Salvador Panganiban vs Agustin Cuevas 7 Phil 477 Case

Digest

Salvador Panganiban vs Agustin Cuevas

Concept:
Article 1240. Payment shall be made to the person in whose
favor the obligation has been constituted, or his successors-ininterest,
or any person authorized to receive it
Facts:
         Agustin Cuevas was ordered to return the property to Panganiban and to pay the proceedings
         Dec. 10, 1897. Panganiban was an owner of a Camarin (Nipa and bamboo construction) and lot. He sold
it to one Francisco Gonazales in the sum of P1,300. It had a stipulation that the vendor has the right to
repurchase within six months from the time of purchase, in compliance with the art 1518 of the civil code,
if the vendor fails to do so the vendee will pay P200 and he will be the absolute owner.
         August 1, 1900. Gonzales sold the property to Agustin Cuevas with the same price. It was also stated
that the vendor (panganiban) has the right to repurchase and if in six months he failed to do so the
vendee (Cuevas) has to pay P200 and will be the owner.
         Cuevas asked and granted judicial possession of the property, notice was given to the occupants of the
property, among them was the wife of Panganiban. Cuevas paid in court the sum of P200 and declared
that he is now owner of the property. The payment was refused by Panganiban and an action of
ejectment was filed against Panganiban
         Panganiban said that In the month of May 1898, He sought to repurchase the property, but he could not locate Gonzales due
to the revolutionary war. The revolutionary government then seized the land and camarin from Gonzales. Panganiban
redeemed  the property to th erevolutionary government on November 12, 1898  by paying the repurchase price. On the
other hand, on August 1, 1900, Gonzales sold the property to Cuevas.

Issue: W/ON the Purchase made by Panganiban from the revolutionary army vested him the right to the
property.

Held: No. The property was seized by the army not confiscated, a seizure just prohibits the owner from
enjoying his/her property. Panganiban repurchased the property from the army but the army was not the
owner. the Supreme Court said that payment made to a third person, even through error and in good
faith, shall not release the debtor of the obligation to pay and will not deprive the creditor of his right to
demand payment. If it becomes impossible to recover what was unduly paid, any loss resulting therefrom
shall be borne by the deceived debtor, who is the only one responsible for his own acts unless there is a
stipulation for the wrongful payment.

Kalalo v. Luz
G.R. No. L-27782, 31 July 1970
FACTS:

Kalalo the plaintiff is a licensed civil engineer he entered into an agreement with defendant Alfredo J.
Luz a license architect. Plaintiff sent a statement of account to defendant stating his fee for the
service that he rendered. The defendant however did not pay the plaintiff of the exact amount that he
requested because some of appellee’s services were not in accordance with the agreement and
appellee’s claims were not justified by the services actually rendered. Defendant alleges that plaintiff
had no cause of action, that plaintiff was in estoppel because of certain acts, representations,
admissions and/or silence, which led appellant to believe certain facts to exist and to act upon said
facts.

ISSUE:

Whether or not under the doctrine of estoppel would apply in this case.

RULING:

No. The statement of accounts could not estop appellee, because appellant did not rely thereon as
found by the Commissioner. Under article 1431 of the Civil Code, in order that estoppel may apply
the person, to whom representations have been made and who claims the estoppel in his favor must
have relied or acted on such representations.

The essential elements of estoppel in pais may be considered in relation to the party sought to be
estopped, and in relation to the party invoking the estoppel in his favor. As related to the party to be
estopped, the essential elements are: (1) conduct amounting to false representation or concealment
of material facts or at least calculated to convey the impression that the facts are otherwise than,
and inconsistent with, those which the party subsequently attempts to assert; (2) intent, or at least
expectation that his conduct shall be acted upon by, or at least influence, the other party; and (3)
knowledge, actual or constructive, of the real facts. As related to the party claiming the estoppel, the
essential elements are (1) lack of knowledge and of the means of knowledge of the truth as the facts
in questions; (2) (reliance, in good faith, upon the conduct or statements of the party to be estopped;
(3) action or inaction based thereon of such character as to change the position or status of the party
claiming the estoppel, to his injury, detriment or prejudice.

The first essential element in relation to the party sought to be estopped does not obtain in the
instant case, for, as appears in the Report of the Commissioner, appellee testified “that when he
wrote Exhibit 1 and prepared Exhibit 1-A, he had not yet consulted the services of his counsel and it
was only upon advice of counsel that the terms of the contract were interpreted to him resulting in
his subsequent letters to the defendant demanding payments of his fees pursuant to the contract
Exhibit A.” It is established, therefore, that Exhibit 1-A was written by appellee through ignorance or
mistake. Anent this matter, it has been held that if an act, conduct or misrepresentation of the party
sought to be estopped is due to ignorance founded on innocent mistake, estoppel will not arise.
Regarding the essential elements of estoppel in relation to the party claiming the estoppel, the first
element does not obtain in the instant case, for it cannot be said that appellant did not know, or at
least did not have the means of knowing, the services rendered to him by appellee and the fees due
thereon as provided in Exhibit A. The second element is also wanting, for, as adverted to, appellant
did not rely on Exhibit 1-A but consistently denied the accounts stated therein. Neither does the third
element obtain, for appellant did not act on the basis of the representations in Exhibit 1-A, and there
was no change in his position, to his own injury or prejudice.

EW PACIFIC TIMBER & SUPPLY CO. INC. VS. SENERIS

10 SCRA 686
FACTS: Petitioner, New Pacific Timber & Supply Co. Inc. was the defendant
in a complaint for collection of money filed by private respondent, Ricardo
A. Tong. In this complaint, respondent Judge rendered a compromise
judgment based on the amicable settlement entered by the parties wherein
petitioner will pay to private respondent P54,500.00 at 6% interest per
annum and P6,000.00 as attorney’s fee of which P5,000.00 has been paid.
Upon failure of the petitioner to pay the judgment obligation, a writ of
execution worth P63,130.00 was issued levied on the personal properties of
the petitioner. Before the date of the auction sale, petitioner deposited with
the Clerk of Court in his capacity as the Ex-Officio Sheriff P50,000.00 in
Cashier’s Check of the Equitable Banking Corporation and P13,130.00 in cash
for a total of
P63,130.00. Private respondent refused to accept the check and the cash
and requested for the auction sale to proceed. The properties were sold for
P50,000.00 to the highest bidder with a deficiency of P13,130.00. Petitioner
subsequently filed an ex-parte motion for issuance of certificate of
satisfaction of judgment which was denied by the respondent Judge. Hence
this present petition, alleging that the respondent Judge capriciously and
whimsically abused his discretion in not granting the requested motion for
the reason that the judgment obligation was fully satisfied before the
auction sale with the deposit made by the petitioner to the Ex-Officio
Sheriff. In upholding the refusal of the private respondent
to accept the check, the respondent Judge cited Article 1249 of the New
Civil Code which provides that payments of debts shall be made in the
currency which is the legal tender of the Philippines and Section 63 of the
Central Bank Act which provides that checks representing deposit money do
not have legal tender power. In sustaining the contention of the private
respondent to refuse the acceptance of the cash, the respondent Judge
cited Article 1248 of the New Civil Code which provides that creditor cannot
be compelled to accept partial payment unless there is an express
stipulation to the contrary.
ISSUE: Can the check be considered a valid payment of the judgment
obligation?

RULING: Yes. It is to be emphasized that it is a well-known and accepted

practice in the business sector that a Cashier’s Check is deemed cash.
Moreover, since the check has been certified by the drawee bank, this
certification implies that the check is sufficiently funded in the drawee bank
and the funds will be applied whenever the check is presented for payment.
The object of certifying a check is to enable the holder to use it as money.
When the holder procures the check to be certified, it operates as an
assignment of a part of the funds to the creditors. Hence, the exception
provided in Section 63 of the Central Bank Act which states that checks
which have been cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor in cash the amount equal to that
which is credited to his account. The Cashier’s Check and the cash are valid
payment of the obligation of the petitioner. The private respondent has no
valid reason to refuse the acceptance of the check and cash as full payment
of the obligation
: Admissibility: Testimonial: Disqualification: Sec. 21-24 Rule 130

G.R. No. L-16741             January 31, 1962

FLORENCIA Q. DE ABRAHAM, ALFONSO ABRAHAM, and JESUS ABRAHAM, petitioners,

vs. INTESTATE ESTATE OF JUAN C. YSMAEL, PRISCILLA RECTO-KASTEN, respondent.

DE LEON, J.:

This is a petition to review on certiorari the decision of the Court of Appeals in CA-G.R. No.
21222-R.

The facts as shown by the record are as follows: On September 3, 1943, Juan C. Ysmael,
obtained a loan from Alfonso Abraham, Sr. in the amount of P12,500.00 in Japanese currency
notes, and executed a promissory note in favor of the latter promising to pay the loan within 90
days with interest at the rate of 10% per annum. The note was executed in the presence of
Florencia Q. Abraham, the creditor's wife, who affixed her signature at the bottom thereof as a
witness thereto. Upon the maturity of the note, a demand was made for its payment, but the
debtor failed to pay.
On February 9, 1945, Alfonso Abraham, Sr. died. On the other hand, Juan C. Ysmael died
intestate on April 23, 1952 leaving the note still unpaid.

On November 13, 1954, in Special Proceedings No. Q-285 for the settlement of the intestate
estate of Juan Ysmael, pending before the Court of First Instance of Quezon City, Florencia Q.
Vda. de Abraham, together with her sons, Alfonso and Jesus, all surnamed Abraham, filed a
pleading entitled "Reclamation" demanding payment of the amount represented by the note.
Because no regular administrator of the estate had yet been appointed by the court, the
"Reclamation" was not acted upon. However, as soon as Priscilla Recto-Kasten was appointed
administratrix, the claimants reproduced their "Reclamation" before the lower court and the
same was finally set for hearing. As agreed upon by the parties, the reception of evidence was
delegated to a commissioner. During the hearing before the commissioner, the counsel for the
administratrix interposed a general and continuing objection to the testimony of Florencia Vda.
de Abraham invoking the provisions of Section 26(c), Rule 123 of the Rules of Court. However,
after the claimant had testified, he lengthily cross-examined her on the very matters against
which he interposed a general objection.1äwphï1.ñët

On October 4, 1956, the lower court issued in Order-Decree allowing the claim against the
intestate estate of Juan C. Ysmael, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the Court rules that the claimants
established a just and valid claim against the estate of Juan C. Ysmael, and therefore
the "reclamation" under consideration is hereby APPROVED.

The administratrix is hereby ordered to pay the claimants herein the amount of P5,000.00 with
interest thereon at 10% per annum, in accordance with the Ballantyne Scale of Value for the
year December, 1943, out of the funds of the estate in the course of her administration. SO
ORDERED.

From the above Order-Decree, Priscilla Recto-Kasten, the administratrix, appealed to the Court
of Appeals. The appellate court concluding that "the lower court erred in finding that the
claimants have established a just and valid claim, and in allowing the claim — supposing it was
a claim with consideration — when the same had been barred by prescription, estoppel and
laches," reversed the Order-Decree appealed from. Hence, this petition for review brought by
the claimants.

The main issue in this petition is whether or not petitioners have established a just and valid
claim. And if the answer is in the affirmative, whether the same is already barred by
prescription and laches.

The record shows that petitioners have established the due execution and genuineness of the
promissory note and that respondents failed to present any evidence to destroy the same . Thus
in the Order-Decree appealed from, the lower court observed:

It is interesting to note that the promissory note executed by the deceased was produced
before the Court and marked as Exhibit B-1, and the circumstances under which the same was
executed was extensively described by Florencia Q. de Abraham during the hearing, who,
strikingly is one of the witnesses to the said instrument. Much to the surprise of the Court this
description was more vividly given by the said witness not in answer to the questions
propounded by her lawyer but on cross-examination of counsel for the administratrix, who
feebly attempted to destroy the due execution and genuineness of the said document. It is
indeed unfortunate that counsel for the administratrix did not choose to present evidence to
destroy the alleged genuineness of the promissory note (Exhibit B-1) in support of his theory,
despite his insinuation during the course of the trial that he might try to secure the services of
an expert to determine the genuineness of the signature of the late Juan C. Ysmael mentioned
therein. Again counsel manifested that if Exhibit B-1 is a genuine document the same has been
fully paid already, however, counsel did not present any proof to support this contention.

It is true that Section 26(c), Rule 123 of the Rules of Court provides:

(c) Parties or assignors of parties to a case, or persons in whose behalf a case is

prosecuted, against an executor administrator or other representative of a deceased
person, or against such person of unsound mind, cannot testify as to any matter of fact
occurring before the death of such deceased person or before such person became of
unsound mind;

However, there was a waiver of the prohibition when the counsel for the administratrix
extensively cross-examined the witness on the very matters subject of the prohibition. It was
for this reason that the trial judge eventually overruled the counsel's previous general and
continuing objection and admitted the testimony of the witness. Furthermore, it is difficult to
believe that the counsel's lengthy cross-examination on the prohibited matter was merely for
the purpose of establishing the "motive, prejudices and predilection" of the witness. In this
connection, it has been said:

... . The reason for the rule apparently is that a litigant cannot be permitted to speculate
as to what his examination of a witness may bring forth. Having made his selection of
one of two courses which he may pursue, he has no right, after he discovers that the
course selected is not to his advantage, and after he has put the opposite party to the
expense, and has consumed the time of the courts in a trial of the case in accordance
with the course selected, to change his position and make another and different
selection. Such course would be unfair both to the opposite party and to the court and
should not be countenanced in any court of justice.

The next issue is whether or not the claim is already barred by prescription and laches. Under
the New Civil Code, an action upon a written contract must be brought within 10 years from the
time the right of action accrues. (Art. 1144, par. 1). In the case at bar, the cause of action
accrued on December 3, 1943 (the date when the note became due and demandable) and
petitioners filed their "reclamation" only on November 13, 1954. Apparently, the action has
already prescribed, because more than ten years had elapsed before any suit was filed.
However, it must be remembered that the provisions on moratorium had the effect of
suspending the statute of limitations from November 18, 1944 when Executive Order No. 25
was issued, to May 18, 1953, the date of promulgation of the decision in the case of Rutter v.
Esteban (G.R. No. L-3708) holding such provisions no longer applicable. Thus, from December
3, 1943 to November 13, 1954, eleven years, eleven months and ten days have elapsed.
Deducting from this period eight years and six months, the time during which the statute of
limitations was suspended, it is clear that petitioners' claim has not yet prescribed when it was
filed on November 13, 1954.

Respondents, however, contend that Republic Act No. 342, which took effect on July 26, 1948,
lifted the moratorium on debts contracted during the Japanese occupation. The contention is
untenable. This court has already held that Republic Act No. 342 did not lift the moratorium on
debts contracted during the war but modified Executive Order No. 32 is to pre-war debts,
making the protection available only to debtors who had war damage claims.

In order that the defense of laches may prosper, the following elements must be present: (1)
conduct on the part of defendant, or one under whom he claims, giving rise to the situation
complained of, (2) delay in asserting complainant's right after knowledge or notice of
defendant's conduct and an opportunity to sue, (3) lack of knowledge or notice on the part of
the defendant that complainant would assert the right on which he bases suit, and (4) injury or
prejudice to defendant in the event relief is accorded. Assuming that the first three elements
are present, we do not see how the last element may exist, for neither injury or prejudice to
respondent may occur by the allowance of the claim. It should be emphasized here that mere
lapse of time during which there was neglect to enforce the right is not the sole basis of the
rule on laches, but also the changes of conditions which arise during the period there has been
neglect. When there are no changes of conditions detrimental to the defendant, the defense of
laches may not prosper.

IN VIEW OF THE FOREGOING, the decision of the Court of Appeals in CA-G.R. No. 21222-R is
hereby reversed and the Order-Decree dated October 4, 1956 of the Court of First Instance of
Quezon City in Special Proceeding

s No. Q-285 is hereby affirmed in all respects. Without cost.

APOLONIA MIRANDA, REMEDIOS GUANZON, SOCORRO GUANZON, LEOPOLDO

GUANZON, FILOTEA GUANZON, PAULINA GUANZON, and LIDUVINA
 GUANZON, Plaintiffs-Appellees, v. ARSENIO REYES, Defendant-Appellant.

Eligio G. Lagman for Plaintiffs-Appellees.

Fernando T. Manas, Jr., for Defendant-Appellant.

SYLLABUS

1. CIVIL LAW; REAL ESTATE MORTGAGE; REDEMPTION; DEPOSIT OF REDEMPTION

PRICE PROPER IN INSTANT CASE. — It is true the defendant sent his letter of
acceptance of the offer of redemption on September 24, 1964 but it was not received
by the plaintiffs until September 29. In the meantime the redemption period of one
year was about to expire. The plaintiffs therefore did the most prudent thing under the
circumstances by filing the action to order the defendant to accept the sum of money
deposited with the court for the redemption of the property involved and to release the
plaintiffs from whatever obligations they had in connection with the extra-judicial
foreclosure of the mortgage, and depositing the redemption money in court.

2. ID.; ID.; ID.; QUESTION INVOLVING SUFFICIENCY OF THE AMOUNT DEPOSITED

FOR REDEMPTION IMMATERIAL IN INSTANT CASE. — Where the mortgagors-plaintiffs
before the expiration of the one-year redemption period tendered payment in their
letter with an offer to redeem the property extrajudicially foreclosed, not only with
respect to the purchase price paid by the highest bidder-defendant at the public sale
but also the 1% interest per month plus any tax and assessments which might have
been paid by the defendant, and deposited said amount with the court, and the
defendant in his reply agreed to the offer but did not itemize therein the corresponding
additional amount to which he believed he was entitled, the question of the sufficiency
of the amount deposited, the defendant claiming that said amount should have included
assessments and taxes plus interest thereon at the same rate, and sheriff’s fee, is
immaterial. In view of the absence of such itemization by the defendant, the parties
would still have had to determine the actual amount of the interest due as well as the
taxes and assessments which had been paid by the defendant. That they had to be
determined by the court instead has in no wise caused the bidder any prejudice, since
after all the additional items awarded by the Court even exceeded what the defendant-
bidder was willing to accept in his letter-reply which did not include sheriff’s fees.

DECISION

MAKALINTAL, J.:

The plaintiffs were the owners of a parcel of urban land situated in Malate, Manila, and
covered by Transfer Certificate of Title No. 45643. In 1957 they mortgaged it to the
Republic Bank for P12,000.00. For non-payment of the indebtedness the mortgaged
was foreclosed extra-judicially pursuant to Act No. 3135. At the public sale conducted
by the Sheriff of Manila on September 30. 1963, the highest bidder was the defendant
Arsenio Reyes, for the sum of P16,415.00. The certificate of sale was issued to him on
the same date. On September 19, 1964, before the expiration of the one-year
redemption period, the plaintiffs, through their lawyer, sent a letter to the Republic
Bank and to the defendant Reyes, with an offer to redeem in this wise: jgc:chanrobles.com.ph

"That by this means the mortgagors (Liduvina Guanzon, Et. Al.) wished to inform you
that they want to exercise their right of redemption pursuant to law and therefore
tender to you the amount of P16,415 which is the purchase price that you paid, with
one (I) percent interest per month plus any tax and assessments which may be shown
by you to have been paid, also with the same rate of interest.

That if within two (2) days upon receipt of this letter we do not hear from you or if you
refuse to accept this tender, we will accordingly consign the aforesaid amount in
court."cralaw virtua1aw library

The defendant received the aforesaid letter on September 24, 1964, on which date he
sent the following reply addressed to the plaintiffs’ lawyer: jgc:chanrobles.com.ph

"Received your letter of September 19, 1964 the 24th instant.

"Your client is welcomed (sic) to effect the repurchase stated in your letter." cralaw virtua1aw library

The plaintiffs received the foregoing reply on September 29. The day before, however,
that is, on September 28, they filed the complaint in this case (Civil Case No. 58465,
Court of First Instance of Manila) accompanied by the consignation of the sum of
P18,373.86 in Court (representing principal and interest for 11 months and 28 days),
and prayed that the defendant be ordered to accept the same as full satisfaction of the
redemption price of the property and that the plaintiffs be released from whatever
obligations they had in connection with the extrajudicial foreclosure of the mortgage.

The defendant answered, with a counterclaim that he be declared absolute owner of the
said property and that the plaintiffs be required to pay P500.00 a month as reasonable
rental for the premises, aside from damages and attorney’s fees.

On the foregoing facts, entirely stipulated by the parties, the trial court rendered
judgment for the plaintiffs, ordering them, however, to add to the amount judicially
deposited the sum of P198.87 for sheriff’s fees, assessments and documentary stamps,
with interest thereon at 1% per month from the date they were disbursed until
payment. From the said judgment the defendant has come to us on appeal and raised
two issues, to wit: jgc:chanrobles.com.ph

"1. Whether or not the consignation by plaintiffs was properly made when the tender of
payment was not refused by the defendant but as in fact willingly accepted . . . on the
very same day defendant received .he said tender of payment.

"2. Whether or not the amount deposited in the Clerk of Court is the sufficient and
proper amount of redemption price as provided by law." cralaw virtua1aw library

On the first issue the defendant invokes Article 1256 of the Civil Code, which provides
that "if the creditor to whom tender of payment has been made refuses without just
cause to accept it, the debtor shall be released from responsibility by the consignation
of the thing or sum due.’ The defendant points out that far from rejecting the tender of
payment he in fact accepted in his letter of September 24, 1964; and consequently
there was no justification for the consignation of the amount due in court.

The law must be reasonably interpreted and the realities of the situation in each case
taken into account so that the purpose of the law may not be defeated. It is true the
defendant sent his letter of acceptance on September 24, 1964, but it was not received
by the plaintiffs until September 29. In the meantime the redemption period of one
year was about to expire. The plaintiffs therefore did the most prudent thing under the
circumstances by filing the action and depositing the redemption money in court. The
defendant bewails this step as "unduly dragging . . . (him) to an expensive and
protracted litigation." This is a pharisaical attitude to adopt. If the litigation has become
expensive and protracted the defendant has nobody to blame but himself, for the
consignation was no less an effective and timely tender of payment than the one which
had been extrajudicially made, and all that the defendant had to do was to withdraw
the amount deposited, without going through the rigmarole of filing an answer and
contesting the validity of the deposit just because there had been no unjustified refusal
to accept the said tender.

But then the defendant now questions, under the second issue, the sufficiency of the
amount deposited, and claims that aside from the principal indebtedness and the
interest thereon at 1% per month, it should have included assessments and taxes, plus
interest thereon at the same rate, and sheriff’s fees, citing article 1257 and 1233 of the
Civil Code. 1

The simple answer to this argument is that when the plaintiffs tendered payment in
their letter of September 19, 1964 they did so not only with respect to the purchase
price of P16,415.00 paid by the defendant for the property, but also the ." 1% interest
per month plus any tax and assessments which may be shown by you to have been
paid also with the same rate of interest." As it was, the defendant was entirely
agreeable to the offer, as shown by his reply of September 24, but did not itemize
therein the corresponding additional amounts to which he believed he was entitled. In
the absence of such itemization by the defendant, even if no action had been filed and
the matter had been settled solely on the basis of the extrajudicial tender of payment
and its acceptance, the parties would still have had to determine the actual amount of
the interest due as well as the taxes and assessments which had been paid by the
defendant. That they had to be determined by the court instead has in no wise caused
him any prejudice, since after all the additional items awarded by the Court even
exceeded what the defendant was willing to accept in his letter of September 24, which
did not include sheriff’s fees.

This case is an example of needless litigation which serves no purpose except to

aggravate the load of the courts, and which could have been avoided by simple
observance of the elementary norms of substantial justice.

The judgment appealed from is affirmed, with treble costs against the defendant-
appellant.

Concepcion, C.J., Dizon, Sanchez, Castro, Fernando, Capistrano, Teehankee and

Barredo, JJ., concur.

Reyes, J.B.L. and Zaldivar, JJ., are on leave.

Endnotes:

1. ART 1257.

x          x           x

The consignation shall be ineffectual if it is not made strictly in consonance with the
provisions which regulate payment.

ART. 1233. A debt shall not be understood to have been paid unless the thing or service
in which the obligation consists has been completely delivered or rendered, as the case
may be.

G.R. No. L-32116 April 2l, 1981RURAL BANK OF CALOOCAN, INC. and JOSE O. DESIDERIO, JR., petitioners,
vs.THE COURT OF APPEALS and MAXIMA CASTRO, respondents. FACTS:Maxima Castro, accompanied by
Severino Valencia, went to the Rural Bank of Caloocan to apply for a loan. Valencia arranged everything
about the loan with the bank. He supplied to the latter the personal data required for Castro's loan
application. After the bank approved the loan for the amount of P3,000.00, Castro, accompanied by the
Valencia spouses, signed a promissory note corresponding to her loan in favor of the bank. On the same
day, the Valencia spouses obtained from the bank an equal amount of loanfor P3,000.00. They signed
another promissory note (Exhibit "2") corresponding to their loan in favor of the bank and had Castro
affixed thereon her signature as co-maker. Both loans were secured by a real-estate mortgage on
Castro's house and lot. Later, the sheriff of Manila sent a notice to Castro, saying that her property
would be sold at public auction to satisfy the obligation covering the two promissory notes plus interest
and attorney's fees. Upon request by Castro and the Valencias and with conformity of the bank, the
auction sale was postponed, but was nevertheless auctioned at a later date.Castro claimed that she is a
70-year old widow who cannot read and write in English. According to her, she has only finished second
grade. She needed money in the amount of P3,000.00 to invest in the business of the defendant spouses
Valencia, who accompanied her to the bank to secure a loan of P3,000.00. While at the bank, an
employee handed to her several forms already prepared which she was asked to sign, with no one
explaining to her the nature and contents of the documents. She also alleged that it was only when she
received the letter from the sheriff that she learned that the mortgage contract which was an
encumbrance on her property was for P6.000.00 and not for P3,000.00 and that she was made to sign as
co-maker of the promissory note without her being informed. Castro filed a suit against petitioners
contending that thru mistake on her part or fraud on the part of Valencias she was induced to sign as co-
maker of a promissory note and to constitute a mortgage on her house and lot to secure the questioned
note. At the time of filing her complaint, respondent Castro deposited the amount of P3,383.00 with the
court a quo in full payment of her personal loan plus interest. Castro prayed for:(1) the annulment as far
as she is concerned of the promissory note (Exhibit "2") and mortgage (Exhibit "6") insofar as it exceeds
P3,000.00; and(2) for the discharge of her personal obligation with the bank by reason of a deposit of
P3,383.00 with the court a quo upon the filing of her complaint.ISSUE:

Whether or not respondent court correctly affirmed the lower court in declaring the promissory note
(Exhibit 2) invalid insofar as they affect respondent Castro vis-a-vis petitioner bank, and the mortgage
contract (Exhibit 6) valid up to the amount of P3,000.00 only. HELD:Yes.RATIO:While the Valencias
defrauded Castro by making her sign the promissory note and the mortgage contract, they also
misrepresented to the bank Castro's personal qualifications in order to secure its consent to the loan.
Thus, as a result of the fraud upon Castro and the misrepresentation to the bank inflicted by the
Valencias both Castro and the bank committed mistake in giving their consents to the contracts.In other
words, substantial mistake vitiated their consents given. For if Castro had been aware of what shesigned
and the bank of the true qualifications of the loan applicants, it is evident that they would not have
given their consents to the contracts. Article 1342 of the Civil Code which provides: Art. 1342.
Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created
substantial mistake and the same is mutual. We cannot declare the promissory note valid between the
bank and Castro and the mortgage contract binding on Castro beyond the amount of P3,000.00, for
while the contracts may not be invalidated insofar as they affect the bank and Castro on the ground of
fraud because the bank wasnot a participant thereto, such may however be invalidated on the ground of
substantial mistake mutually committed by them as a consequence of the fraud and misrepresentation
inflicted by the Valencias. Thus, in the case of Hill vs. Veloso, this Court declared that a contract may be
annulled on the ground of vitiated consent if deceit by a third person, even without connivance or
complicity with one of the contracting parties, resulted in mutual error on the part of the parties to the
contract. The fraud particularly averred in the complaint, having been proven, is deemed sufficient basis
for the declaration of the promissory note invalid insofar as it affects Castro vis-a-vis the bank, and the
mortgage contract valid only up to the amount of P3,000.00.

G.R. No. L-28269             August 15, 1969

CONSUELO VDA. DE QUIRINO, petitioner,

vs.
JOSE PALARCA, respondent.

Rosendo J. Tansinsin for petitioner.

Jose Palarca in his own behalf.

CONCEPCION, C.J.:

Appeal by certiorari, taken by Consuelo Vda. de Quirino, petitioner herein and defendant in the lower
courts, from a decision of the Court of Appeals affirming that of the Court of First Instance of Manila,
the dispositive part of which reads:

FOR THE FOREGOING CONSIDERATIONS, the Court hereby renders judgment ordering
the defendant within fifteen (15) days from the date this judgment becomes final, to execute
a deed of conveyance in favor of the plaintiff Jose Palarca, of age, Filipino, married to
Querubina Cristobal, over Lot 30, Block 84 of the Sulucan Subdivision, covered by TCT
59442 of the Manila Registry, with his postal address at 544 Corner Quezon Blvd., Manila,
and directing said defendant to deliver the certificate of title, and ordering the plaintiff to
deliver to the defendant at the time of receiving the aforesaid deed of sale and title, the
amount of P12,000 in cash. Costs is charged against the defendant.

On October 4, 1947, said petitioner — hereinafter referred to as the lessor — and respondent Jose
Palarca — hereinafter referred to as the lessee — entered into a lease contract whereby the former
leased to the latter a parcel of land known as Lot 30 of block 84 of the Sulucan Subdivision, located
at Sampaloc, Manila, with an area of about 150 square meters, and more particularly described in
TCT No. 59442 of the Office of the Register of Deeds of Manila. In their written contract of lease it
was stipulated, inter alia, that the term thereof would be ten (10) years, from November 1, 1947 to
November 1, 1957; that the monthly rental would be P250, payable in advance; that the lessee could
demolish the lessor's old building on the leased premises and construct thereon any building and/or
improvements suitable for school purposes, which new building and/or improvements shall belong to
the lessee; that within one (1) year after the expiration of the lease, the lessee would have "the right
and option to buy the leased premises" for P12,000; that, should the lessee fail to exercise this
option, said (new) building and/or improvements shall be evaluated by a committee organized
therefor, as set forth in the contract; that, after such "valuation," the lessor shall "have the option to
buy" said "building and/or improvements within ... one (1) year, after the expiration of the contract";
and that, should neither of the parties exercise their respective options, both "shall be free to look for
a buyer for his or her respective property."

By a letter, dated September 15, 1958, the lessee informed the lessor that the former (lessee) was
exercising "his right to buy the leased property for the agreed price of P12,000," and inquired "when"
the latter (lessor) would be "ready to execute the deed of sale," so that the agreed price could be
delivered to her. Soon thereafter, before the expiration of the term of his option, or on October 6,
1958, the lessee wrote a follow-up letter to the lessor, advising her that the former had in his
"possession the amount of P12,000 with which to purchase" the leased premises, and, asked her,
once more, "when" she would be ready to execute the corresponding deed of sale, in order that he
(lessee) could pay said price. Through her counsel, the lessor replied, however, on October 10,
1958, that she "cannot accede" to the lessee's requests "because the ... contract of October 4, 1947,
has been novated by another agreement, wherein the rent of P250 a month was reduced to
P100.00."

Thereupon, that same month, the lessee instituted the present action to compel the lessor to comply
with her obligation to execute the corresponding deed of sale in his (lessee's) favor, upon payment
by him of said sum of P12,000. The lessor filed her answer admitting some allegations of the
complaint and denying other allegations thereof, as well as alleging, as special defense, that the
lease contract had been "modified" by a subsequent agreement of the parties, which had been
observed and carried out by them, and that payment of the stipulated price had not been properly
tendered or validly consigned. The lessor, likewise, set up a counterclaim for damages, attorney's
fees and expenses of litigation. After appropriate proceedings, the Court of First Instance rendered
the decision adverted to above, which was affirmed by the Court of Appeals. Hence, this petition for
review on certiorari, in which the lessor maintains: (1) that the lessee's option to purchase the leased
premises was null and void for want of consideration; (2) that the lessee should have been
sentenced to pay rentals, during the pendency of this case; and (3) that the lessee should have been
sentenced, also, to pay damages, attorney's fees and the costs of the suit.

The first contention is clearly without merit. To begin with, it is based upon the premise that the
option of the lessee is devoid of consideration, which is false. Indeed, in reciprocal contracts, like the
one in question, the obligation or promise of each party is the consideration for that of the other.  1 In
the language of Article 1350 of our Civil Code, "(i)n onerous contracts the cause is understood to be,
for each contracting party, the prestation or promise of a thing or service by the other ... ." As a
consequence, "(t)he power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him."  2

In the case at bar, the consideration for the lessor's obligation to sell the leased premises to the
lessee, should he choose to exercise his option to purchase the same, is the obligation of the lessee
to sell to the lessor the building and/or improvements constructed and/or made by the former, if he
fails to exercise his option to buy said premises. Then, again, the amount of the rentals agreed upon
in the contract of October 4, 1947 — which amount turned out to be so burdensome upon the
lessee, that the lessor agreed, five (5) years later, to reduce it —1 as well as the building and/or
improvements contemplated to be constructed and/or introduced by the lessee, were, undoubtedly,
part of the consideration for his option to purchase the leased premises.

Then, again, the alleged lack of consideration therefor was not set up as a defense or otherwise put
in issue, either in the trial court or in the Court of Appeals. The appealed decisions of the Court of
First Instance and the Court of Appeals, and the records before us show that the defenses mainly
pressed in said courts were the alleged cancellation of the lessee's option and his failure to make a
valid tender and consignation of the stipulated price. The cancellation of the option was sought to be
deduced from a novation made in 1952, when, upon the lessee's request, the lessor agreed to
reduce the monthly rental from P250 to P100. Neither defense was, however, sustained by said
courts, and, we think, correctly.

Indeed, not being inconsistent with the lessee's option to purchase the leased premises, said
agreement to reduce the rental did not necessarily cancel or extinguish the option. Although the
lessor would have the Court believe that she consented to said reduction, condition that the option
be cancelled, this claim had not been proven. What is more, it was refuted by her letter to the lessee,
Exhibit D, dated January 29, 1952, stating that "in view of the fact that you (lessee) find it very
difficult to pay the rental of P250, I am willing to reduce it to P100 from January 1952, on the
condition that the remaining balance (of the rental) will be settled." The cancellation of the option
was not, therefore, one of the conditions for the aforementioned reduction of the rental.

Then, too, the consignation referred to in Article 1256 of our Civil Code is inapplicable to the present
case, because said provision refers to consignation as one of the means for the payment or
discharge of a "debt," whereas the lessee was not indebted to the lessor for the price of the leased
premises. 3 The lessee merely exercised a right of option and had no obligation to pay said price until
the execution of the deed of sale in his favor, which the lessor refused to do.

Said want of consideration not having pleaded or otherwise alleged as one of her defenses in either
one of the lower courts, the lessor may not set it up, for the first time, in her present second appeal.  4

As regards the rentals during the pendency of this case, suffice it to note that, had the lessor readily
complied with her obligation to execute the corresponding deed of conveyance to the lessee, upon
payment by him of the agreed price of P12,000, which he tendered in October, 1958, the premises in
question would have become his property on or before November 1, 1958, and since then he would
have had no obligation to pay rentals. As a consequence, it is neither just nor fair to impose such
obligation upon him by reason of the lessor's illegal breach of their contract. Otherwise, she would
be rewarded therefor and we would jeopardize the sanctity of contractual obligations.

The last point raised by the lessor is a mere corollary to those already disposed of. Hence, it needs
no further discussion.

WHEREFORE, the decision appealed from should be, as it is hereby affirmed, with costs against the
lessor, petitioner-appellant Consuelo Vda. de Quirino.