1.
Pakistan International Airlines by Castigador
2. Cui v Arellano (1961)
DOCTRINE: To look at scholarship awards as a business scheme designed to
increase business potential is not only inconsistent with sound public policy but also
good morals.
FACTS:
● Emeterio Cui studied in Arellano University for his pre-law. He also took up
his law studies there until the 1st semester of his 4th year
● Cui enrolled for the last semester of his law studies in the same school but
failed to pay his tuition fees. He later enrolled in Abad Santos University,
where his uncle Dean Capistrano became the new dean, and graduated
there.
● During the years Cui studied law in Arellano, he was awarded scholarship
grants for scholastic merits so that his semestral tuition fees were returned
to him at the end of every semester all totalling to P1033.87.
● Cui was made to sign a contract before being awarded the scholarship
grants. It was waiver of his right to transfer to another school without
first refunding the equivalent of his scholarship cash.
● merit or help gifted students in whom society has an established
● Arellano University refused to provide the TOR of Cui when later he was
applying for the bar until after he paid back the P1,033.87.
● When Cui raised the issue to the Bureau of Private Schools, they advised
Arellano to issue the TOR but still they refused. Cui thus paid the sum to be
able to take the bar examinations.
● The lower court ruled in the affirmative because: 1) the memorandum of the
Director of Private Schools is not a law; 2) the provisions thereof are
advisory, not mandatory in nature; and 3) that,
although the contractual provision “may be unethical, yet it was more
unethical for Cui to quit studying with Arellano without good reasons and
simply because he wanted to follow his uncle in Abad Santos.”
ISSUE: WON A contract waiving the right to transfer to another school without
refunding is valid?
RULING:
● The nature of the issue and its effects transcend personal equations and
demand a determination of the case from a high impersonal plane, thus it
may not be necessary to deal with there were sufficient reasons for his
transfer. Also, the stipulation in question is contrary to public policy
and, hence, null and void, thus it may not be essential to pass upon the
validity Memorandum No. 38. The aforesaid memorandum merely
incorporates a sound principle of public policy.
● ‘In determining a public policy of the state, courts are limited to a
consideration of the Constitution, the judicial decisions, the statutes, and the
practice of government officers. Courts consider the practices of
government officials as one of the ‘four factors in determining a public policy
of the state.
● If Arellano University understood clearly the real essence of scholarships
and the motives which prompted the issuance of the Memorandum, it
should have not entered into a contract of waiver with Cui. It was a direct
violation of the Memorandum and an open challenge to the authority of the
Director of Private Schools because the contract was repugnant to sound
morality and civic honesty. The policy enunciated in Memorandum No. 38,
s. 1949 is sound policy.
● Scholarships are awarded in recognition of merit not to keep
outstanding students in school to bolster its prestige. In the
understanding of that university scholarships award is a business
scheme designed to increase the business potential of an educational
institution. Thus conceived it is not only inconsistent with sound policy but
also good morals.
● In other institutions, scholarships are granted not to attract and to keep
brilliant students in school for their propaganda value but to reward
interest or a first lien.
3. Avon Cosmetics
Doctrine:
As applied to contracts, in the absence of express legislation or constitutional
prohibition, a court, in order to declare a contract void as against public policy, must
find that the contract as to the consideration or thing to be done, has a tendency to
injure the public, is against the public good, or contravenes some established interests
of society, or is inconsistent with sound policy and good morals, or tends clearly to
undermine the security of individual rights, whether of personal liability or of private
property.
Facts
Petitioner Avon and Respondent Luna entered into an agreement entitled
“Supervisor’s agreement.” The relevant provisions of the agreement are as follows:
5) That the Supervisor shall sell or offer to sell, display or promote only and
exclusively products sold by the Company.
6) Either party may terminate this agreement at will, with or without cause,
at any time upon notice to the other.
Sometime in 1988, Luna was invited by the Sales Manager of Sandre Philippines (the
manager was a former Avon employee), a domestic corporation engaged in selling
vitamins. Luna then became Sandre’s Group Franchise Director and at the same
time Avon’s Group Supervisor. Luna’s employment with Sandre led her to promote
Sandre’s products to Avon employees as well as her friends.
Luna then consulted a law firm regarding the implication of doing business with
Sandre with respect to her Supervisory Agreement with Avon. The legal opinion of the
law firm was that the supervisory agreement was contrary to law and public policy.
Upon receiving the legal opinion, Luna circulated a letter among Avon Employees
encouraging them to work with Sandre by claiming that paragraph 5 is contrary to
public policy while paragraph 6 is contrary to law and public policy.
Avon then gave a notice of termination to respondent Luna for signing up with Sandre
Philippines Inc., selling and advertising to fellow Avon employees, and circulating a
letter encouraging Avon employees to sell SPI products. As a basis for her
termination, Avon cited paragraphs 5 and 6 of the Supervisory Agreement.
Aggrieved, respondent Luna filed for damages with the RTC. The RTC ruled in favor
of Luna which was affirmed in toto by the CA.
Issues:
WON the exclusivity clause in Avon’s contract is violative of public policy - NO
WON the cancellation clause in Avon’s contract is violative of public policy - NO
Ruling
Exclusivity Clause
Paragraph 5 or the exclusivity clause prohibiting respondent to sell products besides
Avon does not violate public policy because it does not harm the competition in the
market. It merely protects Avon's investments in training Luna.
Contracts requiring exclusivity are not per se void. Each contract must be viewed vis-
à-vis all the circumstances surrounding such agreement in deciding whether a
restrictive practice should be prohibited as imposing an unreasonable restraint on
competition. The question that now crops up is this, when is a restraint in trade
unreasonable? Authorities are one in declaring that a restraint in trade is
unreasonable when it is contrary to public policy or public welfare.
The exclusivity clause, according to Avon, was to ensure that it maintains their sales
and promotions network because the supervisors were trained by Avon. To allow
Luna to utilize the tricks of the trade learned from Avon would be tantamount to unjust
enrichment.
Cancellation Clause
Paragraph 6 or the cancellation clause does not violate public policy as well if done in
good faith. In this case, the unilateral termination are available to both parties.
Moreover, there was just cause in terminating Luna.
4. Bustamante vs. Rosel
Doctrine:
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.
Recit-ready:
Bustamante loaned money from Rosel. In their agreement, Bustamante had to put a
parcel of land as collateral which Rosel could buy if Bustamante can’t pay by the time
for payment. When the time for payment came, Bustamante attempted to give the
money to Rosel but the latter refused and instead insisted to buy the collateral. The
court held that the stipulation can be read as a manifest intent of Rosel to acquire the
collateral. This is akin to pactum commissorium, which is expressly forbidden by Art.
2088 of the Civil Code. Hence, the stipulation is void because it is contrary to law, as
stated by Art. 1306.
Facts:
Bustamante entered into a loan agreement with Rosel. In the agreement, it was
stipulated that Bustamante should put a parcel of land as collateral to guarantee
payment of the loan. Should Bustamante fail to pay on time, Rosel has the option to
buy the parcel of land for 200,000 pesos. When the time for payment came,
Bustamante gave money but Rosel refused and instead insisted on buying the land.
Bustamante refused and consigned the money in court. In retaliation, Rosel filed a
case in court against Bustamante for specific performance with consignation.
Issue: WON stipulation regarding the option to buy the collateral was valid and
enforceable
Held: No
.
The stipulation is an obligation with a suspensive condition – Rosel will only have the
right to buy the collateral if Bustamante could not pay by the time of payment. In the
case at bar the condition didn’t happen because Bustamante did have the ability to
pay but Rosel refused and insisted on buying the collateral.
Moreover, Art. 1306 states that “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.”
According to the court, the stipulation in question revealed the intention of the creditor
to acquire the collateral. This is tantamount to pactum commissorium, which is
prohibited by Art. 2088 of the Civil Code. Hence, the stipulation is void for being
contrary to law.
5. Magbanua v. Uy by Bundalian
6. Caoibes v. Caoibes-Pantoja
Facts:
Petitioners and respondent entered into an agreement covering a parcel of land in
Batangas. The parcel of land is presently the subject of a land registration proceeding.
In consideration of the payment of respondent of the loan secured by real estate
mortgage, the respondent is subrogated and/or substituted to whatever rights,
interests or representations the petitioners may have in the prosecution of the proper
land registration proceeding.
14 years after the execution of the parties above-said agreement, respondent filed a
motion to intervene and be substituted as applicant in the land registration proceeding.
However, it was opposed by the petitioners. The land registration court denied
respondent's motion.
Complaint for Specific Performance and Damages against petitioners was filed in the
RTC, for the enforcement of petitioner's obligation under the agreement. Petitioners
argued that the right of action has prescribed. RTC granted petitioner's motion, that
immediately after renunciation of contract the defendants deemed to have renounced
and transferred their rights.
CA reversed the RTC decision, holding that prescription had not yet set in. That it
should be from the time respondent moved to intervene and be substituted as the
applicant in the land registration proceeding involving the subject property that
defendants-appellees raised the issue of genuineness and due execution of the
instrument, should the cause of action accrued.
Held:
Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties, by
the provisions of Title I and II of this Book, by the rules governing the most
analogous nominate contracts, and by the customs of the place.
Art. 1498. When the sale is made through a public instrument, the execution thereof
shall be equivalent to the delivery of the thing which is the object of the contract, if
from the deed the contrary does not appear or cannot clearly be inferred.
The agreement of the parties is analogous to a deed of sale in favor of respondent, it
having transferred ownership for and in consideration of her payment of the loan in the
principal amount of P19,000. The agreement having been made through a public
instrument, the execution was equivalent to the delivery of the property to respondent.
The substitution by respondent of petitioners as applicant in the land registration case
over the lot is not even necessary. The only requirement for application for registration
be amended is that the instrument be presented in court by the interested party with a
motion that the same be considered in relation with the application and prior notice be
given to the parties in the case. It was unnecessary for respondent to file the case for
specific performance subject of the present petition against petitioners to honor their
agreement allowing her to be substituted in their stead as applicant in the land
registration proceeding. CA decision reversed.
Articles 1308-1310
7. PS Bank v Sps Castillo (Mutuality of contracts)
May 30, 2011
Facts:
Respondent spouses Alfredo M. Castillo and Elizabeth Capati-Castillo were the
owners of a lot in Tondo, Manila. Respondent spouses Romeo B. Capati and Aquilina
M. Lobo were the registered owners of another lot, also located in Tondo, Manila.
On May 7, 1997, respondents obtained a loan, with real estate mortgage over the said
properties, from petitioner Philippine Savings Bank, as evidenced by a Promissory
Note.
From the release of the loan in May 1997 until December 1999, petitioner had
increased and decreased the rate of interest, the highest of which was 29% and the
lowest was 15.5% per annum, per the Promissory Note.
Respondents were notified in writing of these changes in the interest rate. They
neither gave their confirmation thereto nor did they formally question the changes.
However, respondent Alfredo Castillo sent several letters to petitioner requesting for
the reduction of the interest rates. Petitioner denied these requests.
Respondents regularly paid their amortizations until December 1999, when they
defaulted due to financial constraints. Petitioner sent them demand letters.
Respondents failed to pay.
Thus, petitioner initiated an extrajudicial foreclosure sale of the mortgaged properties.
The auction sale was conducted and awarded to petitioner as the only bidder.
Respondents failed to redeem the property redemption period. However, on July
2001, Alfredo Castillo sent a letter to petitioner requesting for an extension of 60 days
before consolidation of its title so that they could redeem the properties. Petitioner
conceded to Alfredo Castillos request, but respondents still failed to redeem the
properties.
On October 2001, respondents filed a case with the RTC, Branch 14, Manila.
After trial, the RTC rendered its decision declaring the questioned increases of interest
as arbitrary and ordering the petitioner Philippine Savings Bank to refund to the
respondents, the amount of interest collected in excess of seventeen percent (17%)
per annum.
Petitioner appealed to the CA. The CA modified the decision of the RTC.
Petitioner contends that respondents consented to the imposition of the
modified interest rates; thus, there was no violation of the principle of mutuality
of contracts. It further claims that respondents requested several times for the
reduction of the interest rates, thus, manifesting their recognition of the legality of the
said rates.
Issue
W/N CA erred in declaring that the modifications in the interest rates are
unreasonable.
Held:
No, The unilateral determination and imposition of the increased rates violates the
principle of mutuality of contracts under Article 1308 of the Civil Code, which provides
that [t]he contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them. A perusal of the Promissory Note will readily show
that the increase or decrease of interest rates hinges solely on the discretion of
petitioner. It does not require the conformity of the maker before a new interest rate
could be enforced. Any stipulation regarding the validity or compliance of the contract
left solely to the will of one of the parties is likewise invalid.
The conformity of respondents with respect to the shortening of the interest rate
review period from 90 days to 30 days is separate and distinct from and cannot
substitute for the required conformity of respondents with respect to the
modification of the interest rate itself. Moreover, respondents consent to the
modifications in the interest rates cannot be implied from their lack of response to the
memos sent by petitioner. The said memos were in the nature of a proposal to change
the contract with respect to one of its significant components, i.e., the interest rates.
As we have held, no one receiving a proposal to change a contract is obliged to
answer the proposal. Therefore, respondents could neither be faulted, nor deemed to
have assented to the modified interest rates, for not replying to the said memos from
petitioner.
The Court disagrees with petitioner’s assertion that respondents recognized the
legality of the imposed interest rates through the letters requesting for the reduction of
the rates. The request for reduction of the interest does not translate to consent
thereto.
Basic is the rule that there can be no contract in its true sense without the
mutual assent of the parties. If this consent is absent on the part of one who
contracts, Similarly, contract changes must be made with the consent of the
contracting parties. The minds of all the parties must meet as to the proposed
modification. In the case of loan contracts, the interest rate is undeniably always a vital
component, for it can make or break a capital venture. Thus, any change must be
mutually agreed upon, otherwise, it produces no binding effect.
Escalation clauses are generally valid and do not contravene public policy. The Court
has once held that there should be a corresponding de-escalation clause that would
authorize a reduction in the interest rates corresponding to downward changes made
by law or by the Monetary Board. As can be gleaned from the parties loan agreement,
a de-escalation clause is provided, by virtue of which, petitioner had lowered its
interest rates.
But, the validity of the escalation clause did not give petitioner the unbridled
right to unilaterally adjust interest rates. The adjustment should be subject to
the mutual agreement of the contracting parties. In the absence of consent on
the part of respondents, the adjusted rates cannot bind them even if there is a
de-escalation clause in the loan agreement.
The order of refund was based on the fact that the increases in the interest rate were
violative of the principle of mutuality of contracts. The petitioner should refund the
amount of interest that it has illegally imposed upon respondents. Any deficiency in the
payment of the obligation can be collected by petitioner in a foreclosure proceeding,
which it already did.
8. Juico vs. China Banking
G.R. No. 187678
Doctrine: An escalation clause is void where the creditor unilaterally determines and
imposes an increase in the stipulated rate of interest without the express conformity of
the debtor. Such would completely take away from the debtors the right to assent to
an important modification in their agreement and would also negate the element of
mutuality in their contracts.
Recit Ready:
Spouses Juico obtained loan from China Banking evidenced by two promissory notes
totaling to P10,355,000. The promissory note provides that interest rates on the
principal amount shall be adjusted based on the prevailing market rates without the
need to notify the petitioners. The loan is secured by a mortgage on their property.
The petitioners fail to pay their monthly amortizations. Upon the last demand letter
sent by China Bank, the amount dues P19,201,776.63 representing the principal,
interests, penalties and attorney’s fees. The mortgage covered P10,300,000. The
respondents are now demanding the balance representing the interests. The lower
courts held the petitioners liable for the balance. The petitioners are now contesting
the validity of the interest rate based on the prevailing market. The court held that
escalation clauses, which adjusts interest rates depending on the prevailing
market rate, are reasonable. However, the debtor shall not be deprived of his
right to assent to such modification. This would negate the element of mutuality
in their contracts. The clause in the promissory note authorizes China Bank to adjust
interest rates without the need to notify the petitioners, thus depriving them their right
to assent. Therefore, it is not valid.
Facts:
Ø Spouses Juico obtained a loan from China banking evidenced by two promissory
notes totaling to P10,355,000.
Ø The loan was secured by a Real Estate Mortgage over petitioners’ property in
White Plains.
Ø The Promissory note provides:
“We hereby authorize the CHINA BANKING CORPORATION to increase or
decrease as the case may be, the interest rate/service charge presently
stipulated in this note without any advance notice to me/us in the event a law or
Central Bank regulation is passed or promulgated by the Central Bank of the
Philippines or appropriate government entities, increasing or decreasing such interest
rate or service charge.”
Ø The petitioners failed to pay their monthly amortizations. Upon the last demand
letter sent by China Bank, the amount due was P19,201,776.63 representing the
principal, interests, penalties and attorney’s fees. On the same day, the mortgage
property was sold at a price of P10,300,000. Respondent is now demanding the
balance for the P8,901,776.63
Ø The petitioners contest that since the mortgage has covered the principal amount,
it is deemed that the interests and other fees have been paid. They say that they
should only be liable for only P55,000. They also contest that if they are still liable for
the interests, the same interest are not valid.
Ø Applying 1253, the lower courts held that the petitioners are still responsible for the
balance because the principal obligation still exists until the interests are paid.
Ø They also held that the interest rates are valid because it was agreed upon by the
parties, evidenced by the signing of the promissory note
Issue: WN the interest on the promissory note is valid
Held: NO
Ø The court held that the stipulation in the promissory note is an escalation clause.
Ø Escalation clauses refer to stipulations allowing an increase in the interest rate
agreed upon by the contracting parties. This Court has long recognized that there is
nothing inherently wrong with escalation clauses which are valid stipulations in
commercial contracts to maintain fiscal stability and to retain the value of money in
long term contracts.
Ø The court held that there is nothing inherently wrong in escalation clauses.
Escalation clauses are not basically wrong or legally objectionable as long as they are
not solely potestative but based on reasonable and valid grounds. Obviously, the
fluctuation in the market rates is beyond the control of private respondent.
Ø However, the debtor should not be deprived of his right to assent to such
modifications. By enabling a creditor to adjust the interest independently and
upwardly, completely depriving the debtor of the right to assent to an important
modification in the agreement violates the element of mutuality in a contract.
Ø In this case, the clause in the promissory note allows China Bank to change the
interest rates without notifying the petitioners. Thus, it is not valid.
Ø The Court modified the decision of the lower courts by adjusting the interest rate on
the principal amount to 15%, and applying the legal interest for the penalties.
9. DKC Holdings Corp by Evangelista
10. Florentino v 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. They are the common and pro-indiviso owners of a parcel of
land.
- The land has been adjudicated to them by virtue of a deed of extrajudicial
partition. According to the deed, the fruits of the property shall answer
for the expenses of certain religious functions.
- During the trial, Miguel Florentino asked the trial court that this stipulation
be included as encumbrance on the land and that it be entered on the face
of the title. Petitiners-appellees Salvador Encamacion, Sr., Salvador
Encamacion, Jr. and Angel Encarnacion opposed the motion.
- It appears that from the time of the death of the previous owner of the
property in 1941, as had always been the case since time immemorial,
up to a year before the filing of the application in May 1964, the Church
had been enjoying the benefits of the stipulation.
Issue:
- Whether the stipulation (pour autrui) can be revoked or should be annotated as an
encumbrance on the face of the certificate of the title.
Held:
- The stipulation embodied in Exhibit O-1 on religious expenses is not revocable at the
unilateral option of the co-owners and neither is it binding only on the petitioners-
appellants Miguel Florentino, Rosario Encarnacion de Florentino Manuel Arce, Jose
Florentino, Victorino Florentino Antonio Florentino, Remedios Encarnacion and
Severina E It is also binding on the oppositors-appellees Angel Encarnacion,
- The stipulation (Exhibit 411) in part of an extrajudicial partition (Exh. O)
duly agreed and signed by the parties, hence the same must bind the
contracting parties thereto and its validity or compliance cannot be left to the
with of one of them (Art. 1308, N.C.C.). Under Art 1311 of the New Civil
Code, this stipulation takes effect between the parties, their assign and
heirs. The article provides:
o Art. 1311. — Contracts take effect only between the parties, 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. The heir is not
liable beyond the value of the property he received from the
decedent.
o If a contract should contain a stipulation in favor of a third person,
he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting
parties must have clearly and deliberately conferred a favor upon
a third person.
- The second paragraph of Article 1311 above-quoted states the law on stipulations
pour autrui. Consent the nature and purpose of the motion (Exh. O-1), We hold that
said stipulation is a station pour autrui. A stipulation pour autrui is a stipulation in favor
of a third person conferring a clear and deliberate favor upon him, and which
stipulation is merely a part of a contract entered into by the parties, neither of whom
acted as agent of the third person, and such third person and demand its fulfillment
provoked that he communicates his to the obligor before it is revoked. 3 The requisites
are: (1) that the stipulation in favor of a third person should be a part, not the whole, of
the contract; (2) that the favorable stipulation should not be conditioned or
compensated by any kind of obligation whatever; and (3) neither of the contracting
bears the legal represented or authorization of third person.
- In the case at bar, the determining point is 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. 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. Suffice it to say that were it not for Exhibit O-1, the Church would have
necessarily expended for this religious occasion, the annual religious procession
during the Holy Week and also for the repair and preservation of all the statutes, for
the celebration of the Seven Last Word.
- 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.
Here, We 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.
o 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. 5
- 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.
- 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.
11. Coquia v. Fieldmen’s Insurance 26 SCRA 178 (1968)
Rosales, Andrew
Doctrine: Art. 1311 is restatement of a well-known principle concerning contracts
pour autrui, the enforcement of which may be demanded by a third party for whose
benefit it was made, although not a party to the contract, before the stipulation in his
favor has been revoked by the contracting parties
Recit Ready: Fieldmen’s Insurance company issue in favor of Manila Yellow Taxicab
a common carrier insurance policy that in case of death or bodily injury to the
passenger, driver or conductor wherein they shall indemnify the insured or personal
representatives. While the policy was in force, the driver Carlito Coquia died in
Pangasinan. The heirs of Coquia demanded payment from the Fieldmen’s Insurance
but was denied because they had no contractual relationship.
Issue: Whether or not plaintiffs have the right to collect on the policy. Held: Yes, as a
general rule only parties in a contract may bring an action based thereon but Art. 1311
is an exemption. It is a restatement of a well-known principle concerning contracts
pour autrui, the enforcement of which may be demanded by a third party for
whose benefit it was made, although not a party to the contract, before the
stipulation in his favor has been revoked by the contracting parties. The
insurance company paid the plaintiffs.
Facts: On Dec. 1, 1961, Fieldmen’s Insurance co. Issued in favor of the Manila Yellow
Taxicab a common carrier insurance policy with a stipulation that the company shall
indemnify the insured of the sums which the latter may be held liable for with respect
to “death or bodily injury to any faire-paying passenger including the driver and
conductor”.
The policy also stated that in “the event of the death of the driver, the Company shall
indemnify his personal representatives and at the Company’s option may make
indemnity payable directly to the claimants or heirs of the claimants.”
During the policy’s lifetime, a taxicab of the insured driven by Coquia met an accident
and Coquia died.
When the company refused to pay the only heirs of Coquia, his parents, they instituted
this complaint. The company contends that plaintiffs have no cause of action since
the Coquias have no contractual relationship with the company.
Issue: Whether or not plaintiffs have the right to collect on the policy.
Held: YES. Although, in general, only parties to a contract may bring an action based
thereon, this rule is subject to exceptions, one of which is found in the second
paragraph of Article 1311 of the Civil Code of the Philippines, reading: "If a
contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred
a favor upon a third person." This is but the restatement of a well-known principle
concerning contracts pour autrui, the enforcement of which may be demanded by a
third party for whose benefit it was made, although not a party to the contract, before
the stipulation in his favor has been revoked by the contracting parties
In the case at bar, the policy under consideration is typical of contracts pour autrui this
character being made more manifest by the fact that the deceased driver paid fifty
percent (50%) of the corresponding premiums, which were deducted from his weekly
commissions. Under these conditions, it is clear that the Coquias — who, admittedly,
are the sole heirs of the deceased — have a direct cause of action against the
Company, and, since they could have maintained this action by themselves, without
the assistance of the insured it goes without saying that they could and did properly
join the latter in filing the complaint herei
12. Constantino v. Espiritu (1971)
Doctrine: In contracts with stipulation pour autrui, the third person for whose benefit
the contract was entered into, may also demand its fulfillment provided he had
communicated his acceptance thereof to the obligor before the stipulation in his favor
is revoked
Recit Ready: Pastor Constantino sold two parcels of land to Herminia Espiritu, on the
condition that the land will be held in trust for their already conceived but as yet
unborn illegitimate son. Espiritu took two mortgages on the land and then offered them
for sale. Constantino asked the court to: issue a temporary restraining order to stop
the sale of the lands; and to compel Espiritu to execute a deed of absolute sale to
Pastor Constantino Jr., then two years old. Espiritu moved to dismiss the case on two
grounds. First, that Pastor Jr. was not a party to the suit and second, that the Statute
of Frauds (which basically says that some contracts, including those involving land,
should be in writing; and signed by all parties bound by the contracts). Constantino
argued that what was involved was an implied trust under Art. 1453. The trial court
dismissed the complaint. Constantino then filed a motion for an amended complaint, to
have his son Pastor Jr. included in the suit. The trial court dismissed the motion, and
the case was appealed to the Supreme Court. The issue: WON the contract of sale by
appellant Constantino in favor of appellee of the properties described in said pleadings
was subject to the agreement that the vendee would hold them in trust for their at that
time already conceived but unborn. illegitimate child. The Court held that this is a
contract pour autrui and thus, should be remanded back to the lower court as this is a
question of fact.
Facts: Constantino had by a fictitious deed of absolute sale conveyed to Espiritu (on
October 30, 1953, for a consideration of P8K) the two-storey house and 4 subdivision
lots covered by TCT issued by the Register of Deeds of Rizal in the name of Pastor
Constantino, married to Honorata Geukeko with the understanding that Espiritu would
hold the properties in trust for their illegitimate son, Pastor Constantino, Jr., still unborn
at the time of the conveyance.
Espiritu thereafter mortgaged said properties to the Republic Savings Bank
of Manila twice to secure payment of two loans, one of P3K and the other of P2K, after
that she offered the properties for sale.
 Constantino then prayed for the issuance of a writ of preliminary injunction
to restrain Espiritu and her representatives from further alienating or disposing of the
properties, and for judgment ordering her to execute a deed of absolute sale of said
properties in favor of their son. As a result of the conveyance, the TCT in
Constantino's name was cancelled and a new one was issued in Espiritu's name.
Espiritu moved to dismiss the complaint on the ground that there is no
cause of action because Pastor Constantino, Jr., the beneficiary of the alleged trust,
was not included as party-plaintiff, and on the further ground that cause of action was
unenforceable under the Statute of Frauds (which basically says that some contracts,
including those involving land, should be in writing; and signed by all parties bound by
the contracts).
Constantino argued that the Statute of Frauds does not apply to trustee
cestui que trust as in the case of appellee and her illegitimate child, and that for this
reason appellant would not be barred from proving by parol evidence an implied trust
existing under Article 1453 of the Civil Code.
On the other hand, the appellee argued that what the former was invoking in
his complaint was an implied trust under Article 1453 of the Civil Code and not an
express trust under Section 3, Rule 3 of the Revised Rules of Court. The trial court
dismissed the complaint, with costs.
Issue: WON the contract of sale by appellant Constantino in favor of appellee of the
properties described in said pleadings was subject to the agreement that the vendee
would hold them in trust for their at that time already conceived but unborn. illegitimate
child
Held: The Court ruled that the contract appears to be a contract pour autrui, although
couched in the form of a deed of absolute sale, and appellant’s action was, in effect,
one for specific performance.
That one of the parties to a contract 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 provided he had
communicated his acceptance thereof to the obligor before the stipulation in his favor
is revoked.
The Court held that that the Statute of Frauds was not a strong defense as it
was “clear upon the facts alleged in the amended complaint that the contract between
the parties had already been partially performed by the execution of the deed of sale,
the action brought below being only for the enforcement of another phase thereof,
namely, the execution by appellee of a deed of conveyance in favor of beneficiary
thereunder.” Whether the properties were sold to be held in trust for their child was a
matter of fact that should be proved in court. The case remanded to the lower court for
further trial.
13. Sps. Mamaril vs. Boy Scout of the Philippines | G.R. No. 179382 | January 14,
2013
Facts: PUJ operators Sps. Mamaril would park their 6 passenger jeepneys every
night at BSP’s compound in Malate, Manila for a fee of P300.00 per month for each
unit. One day, one of the vehicles was missing and was never recovered. According to
the security guards Peña and Gaddi of AIB Security Agency with whom BSP had
contracted for its security and protection, a male person who looked familiar to them
took the subject vehicle out of the compound. Sps. Mamaril prayed that Peña and
Gaddi, together with AIB and BSP, be held liable for: (a) the value of the subject
vehicle; (b) amount representing daily loss of income/boundary reckoned from the day
the vehicle was lost; (c) exemplary damages; (d) moral damages; (e) attorney's fees;
and (f) cost of suit.
BSP denied any liability contending that not only did Sps. Mamaril directly deal with
AIB with respect to the manner by which the parked vehicles would be handled, but
the parking ticket itself expressly stated that the "Management shall not be
responsible for loss of vehicle or any of its accessories or article left therein." It also
claimed that Sps. Mamaril erroneously relied on the Guard Service Contract. Apart
from not being parties thereto, its provisions cover only the protection of BSP's
properties, its officers, and employees.
Issue: Whether or not BSP may be held liable for the loss of the vehicle caused by the
negligence of its security guards.
Held: The proximate cause of the loss of Sps. Mamaril's vehicle was the negligent act
of security guards Peña and Gaddi in allowing an unidentified person to drive out the
subject vehicle. The records are bereft of any finding of negligence on the part of BSP.
Neither will the vicarious liability of an employer under Article 2180 of the Civil Code
apply in this case. Peña and Gaddi were assigned as security guards by AIB to BSP
pursuant to the Guard Service Contract. No employer-employee relationship existed
between BSP and the security guards assigned in its premises. Sps. Mamaril are not
parties to the Guard Service Contract. Guard Service Contract between defendant-
appellant BSP and defendant AIB Security Agency is purely between the parties
therein.
Contracts take effect only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not transmissible by their
nature, or by stipulation or by provision of law. The heir is not liable beyond the value
of the property he received from the decedent. If a contract should contain some
stipulation in favor of a third person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting parties must have
clearly and deliberately conferred a favor upon a third person.
Thus, in order that a third person benefited by the second paragraph of Article 1311,
referred to as a stipulation pour autrui, may demand its fulfillment, the following
requisites must concur: (1) There is a stipulation in favor of a third person; (2) The
stipulation is a part, not the whole, of the contract; (3) The contracting parties clearly
and deliberately conferred a favor to the third person - the favor is not merely
incidental; (4) The favor is unconditional and uncompensated; (5) The third person
communicated his or her acceptance of the favor before its revocation; and (6) The
contracting parties do not represent, or are not authorized, by the third party.
However, none of the foregoing elements obtains in this case.There is absolutely
nothing in the said contract that would indicate any obligation and/or liability on the
part of the parties therein in favor of third persons such as herein plaintiffs-appellees.
Moreover, the Court concurs with the finding of the CA that the contract between the
parties herein was one of lease as defined under Article 1643 of the Civil Code. It has
been held that the act of parking a vehicle in a garage, upon payment of a fixed
amount, is a lease. The agreement with respect to the ingress and egress of Sps.
Mamaril's vehicles were coordinated only with AIB and its security guards, without the
knowledge and consent of BSP. Accordingly, the mishandling of the parked vehicles
that resulted in herein complained loss should be recovered only from the tort feasors
(Peña and Gaddi) and their employer, AIB; and not against the lessor, BSP.
14. SPS PADERES V CA
Doctrine: A recorded real estate mortgage is a right in rem (real right), a lien on the
property whoever its owner may be.
Facts:
- Manila International Construction Corporation (MICC) executed a real estate
mortgage over 21 registered parcels of land including the improvements thereon in
favor of Banco Filipino Savings and Mortgage Bank (Banco Filipino) to secure a loan
of P1,885,000.00.
- The mortgage was registered with the Registry of Deeds of Pasay City and
annotated on the corresponding TCTs covering the properties. The said mortgaged
properties included two lots both located in Parañaque City.
- Subsequently, MICC sold one lot, together with the house thereon, to Sps.
Paderes (petitioners in the 1st case). It also sold the house built on the other lot to Sps.
Bergado (petitioners in the 2nd case). Neither sale was registered.
- Banco Filipino filed a verified Petition for the extrajudicial foreclosure of MICC’s
mortgage for the latter’s failure to pay its obligations. At the auction sale of the
foreclosed properties, Banco Filipino declared the highest bidder. A Certificate of Sale
was issued in its favor which was registered with the Registry of Deeds and annotated
on the corresponding TCTs covering the mortgaged properties.
- No redemption of the foreclosed mortgage having been made within the
reglementary period, Carlota P. Valenzuela, the then Liquidator of Banco Filipino, filed
an ex parte Petition for the issuance of a Writ of Possession of the foreclosed
properties with the Regional Trial Court (RTC) of Makati. The Petition was granted.
- Copies of the Writ of Possession, together with a notice addressed to MICC
“and/or All persons claiming rights under them” to voluntarily vacate the premises
within 7 days from receipt thereof, were served on petitioners.
- Instead of vacating the two lots, however, petitioners filed separate petitions before
the Court of Appeals assailing the validity of the Writ of Possession.
- The CA dismissed the consolidated petitions for lack of merit and upheld the
validity of the Writ of Possession. It likewise denied petitioners’ Motion for
Reconsideration.
- Petitioners argue that:
(1) having purchased their respective properties in good faith from MICC, they are
third parties whose right thereto are superior to that of Banco Filipino;
(2) they are still entitled to redeem the properties and in fact a binding agreement
between them and the bank had been reached;
(3) their respective houses should not have been included in the auction sale of the
mortgaged properties;
(4) on the contrary, as builders in good faith, they are entitled to the benefits of Article
448 of the Civil Code; and (5) the writ of possession issued by the RTC in 1996 had
already lost its validity and efficacy.
Issue:
WON the Writ of Possession over the mortgaged properties was validly awarded to
Banco Filipino – YES
Held:
- That petitioners purchased their properties from MICC in good faith is of no
moment. The purchases took place after MICC’s mortgage to Banco Filipino had been
registered in accordance with Article 2125 of the Civil Code and the provisions of P.D.
1529 (PROPERTY REGISTRY DECREE).
- As such, under Articles 1312 and 2126 of the Civil Code, a real right or lien in favor
of Banco Filipino had already been established, subsisting over the properties until the
discharge of the principal obligation, whoever the possessor(s) of the land might be.
- In rejecting a similar argument, the SC, in Philippine National Bank v. Mallorca
held:
o Sale or transfer cannot affect or release the mortgage. A purchaser is necessarily
bound to acknowledge and respect the encumbrance to which is subjected the
purchased thing and which is at the disposal of the creditor “in order that he, under the
terms of the contract, may recover the amount of his credit therefrom.” For, a recorded
real estate mortgage is a right in rem, a lien on the property whoever its owner may
be.
o Because the personality of the owner is disregarded; the mortgage subsists
notwithstanding changes of ownership; the last transferee is just as much of a debtor
as the first one; and this, independent of whether the transferee knows or not the
person of the mortgagee. So it is, that a mortgage lien is inseparable from the property
mortgaged. All subsequent purchasers thereof must respect the mortgage, whether
the transfer to them be with or without the consent of the mortgagee. For, the
mortgage, until discharge, follows the property.
- The purchaser’s right of possession is recognized only as against the judgment
debtor and his successor-in-interest but not against persons whose right of
possession is adverse to the latter.
- As transferees of mortgagor MICC, petitioners merely stepped into its shoes and
are necessarily bound to acknowledge and respect the mortgage it had earlier
executed in favor of Banco Filipino.
- As for petitioners’ argument that they are still entitled to redeem the foreclosed
properties, it must be rejected too. The debtor in extrajudicial foreclosures under Act
No. 3135, or his successor-in-interest, has, one year from the date of registration of
the Certificate of Sale with the Registry of Deeds, a right to redeem the foreclosed
mortgage.
- Petitioners, as MICC’s successors-in-interest, had one year from the registration of
the Certificate of Sale for the purpose. However, failed to do so. Ownership of the
subject properties was thus consolidated in favor of Banco Filipino and the TCTs were
issued in its name.
- The SC also cited F. David Enterprises v. Insular Bank of Asia and America:
o The buyer in a foreclosure sale becomes the absolute owner of the property
purchased if it is not redeemed during the period of one year after the registration of
the sale. As such, he is entitled to the possession of the said property and can
demand it at any time following the consolidation of ownership in his name and the
issuance to him of a new TCT. Possession of the land then becomes an absolute right
of the purchaser as confirmed owner.
15. So Bing Pun by Hermoso
16. Limketkai Milling Sons v. CA
Dec. 1995
FACTS:
In this case BPI was a trustee to manage administer and sell real estate properties of
Philippine Remnants Co. In 1988 Revilla a licensed real estate broker was given
authority by BPI to sell the disputed lot herein and so Revilla contracted a potential
buyer in the name of Alfonso Lim (petitioner). The latter together with Albino Limketkai
went to BPI to confirm the sale. They were met by Albano and Aromin (BPI’s VPs) and
both parties agreed that the lot would be sold at 1k per sqm to be paid in cash.
Subsequently, petitioner Lim offered to pay in terms (10% initial and 90% balance
within period of 90 days). Two or three days he would learn that his offer had been
frozen. He subsequently tendered the full amount for payment but such was denied by
Albano stating that his authority to sell such property in Pasig had been withdrawn
from his unit. Hence petitioner filed for specific performance with damages against BPI
with the RTC. BPI would inform the trial court that it had sold the property under
litigation to National Book Store (NBS) in 1989.
RTC ruled that there was perfected contract, that there was mutual consent on definite
subject matter and consideration was determined between petitioner and BPI and so it
ordered cancellation of sale by BPI to National Book Store as well as nullification of
title issued in favor of respondent NBS. It further ordered BPI to receive petitioner’s
tendered full payment (33M) and to execute deed of sale in favor of petitioner. CA
reversed this, held that there was no perfection of contract as there was no
concurrence of the three reqs (Art. 1318).
ISSUES: (1.) Was there meeting of minds as to the subject matter and cause of the
obligation? (2.) Were the bank officials involved in transaction authorized by BPI to
enter into the questioned contract? (3.) And lastly was the sale to NBS during
pendency of trial effected in good faith?
RULING:: Yes, Yes, No. Petition granted. CA reversed.
On issue of authority, Albano and Amorin (the VPs) were considered by SC to be
authorized by BPI on this transaction, absent evidence proving the contrary. It is
undisputed that Revilla a licensed real estate broker was authorized by BPI and that
the former saw it fit to bring amorin and albano into the transaction. SC saw no reason
to doubt the authority to sell of the two BPI VPs whose precise job in the Bank was to
manage and administer real estate property. Aromin was BPI Assistant VP and Trust
Officer directly supervising the BPI Real Property Management Unit, was the head
supervising officer of real estate matters. His immediate superior VP Albano had been
with the Real Estate Division (same as Aromin) and was as well present in the
discussions with petitioner. Aromin was also a trust officer. Revilla brought the
petitioners to him as he was an officer routinely handling real estate transactions and
as trust officer, also entering into contracts to sell trust properties. The records also
show that the letter of instruction from owner of Philippine Remnants Co. regarding the
sale of the firm’s property herein was addressed to Aromin
On BPI’s contention that there was no perfected contract since petitioner’s offer to pay
in terms rather than in cash constituted as a counter-offer This is untenable. It is
undisputed in this case that there was already meeting of the minds as to the cause or
the price of the property. It was set at 1k per sqm after series of negotiations. Since
the price has already been determined, the requirement as to the cause was already
complied with. There was already perfection when petitioner and BPI agreed on the
sale of the subject parcel of land and on the definite price of 1k per sqm. Relate this to
Villonco Realty Company v. Bormache, which stated that acceptance may be express
or implied. As stated therein “it is true that an acceptance may contain a request for
certain changes in the terms of the offer and YET be a BINDING acceptance. So long
as it is clear that the meaning of the acceptance is positively to accept the offer,
whether such request is granted or not, a contract is FORMED.” Changes in a phrase
of the offer to purchase (such as in this case, when petitioner offered to pay in
installment rather than in full cash) which change does not essentially change the
terms of the offer, does not amount to a rejection of the offer or a counter-offer (SC
held likewise in this case). There was no essential change in the price or cause.
Lastly, SC held that the records show that NBS was not an innocent purchaser. It
acted in bad faith. It ignored the notice of lis pendens annotated on the title when it
bought the lot. There were also several badges of fraud committed by BPI and NBS.
E.g. sale was supposed to be done through an authorized broker, but top officials of
BPI personally took over this particular sale when a close friend became interested
(BPI’s senior VP Barcelon was a friend of NBS’s President Alfredo Ramos). NBS
officials made offer to petitioner to drop the case against BPI and NBS. Hence SC
ruled that there was a perfected contract between BPI and petitioner, that BPI officials
Aromin and Albano who transacted with petitioner had authority to bind the bank, and
that he sale to NBS was characterized by bad faith. CA then reversed and ruling of
RTC is reinstated.
17. SWEDISH MATCH V. COURT OF APPEALS
G.R. 128120
October 20, 2004
Facts:
- Swedish Match AB (SMAB) is a corporation organized under laws of
Sweden, with 3 subsidiary corporations Phimco, Provident Tree Farms, and OTT/
Louie Phils Inc. In 1988, STORA, its parent company, decided to sell SMAB and the
latter’s worldwide match, lighter and shaving products operation to Swedish Match NV
(SMNV).
- Enriquez, VP of SMSA (management company of SMAB), was held under
special instructions that the sale of Phimco shares should be executed on or before
June 30, 1990. Respondent GM Antonio Litonjua of ALS Management and
Development Corp. was one of the interested parties to acquire the Phimco shares
offering US$36 million.
- After an exchange of information between CEO Rossi of SMAB America
and Litonjua, the latter informed that they may not be able to submit their final bid on
the given deadline considering the acquisition audit of Phimco and the review of the
draft agreements have not been completed.
- In a letter dated July 3, 1990, Rossi informed Litonjua that on July 2, SMAB
signed a conditional contract with local group for disposal of Phimco and that the
latter’s bid would no longer be considered unless the local group would fail to
consummate the transaction on or before September 15, 1990. Irked by SMAB’s
decision to junk his bid, Litonjua asserted that the US$36 million bid was final, thus
finalizing the terms of the sale.
- After 2 months from receipt of Litonjua’s letter, Enriquez informed the former
that the proposed sale with local buyers did not materialize and invited to resume
negotiations for the sale of Phimco shares based on a new set of conditions, as to
reducing the period of sale from 30-day to 15, to which Litonjua expressed objections
and emphasized that the new offer constituted an attempt to reopen the already
perfected contract of sale.
Issue:
W/N there was a perfected contract of sale between petitioners and
respondents with respect to Phimco shares
Held:
- NO, there was no perfected contract of sale since Litonjua’s letter of
proposing acquisition of the Phimco shares for US$36 million was merely an offer.
Consent in contract of sale should be manifested by the meeting of the offer and
acceptance upon the thing and cause which are to constitute the contract.
- The lack of definite offer on part of the respondents could not possibly serve
as the basis of their claim that the sale of the Phimco shares in their favor was
perfected, for one essential element of a contract of sale needed to be certain — the
price in money or its equivalent.
- Obviously, there can be no sale without a price. Respondents’ attempt to
prove the alleged verbal acceptance of their US$36 million bid becomes futile since
there was in the first place no meeting of the minds with respect to the price and such
was merely a preliminary offer. Respondents’ failure to submit their final bid on the
deadline set by the petitioners prevented the perfection of the contract of sale.
18. Malborosa by Fabia
19. Sanchez v. Rigos
Facts:
Nicolas Sanchez and Severina Rigos
executed an instrument entitled “Option to Purchase” wherein Mrs. Rigos agreed,
promised and committed to sell to Mr. Sanchez a parcel of land for the amount of
P1,510 within two years from the date of the instrument, with the understanding that
the said option shall be deemed terminated and elapsed if Mr. Sanchez shall fail to
exercise his right to buy the property within the stipulated period.
Mrs. Rigos agreed and committed to sell and Mr. Sanchez agreed and committed to
buy. But there is nothing in the contract to indicate that her agreement, promise and
undertaking is supported by a consideration distinct from the price stipulated for the
sale of the land.
Mr. Sanchez has made several tenders of payment in the said amount within the
period before any withdrawal from the contract has been made by Mrs. Rigos, but
were rejected nevertheless.
Issue:
Can an accepted unilateral promise to sell without consideration distinct from the price
be withdrawn arbitrarily?
Held:
No. An accepted promise to sell is an offer to sell when accepted becomes a contract
of sale.
Rationale:
Since there may be no valid contract without a cause or consideration, the promisor is
not bound by his promise and may, accordingly, withdraw it. Pending notice of its
withdrawal, his accepted promise partakes, however, of the nature of an offer to sell
which, if accepted, results in a perfected contract of sale.
This view has the advantage of avoiding a conflict between Articles 1324 – on the
general principles on contracts – and 1479 – on sales – of the Civil Code.
Article 1324. When the offeror has allowed the offeree a certain period to accept, the
offer may be withdrawn at any time before acceptance by communicating such
withdrawal, except when the option is founded upon consideration, as something paid
or promised.
Article 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain
is binding upon the promissory if the promise is supported by a consideration distinct
from the price.
The Court is of the considered opinion that it should, as it hereby reiterates the
doctrine laid down in the Atkins, Kroll and Co. case, and that, insofar as inconsistent
therewith, the view adhered to in the Southwestern Sugar & Molasses Co. case
should be deemed abandoned or modified.
J. Antonio concurring
I fully agree with the abandonment of the view previously adhered to in Southwestern
Sugar & Molasses Co. vs. Atlantic Gulf and Pacific Co. (97 Phil 249) which hold that
an option to sell can still be withdrawn, even if accepted, if the same is not supported
by any consideration, and the reaffirmance of the doctrine in Atkins, Kroll & Co., Inc. v.
Cua Hian Tek (102 Phil 948), holding that “an option implies xxx the legal obligation to
keep the offer (to sell) open for the time specified;” that it could be withdrawn before
acceptance, if there was no consideration for the option, but once the “offer to sell” is
accepted, a bilateral promise to sell and to buy ensues, and the offeree ipso facto
assumes the obligations of a purchaser. In other words, if the option is given without a
consideration, it is a mere offer to sell, which is not binding until accepted. If, however,
acceptance is made before a withdrawal, it constitutes a binding contract of sale. The
concurrence of both acts – the offer and the acceptance – could in such event
generate a contract.
While the law permits the offerror to withdraw the offer at any time before acceptance
even before the period has expired, some writers hold the view, that the offeror cannot
exercise this right in an arbitrary or capricious manner. This is upon the principle that
an offer implies an obligation on the part of the offeror to maintain it for such length of
time as to permit the offeree to decide whether to accept or not, and therefore cannot
arbitrarily revoke the offer without being liable for damages which the offeree may
suffer. A contrary view would remove the stability and security of business
transactions.
20. Adelfa v. CA
Recit Ready Facts:
Private respondents entered into an agreement to sell a parcel of land to
Petitioner Adelfa. An “Exclusive Option to Purchase” was executed stipulating that
petitioner Adelfa would pay the sum of 50,000 as option money. It was also agreed
upon that the 50,000 would be credited as partial payment upon the
consummation of the sale. It was agreed upon also that the remaining balance of
2,000,000 would be paid upon the consummation of the sale.
The Supreme Court held that the “Exclusive Option to Purchase” was
actually a contract to sell, NOT an option. The fact that the P50,000.00 would be
credited to the remaining balance shows that it is actually earnest money. In other
words, the alleged option money of P50,000.00 was actually earnest money which
was intended to form part of the purchase price.
Facts
● Private respondents [Rosario Jimenez-Castaneda and Salud Jimenez] and
their brothers, Jose and Dominador Jimenez were owners of a parcel of
land situated in Las Pinas.
● Jose and Dominador owned the eastern portion of their lot while private
respondents owned the western portion.
● Jose and Dominador sold their portion to petitioner Adelfa Properties.
● Thereafter, in November 25, 1989, petitioner Adelfa Properties entered into
an agreement to purchase the remaining portion of the lot from private
respondents.
● An “Exclusive Option to Purchase” was executed between petitioner and
private respondent which stated the following:
○ The sum of P50,000 which we received from petitioner as an
option money shall be credited as partial payment upon the
consummation of the sale and the balance in the sum of
P2,856,150 to be paid on or before November 30, 1989.
● Meanwhile, the owner’s copy of the certificate of title of private respondent
was missing.
○ Petitioner’s counsel Atty. Bernardo acted as private respondent’s
counsel in a petition for obtaining a new owner’s copy of
certificate of title. Atty Bernardo kept possession of it until he
turned it over to petitioner Adelfa Properties.
● Before petitioner could make payment one day before the due date,
nephews and nieces of the Jimenezes filed for annulment of the deed of
sale in favor of Household Corporation and recovery of the property covered
by TCT No. 309773.
● As a consequence, petitioner informed private respondents that it would
hold payment of the full purchase price and suggested that private
respondents settle the case with their nephews and nieces.
● Private respondent refused to heed the suggestion of petitioner and
attributed the suspension of payment of the purchase price to “lack of
word of honor.”
● Private respondents then informed petitioner Adelfa that they were
cancelling the transaction. As a response, petitioner’s counsel Atty.
Bernardo offered to pay the purchase price provided that P500,000.00 be
deducted therefrom for the settlement of the civil case. This was rejected
and another offer was proposed lowering it to P300,000 instead.
● Meanwhile, RTC of Makati dismissed the case of the nieces and nephews.
Thus, petitioner caused to be annotated anew on the TCT the exclusive
option to purchase.
● Private respondents then sold the same parcel of land to another person
[Emylene Chua].
● After selling the land, private respondents returned 50% of the “option
money” and requested that petitioner Adelfa return the owner’s duplicate
copy of the certificate of title to Salud.
● Petitioner did not surrender said title.
● Private respondents filed for annulment of contract.
● RTC ruled in favor of private respondents ruling that the agreement entered
into by the parties was merely an option contract, and declaring that the
suspension of payment constituted a counteroffer which was tantamount to
a rejection.
● CA affirmed
Issue: Whether or not the “Exclusive Option to Purchase” is an option contract?
Held: No, it is a contract to sell.
Ratio:
● It is undeniable that the intention of the parties was to enter into a contract
to sell. The title of a contract does not necessarily determine its true nature.
Hence, the fact that the document under discussion is entitled “Exclusive
Option to Purchase” is not controlling where the text thereof shows that it is
a contract to sell.
● What is an option?
○ An option is a continuing offer or contract by which the owner
stipulates with another that the latter shall have the right to buy
the property at a fixed price within a certain time, or under, or in
compliance with, certain terms and conditions, or which gives to
the owner of the property the right to sell or demand a sale.
○ It is also sometimes called an “unaccepted offer.”
○ An option is not itself a purchase, but merely secures the privilege
to buy.
○ It is not a sale of property but a sale of the right to purchase.
○ It is simply a contract by which the owner of the property agrees
with smother person that he shall have the right to buy his
property at a fixed price within a certain time.
○ Its distinguishing characteristic is that it imposes no binding
obligation on the person holding.
● The distinction between an [option] and [a contract of sale] is that an option
is an unaccepted offer.
● A perusal of the contract in this case, as well as the oral and documentary
evidence presented by the parties, readily shows that there is indeed a
concurrence of petitioner’s offer to buy and private respondent's’
acceptance thereof.
● Petitioner was supposed to pay on November 25, 1989, but it later offered
to make a down payment of P50,000.00 with the balance of P2,806,150.00
to be paid on or before November 30, 1989.
 ○ In other words, the alleged option money of P50,000.00 was
actually earnest money which was intended to form part of the
purchase price. This is therefore, clearly not an option, but a
contract to sell.
● Furthermore, the reason of attributing the phrase “lack of word of
honor” is to the Court a clear indication that private respondents considered
petitioner already bound by its obligation to pay the balance of the
consideration. In effect, private respondents were demanding or exacting
fulfillment of the obligation from herein petitioner.
● The test in determining whether a contract is a [contract of sale or purchase]
or a mere [option] is whether or not the agreement could be specifically
enforced. In this case, there is no doubt that the obligation of petitioner to
pay the purchase price is specific, definite, and certain.
21. Mercado and Mercado v. Espiritu
G.R. No. L-11872 December 1, 1917
Petitioner/Plaintiffs: Domingo Mercado and Josefa Mercado
Respondent/Defendant: Jose Espiritu, administrator of the estate of the deceased
Luis Espiritu
Facts:
· April 9, 1913 counsel for Domingo and Josefa Mercado brought suit in the Court
of First Instance of Bulacan against Luis Espiritu, who died afterwards.
· Since Luis Espiritu died, the complaint was amended and was filed against
Jose Espiritu.
· The plaintiffs alleged that they and their sisters Concepcion and Paz Mercado
were the children and sole heirs of Margarita Espiritu, who is the sister of the
deceased Luis Espiritu.
· Margarita Espiritu died in 1897, leaving a tract of land of 48 hectares in area as
her paraphernal property, which is located in the barrio of Panducot, municipality of
Calumpit, Bulacan.
· 1910, Luis Espiritu was accused to have induced and fraudulently succeeded in
getting the plaintiffs to sell their land for a sum of P400 as opposed to its assessed
value of P3,795.
· The annulment of a deed of sale was sought by the plaintiffs.
§ They asserted that two of the four parties were minors (Domingo and Josefa
Mercado);
§ Who presented themselves to be of legal age upon signing the deed of sale and
before the notary public.
Issue: Whether or not the deed of sale is a valid contract when the minors presented
themselves that they were of legal age.
Ruling:
Yes. The courts have laid down the rule that the sale of a real estate, made by minors
who presented themselves to be of legal age, when in fact they are not, is a valid
contract. Moreover, they will not be permitted to excuse themselves from the fulfilment
of the obligations contracted by them, or to seek for annulment.
Ratio:
The courts have laid down that such sale of real estate was still valid since it was
executed by minors, who have passed the ages of puberty and adolescence, and
are near adulthood, and that the minors pretended that they had already reached
the age of majority.
Art. 38. Minority, insanity or imbecility, the state of being a deaf-mute, prodigality and
civil-interdiction are mere restrictions on the capacity to act, and do not exempt the
incapacitated person from certain obligations, as when the latter arise from his acts or
from property relations, such as easements.
Also, these minors cannot be permitted afterwards to excuse themselves from
compliance with the obligation assumed by them or seek their annulment. This is in
accordance with the provisions of the law on estoppels.
CC Art. 1431 Through estoppel, an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as against
the person relying thereon.
Rule 123, sec 68, Par. A. “Whenever a party has, by his own declaration, act or
omission, intentionally and deliberately led another to believe a particular thing to be
true, and to act upon such belief, he cannot, in any litigation arising out of such
declaration, act or omission, cannot be permitted to falsify it”.
21. Mercado by De Jesus
22 Braganza v. De Villa
Facts
● Petitioner and her sons filed a petition for review for a case adjudged
against them wherein they are solidarily liable to pay respondent a sum of
money.
● They received from respondent a loan in Japanese war notes and in
consideration thereof, they promised to pay respondents P10,000 in legal
currency two years after the cessation of present hostilities or as soon as
International Exchange has been established in the Philippines.
○ They failed to pay which is why respondent sued them in March
1949.
● They answer in the CFI that the defendants claimed to have received
P40,000 only instead of the P70,000 the plaintiff asserted. They also
contended that the two sons of petitioner were minors when they signed the
promissory note.
ISSUE: Are respondents obligated to pay in full? Or just for the share of the one
of legal age?
RULING: Only the part of the person in legal age.
● “There is no question about the responsibility of Mrs. Rosario L. Braganza
because the minority of her consignors note does not release her from
liability since it is a personal defense of the minors.
○ However, such defense will benefit her to the extent of the shares
for which such minors may be responsible.
■ For during the time of the signing, the two children were
16 and 18 years old.
● It is if no matter that the two appellants did not make it appear in the
promissory note that they were not yet of legal age which is why the SC
disagrees with the CA
○ The minors had “no juridical duty to disclose their inability” as it
has been held that mere silence when making a contract as to the
age does not constitute a fraud which can be made the basis of
an action of deceit.
● The contract stated no age which meant that petitioners cannot be held
responsible or even guilty of fraud when they were in fact minors as they
technically did not lie.
● “We hold, on this point, that being minors, Rodolfo and Guillermo Braganza
could not be legally bound by their signatures in Exhibit A.
● As a final argument, respondent contends that Rodolfo reached the age of
majority as this case was pending which means that he can be bound by
the contract now.
○ What happened in this case though that it was too late to invoke it
because more than 4 years had already elapsed after he had
become emancipated upon reaching the age of majority.
■ Article 1301 provides that an action to annul a contract
by reason of majority must be filed within 4 years after
the minor has reached the age of majority.
● Upon the other hand, these minors may not be entirely absolved from
monetary responsibility. In accordance with the provisions of the Civil Code,
even if their written contract is unenforceable because of non-age, they shall
make restitution to the extent that they have profited by the money they
received.
23. Ching v Goyangko
Recit Ready:
Respondents Joseph Goyanko et al. filed with the Regional Trial Court of Cebu City a
complaint for recovery of property and damages against Maria Ching, praying for the
nullification of the deed of sale and of transfer certificate and the issuance of a new
one. Goyangko et al. aver that they are the real owners of the property involved. They
further contend that it was after their father‘s death that they found out that a contract
of sale involving the same property has been executed by their father and common-
law wife Ching. However, Ching claimed that she is the actual owner of the property
as it was she who provided its purchase price. The RTC dismissed the complaint
against Ching, declaring that there is no valid and sufficient ground to declare the sale
as null and void, fictitious and simulated.
On appeal, the Court of Appeals reversed the decision of the trial court and declared
null and void the questioned deed of sale and TCT No. 138405.
The subject property having been acquired during the existence of a valid marriage
between Joseph Sr. and Epifania dela Cruz-Goyanko, is presumed to belong to the
conjugal partnership. Moreover, while this presumption in favor of conjugality is
rebuttable with clear and convincing proof to the contrary, the court find no evidence
on record to conclude otherwise. The record shows that while Joseph Sr. and his wife
Epifania have been estranged for years and that he and defendant-appellant Maria
Ching, have in fact been living together as common-law husband and wife, there has
never been a judicial decree declaring the dissolution of his marriage to Epifania nor
their conjugal partnership. It is therefore undeniable that the property located at Cebu
City belongs to the conjugal partnership. Assuming that the subject property was not
conjugal, still the court cannot sustain the validity of the sale of the property by
Joseph, Sr. to defendant-appellant Maria Ching, there being overwhelming evidence
on records that they have been living together as common-law husband and wife.
The court therefore finds the contract of sale in favor of the defendant-appellant Maria
Ching null and void for being contrary to morals and public policy. The purported sale,
having been made by Joseph Sr. in favor of his concubine, undermines the stability of
the family, a basic social institution which public policy vigilantly protects.
FACTS:
• The respondents are the seven children out of the legal union of Joseph
Goyanko, Sr. and Epifania dela Cruz.
• Respondents claim that in 1961, their parents acquired a real property 661
square meter property located in Cebu which was first registered in the name of their
aunt as their parents was still Chinese citizens this time.
• In May, 1993, their aunt executed a Deed of Absolute Sale over the subject
property in favor of their father. In turn, on October 1993, respondent’s father
executed a Deed of Absolute Sale in favor of the petitioner, Maria Ching, his common-
law wife.
• After Goyanko Sr.’s death, the respondents discovered that the property
had been transferred to the name of the petitioner.
• Thus, the respondents filed a Complaint for the recovery of the property and
damages against petitioner and they prayed for the nullification of the deed of sale
and the issuance of a new one in favor of their father.
ISSUES:
• Whether or not the subject property was part of the conjugal property of
Spouses Joseph Goyanko and Epifania dela Cruz.
• Whether or not the Deed of Absolute Sale in favor of herein petitioner was
void and inexistent.
HELD:
1) YES. The subject property was part of the conjugal property of the Spouses.
As it was acquired during the existence of a valid marriage between Joseph Sr. and
Epifania. Moreover, there was no decree of dissolution of marriage, nor of their
conjugal partnership.
2) YES.
• Supreme Court held that the contract of sale was null and void for being
contrary to morals and public policy. The sale was made by a husband in favor of his
concubine.
• According to Article 1409: Contracts whose cause, object or purpose is
contrary to law, morals, good customs, public order or public policy are void and
inexistent from the very beginning.
• Article 1352, NCC, also provides that: Contracts without cause or with
unlawful cause produce no effect whatsoever. The cause is unlawful if it is contrary to
law, morals, good customs, public order or public policy.
o Moreover, the sale of the property in favor of herein petitioner also fell under
the prohibition of sale of property between the spouses provided for by Art. 1490,
NCC(New Civil Code). This provision also applies to common law relationship.
o To rule otherwise would mean that “the condition of those who incurred guilt
would be better than those in legal union”
♣ This is so because if transfers and conveyances are allowed between
spouses during marriage would destroy the system of conjugal partnership.
♣ This is also designed to prevent the exercise of undue influence of one
spouse over the other and to protect the institution of marriage, which is the
cornerstone of family law.
o Therefore, sale of the property made by Joseph Goyanko, Sr. in favor of his
common-law wife is null and void.
24. Matabuena vs Cervantez
● In 1956, herein appellant’s brother Felix Matabuena donated a piece of lot
to his common-law spouse, herein appellee Petronila Cervantes.
● Felix and Petronila got married only in 1962 or six years after the deed of
donation was executed.
● Five months later, or September 13, 1962, Felix died.
● Thereafter, appellant Cornelia Matabuena, by reason of being the only
sister and nearest collateral relative of the deceased, filed a claim over the
property, by virtue of a an affidavit of self-adjudication executed by her in
1962, had the land declared in her name and paid the estate and
inheritance taxes thereon.
● The lower court of Sorsogon declared that the donation was valid inasmuch
as it was made at the time when Felix and Petronila were not yet spouses,
rendering Article 133 of the Civil Code inapplicable.
ISSUE: Whether or not the ban on donation between spouses during a marriage
applies to a common-law relationship.
HELD:
● While Article 133 of the Civil Code considers as void a donation between
the spouses during marriage, policy consideration of the most exigent
character as well as the dictates of morality requires that the same
prohibition should apply to a common-law relationship.
● As stated in Buenaventura vs. Bautista (50 OG 3679, 1954), if the policy of
the law is to prohibit donations in favor of the other consort and his
descendants because of fear of undue and improper pressure and influence
upon the donor, then there is every reason to apply the same prohibitive
policy to persons living together as husband and wife without the benefit of
nuptials
● The lack of validity of the donation by the deceased to appellee does not
necessarily result in appellant having exclusive right to the disputed
property. As a widow, Cervantes is entitled to one-half of the inheritance,
and the surviving sister to the other half.
● Article 1001, Civil Code: Should brothers and sisters or their children survive
with the widow or widower, the latter shall be entitled to one-half of the
inheritance and the brothers and sisters or their children to the other half.
25. Rubias v Batiller
FACTS
Petitioner Rubias was the counsel for this father-in-law,
Francisco Militante, in a land registration case involving the
disputed property filed in the land registration court. Court
dismissed the application for registration. Francisco appealed
to the CA but CA also dismissed
Pending the disposal of the appeal, Francisco sold to Rubias
the land in question
Rubias filed a suit to recover the ownership and possession of
the land against its present occupant, Isaias Batiller who
allegedly entered the lot
Batiller counterclaimed that he and his
predecessors in interest have always been in actual and open
possession of the lot since time immemorial. CFI ruled in favor
of Batiller
Lower court held that the contract of sale between Rubias and
Francisco was void because it was made when the former was
the counsel of the latter in a land registration case
ISSUE: WON the contract of sale between Rubias and Francisco
over the property subject was void
HELD: YES
Upon the CA’s final judgment affirming the dismissal of
Francisco’s application for registration, there was no right or
title to the land that could be transferred or sold by Francisco’s
sale in favor of Rubias
Assuming arguendo that Francisco can sell the property, the
purchase of a lawyer of the property in litigation from his client
is prohibited under Art 1491 of the Civil Code
Art 1491 prohibits certain persons by reason of
the relation of trust or their peculiar control over the property,
from acquiring property in their trust or control: (1) guardians;
(2) agents; (3) administrators; (4) public officers/employees; (5)
judicial officers/employees; (6) others specifically disqualified
by law
The Civil Code recognizes the absolute nullity of contracts
whose cause, object of purpose is contrary to law, morals, good
customs, public order or public policy or which are expressly
prohibited or declared void by law
The criterion of nullity of such prohibited contracts as a matter
of public order and policy should apply with greater reason to
judges, judicial officers, fiscals and lawyers
26. Paragas v Heirs of Dominador Balacano
August 31, 2005
Doctrine: The general rule is that a person is not incompetent to contract merely
because of advanced years or by reason of physical infirmities. However, when such
age or infirmities have impaired the mental faculties so as to prevent the person from
properly, intelligently, and firmly protecting her property rights then she is undeniably
incapacitated.
Facts:
● Balacano, married to Sumigcay, owned two lots a in Isabela
● Balacano purportedly sold a portion of one of the lots and the whole of the
other to Spouses Paragas.
● Spouses Paragas then sold a portion of the lot to another person.
● The children of Balacano filed a complaint as the older Balacano was at the
time of the execution of the deed of sale seriously ill
● The lower court ruled that the deed of the sale by Balacano to Paragas was
invalid as Balacano was at that time ill. Because of the seriousness of his
illness, it is not expected that he would be negotiating a contract of sale.
● CA affirmed but modified it as the two lots belongs to the estate of
Balacano.
ISSUE: WON Sale was invalid despite physical illness?
HELD:
 ● There was no prior and perfected contract of sale that remained to be fully
consummated .
● In Domingo v. Court of Appeals, the Court declared as null and void the
deed of sale therein inasmuch as the seller, at the time of the execution of
the alleged contract, was already of advanced age and senile.
● The general rule is that a person is not incompetent to contract merely
because of advanced years or by reason of physical infirmities. However,
when such age or infirmities have impaired the mental faculties so as to
prevent the person from properly, intelligently, and firmly protecting her
property rights then she is undeniably incapacitated.
● In the case at bar, the Deed of Sale was allegedly signed by Gregorio on his
death bed in the hospital. Gregorio was an octogenarian at the time of the
alleged execution of the contract and suffering from liver cirrhosis at that—
circumstances which raise grave doubts on his physical and mental
capacity to freely consent to the contract.
27. Francisco v. Herrera 392 SCRA 317, November 21, 2002
Doctrine:
Where a party’s capacity to consent to a contract was vitiated by senile dementia, the
contract is not void or inexistent per se but is valid and binding unless annulled
through a proper action filed in court seasonably.
An annullable contract may be rendered perfectly valid by ratification, which can be
express or implied, such as by accepting and retaining the benefits of a contract; One
cannot negotiate for an increase in the price in one breath and in the same breath
contend that the contract of sale is void
Facts:
Eligio Herrera Sr., the father of the respondent, is the owner of 2 parcels of land in
Cainta Rizal. On two different dates, Julian Francisco bought the said parcels of land
from Herrera. On January 3, 1991, Francisco bought the first parcel of land for
1,000,000 pesos payable in installments. On March 12, 1991, Francisco bought the
second parcel of land for 750,000 pesos.
Finding the purchase price inadequate, the heirs of Herrera namely Pastor Herrera,
Eligio Jr., and Josefina Cavestany negotiated with the petitioner to increase the
purchase price. This was rejected by the petitioner. Hence, the Herreras instituted an
action against Francisco for the nullification of the sale between Herrera Sr. and
Francisco with the RTC of Antipolo.
The Herreras have 3 arguments. First, they argue that Herrera Sr. had already sold
the second parcel of land to Pastor. Second, they argue that the first parcel of land
was subject to the co-ownership of the surviving heirs of Francisca Herrera who died
intestate. Lastly, they argue that the sale between Eligio Sr. and Francisco was
null and void because Eligio was afflicted with senile dementia making him
incapacitated to give consent.
Francisco, in his answer, claims that the Herreras were estopped from questioning the
sale because the Herreras had effectively ratified the two contracts when they
received the consideration offered in each transaction.
The RTC ruled in favor of the Herreras. The court declared that the sale was null and
void. It ordered Herrera to return the 1,750,000 pesos to Francisco and it ordered
Francisco to return the parcels of land to Herrera. The CA affirmed the decision of the
RTC in toto.
Petitioner Francisco contends that the CA erred in ruling that the contract of sale was
void. Francisco argues that although Eligio was suffering from a senile dementia
making him incapacitated under article 1327, the contract should be voidable under
article 1390. Hence when respondent Herrera accepted the payment, he ratified the
contracts on behalf of his father.
Issue: Are the assailed contracts void or merely voidable? - The contracts are
merely voidable.
Ruling:
(Distinction between void and voidable contracts)
Coming now to the pivotal issue in this controversy. A void or inexistent contract is one
which has no force and effect from the very beginning. Hence, it is as if it has never
been entered into and cannot be validated either by the passage of time or by
ratification. There are two types of void contracts: (1) those where one of the essential
requisites of a valid contract as provided for by Article 1318 of the Civil Code is totally
wanting; and (2) those declared to be so under Article 1409 of the Civil Code. By
contrast, a voidable or annullable contract is one in which the essential requisites for
validity under Article 1318 are present, but vitiated by want of capacity, error, violence,
intimidation, undue influence, or deceit.
(Main ruling regarding the issue of Eligio’s senile dementia)
We note that both the trial court and the Court of Appeals found that Eligio, Sr. was
already suffering from senile dementia at the time he sold the lots in question. In other
words, he was already mentally incapacitated when he entered into the contracts of
sale.
In the present case, it was established that the vendor Eligio, Sr. entered into an
agreement with petitioner, but that the former’s capacity to consent was vitiated by
senile dementia. Hence, we must rule that the assailed contracts are not void or
inexistent per se; rather, these are contracts that are valid and binding unless annulled
through a proper action filed in court seasonably.
An annullable contract may be rendered perfectly valid by ratification, which can be
express or implied. Implied ratification may take the form of accepting and retaining
the benefits of a contract.
Article 1318 of the Civil Code states that no contract exists unless there is a
concurrence of consent of the parties, object certain as subject matter, and
cause of the obligation established. Article 1327 provides that insane or
demented persons cannot give consent to a contract. But, if an insane or
demented person does enter into a contract, the legal effect is that the contract
is voidable or annullable as specifically provided in Article 1390.
This is what happened in this case. Respondent’s contention that he merely received
payments on behalf of his father merely to avoid their misuse and that he did not
intend to concur with the contracts is unconvincing. If he was not agreeable with the
contracts, he could have prevented petitioner from delivering the payments, or if this
was impossible, he could have immediately instituted the action for reconveyance and
have the payments consigned with the court. None of these happened. As found by
the trial court and the Court of Appeals, upon learning of the sale, respondent
negotiated for the increase of the purchase price while receiving the installment
payments. It was only when respondent failed to convince petitioner to increase the
price that the former instituted the complaint for reconveyance of the properties.
Clearly, respondent was agreeable to the contracts, only he wanted to get more.
Further, there is no showing that respondent returned the payments or made an offer
to do so. This bolsters the view that indeed there was ratification. One cannot
negotiate for an increase in the price in one breath and in the same breath contend
that the contract of sale is void.
Nor can we find for respondent’s argument that the contracts were void as Eligio, Sr.,
could not sell the lots in question as one of the properties had already been sold to
him, while the other was the subject of a co-ownership among the heirs of the
deceased wife of Eligio, Sr. Note that it was found by both the trial court and the Court
of Appeals that Eligio, Sr., was the “declared owner” of said lots.
WHEREFORE, the instant petition is GRANTED. The decision dated August 30, 1999
of the Court of Appeals in CAG. R. CV No. 47869, affirming the decision of the
Regional Trial Court in Civil Case No. 922267 is REVERSED. The two contracts of
sale covering lots under TD No. 0100495 and No. 0100497 are hereby declared
VALID. Costs against respondent. SO ORDERED.
28. Katipunan vs Katipunan
Facts:
Respondent Katipunan, Jr. is the registered owner of a 203 square meter lot in San
Miguel Manila and an apartment on the land which was being leased.
In December 1985, respondent with his brother, Miguel Katipunan, entered into a
Deed of Absolute Sale with brothers Balguma involving the subject lot for a
consideration of P187K. The respondents’ title to the property was then transferred to
the name of the Balguma brothers with their dad, Atty. Balguma, collecting the rentals
from the lessees of the apartments.
In March 1987, respondent filed with the RTC a complaint for annulment of the Deed
of Absolute Sale, arguing that his brother Miguel, Atty. Balguma, and Inocencio Valdez
convinced him to work abroad. He argued that the latter made it appear that they were
making him sign several documents to secure his flight and employment abroad when,
in truth, it was the Deed of Absolute Sale which they made him sign through insidious
words and machinations. Respondent also averred that he never received the P187K
consideration stated in the contract. Petitioners denied all of the allegations.
During the trial, a Psychiatrist at UP-PGH, Dr. Revilla, made a diagnosis on
Repsondent’s mental capacity who only finished the 3rd grade and was illiterate and
had the mental capacity of a 6-year old. Dr. Revilla disclosed that Respondent indeed
had a low IQ and was slow to comprehend.
Nevertheless, finding that Respondent could comprehend well based on the trial court
judge’s own observation of Katipunan’s demeanor and actions during the case, the
RTC rendered a judgment in favor of Petitioners.
The CA reversed the trial court’s decision, stating that the lower court should have
given more weight to the testimony of the expert witness in this case since the
respondent was clearly mentally slow and that, even when the contract in question
was in english and contained legal jargon, there was nothing in the records which
show that the contents of the same were explained to him when he was made to sign
it.
Issue: W/N the circumstances surrounding Katipunan’s signing of the Deed of
Absolute Sale made the same voidable
Held: YES. CA decision is AFFIRMED
A contract of sale is born from the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price. This meeting of the minds
speaks of the intent of the parties in entering into the contract respecting the subject
matter and the consideration thereof. Thus, the elements of a contract of sale are
consent, object, and price in money or its equivalent.
Under Article 1330 of the Civil Code, consent may be vitiated by any of the following:
(a) mistake, (2) violence, (3) intimidation, (4) undue influence, and (5) fraud. The
presence of any of these vices renders the contract voidable.
Here, as borne by the facts on hand, respondent signed the deed without the remotest
idea of what it was.
During the cross-examination of the respondent, it was revealed that he was in fact
forced to sign the Deed of Absolute Sale by Atty. Balguma and his brother Miguel. He
signed it without knowing what it was he was actually signing because he was being
shoved side to side while he was being told to sign it. He was also told that
“Something will happen” if he didn’t sign the document.
The circumstances surrounding the execution of the contract manifest a vitiated
consent on the part of respondent. Undue influence was exerted upon him by his
brother Miguel and Inocencio Valdez (petitioners) and Atty. Balguma. It was his
brother Miguel who negotiated with Atty. Balguma. However, they did not explain to
him the nature and contents of the document. Worse, they deprived him of a
reasonable freedom of choice. It bears stressing that he reached only grade three.
Thus, it was impossible for him to understand the contents of the contract written in
English and embellished in legal jargon.
Thus, his lack of education, coupled with his mental affliction, placed him not only at a
hopelessly disadvantageous position visàvis petitioners to enter into a contract, but
virtually rendered him incapable of giving rational consent. To be sure, his ignorance
and weakness made him most vulnerable to the deceitful cajoling and intimidation of
petitioners. The trial court obviously erred when it disregarded Dr. Revilla’s testimony
without any reason at all. It must be emphasized that petitioners did not rebut her
testimony.
30. Martinez vs Hongkong and Shanghai Bank
Violence and Intimidation
Date: February 19, 1910
Ponente: J. Moreland
Plaintiffs-appellants: MERCEDES MARTINEZ Y FERNANDEZ, ET AL.
Defendants-appellants: THE HONGKONG & SHANGHAI BANKING CORPORATION,
ET AL.
FACTS:
1. Alejandro S. Macleod (husband of Mercedes) was for many years the
managing partner of the house of Aldecoa & Co. in the city of Manila.
2. He withdrew from the management when Aldecoa & Co. went into
liquidation.
3. Hongkong & Shanghai banking Corporation was a creditor of that firm to
the extent of several hundred thousand pesos and claimed to have a creditor's lien in
the nature of a pledge over certain properties of the debtor.
4. Bank began a civil action against Alejandro, Mercedes, Aldecoa & Co.,
and the firm known as Viuda e Hijos de Escaño.
• A certain undertaking in favor of Aldecoa & Co. had been pledged to
the bank to secure the indebtedness of Aldecoa & Co., but that this obligation had
been wrongfully transferred by Alejandro into an obligation in favor in Mercedes to the
prejudice of the bank.
• Aldecoa & Co. began a civil action against Alejandro S. Macleod and
others for the recovery of certain shares of stock basing its right to recover upon
alleged criminal misconduct of Alejandro in his management of the firm's affairs.
5. Knowing that criminal complaints would be filed against him, Alejandro
went to Macao (Portuguese colony) a territory not covered by the extradition treaty
between US and Portuguese.
6. Aldecoa filed a complaint against Alejandro for
• Falsification of commercial document. The GPR requested the
Portuguese government for extradition but this was denied
• Embezzlement
5. Aldecoa & Co. and the bank, on the settlement, insisted upon the
conveyance not only of all the property of Alejandro but also of at least a portion of the
property claimed by Mercedes.
• Alejandro's representative did not resist but Mercedes resisted with
respect to her properties alleging that these were exclusively hers.
8. They met again to try and settle the case
• The conditions and terms were to be explained to Mr. Kingcome (son-
in-law of Mercedes and businessman)
• The explanation was made by Mr. Stephen, the manager of the bank
(one of the friends of Mr. Kingcome) but it is contested whether Kingcome
communicated such substance to Mercedes before she signed the document
• Reference was made to the British Colony in Manila where Kingcome,
Stephen, Alejandro were prominent members and scandal and disgrace will ensure if
settlement is not made.
• Mr. Kingcome got the impression from that interview that Mr. Stephen
thought unless the settlement were consummated additional and mortifying
misfortunes would fall upon Alejandro's family.
9. A long conference was held
• If Mercedes accepts, the civil suits against them would be dismissed
and criminal charges would be withdrawn
• If she refuses, her husband will spend the rest of his life in Macao or be
criminally prosecuted
• She refused and it was evident no settlement or comprise can be
arrived at and just do the best to defend Alejandro.
10. Mercedes and Mr. William (nephew and close friend of Mercedes and
Alejandro), now her attorney, talked wherein Mercedes agreed to the terms and
authorized William to execute the contract of settlement on her behalf, and after
corrections, it was signed.
11. Aldecoa took possession of the properties of Alejandro and Mercedes,
and the complaints were withdrawn or dismissed, Alejandro returned to Manila.
12. Mercedes filed a complaint that there was intimidation.
ISSUE1: WON the contract can be annulled since Mercedes' consent was
obtained due to violence and intimidation?
HELD 1: Valid, no duress.
Discussion
• Contracts which are declared void and of no force upon the ground that 4. The property transferred or encumbered by the act complained of was
they were obtained by fraud, duress, or undue influence are so declared for the the separate property of the person performing the act in which the person for whom
reason that the complaining party never really gave his consent thereto. The consent the act was performed claimed no interest whatever.
in such case is not in the eye of the law a consent at all. The person has not acted. He 5. There was no dispute as to the title of the property transferred or
has done nothing he was in vinculis(in chains). encumbered, no claim made to it by anybody, no suits pending to recover it or any
Real Duress Consent given against his wishes or portion of it, and no pretension that it could be taken for the debts of the husband or of
judgment or reluctantly or without hope any other person.
of profit
The 2 other cases had the benefit of legal advice or friend but none of the other
circumstances listed above were present.
Void Valid

Example: A person settles since he Basically, the cases cited had material differences with the instant case.
injured another. He must make
reparation or face the consequences.

31. Woodhouse vs. Halili

No difference between one choosing
which gives him greater profit and one
Plaintiff: Charles F. Woodhouse
choosing the lesser evil
Defendant: Fortunato F. Halili

Plaintiff: Charles F. Woodhouse

Defendant: Fortunato F. Halili

Nov. 29, 1947

In this case
1. The elements of duress is lacking.
2. The most that the facts disclose is that the plaintiff was reluctant to
relinquish certain rights which she claimed to have in certain property to the end that
she might be relieved from litigation then pending against her and that her husband
might escape prosecution for crimes alleged to have been committed; and that she
persisted for a considerable time in her refusal to relinquish such claimed rights.
3. The fact that she did relinquish them upon such consideration and under
such condition does not of itself constitute duress or intimidation, nor does it destroy
the obligatory effect and force of her consent.
4. Duress needs more than that – she must have acted from fear and not
from judgment.
ISSUE2: WON the cases cited by plaintiff is applicable?
HELD2: NO, not applicable.
1. In those cases there was no time within which to deliberate the matter
as it should have been deliberated or take the advice of others or counsel.
2. The treats made to secure the performance of the acts complained of
were made directly to the complaining party by the person directly interested or by
someone in his behalf who was working in his interest and who had no interest
whatever in the welfare of the complaining party.
3. There was no consideration for the performance of the act complained
of except immunity from the prosecution threatened.
- written agreement between plaintiff and defendant
Important Provisions
(I) organize a partnership for the bottling and distribution of Mission soft drinks
plaintiff: industrial partner or manager
Defendant: capitalist, furnishing the capital necessary
(2) defendant: decide matters of general policy regarding the business and plaintiff:
to attend to the operation and development of the bottling plant;
(3) plaintiff: secure the Mission soft Drinks franchise for and in behalf of the proposed
partnership
(4) plaintiff: receive 30 per cent of the net profits of the business
Prior to agreement
● Woodhouse informed the Mission Dry Corporation of Los Angeles
manufacturers of the bases and ingredients of the beverages bearing its
name
○ that he had interested a prominent financier (defendant herein)
in the business, who was willing to invest half a million
dollars in the bottling and distribution of the said beverages,
and requested, in order
○ that he may close the deal with him,
○ that the right to bottle and distribute be granted him for a limited
time under the condition that it will finally be transferred to the
corporation.
Woodhouse was given "a thirty days' option on exclusive bottling and distribution Response - Defendant alleges
rights for the Philippines". 1. that defendant's consent to the agreement was secured by the
representation of plaintiff that he was the owner, or was about to
Nov. 27, 1947 become owner of an exclusive bottling franchise, which representation was
Formal negotiations between them began at a meeting at the Manila Hotel, with their false, and that plaintiff did not secure the franchise, but was given to
lawyers attending. defendant himself ;
● (prior to mtg) plaintiff’s lawyer had prepared a draft of the agreement, but 2. that defendant did not fail to carry out his undertakings, but that it was
this was not satisfactory because a partnership, instead of a plaintiff who failed ;
corporation, was desired. 3. that plaintiff agreed to contribute the exclusive franchise to the partnership,
● Defendant's lawyer prepared after the meeting his own draft. (became the but plaintiff failed to do so.
main basis of the agreement) Counter-claim
Dec. 3 ● 200,000 damages
● contract was finally signed by Woodhouse
● He did not like to go to the United States without the agreement being first Decision:
signed ● ordered defendant to render an accounting of the profits of the bottling and
Dec. 10 distribution business, subject of the action, and
● both of them went to the US ● ordered plaintiff 15 per cent thereof
● a franchise agreement was entered into between the Mission Dry ● held that the execution of the contract of partnership could not be enforced
Corporation and Fortunato F. Halili and/r Charles F. Woodhouse, granting upon the parties
defendant the exclusive right, license, and authority to produce, bottle, ● also held that the defense of fraud was not proved
distribute, and sell Mission beverages in the Philippines
Both parties appealed.
Went back to to PH.
ISSUE/S
Jan. 1948 1. W/N defendant had falsely represented that he had an exclusive franchise
● Woodhouse already reported for duty to bottle Mission beverages,
● Woodhouse given as advance, on account of profits, the sum of P2,000, 2. Whether this false representation or fraud, if it existed, annuls the
besides the use of a car agreement to form the partnership
First week of Feb. 1948
● only then did operations began TC:
● also given 2,000 1. it is improbable that defendant was never shown the letter granting plaintiff
Mar. 1948 the option defendant would not have gone to the United States without
● given 1,000 knowing what authority plaintiff had the drafts of the contract prior to the
● car was withdrawn final one can not be considered for the purpose of determining the issue, as
they are presumed to have been already integrated into the final agreement.
Bottling plant already in operation when Woodhouse demanded from Halili that 2. fraud is never presumed and must be proved
partnership papers be executed. 3. the parties were represented by attorneys, and that if any party thereto got
the worse part of the bargain, this fact alone would not invalidate the
Response agreement.
At first: excused himself 4. On this appeal the defendant, as appellant, insists that plaintiff did represent
Next: promised to do so after the sales of the products had been increased to P50,000 to the defendant that he had an exclusive franchise, when as a matter of
fact, at the time of its execution, he no longer had it as the same had
Woodhouse caused his attorneys to take up the matter with defendant with a view to expired, and that, therefore, the consent of the defendant to the contract
possible settlement. As none could be arrived at, the present action was instituted. was vitiated by fraud and it is, consequently, null and void.

Complaint Halili
● asks for the execution of the contract of partnership, an accounting of the ● insists that Woodhouse did represent to the defendant that he had an
profits, and a share thereof of 30 per cent, as well as damages in the exclusive franchise, when as a matter of fact, at the time of its execution,
amount of P200,000 he no longer had it as the same had expired, and that, therefore, the
 consent of the defendant to the contract was vitiated by fraud and it is,
consequently, null and void
HELD: defendant's contention is not without merit.
1st Issue: on false representation
Mr. Laurea, testified that Woodhouse presented himself as being the exclusive
grantee of a franchise
I notice from the first draft of the document which I prepared which calls for the
organization of a corporation, that the manager, that is, Mr. Woodhouse, is
represented as being the exclusive grantee of a franchise from the Mission Dry
Corporation.”
First draft prepared - expressly states that plaintiff had the exclusive franchise.
Whereas, the manager is the exclusive grantee of a franchise from the Mission
Dry Corporation San Francisco, California, for the bottling of Mission products and
their sale to the public throughout the Philippines;
3. That the manager, upon the organization of the said corporation, shall forthwith
transfer to the said corporation his exclusive right to bottle Mission products and to
sell them throughout the Philippines.”
Court held:
● principle invoked is inapplicable, since the purpose of considering the prior
draft is not to vary, alter, or modify the agreement, but to discover the
intent of the parties thereto and the circumstances surrounding the
execution of the contract
● Did plaintiff represent to defendant that he had an exclusive franchise? Cer-
tainly, his acts or statements prior to the agreement are essential and
relevant to the determination of said issue.
● Act or statement of the plaintiff: not sought to be introduced to change or
alter the terms of the agreement, but to prove how he induced the
defendant to enter into it—to prove the representations or inducements, or
fraud, with which or by 'which he secured
Fraud and false representation incident to the creation of a jural act, not to its
integration, and are not governed by the rules on integration. Were parties
prohibited from proving said representations or inducements, on the ground that the
agreement had already been entered into, it would be impossible to prove
misrepresentation or fraud. The parol evidence rule expressly allows the evidence to
be introduced when the validity of an instrument is put in issue by the pleadings, as in
this case.
Plaintiff's own version of preliminary conversation
● "Well, come back to me when you have the authority to operate. I am
definitely interested in the bottling business."
● must have exultantly told defendant that he had the authority already
● improbable and incredible for him to have disclosed the fact that he had
only an option to the exclusive franchise, which was to last thirty days
only, and still more improbable for him to have disclosed that, at the time of
the signing of the formal agreement, his option had already expired.
● Had he done so, he would have destroyed all his bargaining power and
authority, and in all probability lost the deal itself.
Plaintiff only undertook in the agreement "to secure the Mission Dry franchise for and
in behalf of the proposed partnership."
● The existence in the final agreement does not militate against plaintiff
having represented that he had the exclusive franchise;
● it rather strengthens belief that he did actually make the representation.
○ How could plaintiff assure defendant that he would get the
franchise for the latter if he had not actually obtained it for
himself? Defendant would
Proof: . . . and the manager is ready and willing to allow the capitalists to use the
exclusive franchise . . .1. In the event of the dissolution or termination of the
partnership, . . . the franchise from Mission Dry Corporation shall be reassigned
to the manager.
These statements confirm the conclusion that defendant believed, or was made to
believe, that plaintiff was the grantee of an exclusive franchise. Thus it is that it was
also agreed upon that the franchise was to be transferred to the name of the
partnership, and that, upon its dissolution or termination, the same shall be
reassigned to the plaintiff.
These statements confirm the conclusion that defendant believed, or was made to
believe, that plaintiff was the grantee of an exclusive franchise.
2nd Issue: Does it amount to a fraud that would vitiate the contract?
With the modification above indicated, the judgment appealed from is hereby affirmed.
Without costs.
Fraud
● manifested in illimitable number of degrees or gradations, from the innocent
praises of a salesman about the excellence of his wares to those malicious
machinations and representations that the law punishes as a crime.
● In consequence, article 1270 of the Spanish Civil Code distinguishes two
kinds of (civil) fraud, the causal fraud, which may be a ground for the
annulment of a contract, and the incidental deceit, which only renders the
party who employs it liable for damages.
● in order that fraud may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo causante), inducement to the
making of the contract.
Case at hand
● The record abounds with circumstances indicative that the fact that the
principal consideration, the main cause that induced defendant to enter into
the partnership agreement with plaintiff, was the ability of plaintiff to get
the exclusive franchise to bottle and distribute for the defendant or for
the partnership.
● The original draft prepared by defendant's counsel was to the effect that
plaintiff obligated himself to secure a franchise for the defendant.
 ● Correction appears in this same original draft, but the change is made not
as to the said obligation but as to the grantee.
● In the corrected draft the word "capitalist"(grantee) is changed to
"partnership."
● The contract in its final form retains the substituted term "partnership." The
defendant was, therefore, led to the belief that plaintiff had the exclusive
franchise, but that the same was to be secured for or transferred to the
partnership.
● The plaintiff no longer had the exclusive franchise, or the option
thereto, at the time the contract was perfected. But while he had already
lost his option thereto (when the contract was entered into), the principal
obligation that he assumed or undertook was to secure said franchise for
the partnership, as the bottler and distributor for the Mission Dry
Corporation. We declare, therefore, that if he was guilty of a false
representation, this was not the causal consideration, or the principal
inducement, that led plaintiff to enter into the partnership agreement.
Ownership of Exclusive was actually the consideration or price plaintiff gave in
exchange for the share of 30 percent granted him in the net profits of the partnership
business.
Defendant agreed to give plaintiff 30 per cent share in the net profits because he was
transferring his exclusive franchise to the partnership. Thus, in the draft prepared by
plaintiff's lawyer, the following provision exists: That the MANAGER, upon the
organization of the said corporation, shall forthwith transfer to the said corporation his
exclusive right to bottle Mission products and to sell them throughout the Philippines.
As a consideration for such transfer, the CAPITALIST shall transfer to the
Manager fully paid non assessable shares of the said corporation . . . twenty-five
per centum of the capital stock of the said corporation.
Plaintiff
● never been a bottler or a chemist;
● he never had experience in the production or distribution of beverages.
● As a matter of fact, when the bottling plant being built, all that he suggested
was about the toilet facilities for the laborers.
We conclude from the above that while the representation that plaintiff had the
exclusive franchise did not vitiate defendant's consent to the contract, it was used by
plaintiff to get from defendant a share of 30 per cent of the net profits; in other words,
by pretending that he had the exclusive franchise and promising to transfer it to
defendant, he obtained the consent of the latter to give him (plaintiff) a big slice
in the net profits. This is the dolo incidente defined in article 1270 of the Spanish
Civil Code, because it was used to get the other party's consent to a big share in the
profits, an incidental matter in the agreement.
Since fraudulent: May the agreement be carried out or executed?
We find no merit in the claim of plaintiff that the partnership was already a fait
accompli from the time of the operation of the plant, as it is evident from the very
language of the agreement that the parties intended that the execution of the
agreement to form a partnership was to be carried out at a later date. They expressly
agreed that they shall form a partnership.
● As a matter of fact, from the time that the franchise from the Mission Dry
Corporation was obtained in California, plaintiff himself had been
demanding that defendant comply with the agreement. And plaintiff's
present action seeks the enforcement of this agreement. Plaintiff's claim,
therefore, is both inconsistent with their intention and incompatible with his
own conduct and suit.
● the defendant may not be compelled against his will to carry out the
agreement nor execute the partnership papers. Under the Spanish Civil
Code, the defendant has an obligation to do, not to give. The law recognizes
the individual's freedom or liberty to do an act he has promised to do, or not
to do it, as he pleases. It falls within what Spanish commentators call a very
personal act (acto personalismo), of which courts may not compel
compliance, as it is considered an act of violence to do so.
Last issue: Award for damages
Against this amount of damages, we must set off the damage defendant suffered by
plaintiff's misrepresentation that he had obtained a very high percentage of share in
the profits. We can do no better than follow the appraisal that the parties themselves
had adopted.
With the modification above indicated, the judgment appealed from is hereby affirmed.
Without costs.
29. Hemedes v. CA (October 8, 1999)
J. Gonzaga-Reyes
Doctrine
● Article 1324: When the offerer has allowed the offeree a certain period to
accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded upon a
consideration, as something paid or promised.
● Art. 1324 is applicable when consent was given by mistake or fraud and not
when there is a complete absence of consent.
Facts
● The subject parcel of land was originally owned by Jose Hemedes, father of
Maxima Hemedes and Enrique Hemedes.
○ Jose executed a document entitled “Donation Inter Vivos with
Resolutory Conditions” where he conveyed ownership over the
subject land, together with all its improvements, in favor of his
third wife, Justa Kausapin, subject to the following resolutory
conditions:
■ Upon the death or remarriage of the DONEE, the title to
the property donated shall revert to any of the children,
or their heirs, of the DONOR expressly designated by
the DONEE in a public document conveying the
property to the latter
 ■ In absence of such an express designation made by
the DONEE before her death or remarriage contained
in a public instrument as above provided, the title to the
property shall automatically revert to the legal heirs of
the DONOR in common.
○ Pursuant to the first condition, Justa executed on September 27,
1960 a “Deed of Conveyance of Unregistered Real Property by
Reversion” conveying to Maxima the subject property.
■ The ownership, title, and all rights and interests of the
property will be transferred to Maxima; except the
possession and enjoyment of the said property which
will remain with her until her death or remarriage.
● Maxima constituted a real estate mortgage over the property with R & B
Insurance.
○ R&B Insurance extrajudicially foreclosed the mortgage since
Maxima failed to pay the loan. It was sold at a public auction with
R&B as the highest bidder. Maxima failed to redeem the property.
○ Register of Deeds issued a TCT in the name of R&B with the
annotation of usufruct in favor of Justa.
● Justa executed a “Kasunduan” where she transferred the same property to
her Enrique.
● Enrique sold the land to Dominium Realty and Construction Corporation.
Justa executed an affidavit affirming such conveyance.
○ Dominium leased the property to Asia Brewery.
● R&B and Maxima informed Asia Brewery of their ownership of the property.
● Dominium and Enrique filed a claim for the annulment of R&B’s TCT and/or
the reconveyance to Dominium of the property. They alleged that Dominium
was the absolute owner.
● RTC: ruled in favor of Dominium and Enrique. CA: affirmed.
Issue
● Which of the two conveyances effectively transferred ownership over the
subject land? Maxima
Held
● CA ruled that the deed of conveyance in favor of Maxima was in English
and that it was not explained to Justa Kausapin, although she could not
read nor understand English; thus, Maxima failed to discharge her burden,
pursuant to Art. 1332 of the Civ Code, to show that the terms were fully
explained. The registration of the property on the strength of the spurious
deed of conveyance is null and void and does not confer any right of
ownership upon Maxima.
● Maxima refutes the applicably of Art. 1332. Such provision is not applicable
since there was not party seeking to enforce a contract. She is not enforcing
the deed of conveyance as her basis for ownership.
● Public respondent was in error when it sustained the trial court’s decision to
nullify the “Deed of Conveyance of Unregistered Real Property by
Reversion” for failure of Maxima Hemedes to comply with article 1332 of the
Civil Code, which states:
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 the former.
● Article 1332 was intended for the protection of a party to a contract who is at
a disadvantage due to his illiteracy, ignorance, mental weakness or other
handicap.23 This article contemplates a situation wherein a contract has
been entered into, but the consent of one of the parties is vitiated by
mistake or fraud committed by the other contracting party. Clearly, article
1332 assumes that the consent of the contracting party imputing the
mistake or fraud was given, although vitiated, and does not cover a situation
where there is a complete absence of consent.
○ Justa disclaims any knowledge of the “Deed of Conveyance of
Unregistered Real Property by Reversion” in favor of Maxima.
● It is private respondents’ own allegations which render article 1332
inapplicable for it is useless to determine whether or not Justa Kausapin
was induced to execute said deed of conveyance by means of fraud
employed by Maxima Hemedes, who allegedly took advantage of the fact
that the former could not understand English, when Justa Kausapin denies
even having seen the document before the present case was initiated in
1981.
● The property was conveyed to Maxima and not to Enrique. The sale of
Enrique to Dominion is null and void.
32. Tankeh v DBP
Panaligan, Celina
Petitioner: Alejandro Tankeh
Respondent: Ruperto Tankeh (petitioner’s younger brother, President of Sterling
Shipping Lines, Inc.)
Doctrine: Dolo incidente, as opposed from dolo causante, does not vitiate consent; as
such, any contract entered into is not annullable because it is merely incidental and
not causal fraud. Dolo incidente, referred to in Art. 1344 of the NCC, is the type of
fraud which is not serious in character and without which the other party would still
have entered into the contract. However the party liable for dolo causante is liable to
the other party for damages.
Recit Ready: Petitioner claims that his younger brother respondent defrauded him by
making misrepresentations (saying that petitioner would be made shareholder in
respondent’s company, etc.) that thereafter made him agree to said arrangement and
sign a promissory note binding him (petitioner) to be solidarily liable to DBP, the
creditor of respondent’s company Sterling Shipping which made possible the
procurement of a vessel (Sterling Ace). When he said that he wanted to be released
from liability from the loan evidenced by the note, he alleged that because respondent
did not deliver his promises, he (respondent) had committed causal fraud against him
(petitioner). The SC found that there was only incidental, not causal, fraud, which did
not make their agreement/promissory note annullable. Respondent was only held
liable for damages in favor of petitioner (worth 500k).
Facts:
 ● Ruperto Tankeh is the president of Sterling Shipping Lines Inc., a company
incorporated to operate ocean-going vessels engaged primarily in foreign
trade.
● He applied for a $3.5m loan from Development Bank of the Philippines for
the partial financing of the vessel M/V Golden Lilac (later renamed Sterling
Ace). DBP required among other things that the vessel be mortgaged in
favor of DBP and that its earnings shall be assigned to DBP until such time
that the loan has been paid. DBP also required that 67% of the outstanding
voting shares of Sterling Shipping Lines be assigned to it.
● To secure this loan, Respondent along with Petitioner et al bound
themselves jointly and severally liable through a promissory note
● Before this promissory note was signed, Respondent approached his older
brother respondent and told him that he (petitioner) would be given 1000
shares to be director of Sterling Shipping. These shares were worth 1m.
● In consideration of this, petitioner signed the Assignment of Shares of Stock
With Voting Rights and the promissory note abovementioned. The 67%
shares of the company were also assigned thereafter to DBP.
● Two years later petitioner informed respondent saying that he was severing
all ties and terminating his involvement with Sterling Shipping. Among the
reasons he stated was that he was never really involved in the company’s
management; he never got to join any meeting and was not informed of the
decisions being made by the Board of Directors (which his brother told him
that he would be part of). Petitioner’s son, who was promised a position in
the company, never got to be part of the company as well.
● Some time later petitioner found out that the vessel mortgaged to DBP
(which by that time had already been transferred to Asset Privatization Trust
by virtue of Presidential Proclamation 50) had been sold for a mere $350k in
Singapore. Petitioner was still bound through promissory note for the
outstanding loan balance.
● Petitioner prayed that he be released from liability, arguing that respondent
had exercised deceit and fraud in causing petitioner to bind himself
solidarily to pay DBP for the amount of the loan. He alleged that he had
never invested any amount in the corporation and that he was not even an
actual member of the Board.
● The Regional Trial Court, finding the existence of (causal) fraud, rendered
null and void the promissory note.
● Respondent appealed this to the CA, and the CA reversed the RTC
decision making no finding of fraud
● Hence this petition to the Supreme Court.
Issue: W/N The Court of Appeals, in reversing the decision of the RTC, erred in
finding that Ruperto Tankeh did not commit any fraud against his brother Alejandro
Tankeh
Held: There was fraud committed in this case, but such was merely incidental, not
causal, inasmuch as Alejandro Tankeh would still have entered into the agreement
with his brother even with it being present.
“However, in refusing to allow petitioner to participate in the management of the
business, respondent Ruperto V. Tankeh was liable for the commission of incidental
fraud. In Geraldez, this Court defined incidental fraud as “those which are not serious
in character and without which the other party would still have entered into the
contract.”
“Although there was no fraud that had been undertaken to obtain petitioner’s consent,
there was fraud in the performance of the contract. The records showed that
petitioner had been unjustly excluded from participating in the management of the
affairs of the corporation. This exclusion from the management in the affairs of Sterling
Shipping Lines, Inc. constituted fraud incidental to the performance of the obligation.
Art. 1344 provides that
“In order that fraud may make a contract voidable, it should be serious
and should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages.”
Dolo incidente, referred to in par. 2 of Art 1344 only obliges the person employing it to
pay damages. Since Ruperto Tankeh was found to have defrauded his brother by
making him believe that he would be part of the Board of Directors of respondent’s
company, the SC found him liable for P500,000.
As to the allegation by petitioner that his consent had been induced through causal
fraud, the Court finds that, considering petitioner’s standing as a doctor, he should
have inquired more into the nature of the contract he had entered into, wherein he
was sworn in as a shareholder of the company (he had been given 1,000 shares with
a par value of 1m by respondent) without paying a single cent. The unusual
circumstances should have alerted him that there was an irregularity in the contract.
Furthermore, Art. 1340 provides that “The usual exaggerations in trade, when the
other party had an opportunity to know the facts, are not in themselves
fraudulent.”
Incidental fraud, which is defined in Art. 1338 of the NCC, is not applicable to
this case as the fraud committed by respondent was during the performance of
the contract, and not when the contract is entered into.
33. Rural Bank of Sta. Maria vs. CA
By Claud Bernas
DOCTRINE:
The elements of fraud vitiating consent for purposes of annulling a contract are: (a) It
was employed by a contracting party upon the other; (b) It induced the other party to
enter into the contract; (c) It was serious; and, (d) It resulted in damages and injury to
the party seeking annulment.
Pursuant to Article 1339 of the Civil Code, silence or concealment, by itself, does not
constitute fraud, unless there is a special duty to disclose certain facts, or unless
according to good faith and the usages of commerce the communication should be
made.
FACTS:
● Manuel Behis is the owner of a parcel of land that was mortgaged in favor of
Rural Bannk of Sta. Maria
● Unfortunately, thereafter, Manuel Behis was delinquent in paying his debts.
● On January 9, 1985, Manuel Behis sold the land to the plaintiffs4 in a Deed of
Absolute Sale with Assumption of Mortgage for the sum of P250,000.00 which
bears the signature of his wife Cristina Behis. Manuel Behis took it upon himself
to secure the signature of his wife and came back with it. On the same date of
January 9, 1985, plaintiffs and Manuel Behis simultaneously executed another
Agreement whereby plaintiffs are indebted to Manuel Behis for the sum of
P2,400,000.00 payable in installments with P10,000.00 paid upon signing and
in case of default in the installments, Manuel Behis shall have legal recourse to
the portions of the land equivalent to the unpaid balance of the amounts in
installments
● Pursuant to their two contracts with Manuel Behis, plaintiffs paid him during his
lifetime the sum of P10,000.00 plus P50,000.00 plus P145,800.00 and the sum
of P21,353.75 for the hospitalization, medical and burial expenses of Manuel
Behis when he died on June 21, 1985.
● Obviously, from the above payments, the plaintiffs were unable to complete
their full payment to Manuel Behis of the sale of the land as it is nowhere near
P2,400,000.00.
● On September 5, 1985, Cristina Behis, widow of Manuel Behis, wrote a letter to
the Bank claiming the Real Estate mortgage was without her signature. And in
another letter dated October 28, 1985 to the Bank. Cristina Behis stressed she
did not authorize anybody to redeem the property in her behalf as one of the
mortgagors of the land.
● Then, months passed, and nothing was heard from the plaintiffs by the Bank.
On the first week of July, 1986, Teodoro Verzosa, President of Halsema, Inc.,
heard about the land and got interested and had preliminary talks with Vicente
Natividad, President of the Bank, and with Edilberto Natividad, the principal
stockholder of the bank.
● upon suggestion of the lawyer of Halsema, an Assignment of Mortgage was
entered into on July 28, 1986 between Halsema and the Bank for the
consideration of P520,765.45 (Exhibit ‘1,’ Bank) which amount was the total
indebtedness of Manuel Behis with the Bank at the time (Exhibit ‘7A,’ Halsema).
Note however, that what was assigned was the Mortgage made originally by
Manuel Behis and not the Mortgage as
● In other words, the bank assigned the mortgage to Halsema while it was still
under Arceño
● the Bank explained it entered into the Assignment of Mortgage because at the
time it considered the Memorandum of Agreement cancelled as first, plaintiffs
failed to settle the objections of Cristina Behis aforesaid on her signature being
forged in the Deed of Sale with Assumption of Mortgage despite the lapse of
time from February, 1986 to July, 1986. Second, the terms of the Memorandum
of Agreement have not been fully complied with as the payments were not
made on time on the dates fixed therein; and third, their consent to the
Memorandum of Agreement was secured by the plaintiffs thru fraud as the Bank
was not shown the Agreement containing the real consideration of
P2,400,000.00 of the sale of the land of Manuel Behis to plaintiffs.
ISSUE
WON the memorandum of agreement between the bank and private respondents is
voidable on the ground that its consent to enter said agreement was vitiated by fraud
because private respondents withheld from petitioner bank the material information
that the real consideration for the sale with assumption of mortgage of the property by
Manuel Behis to Rayandayan and Arceño is P2,400,000.00, and not P250,000.00 as
represented to petitioner bank.
HELD:
● NO
● The kind of fraud that will vitiate a contract refers to those insidious words or
machinations resorted to by one of the contracting parties to induce the other to
enter into a contract which without them he would not have agreed to
● Simply stated, the fraud must be the determining cause of the contract, or must
have caused the consent to be given
● It is believed that the nondisclosure to the bank of the purchase price of the sale
of the land between private respondents and Manuel Behis cannot be the
“fraud” contemplated by Article 1338 of the Civil Code.
● From the sole reason submitted by the petitioner bank that it was kept in the
dark as to the financial capacity of private respondents, we cannot see how the
omission or concealment of the real purchase price could have induced the
bank into giving its consent to the agreement; or that the bank would not have
otherwise given its consent had it known of the real purchase price.
● the consideration for the purchase of the land between Manuel Behis and
herein private respondents Rayandayan and Arceño could not have been the
determining cause for the petitioner bank to enter into the memorandum of
agreement. To all intents and purposes, the bank entered into said agreement
in order to effect payment on the indebtedness of Manuel Behis.
● In this case, the consideration for the sale with assumption of mortgage was not
the inducement to defendant bank to give a consent which it would not
otherwise have given.
● We are, therefore, constrained to uphold the validity of the Memorandum of
Agreement, Exhibit F, and reverse and set aside the ruling declaring the same
annulled allegedly due to fraud of plaintiffs-appellants
● pursuant to Article 1339 of the Civil Code,16 silence or concealment, by itself,
does not constitute fraud, unless there is a special duty to disclose certain facts,
or unless according to good faith and the usages of commerce the
communication should be made.
● the bank had other means and opportunity of verifying the financial capacity of
private respondents and cannot avoid the contract on the ground that they were
kept in the dark as to the financial capacity by the non disclosure of the
purchase price.
● Consequently, not all the elements of fraud vitiating consent for purposes of
annulling a contract concur, to wit: (a) It was employed by a contracting party
upon the other; (b) It induced the other party to enter into the contract; (c) It was
serious; and, (d) It resulted in damages and injury to the party seeking
annulment.
34.
 - Such decision is AFFIRMED by the Supreme Court;
35. AZARRAGA v. GAY (1928)
TOPIC: DOLO/FRAUD
PETITIONER: Azarraga
RESPONDENT: Gay
DOCTRINE: In the sale of REAL PROPERTIES, purchaser cannot claim that he was
defrauded/deceived by misrepresentation of the area/size of the land when (1) he had
all the opportunity and means to appraise the land in question, without the vendor
ever preventing him from doing so, and (2) that the title of the land gives a correct and
accurate description of the land in question.
Petitioner Azarraga sold 2 parcels of land to respondent Gay for a lump sum of 47k
PHP, payable in installments.Such was manifested in a public document called Exhibit
A dated January 17 1921.
AGREEMENT (ang napagusapan!)
1. 5k upon signing Exhibit A (contract)
2. 20k upon delivery of the Torrens title of the 1st parcel of land
3. 10k upon delivery of the Torrens title of the 2nd parcel of land
4. 12k after one year of delivering the Torrens title of 2nd parcel of land
ACTUAL! (eto yung nangyari)
1. 5k PAID upon signing [Jan 17 1921]
2. 1st Torrens title DELIVERED; 20k PAID
3. 2nd title DELIVERED; 10k NOT PAID [March 1921]
4. 10k still UNPAID; 12k NOT PAID after 1 year
PETITIONER: Asking for payment of 22k with legal interest (on the 10k, from April
1921 & on the 12k, from April 1922)
RESPONDENT: Counter-claimed, that Petitioner Azarraga misrepresented the 2nd
parcel of land to be 98 hectares when it was, in fact, 60 hectares. She claimed that
such was made to appear in the deed of the sale, in which she was induced to bind
herself to pay 47k for two parcels of land no less than 200sq meters, but had she
known that the 2nd parcel was of 60sqm she would not have bought it. Respondent
Gay then contends that she is entitled to a reduced price of 38k, and that other than
those acknowledged by Petitioner, she paid 4k as well. She claims likewise that they
have never refused to pay the reduced price, but that the plaintiff refused to accept
payment. Respondent prays for indeminification of 15k for the damages sustained at
the malicious filing of herein complaint.
Lower court held that the two parties had not given importance to the area of the land
in consenting to the contract in question, and that there was no fraud when the two
parties agreed to the contract.
Respondent cannot claim that she was defrauded or that the land was misrepresented
when she herself had ample opportunity to appraise the land she was purchasing, and
the petitioner was not preventing her from doing so. In fact, Respondent RECEIVED
the original title that the petitioner had received when he himself purchased the land
from its original owner, PRIOR to the institution of the contract in Exhibit A. Such is a
well-settled principle in American jurisprudence, that:
“Misrepresentation by a vendor of real property with reference to its area are not
actionable, where a correct description of the property was given in the deed and
recorded chain of title, which the purchaser's agent undertook to investigate and
report upon, and the vendor made on effort to prevent a full investigation." (Shappirio
vs. Goldberg, 48 Law. ed., 419.)
"One who contracts for the purchase of real estate in reliance on the representations
and statements of the vendor as to its character and value, but after he has visited
and examined it for himself, and has had the means and opportunity of verifying such
statements, cannot avoid the contract on the ground that they were false or
exaggerated." (Brown vs. Smith, 109 Fed., 26.)
Respondent knew of the area of the land, having seen and acquired in her possession
the original title of the land that petitioner had purchased from its original owner, as
early as September 1920. She did not complain of the difference in the allegations of
the vendor and the title until the year 1926. And it would appear from her
corresponding letters with petitioner, respondent admitted the existence of her debt
but never mentioned the reduced area, nor did she complain the supposed “deceit.”
The court believes there was no deceit in such case.
OTHER unrelated issue - Art 1471 (not important)
36. Intac VS CA
Facts:
§ Ireneo Mendoza, married to Salvacion Fermin, was the owner of the subject
property located in Quezon city which he purchased in 1954. (TCT No.
242655)
§ Ireneo had two children: respondents Josefina and Martina (respondents),
Salvacion being their stepmother.
§ When he was still alive, Ireneo, also took care of his niece, Angelina, since
she was three years old until she got married.
§ On October 25, 1977, Ireneo, with the consent of Salvacion, executed a
deed of absolute sale of the property in favor of Angelina and her husband,
Mario (Spouses Intac).
 § Despite the sale, Ireneo and his family, including the respondents, continued
staying in the premises and paying the realty taxes. After Ireneo died intestate
in 1982, his widow and the respondents remained in the premises. After
Salvacion died, respondents still maintained their residence there. Up to the
present, they are in the premises, paying the real estate taxes thereon, leasing
out portions of the property, and collecting the rentals.
§ The controversy arose when respondents sought the cancellation of TCT
No. 242655, claiming that the sale was only simulated and, therefore, void.
§ The heirs of Ireneo, the respondents in this case, alleged that: 1. When
Ireneo was still alive, Spouses Intac borrowed the title of the property (TCT No.
106530) from him to be used as collateral for a loan from a financing
institution; 2. they objected because the title would be placed in the names of
said spouses and it would then appear that the couple owned the property; that
Ireneo, however, tried to appease them, telling them not to worry because
Angelina would not take advantage of the situation considering that he took
care of her for a very long time; that during his lifetime, he informed them that
the subject property would be equally divided among them after his death; and
3. that respondents were the ones paying the real estate taxes over said
property.
§ Spouses Intac countered, among others, that the subject property had been
transferred to them based on a valid deed of absolute sale and for a valuable
consideration; that the action to annul the deed of absolute sale had already
prescribed; that the stay of respondents in the subject premises was only by
tolerance during Ireneo’s lifetime because they were not yet in need of it at that
time; and that despite respondents’ knowledge about the sale that took place
on October 25, 1977, respondents still filed an action against them.
§ RTC ruled in favor of the respondents saying that the sale to the spouses
Intac was null and void. The CA also ruled that there was no consideration in
the sale to the spouses Intac and that the contract was one for equitable
mortgage.
Issues:
WON the Deed of Absolute Sale was a simulated contract or a valid agreement.
WON the Deed of Absolute Sale, dated October 25, 1977, involving the subject real
property in Pagasa, Quezon City, was a simulated contract or a valid agreement.
Held:
The deed of sale executed by Ireneo and Salvacion was absolutely simulated for lack
of consideration and cause and, therefore, void.
Articles 1345 and 1346 of the Civil Code provide:
Art. 1345. Simulation of a contract may be absolute or relative. The former takes place
when the parties do not intend to be bound at all; the latter, when the parties conceal
their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation,
when it does not prejudice a third person and is not intended for any purpose contrary
to law, morals, good customs, public order or public policy binds the parties to their
real agreement.
Relatively simulated agreement vs. Absolute simulation
If the parties state a false cause in the contract to conceal their real agreement, the
contract is only relatively simulated and the parties are still bound by their real
agreement. Hence, where the essential requisites of a contract are present and the
simulation refers only to the content or terms of the contract, the agreement is
absolutely binding and enforceable between the parties and their successors in
interest
In absolute simulation, there is a colorable contract but it has no substance as the
parties have no intention to be bound by it. "The main characteristic of an absolute
simulation is that the apparent contract is not really desired or intended to produce
legal effect or in any way alter the juridical situation of the parties." "As a result, an
absolutely simulated or fictitious contract is void, and the parties may recover from
each other what they may have given under the contract."
No valid sale took place between Ireneo and Spouses Intac
In the case at bench, the Court is one with the courts below that no valid sale of the
subject property actually took place between the alleged vendors, Ireneo and
Salvacion; and the alleged vendees, Spouses Intac. There was simply no
consideration and no intent to sell it.
Evidences to prove that there was no absolute deed of sale between the parties
Critical is the testimony of Marietto, a witness to the execution of the subject absolute
deed of sale. He testified that Ireneo personally told him that he was going to execute
a document of sale because Spouses Intac needed to borrow the title to the property
and use it as collateral for their loan application. Ireneo and Salvacion never intended
to sell or permanently transfer the full ownership of the subject property to Spouses
Intac. Marietto was characterized by the RTC as a credible witness.
Aside from their plain denial, the heirs of Intac failed to present any concrete evidence
to disprove Marietto’s testimony. They claimed that they actually paid P150,000.00 for
the subject property. They, however, failed to adduce proof, even by circumstantial
evidence, that they did, in fact, pay it. Even for the consideration of P60,000.00 as
stated in the contract, petitioners could not show any tangible evidence of any
payment therefor. Their failure to prove their payment only strengthened Marietto’s
story that there was no payment made because Ireneo had no intention to sell the
subject property.
Angelina’s story, except on the consideration, was consistent with that of Marietto.
Angelina testified that she and her husband mortgaged the subject property sometime
in July 1978 to finance the construction of a small hospital in Sta. Cruz, Laguna.
Angelina claimed that Ireneo offered the property as he was in deep financial need.
The contract of sale was only for the purpose of lending the title of the property
to Spouses Intac to enable them to secure a loan.
Their arrangement was only temporary and could not give rise to a valid sale. Where
there is no consideration, the sale is null and void ab initio. The case of Lequin vs.
VIzconde was cited in this case.
The fact that Ireneo was still in physical possession of the subject property after
the sale is a strong evidence to prove that there was no valid sale between the
parties.
More importantly, Ireneo and his family continued to be in physical possession of the
subject property after the sale in 1977 and up to the present. They even went as far as
leasing the same and collecting rentals. If Spouses Intac really purchased the subject
property and claimed to be its true owners, why did they not assert their ownership
immediately after the alleged sale took place? Why did they have to assert their
ownership of it only after the death of Ireneo and Salvacion? One of the most striking
badges of absolute simulation is the complete absence of any attempt on the part of a
vendee to assert his right of dominion over the property.
As heretofore shown, the contemporaneous and subsequent acts of both parties in
this case, point to the fact that the intention of Ireneo was just to lend the title to the
Spouses Intac to enable them to borrow money and put up a hospital in Sta. Cruz,
Laguna. Clearly, the subject contract was absolutely simulated and, therefore, void.
The Spouses Intac never became the owners of the property despite its
registration in their names.
It is also of no moment that TCT No. 106530 covering the subject property was
cancelled and a new TCT (TCT No. 242655)21 was issued in their names. After all,
registration does not vest title. As a logical consequence, petitioners did not become
the owners of the subject property even after a TCT had been issued in their names.
37. Arogante v. Deliarte (July 24, 2007)
Aragon, Jyn E.
DOCTRINE:
A contract entered into upon future inheritance is void. The law applies when the
following requisites concur:
(1) The succession has not yet been opened.
(2) The object of the contract forms part of the inheritance.
(3) The promissor has, with respect to the object, an expectancy of a right
which is purely hereditary in nature.
The general rule is that contracts are valid in whatever form they may be. One
exception is the Statute of Frauds. A Statute of Fraud states that contracts must be
written and executed properly to prevent perjury and fraud. However, this Statute of
Frauds only applies to executory, not to completed, executed, or partially
consummated, contracts
RECIT READY:
The lot in controversy is Lot no 472-A, situated in Poblacion, Daanbantayn, Cebu. It was
originally owned by Bernabe Deliarte Sr. and petitioner Gregoria Palcenta. Beethoven
(son of Bernabe and Gregoria) occupied and possessed the subject lot openly as an
owner, without any protests from his siblings. This was the arrangement after
Beethoven paid for the hospitalization and burial expenses of the parents.
In August 1993, the son of Fe (nephew of Beethoven) Lordito Arrogante installed
placards on the fence erected by respondents, claiming that the subject lot was illegally
acquired by the latter. The placards depicted Beethoven as a land grabber who had
unconscionably taken the subject lot from Lordito who claimed that the lot is a devise
from his grandfather.
ISSUE: Whether the private deed of sale is a valid contract, allowing for conveyance of
the entire lot to Beethoven?
HELD: No. The private deed of sale is void for being a conveyance of future
inheritance. Likewise, the deed of confirmation of sale which sought to ratify the
previous sale is also void.
The general rule is that contracts are valid in whatever form they may be. One
exception is the Statute of Frauds. A Statute of Fraud states that contracts must be
written and executed properly to prevent perjury and fraud. However, this Statute of
Frauds only applies to executory, not to completed, executed, or partially
consummated, contracts. In this case, the agreement between the parties had long
been consummated and completed. It was even ratified by the parties involved.
FACTS:
The lot in controversy is Lot no 472-A, situated in Poblacion, Daanbantayn, Cebu. It
was originally owned by Bernabe Deliarte Sr. and Gregoria Placencia. They had nine
children including respondent Beethoven Deliarte and petitioner Fe Deliarte
Arrogante.
A series of misfortune struck the Deliarte family. Beethoven initially shouldered the
hospitalization and death of a brother, including the transport of the body from Davao
to Cebu. Beethoven also paid for the hospitalization and burial of their father
(Bernabe) and mother (Gregoria).
In between the deaths of Gregoria and Bernabe, on November 16, 1978, the Deliarte
siblings agreed to waive and convey in favor of Beethoven all their rights, interests,
and claims to the subject lot in consideration of P15,000.00. At the signing of the deed
of absolute sale, the siblings who failed to attend the family gathering, either because
they were dead or were simply unable to, were represented by their respective
spouses who signed the document on their behalf. Bernabe, who was already blind at
that time, was likewise present and knew of the sale that took place among his
children.
Beethoven occupied and possessed the subject lot openly as an owner, without any
protests from his siblings. All of Beethoven’s siblings, except Fe signed a deed of
confirmation of sale in favor of Beethoven to ratify the 1978 private deed of sale.
In August 1993, the son of Fe (nephew of Beethoven) Lordito Arrogante installed
placards on the fence erected by respondents, claiming that the subject lot was
illegally acquired by the latter. The placards depicted Beethoven as a land grabber
who had unconscionably taken the subject lot from Lordito who claimed that the lot is
a devise from his grandfather.
Allegedly, the bequeathal was made in Bernabes last will and testament which was,
unfortunately, torn up and destroyed by Beethoven. Respondents filed an action for
quieting of title and damages against the petitioners.
RTC rendered a Decision quieting title on the subject lot in favor of respondents and
directing petitioners, jointly and severally, to pay the respondents P150,000.00 as
moral damages, P25,000.00 as attorneys fees, and P10,000.00 as litigation expenses.
CA affirmed the decision but deleted the award of attorneys fees and litigation
expenses
ISSUE:
Whether the private deed of sale is a valid contract, allowing for conveyance of the
entire lot to Beethoven?
HELD: No. The private deed of sale is void for being a conveyance of future
inheritance. Likewise, the deed of confirmation of sale which sought to ratify the
previous sale is also void. Article 1342, par 2 of the civil code states:
No contract may be entered into upon future inheritance except in cases
expressly authorized by law.
The law applies when the following requisites concur:
(1) The succession has not yet been opened.
(2) The object of the contract forms part of the inheritance.
(3) The promissor has, with respect to the object, an expectancy of a right
which is purely hereditary in nature.
The deed of sale is void, even though there is consent and acquiescence of each
Deliarte sibling. There was no objection even after Beethoven forthwith possessed and
occupied the subject lot. This arrangement vaguely reflected in the void deed of sale,
points to a meeting of the minds among the parties constitutive of an innominate
contract, akin to both an onerous and a remuneratory donation. Thus, he agreement
between the parties had both an onerous and a remunerative cause.
In this regard, Bernabes waiver and relinquishment of his share in the subject lot is
effectively a donation inter vivos to his children. However, the gratuitous act is coupled
with an onerous cause equal accountability of the Deliarte siblings for the
hospitalization and death expenses of deceased family members to be taken from their
shares in the subject lot. In turn, the remunerative cause pertains to Beethovens
recompense for the family expenses he initially shouldered.
The general rule is that contracts are valid in whatever form they may be. One
exception is the Statute of Frauds. A Statute of Fraud states that contracts must be
written and executed properly to prevent perjury and fraud. However, this Statute of
Frauds only applies to executory, not to completed, executed, or partially
consummated, contracts
This is not applicable here because even if all requisites for a valid contract are
present, specifically: (1) consent of the parties; (2) object or subject matter, comprised
of the parties respective shares in the subject lot; and (3) the consideration, over and
above the P15,000.00 stipulated price, the agreement between the parties had long
been consummated and completed. More importantly, the parties, including petitioner
Fe, ratified the agreement by the acceptance of benefits thereunder.
38. San Miguel Properties v. Spouses Huang
Doctrine: The manner of payment of the purchase price is an essential element
before a valid and binding contract of sale can exist. Agreement on the manner of
payment goes into the price such that a disagreement on the manner of payment is
tantamount to a failure to agree on the price.
Facts:
2 parcels of land in Pasig owned by San Miguel were offered for sale for 52,140,000 in
cash to the Atty. Dauz who was acting for respondent spouses. Dauz signified the
acceptance of the amount, but with the following terms: the sum of P500,000.00 would
be given as earnest money and the balance would be paid in eight equal monthly
installments. Petitioner refused the counter-offer. Dauz wrote another letter proposing
a different term for the purchase of property [1M deposit money, with the ff conditions:
exclusive option to purchase property within 30 days, during said period we will
negotiate terms and conditions of purchase and we will initiate documentation if there
is a mutual agreement, and if no agreement 1M will be refundable upon demand].
Sobrecarey, petitioners vice-president and operations manager for corporate real
estate, indicated his conformity to the offer by affixing his signature to the letter and
accepted the "earnest-deposit" of P1 million.
They commenced negotiation, but petitioner returned the deposit because they failed
to agree to terms and condition despite extension granted by petitioner. Respondent
spouses through counsel, wrote petitioner demanding the execution of a deed of sale
covering the properties. Respondent attempted to return the deposit, but petitioner
refused on the ground that respondent's option to purchase had already expired.
Respondent filed a complaint for specific performance against petitioner before the
RTC. Petitioner filed a motion to dismiss alleging that the complaint did not allege a
cause of action because there was no "meeting of the minds" between the parties
and, therefore, no perfected contract of sale. RTC granted the motion to dismiss. MR
of respondent denied. CA revered judgement of RTC. Held that all the requisites of a
perfected contract of sale had been complied with as the offer made in connection
with which the earnest money in the amount of P1 million was tendered by
respondents, had already been accepted by petitioner. MR of petitioner denied.
Issue: WON there was a perfected contract of sale between the parties
Ruling:
No. The condition for an option period of 30 days sufficiently shows that a sale was
never perfected. All that respondents had was just the option to buy the properties
which privilege was not, however, exercised by them because there was a failure to
agree on the terms of payment.
Equally compelling as proof of the absence of a perfected sale is the second condition
that, during the option period, the parties would negotiate the terms and conditions of
the purchase. In the present case, the parties never got past the negotiation stage.
The alleged "indubitable evidence" of a perfected sale cited by the appellate court was
nothing more than offers and counter-offers which did not amount to any final
arrangement containing the essential elements of a contract of sale. While the parties
already agreed on the real properties which were the objects of the sale and on the
purchase price, the fact remains that they failed to arrive at mutually acceptable
terms of payment, despite the 45-day extension given by petitioner.
The manner of payment of the purchase price is an essential element before a
valid and binding contract of sale can exist. Although the Civil Code does not
expressly state that the minds of the parties must also meet on the terms or manner of
payment of the price, the same is needed, otherwise there is no sale. Agreement on
the manner of payment goes into the price such that a disagreement on the manner of
payment is tantamount to a failure to agree on the price.
39. Uy v. CA
Doctrine/Summary:
· Cause is the essential reason, which moves the contracting parties to enter into it—it
is the immediate, direct and proximate reason, which justifies the creation of an
obligation through the will of the contracting parties.
 o The cancellation, therefore, was not a rescission under Article 1191.
Rather, the cancellation was based on the negation of the cause
arising from the realization that the lands, which were the object
of the sale, were not suitable for housing.
· Cause, which is the essential reason for the contract, should be distinguished from
motive, which is the particular reason of a contracting party which does not affect the
other party.
· Ordinarily, a party’s motives for entering into a contract do not affect the contract, but
when the motive predetermines the cause, the motive may be regarded as the
cause.
o In Liguez vs. Court of Appeals
§ It is well to note, however, that Manresa himself (Vol. 8,
pp. 641642), while maintaining the distinction and
upholding the inoperativeness of the motives of the
parties to determine the validity of the contract,
expressly excepts from the rule those contracts that are
conditioned upon the attainment of the motives of either
party.
§ The same view is held by the Supreme Court of Spain, in
holding that the motive may be regarded as cause
when it predetermines the purpose of the contract.
· A buyer may justifiably cancel a contract of sale upon realization of the mistake as
regards the quality of the land, resulting in the negation of the motive/cause thus
rendering the contract inexistent
o The NHA was justified in canceling the contract. The realization of
the mistake as regards the quality of the land resulted in the
negation of the motive/cause thus rendering the contract
inexistent.
FACTS
· Petitioners William Uy and Rodel Roxas are agents authorized to sell 8 parcels of land
by the owners thereof
o Petitioners offered to sell lands located in Tuba, Tadiangan Benguet
to NHA to be utilized and developed as a housing project
· NHA board passed a resolution approving the acquisition of said lands, executed a
series of Deeds of Absolute Sale covering the subject lands
o Area: 31.8 hectares
o Cost: P23.8M
· 5 out of 8 were only paid because of the report NHA received from the Land
Geosciences Bureau of the DENR – that the remaining area is located at an active
landslide area and thereof, not sustainable for development into a housing project
· NHA issued another resolution cancelling the sale over the 3 parcels of land; through
a different Resolution, NHA subsequently offered 1.225M pesos to the landowners as
danos perjuicos (liquidated damages)
· RTC of QC – petitioners filed complaint for damages against NHA and its Gen.
Manager Balao
o RTC awarded 1.225M, the same amount initially offered by NHA
· CA – reversed the decision
o “It saw no reason for the award of damages”
o Also noted that petitioners were mere attorneys-in-fact and not real
parties-in-interest in the action before the TC.
§ Par. 4 – plaintiffs alleged themselves to be “sellers’ agents
for the several owners of the 8 lots”
· Uy and Roxas acted as attorneys-in-fact of
the owners of the lot who should be the real
parties in interest
o Where the action is brought by an
attorney-in-fact of a land owner in
his name, and not in the name of
the principal, the action was
properly dismissed
o Uy and Roxas, an attorneys-in-fact cannot by themselves lawfully
commence this action. Even if they were authorized by the lot
owners, same must still be filed in the name of the principal
ISSUES
WON the cancellation of the contract was a recession under Art. 1911
HELD
· No, the cancellation was based on the negation of the cause arising from the
realization that the lands, the object od the sale, were not suitable for housing
· Cause – immediate, direct and proximate reason which justifies the creation of an
obligation through the will of the contracting parties
o Cause – essential reason for the contract
o Motive – particular reason of a contracting party which does not
affect the other party
· Cause of the vendor in entering the contract is to obtain the price
· Motive of the NHA – use said lands for housing
o When motive predetermines the cause, motive may be regarded as
cause
· Quality of land was an implied condition for the NHA to enter into the contract
o Part of the NHA – motive was the cause for its being a party to the
sale
· Findings of the Land Geosciences were sufficient basis for the cancellation of the sale
40. Yu Bun Guan vs. Ong
DOCTRINE: A simulated deed of sale has no legal effect, and the transfer certificate
of title issued in consequence thereof should be cancelled. Pari delicto does not apply
to simulated sales.
FACTS:
Elvira Ong and Yu Bun Guan are husband and wife, having been married according to
Chinese rites on April 30, 1961. They lived together until she and her children were
abandoned by Yu Bun Guan on August 26, 1992, because of the latter's 'incurable
promiscuity, volcanic temper and other vicious vices'; out of the reunion were born
three (3) children, now living with her [respondent].
She purchased on March 20, 1968, out of her personal funds, a parcel of land, then
referred to as the Rizal property, from Aurora Seneris, and supported by Title No.
26795, then subsequently registered on April 17, 1968, in her name.
Before their separation in 1992, she 'reluctantly agreed' to Yu Bun Guan 'importunings'
that she execute a Deed of Sale of the J.P. Rizal property in his favor, but on the
promise that he would construct a commercial building for the benefit of the children.
He suggested that the J.P. Rizal property should be in his name alone so that she
would not be involved in any obligation. The consideration for the 'simulated sale' was
that, after its execution in which he would represent himself as single, a Deed of
Absolute Sale would be executed in favor of the three (3) children and that he would
pay the Allied Bank, Inc. the loan he obtained.
Because of the sale, a new title (TCT No. 181033) was issued in his name, but to
'insure' that he would comply with his commitment, she did not deliver the owner's
copy of the title to him.
Yu Bun on the other hand, filed with the RTC, Makati, in 1993 a 'Petition for
Replacement' of an owner's duplicate title, which was granted. Upon discovery of the
'fraudulent steps' taken by the [petitioner], [respondent] immediately executed an
Affidavit of Adverse Claim on November 29, 1993. She precisely asked the court that
the sale of the JP Rizal property be declared as null and void; for the title to be
cancelled; payment of actual, moral and exemplary damages; and attorney's fees.
Yu Bun Guan’s contention:
That sometime in 1968 the JP Rizal property was being offered to him for sale.
Because he was not a Filipino, he utilized Elvira as his 'dummy' and agreed to have
the sale executed in her name of, although the consideration was his own and from
his personal funds.
If only to reflect the true ownership of the JP Rizal property, a Deed of Sale was then
executed in 1972. Believing in good faith that his owner's copy of the title was lost and
not knowing that the same was surreptitiously 'concealed' by Elvira, he filed in 1993 a
petition for replacement of the owner's copy of the title, in court. That Elvira could not
have purchased the property because she had no financial capacity to do so; on the
other hand, he was financially capable although he was financially capable although
he was disqualified to acquire the property by reason of his nationality.
RTC voided the Deed of Absolute Sale of the JP Rizal property.
CA upheld the decision of the RTC.
ISSUE: WON the sale was valid
HELD: No
Petitioner argues that there was a valid sale between the parties, and that the
consideration consisted of his promise to construct a commercial building for the
benefit of their three children and to pay the loan he had obtained from Allied Bank.
We disagree. In Rongavilla v. Court of Appeals, the Court declared that a deed of
sale, in which the stated consideration had not in fact been paid, is null and void.
In the present case, it is clear from the factual findings of both lower courts that the
Deed of Sale was completely simulated and, hence, void and without effect. No
portion of the P200,000 consideration stated in the Deed was ever paid And, from the
facts of the case, it is clear that neither party had any intention whatsoever to pay that
amount.
Instead, the Deed of Sale was executed merely to facilitate the transfer of the property
to petitioner pursuant to an agreement between the parties to enable him to construct
a commercial building and to sell the Juno property to their children. Being merely a
subterfuge, that agreement cannot be taken as the consideration for the sale.
41. Heirs of Balite v Lim
Doctrine:
When the statement of false cause is based on another cause that is truthful and
lawful, it would not render the contract void.
There is a difference between cause/consideration/subject-matter from motive. The
latter, whether legal or illegal, would not determine nor take place of the former.

Recit ready:
The heirs of Balite are assailing the validity of Deed of Absolute Sale executed by their
mother in favor of Lim. The contract falsely stated the price for the 10,000 parcel of
land of Balite. The motive of the simulation was reduce the capital gains tax liability.
The actual price agreed upon for the property is 1,000,000, which was stated in a
Joint Affidavit executed by Balite and Lim. The court held that the false cause does
not render the sale void. It was based on another truthful and lawful cause, which is
the price of P1,000,000 proved by the joint affidavit. The court held that while the
motive behind the simulation was illegal [avoiding taxes], it shall not be confused with
the cause of the contract. Motive does not determine nor take place of the
consideration of the contract.
Facts
Ø Spouses Aurelio and Balite were the owners of 17551 sqm land in North Samar.
When Aurelio died, Balite and her 9 childen inherited the undivided share of 9751 of
the property.
Ø When Balite became sick and needed money, she offered, through her daughter
Cristeta,
to sell her undivided portion to Lim.
Ø They agreed to a price of 1,000,000. However, they agreed to execute Deed of
Absolute sale which reflected a price of 150,000 for the 10,000 sqm lot. They
executed a Joint Affidavit which stated that the actual price for the lot is 1,000,000,
payable by installments:
o 30,000 upon signing
o 170,000 upon survey by Geodetic Engr
o 200,000 payable on May 15 1996
o 200,000 payable on July 15 1996
o 200,000 payable on September 15 1996
o 200,000 payable on December 15 1996
Ø However, some of her children expressed that they did not consent to the sale
Ø Balite assigned, through an SPA, her son Antonio to receive payments from Lim
Ø Lim subsequently mortgage the property for a loan of 2,000,000
Issue: WN the sale was valid. Yes
Held:
Ø The deed of sale did not state the actual cause for sale [price of the property],
intended to avoid paying higher taxes
o 1345 provides the two types of Simulation of Cause, absolute and 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.
o 1353 provides that statement of false cause shall only render the contract void if
there’s no proof that it is founded on another cause that is truthful and lawful.
o The court held that the Joint Affidavit is a valid proof of the truthful and lawful
consideration for the property.
o The court held that the subject matter of 1,000,000 for the property is truthful and
lawful. The cause/consideration shall not be confused with motive. The motive neither
determine nor take place of a consideration.
Ø Other Issues <unrelated>
o The consent of the co-owners is not needed for sale of the co-owner’s own share.
The 10,000 lot shall be reflected on the share of Balite, and the excess shall be taken
from Antonio and Cristeta who consented to the sale.
o The sale was made when Balite was alive, therefore the children did not acquire
the property.
o It is not an inequitable mortgage because there is no proof that it is the only
security for the loan.
44. Meneses v Venturozo (2011)
Doctrine: The necessity of a public document for contracts which transmit or
extinguish real rights over immovable property, as mandated by Article 1358 of
the Civil Code, only for convenience; it is not essential for validity or
enforceability.
RR: Respondent-plantiff Venturozo filed a complaint over a piece of coconut land in
Dagupan City against petitioner-defendant Adelaida Meneses. Venturozo claims that
she bought the land in good faith from spouses De Guzman as evidenced by June 20,
1966 absolute deed of sale. Meneses countered that her signature was forged and
she never appeared in the said Notary Public. WON the absolute deed of sale is valid.
NO. It was held as a forgery. The necessity of a public document for contracts
which transmit or extinguish real rights over immovable property, as mandated
by Article 1358 of the Civil Code, only for convenience; it is not essential for
validity or enforceability. Consequently, when there is a defect in the notarization of
a document, the clear and convincing evidentiary standard normally attached to a
duly-notarized document is dispensed with, and the measure to test the validity of
such document is preponderance of evidence.
Facts: On June 8, 1988, plaintiff Rosario G. Venturozo, respondent herein, filed a
Complaint for ownership, possession x x x and damages in the Regional Trial Court
(RTC) of Dagupan City against defendant Adelaida Meneses, petitioner herein,
alleging that she (plaintiff) is the absolute owner of an untitled coconut land, containing
an area of 2,109 square meters, situated at Embarcadero, Mangaldan, Pangasinan,
and declared under Tax Declaration No. 239. Plaintiff alleged that she purchased the
property from the spouses Basilio de Guzman and Crescencia Abad on January 31,
1973 as evidenced by a Deed of Absolute Sale, and that the vendors, in turn,
purchased the property from defendant as evidenced by a Deed of Absolute Sale
dated June 20, 1966. Plaintiff alleged that she has been in possession of the land until
May 1983 when defendant with some armed men grabbed possession of the land and
refused to vacate despite repeated demands prompting her to engage the services of
counsel.
Defendant Adelaida Meneses stated that plaintiff is the daughter of Basilio de
Guzman, the vendee in the Deed of Absolute Sale dated June 20, 1966 that was
purportedly executed by her (defendant) covering the subject property. Defendant
alleged that she never signed any Deed of Absolute Sale dated June 20, 1966, and
that the said deed is a forgery. Defendant also alleged that she never appeared before
any notary public, and she did not obtain a residence certificate; hence, her alleged
sale of the subject property to Basilio de Guzman is null and void ab initio.
Consequently, the Deed of Absolute Sale dated January 31, 1973, executed by
Basilio de Guzman in favor of plaintiff, covering the subject property, is likewise null
and void. Defendant stated that she acquired the subject property from her deceased
father and she has been in possession of the land for more than 30 years in the
concept of owner. Plaintiffs allegation that she (defendant) forcibly took possession of
the land is a falsehood. Defendant stated that this is the fourth case the plaintiff filed
against her concerning the land in question.
In the Deed of Absolute Sale dated June 20, 1966, the Notary Public signed his name
as one of the two witnesses to the execution of the said deed; hence, there was
actually only one witness thereto. Moreover, the residence certificate of petitioner was
issued to petitioner and then it was given to the Notary Public the day after the
execution of the deed of sale and notarization; hence, the number of petitioners
residence certificate and the date of issuance (June 21, 1966) thereof was written on
the Deed of Absolute Sale by the Notary Public on June 21, 1966, after the execution
and notarization of the said deed on June 20, 1966. Considering the defect in the
notarization, the Deed of Absolute Sale dated June 20, 1966 cannot be considered a
public document, but only a private document, and the evidentiary standard of its
validity shall be based on preponderance of evidence. Section 20, Rule 132 of the
Rules of Court provides that before any private document offered as authentic is
received in evidence, its due execution and authenticity must be proved either: (a) by
anyone who saw the document executed or written; or (b) by evidence of the
genuineness of the signature or handwriting of the maker.

Issue: WON the deed of absolute sale was valid

In regard to the genuineness of petitioners signature appearing on the Deed of
Held: NO. It was a forged instrument held by the High court. Absolute Sale dated June 20, 1966, the Court agrees with the trial court that her
signature therein is very much different from her specimen signatures and those
The necessity of a public document for contracts which transmit or extinguish
appearing in the pleadings of other cases filed against her, even considering the
real rights over immovable property, as mandated by Article 1358 of the Civil
difference of 17 years when the specimen signatures were made. Hence, the Court
Code, only for convenience; it is not essential for validity or enforceability. As
rules that petitioners signature on the Deed of Absolute Sale dated June 20, 1966 is a
notarized documents, Deeds of Absolute Sale carry evidentiary weight conferred upon
forgery.
them with respect to their due execution and enjoy the presumption of regularity which
may only be rebutted by evidence so clear, strong and convincing as to exclude all 45. Sabitsana v Muertegui, G.R. No. 181359 (2013)
controversy as to falsity. The presumptions that attach to notarized documents can be
affirmed only so long as it is beyond dispute that the notarization was regular. A Doctrine:
Facts:
defective notarization will strip the document of its public character and reduce it to a
Issue:
private instrument. Consequently, when there is a defect in the notarization of a Held
document, the clear and convincing evidentiary standard normally attached to a duly-
notarized document is dispensed with, and the measure to test the validity of such
document is preponderance of evidence.