 4, 1959) she appears to
have a change of heart. Claiming that the various
contracts were made by her because of
machinations and inducements practiced by him,
she now directed her executor to secure the
annulment of the contracts.
The complaint alleged that the contracts were
obtained by Wong "through fraud,
misrepresentation, inequitable conduct, undue
influence and abuse of confidence and trust of and
(by) taking advantage of the helplessness of the
plaintiff and were made to circumvent the
constitutional provision prohibiting aliens from
acquiring lands in the Philippines and also of the
Philippine Naturalization Laws." The court was
asked to direct the Register of Deeds of Manila to
cancel the registration of the contracts and to
order Wong to pay Justina Santos the additional
rent of P3,120 a month from November 15, 1957
on the allegation that the reasonable rental of the
leased premises was P6,240 a month.
In the meantime as a result of a petition for
guardianship filed in the Juvenile and Domestic
Relations Court, the Security Bank & Trust Co.
was appointed guardian of the properties of
Justina Santos, while Ephraim G. Gochangco was
appointed guardian of her person.
The lower court ruled that all the documents
mentioned in the first cause of action, with the
exception of the first which is the lease contract of
15 November 1957, are declared null and void
From this judgment both parties appealed
directly to this Court. After the case was
submitted for decision, both parties died, Wong
Heng on October 21, 1962 and Justina Santos on
December 28, 1964. Wong was substituted by his
wife, Lui She, the other defendant in this case,
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while Justina Santos was substituted by the
Philippine Banking Corporation.
ISSUES:
1. Whether the insertion of a resolutory
condition permitting the cancellation by one
of the parties is valid.
2. Whether there was a violation of Wong’s
Fudiciary relationship with Justina Santos.
3. Whether the consent of Justina Santos was
validly obtained.
4. Whether the contracts are void.
HELD:
1. Yes. Article 1256 [now art. 1308] of the Civil
Code in our opinion creates no impediment to
the insertion in a contract for personal service
of a resolutory condition permitting the
cancellation of the contract by one of the
parties. Such a stipulation, as can be readily
seen, does not make either the validity or the
fulfillment of the contract dependent upon the
will of the party to whom is conceded the
privilege of cancellation; for where the
contracting parties have agreed that such
option shall exist, the exercise of the option is
as much in the fulfillment of the contract as
any other act which may have been the subject
of agreement. Indeed, the cancellation of a
contract in accordance with conditions agreed
upon beforehand is fulfillment.
2. No. It is contended that the lease contract was
obtained by Wong in violation of his fiduciary
relationship with Justina Santos, contrary to
article 1646, in relation to article 1941 of the
Civil Code, which disqualifies "agents (from
leasing) the property whose administration or
sale may have been entrusted to them." But
Wong was never an agent of Justina Santos.
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
ARELLANO UNIVERSITY SCHOOL OF LAW
3. Yes. The charge of undue influence in this case
rests on a mere inference drawn from the fact
that Justina Santos could not read (as she was
blind) and did not understand the English
language in which the contract is written, but
that inference has been overcome by her own
evidence.
As it was with the lease contract, so it was with
the rest of the contracts — the consent of
Justina Santos was given freely and
voluntarily.
4. Yes. For the testimony just quoted, while
dispelling doubt as to the intention of Justina
Santos, at the same time gives the clue to what
we view as a scheme to circumvent the
Constitutional prohibition against the transfer
of lands to aliens. "The illicit purpose then
becomes the illegal causa" rendering the
contracts void.
Taken singly, the contracts show nothing that
is necessarily illegal, but considered
collectively, they reveal an insidious pattern
to subvert by indirection what the
Constitution directly prohibits. To be sure, a
lease to an alien for a reasonable period is
valid. So is an option giving an alien the right
to buy real property on condition that he is
granted Philippine citizenship.
But if an alien is given not only a lease of, but
also an option to buy, a piece of land, by virtue
of which the Filipino owner cannot sell or
otherwise dispose of his property, this to last
for 50 years, then it becomes clear that the
arrangement is a virtual transfer of ownership
whereby the owner divests himself in stages
not only of the right to enjoy the land ( jus
possidendi, jus utendi, jus fruendi and jus
abutendi) but also of the right to dispose of it
( jus disponendi) — rights the sum total of
which make up ownership. It is just as if today
the possession is transferred, tomorrow, the
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CONTRACTS

use, the next day, the disposition, and so on,

until ultimately all the rights of which
ownership is made up are consolidated in an
alien. And yet this is just exactly what the
parties in this case did within the space of one
year, with the result that Justina Santos'
ownership of her property was reduced to a
hollow concept. If this can be done, then the
Constitutional ban against alien landholding
in the Philippines, as announced in Krivenko v.
Register of Deeds, is indeed in grave peril.

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS
AVILA VS. CA
G.R. No. L-45255 November 14, 1986; SECOND
DIVISION; PARAS, J.:
FACTS:
In 1939, the Court of First Instance of Misamis
Oriental, as a cadastral court, adjudicated Lots
594 and 828 of the Cadastral Survey of Cagayan
to Paz Chavez. But because Paz Chavez failed to
pay the property taxes of Lot 594, the government
offered the same for sale at a public auction.
Marciana G. Avila, a teacher, wife of Leonardo
Avila and the mother of the herein petitioners,
participated in and won the bidding. Despite the
provision of Section 579 of the Revised
Administrative Code prohibiting public school
teachers from buying delinquent properties,
nobody, not even the government questioned her
participation in said auction sale. In fact on
February 20, 1940, after the expiration of the
redemption period, the Provincial Treasurer
executed in her favor the final bill of sale.
Sometime in 1947, OCT Nos. 100 and 101,
covering said Lots 594 and 828, were issued in
favor of Paz Chavez. In opposition thereto, private
respondents filed a petition for review of the
decrees on August 25, 1947 at the Court of First
Instance of Misamis Oriental, Branch II, in
Cadastral Case No. 17, Lot No. 594. After hearing
on the merits, the Cadastral Court promulgated a
Decision setting aside the decision of the Court
adjudicated the lots in question in favor of
respondent Paz Chavez, and declaring NULL and
VOID Decrees Nos. 433 and 434 issued by the
Chief of Land Registration Office on June 19, 1947
as well as the certification of title covering Lots
Nos. 594 and 828 of the Cadastral Survey of
Cagayan issued by the Register of Deeds.
Paz Chavez appealed the said decision with the
Court of Appeals which the later rendered
modifying the decision appealed from by
disallowing the registration of Lot No. 594 in the
name of Marciana G. Avila, but affirming said
decision in all other respects. Avila moved for
ARELLANO UNIVERSITY SCHOOL OF LAW
execution, and a writ of possession which was
opposed by Paz Chavez, who was succeeded by
the herein private respondent Aladino Ch.
Bacarrisas on the alleged ground that he has the
actual and physical possession of Lot 594 where
his residential house has stood since 1946.
Petitioner based their view that ownership and
possession are separated in aforesaid decision, so
that they assert that they are entitled to the
possession of Lot 594, although they are not
entitled to its registration in their names.
Private respondent filed a certiorari and
mandamus with preliminary injunction suit was
filed with the Court of Appeals when his urgent
motion for correction of writ of execution was
denied, alleging, among other things, that the
Avilas, the have no interest, right, claims, title or
participation in Lot No. 594 to which they could
claim possession. The Court of Appeals grant the
private respondent’s certiorari.
Petitioners filed a motion for reconsideration but
the same was denied by the Court of Appeals.
Hence, this petition.
ISSUE:
Whether or not the sale of the subject land to the
mother of the petitioners is valid that would
entitled them to the possession of the land?
RULING:
NO.
While it is true that Marciana Avila, their mother
and predecessor-in-interest, purchased the
questioned property at a public auction
conducted by the government; paid the purchase
price; and was issued a final bill of sale after the
expiration of the redemption period, it is however
undisputed that such purchase was prohibited
under Section 579 of the Revised Administrative
Code, as amended.
Thus, the sale to her of Lot 594 is void.
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On the other hand, under Article 1409 of the Civil

Code, a void contract is inexistent from the
beginning. It cannot be ratified neither can the
right to set up the defense of its illegality be
waived. Moreover, Marciana Avila was a party to
an illegal transaction, and therefore, under Art.
1412 of the Civil Code, she cannot recover what
she has given by reason of the contract or ask for
the fulfillment of what has been promised her.

Under the circumstances, possession cannot be

claimed by petitioners, because their
predecessor-in-interest besides being at fault is
not the successful claimant in the registration
proceedings and hence not entitled to a writ of
possession. As correctly stated by the Court of
Appeals when respondent Court issued the writ
of execution as to Lot 594, there really was no
legal basis for the same, for Avila had not secured
a decree, nor a judgment of confirmation of title
over said lot.

Much less can possession be claimed by private

respondents as it is undisputed that the land in
question has been the subject of a tax sale of
delinquent property with a final bill of sale.

Neither did the government file any claim for

possession; nor appear to be impleaded in any of
the actions or petitions before the Courts, Its only
interest in the land in question appears to be in
the collection of taxes.

Consequently, the situation is evidently one of

failure of ownership because of the violation of
Section 579 of the Administrative Code.
Otherwise stated, the property apparently has no
owner.

Under the principle that the State is the ultimate

proprietor of land within its jurisdiction, subject
land may be escheated in favor of the government
upon filing of appropriate actions for reversion or
escheat under Section 5, Rule 91 of the Rules of
Court relative to properties alienated in violation
of any statute.

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS
TEJA MARKETING VS IAC
G.R. No. L-65510 March 9, 1987; Paras, J.
Short Version:
Nale bought a motorcycle from Teja
Marketing/Jaucian. In the LTC records, Nale, in
order to use the motorcycle for public transport,
attached the motorcycle to Jaucian’s
transportation franchise since Nale had no
franchise of his own. When Teja Marketing’s
demands on Nale for the outstanding balance
failed, it instituted a collection case against Nale.
Nale’s defense against the non-payment was that
Jaucian failed to register the motorcycle to the
LTC, in contravention of theiragreement. City
Court and CFI ruled against Nale.
IAC reversed, on the ground of in pari delicto. SC
held that both parties are in pari delicto and were
thus not entitled to relief. The parties’ use of the
kabit system was illegal and abused the certificate
of public convenience granted by the government.
Though the system is not expressly punished as
criminal, it is contrary topublic policy; thus, void.
Having entered into an illegal contract, neither
can seek relief from the courts, and each must
bear theconsequences of his acts.
FACTS:
Pedro Nale bought from Teja Marketing a
motorcycle with complete accessories and a
sidecar. A chattel mortgage was constituted in
favor of Teja Marketing as a security for the
payment of the balance of thepurchase price. Nale
failed to pay the motorcycle after Teja
Marketing’s demands. The records of the Land
Transportation Commission show that the
motorcycle sold to Nale was first mortgaged
toTeja Marketing by Angel Jaucian, though Teja
Marketing and Angel Jaucian are one and the
same. It was made to appear that way because
Nale had no transportation franchise of his own
and he had to attach the motorcycle unit to
ARELLANO UNIVERSITY SCHOOL OF LAW
Jaucian’s transportation franchise in order to use
the unit for the public transport.
The agreement also of the parties here was for
Jaucian to undertake the yearly registration of the
motorcycle with theLand Transportation
Commission. Jaucian failed to register the
motorcycle on that year on the ground that Nale
failed to comply with somerequirements such as
the payment of the insurance premiums and the
bringing of the motorcycle to the LTCfor
stenciling. Jaucian said that Nale was hiding the
motorcycle from him to avoid payment.
The vehicle was also mortgaged to the Rural Bank
of Camaligan, as all motorcycles purchased from
Jaucian on credit was rediscounted with the bank.
Nale did not dispute the sale and outstanding
balance of P1,700; but contends that because of
the failure of Jaucian tocomply with his obligation
to register the motorcycle, Nale suffered damages
when he failed to claim any insuranceindemnity
for the more than 2 times that the motorcycle
figured in accidents aside from the loss of the
daily income of P15.00 as boundary fee when the
motorcycle was impounded by the LTC for
not being registered.
Teja Marketing filed an action for "Sum of
Money with Damages" against Nale. The City
Court rendered judgment in favor of Teja
Marketing, dismissing the counterclaim, and
ordered Nale to payTeja Marketing.
On appeal to the CFI Camarines Sur, the decision
was affirmed in toto.
Upon Nale’s petition for review, the Intermediate
Appellate Court set aside the decision on the
basis of doctrine of "pari delicto," and
accordingly, dismissed the complaint of Teja
Marketing, as well as the counterclaim of
Nale;without pronouncements as to costs.
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Hence, the petition for review was filed by Teja

Marketing and/or Angel Jaucian.
ISSUE:
Whether or not the parties are entitled to relief.
RULING:
NO, for both are in pari delicto.
Nale’s purchase of the motorcycle for operation
as a trimobile to be used under the transportation
franchise of Jaucian, pursuant to what is
commonly known as the "kabit system," without
the prior approval of the Board of Transportation
(formerly the Public Service Commission), was an
illegal transaction.
It involved the fictitious registration of the motor
vehicle in the name of Jaucian so that Nale may
traffic withthe privileges of Jaucian’s franchise, or
certificate of public convenience, to operate a
tricycle service.
Kabit system:
A person who has been granted a certificate of
public convenience allows another person who
owns motor vehicles to operate under such
franchise for a fee.
The parties being in pari delicto, neither of them
may bring an action against the other to enforce
their illegal contract [Art. 1412 (a), Civil Code]. A
certificate of public convenience is a special
privilege conferred by the government. Abuse of
this privilege by thegrantees thereof cannot be
countenanced.
It is a fundamental principle that the court will
not aid either party to enforce an illegal contract,
but will leave bothwhere it finds then. Upon this
premise it would be error to accord the parties
relief from their predicament. Article1412 of the
Civil Code denies them such aid. It provides:Art.
1412. If the act in which the unlawful or forbidden
cause consists does not constitute a criminal
offense, the followingrules shall be observed.
When the fault is on the part of both contracting
parties, neither may recover that he has given by
virtue of the contract, ordemand, the
performance of the other's undertaking.
The defect of in existence of a contract is
permanent and cannot be cured by ratification or
by prescription. The merelapse of time cannot
give efficacy to contracts that are null and void.
Ex pacto illicito non oritur actio (No action arises
out of illicit bargain) is the time-honored maxim
that must beapplied in the case at bar. Having
entered into an illegal contract, neither can seek
relief from the courts, and eachmust bear the
consequences of his acts. (Lita Enterprises vs.
IAC)
Petition dismissed for lack of merit. Decision of
the IAC affirmed

The "kabit system" has been Identified as one of

the root causes of the prevalence of graft and
corruption in the government transportation
offices. Although not outrightly penalized as a
criminal offense, the kabit system is invariably
recognized as being contrary topublic policy and,
therefore, void and inexistent under Article 1409
of the Civil Code.

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS
BRIONES VS CAMMAYO
GR No. 23559 October 4, 1971
FACTS:
Aurelio G. Briones filed an action in the Municipal
Court of Manila against Primitivo, Nicasio, Pedro,
Hilario
and Artemio, all surnamed Cammayo, to recover
from them, jointly and severally, the amount of
P1,500.00, plus damages, attorney's fees and
costs of suit. Defendants executed the real estate
mortgage as security for the loan of P1,200.00
given to Primitivo P. Cammayo upon the usurious
agreement that defendant pays to the plaintiff,
out of the alleged loan of P1,500.00 (which
includes as interest the sum of P300.00) for one
year.
Although the mortgage contract was executed for
securing the payment of P1,500.00 for a period of
one
year, without interest, the truth and the real fact
is that plaintiff delivered to the defendant
Primitivo P. Cammayo only the sum of P1,200.00
and withheld the sum of P300.00 which was
intended as advance interest for one year.
On account of said loan of P1,200.00, defendant
Primitivo P. Cammayo paid to the plaintiff during
the
period from October 1955 to July 1956 the total
sum of P330.00 which plaintiff, illegally and
unlawfully refused to acknowledge as part
payment of the account but as in interest of the
said loan for an extension of another term of one
year.
ISSUE:
Can Briones recover the amount of P1,500.00?
RULING:
Loan is valid but usurious interest is void.
Creditor has the right to recover his capital by
judicial action. To
ARELLANO UNIVERSITY SCHOOL OF LAW
discourage stipulations on usurious interest, said
stipulations are treated as wholly void, so that the
loan
becomes one without stipulation as to payment of
interest. It should not, however, be interpreted to
mean forfeiture even of the principal, for this
would unjustly enrich the borrower at the
expense of the lender. Furthermore, penal
sanctions are available against a usurious lender,
as a
further deterrence to usury.
In simple loan with stipulation of usurious
interest, the prestation of the debtor to pay the
principal
debt, which is the cause of the contract (Article
1350, Civil Code), is not illegal. The illegality lies
only as to the prestation to pay the stipulated
interest; hence, being separable, the latter only
should be deemed void, since it is the only one
that is illegal.
Barrredo, J., concurring
The Usury law is clear that he may recover only
all interests, including of course, the legal part
thereof, with legal interests from the date of
judicial demand, without maintaining that he can
also recover the principal he has already paid to
the lender.
Castro Fernando, and Conception, JJ., dissenting
In a contract which is tainted with usury, that is,
with a stipulation (whether written or unwritten)
to pay
usurious interest, the prestation to pay such
interest is an integral part of the cause of the
contract. It is also the controlling cause, for a
usurer lends his money not just to have it
returned but indeed, to acquire in coordinate
gain.
Article l957, which declares the contract itself –
not merely the stipulation to pay usurious
interest -- void,
necessarily regards the prestation to pay
usurious interest as an integral part of the cause,
making it illegal.
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