VALENTINA S.

CLEMENTE, Petitioner
vs.
THE COURT OF APPEALS, ANNIE SHOTWELL JALANDOON, et al.,
Respondents

Valentina S. Clemente filed a petition for Review on Certiorari from the Decision of
August 23, 2005 and the Resolution dated November 15, 2006 of the Court of
Appeals.

Facts:
 Adela owned three (3) adjoining parcels of land in Quezon City, subdivided as
Lots 32, 34 and 35-B.
 Sometime in 1985 and 1987, Adela simulated the transfer of Lots 32 and Lot
34 to her two grandsons (Carlos Jr and Dennis Shotwell).
 On April 18, 1989, prior to Adela and petitioner’s departure for the United
States, Adela requested Carlos Jr. and Dennis to execute a deed of
reconveyance over Lots 32 and 34 which were in fact executed and registered
with the Register of Deeds.
 On April 25, 1989, Adela executed a deed of absolute sale11 over Lots 32 and
34, and their improvements, in favor of petitioner, bearing on its face the price
of ¬250,000.00. On the same day, Adela also executed a special power of
attorney (SPA) in favor of petitioner. Petitioner’s authority under the SPA
included the power to administer, take charge and manage, for Adela’s
benefit, the Properties and all her other real and personal properties in the
Philippines.
 When petitioner returned to the Philippines, she registered the sale over Lots
32 and 34. Soon thereafter, petitioner sought to eject Annie and Carlos Sr who
thereafter filed a complaint for reconveyance of the property. They alleged that
Adela only wanted to help petitioner travel to the United States, by making it
appear that petitioner has ownership of the Properties. They further alleged
that similar to the previous simulated transfers to Carlos Jr. and Dennis,
petitioner also undertook and warranted to execute a deed of reconveyance in
favor of the deceased over the Properties, if and when Adela should demand
the same.

Issue:

Whether or not the contracts of sale to petitioner were simulated

Held:

YES. The Deeds of Absolute Sale between petitioner and the late Adela Shotwell are
null and void for lack of consent and consideration. While the Deeds of Absolute Sale
appear to be valid on their face, the courts are not completely precluded to consider
evidence aliunde in determining the real intent of the parties.
The Civil Code defines a contract as a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something or to render
some service. Article 1318 provides that there is no contract unless the following
requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract; and
(3) Cause of the obligation which is established.

Here, there was no valid contract of sale between petitioner and Adela because their
consent was absent. The contract of sale was a mere simulation. Simulation takes
place when the parties do not really want the contract they have executed to produce
the legal effects expressed by its wordings.

In determining the true nature of a contract, the primary test is the intention of the
parties. If the words of a contract appear to contravene the evident intention of the
parties, the latter shall prevail. Such intention is determined not only from the
express terms of their agreement, but also from the contemporaneous and
subsequent acts of the parties. This is especially true in a claim of absolute
simulation where a colorable contract is executed. In ruling that the Deeds of
Absolute Sale were absolutely simulated, the lower courts considered the totality of
the prior, contemporaneous and subsequent acts of the parties such as 1) the
execution of the SPA the same day the Dee the Deeds of Absolute Sale appointing
petitioner as administratrix of Adela’s properties, and) the history of simulations in
favor of Carlos Jr and Dennis.
UNIVERSITY OF THE PHILIPPINES, petitioner,
vs.
PHILAB INDUSTRIES, INC., respondent.

Facts:

 This case is a petition for review on certiorari of the Decision of the Court of
Appeals.
 In 1979, the University of the Philippines (UP) decided to construct an
integrated system of research organization known as the Research Complex.
As part of the project, laboratory equipment and furniture were purchased for
the National Institute of Biotechnology and Applied Microbiology (BIOTECH)
at the UP Los Baños. Providentially, the Ferdinand E. Marcos Foundation
(FEMF) came forward and agreed to fund the acquisition of the laboratory
furniture, including the fabrication thereof.
 Renato E. Lirio, the Executive Assistant of the FEMF, gave the go-signal to
BIOTECH to contact a corporation to accomplish the project. On July 23,
1982, Dr. William Padolina, the Executive Deputy Director of BIOTECH,
arranged for Philippine Laboratory Industries, Inc. (PHILAB), to fabricate the
laboratory furniture and deliver the same to BIOTECH for the BIOTECH
Building Project, for the account of the FEMF.
 On July 13, 1982, Padolina wrote Lirio and requested for the issuance of the
purchase order and downpayment for the office and laboratory furniture for
the project, thus: 1) Supply and Installation of Laboratory furniture for the
BIOTECH Building Project, and 2) Fabrication and Supply of office furniture
for the BIOTECH Building Project, and paying the downpayment of 50% or
P286,687.50
 Ten days after, Padolina informed Hector Navasero, the President of PHILAB,
to proceed with the fabrication of the laboratory furniture, per the directive of
FEMF Executive Assistant Lirio. Subsequently, PHILAB made partial
deliveries of office and laboratory furniture to BIOTECH after having been duly
inspected by their representatives and FEMF Executive Assistant Lirio.
 On August 24, 1982, FEMF remitted P600,000 to PHILAB as downpayment
for the laboratory furniture for the BIOTECH project, for which PHILAB issued
Official Receipt No. 253 to FEMF. On October 22, 1982, FEMF made another
partial payment of P800,000 to PHILAB, for which the latter issued Official
Receipt No. 256 to FEMF. The remittances were in the form of checks drawn
by FEMF and delivered to PHILAB, through Padolina.
 On October 16, 1982, UP, through Emil Q. Javier, the Chancellor of UP Los
Baños and FEMF, represented by its Executive Officer, Rolando Gapud,
executed a Memorandum of Agreement (MOA) in which FEMF agreed to
 grant financial support and donate sums of money to UP for the construction
of buildings, installation of laboratory and other capitalization for the project,
not to exceed P29,000,000.00.
 The Board of Regents of the UP approved the MOA with Philab on November
25, 1982.
 Later, President Marcos was ousted from office during the February 1986
EDSA Revolution. On April 22, 1986, PHILAB wrote President Corazon C.
Aquino asking her help to secure the payment of the amount due from the
FEMF. In the meantime, the PCGG wrote UP requesting for a copy of the
relevant contract and the MOA for its perusal.
 PHILAB filed a complaint for sum of money and damages against UP. In the
complaint, PHILAB prayed that it be paid the following: (1) P702,939.40 plus
an additional amount (as shall be determined during the hearing) to cover the
actual cost of money which at the time of transaction the value of the peso
was eleven to a dollar (P11.00:$1) and twenty seven (27%) percent interest
on the total amount from August 1982 until fully paid; (2) P50,000.00 as and
for attorney’s fees; and (3) Cost of suit.
 In its answer, UP denied liability and alleged that PHILAB had no cause of
action against it because it was merely the donee/beneficiary of the laboratory
furniture in the BIOTECH; and that the FEMF, which funded the project, was
liable to the PHILAB for the purchase price of the laboratory furniture. UP
specifically denied obliging itself to pay for the laboratory furniture supplied by
PHILAB.

Issue:

Whether or not the Court of Appeals erred in applying the legal principle of unjust
enrichment when it held that UP and not FEMF, is liable to Philab?

Held:

There is no dispute that the respondent is not privy to the MOA executed by the
petitioner and FEMF; hence, it is not bound by the said agreement. Contracts take
effect only between the parties and their assigns. A contract cannot be binding upon
and cannot be enforced against one who is not a party to it, even if he is aware of
such contract and has acted with knowledge thereof. Likewise admitted by the
parties, is the fact that there was no written contract executed by the petitioner, the
respondent and FEMF relating to the fabrication and delivery of office and laboratory
furniture to the BIOTECH. Even the CA failed to specifically declare that the
petitioner and the respondent entered into a contract of sale over the said laboratory
furniture.

The Court of Appeals agreed with the petitioner that, based on the records, an
implied-in-fact contract of sale was entered into between the Philab and FEMF.
Unjust enrichment is a term used to depict result or effect of failure to make
remuneration of or for property or benefits received under circumstances that give
rise to legal or equitable obligation to account for them; to be entitled to
remuneration, one must confer benefit by mistake, fraud, coercion, or request. Unjust
enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the
enforcement of the doctrine of restitution.

The essential requisites for the application of Article 22 of the New Civil Code do not
obtain in this case. The respondent had a remedy against the FEMF via an action
based on an implied-in-fact contract with the FEMF for the payment of its claim. The
petitioner legally acquired the laboratory furniture under the MOA with FEMF; hence,
it is entitled to keep the laboratory furniture.

The petition is granted. The assailed Decision of the Court of Appeals is reversed
and set aside. The Decision of the Regional Trial Court, Makati City, Branch 150, is
reinstated with no costs.
LEUNG BEN, plaintiff,
vs.
P. J. O'BRIEN, JAMES A OSTRAND and GEO. R. HARVEY, judges of First
Instance of city of Manila, defendants.

Facts:

An action was instituted in the Court of First Instance of the city of Manila by P. J.
O'Brien to recover the sum of P15,000 alleged to have been lost by Leung Ben to
P.J. O’Brien in a series of gambling, banking and percentage games conducted
during the two or three months prior to the institution of the suit. In Leung Ben’s
verified complaint, O’Brien asked for an attachment against the property of Leung
Ben on the ground that the latter was about to depart from the Philippine Islands with
intent to defraud his creditors. This attachment was issued, and acting under that
authority, the sheriff attached the sum of P15,000 which had been deposited by the
O’Brien with the International Banking Corporation. Leung Bien filed a motion to
quash the attachment, which was dismissed by the court. Hence this application for
a writ of certiorari, the purpose of which was to quash an attachment issued from the
Court of First Instance of the City of Manila.

Issue:

Was the statutory obligation to restore money won at gaming an obligation arising
from "contract, express or implied?"

Ruling:

Yes. Upon general principles, recognized both in the civil and common law, money
lost in gaming and voluntarily paid by the loser to the winner cannot, in the absence
of statute, be recovered in a civil action. But Act No. 1757 of the Philippine
Commission, which defines and penalizes several forms of gambling, contains
numerous provisions recognizing the right to recover money lost in gambling or in
playing certain games.

The original complaint filed in the Court of First Instance was not clear as to the
particular section of Act No. 1757 under which the action was brought, but was
alleged that the money was lost at gambling, banking, and percentage game in
which the defendant was a banker. It must therefore be assumed that the action was
based upon the right of recovery given in section 7 of said Act, which declared that
an action may be brought against the banker by any person losing money at a
banking or percentage game.
It was observed that according to the Civil Code obligations are supposed to be
derived either from (1) the law, (2) contracts and quasi-contracts, (3) illicit acts and
omission, or (4) acts in which some sort of lame or negligence is present.

This enumeration of sources of obligations and the obligation imposed by law are
different types. The obligations which in the Code are indicated as quasi-contracts,
as well as those arising ex lege, are in the common system, merged into the
category of obligations imposed by law, and all are denominated implied contracts.

In the case under consideration, the duty of O’Brien to refund the money which he
won from the LeungBen at gaming was a duty imposed by statute. It therefore arose
ex lege. Furthermore, it was a duty to return a certain sum which had passed from
O’Brien to Leung Ben. By all the criteria which the common law supplies, this a duty
in the nature of debt and is properly classified as an implied contract.

It was well- settled by the English authorities that money lost in gambling or by
lottery, if recoverable at all, can be recovered by the loser in an action of indebitatus
assumpsit for money had and received.

This meant that in the common law the duty to return money won in this way was an
implied contract, or quasi-contract. The phase in question should be interpreted in
such a way as to include all obligations, whether arising from consent or ex lege,
because that was equivalent to eliminating all distinction between the first and the
fifth paragraphs by practically striking out the first two lines of paragraph one.

The Legislature had deliberately established this distinction, and while we may be
unable to see any reason why it should have been made, it was our duty to apply
and interpret the law, and we were not authorized under the guise of interpretation to
virtually repeal part of the statute.

Nor can it be said that the relations between the party’s litigant constitute a quasi-
contract. In the first place, quasi-contracts are "lawful and purely voluntary acts by
which the authors thereof become obligated in favor of a third person." The act which
gave rise to the obligation ex lege relied upon by Leung Ben in the court below is
illicit an unlawful gambling game. In the second place, the first paragraph of section
412 of the Code of Civil Procedure does not authorize an attachment in actions
arising out of quasi contracts, but only in actions arising out of contract, express or
implied.
MARLENE DAUDEN-HERNAEZ, petitioner,
vs.
HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of
Quezon City, HOLLYWOOD FAR EAST PRODUCTIONS, INC., and RAMON
VALENZUELA, respondents.

Facts:

 Marlene Dauden-Hernaez, a movie actress, filed a case against Hollywood

Far East Productions its President and General Manager, Ramon Valenzuela,
to recover P14,700 allegedly the balance due for her services as leading
actress in two motion pictures. The complaint was dismissed by Judge De Los
Angeles mainly because her claim was not supported by an written document,
public or private in violation of Articles 1356 and 1358 of the Civil Code.
 Upon a motion for reconsideration, the respondent judged dismissed the
same because the allegations were the same as the first motion. According to
Judge De Los Angeles, the contract sued upon was not alleged to be in
writing when Article 1358 requires it to be so because the amount involved
exceeds P500.

Issue:

Whether or not a contract for personal services involving more than P500.00 was
either invalid or unenforceable under the last paragraph of Article 1358?

Held:

No, the order dismissing the complaint is set aside and the case is remanded to the
CFI.
RATIO Consistent with the Spanish Civil Code in upholding spirit and intent of the
parties over formalities, in general, contracts are valid and binding from their
perfection regardless of whether they are oral or written. However, as provided in the
2nd sentence of Art. 1356: ART. 1356. Contracts shall be obligatory in whatever form
they may have been entered into, provided all the essential requisites for their
validity are present. However, when the law requires that a contract be in some form
in order that it may be valid or enforceable, or that a contract be proved ina certain
way, that requirement is absolute and indispensable....

Thus, the two exceptions to the general rule that the form is irrelevant to the binding
effect of a contract are:(a) Solemn Contracts - contracts which the law requires to be
in someparticular form (writing) in order to make them valid and enforceable.
Examples:1.

Donation of immovable property (Art. 749) which must be in a public instrument to be

valid. in order "that the donation maybe valid", i.e., existing or binding. 2. Donation of
movables worth more than P5,000 (Art. 748) which must be in writing otherwise they
are void.

(b)Contracts that the law requires to be proved by some writing(memorandum) of its

terms, i.e. those covered by the old Statute of Frauds, now Article 1403(2) of the Civil
Code. For the latter example, their existence are not provable by mere oral testimony
(unless wholly or partly executed) and are required to be in writing to be enforceable
by action in court. However, the contract sued upon (compensation for services)
does not come under either exception. While the last clause of Article1358 provides
that "all other contracts where the amount involved exceeds five hundred pesos must
appear in writing, even a private one." Said Article does not provide that the absence
of a written form in this case will make the agreement invalid or unenforceable. On
the contrary, Article 1357 clearly indicates that contracts covered by Article 1358 are
binding and enforceable by action or suit despite the absence of writing.
JAIME L. YANEZA, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, MANUEL A. DE JESUS and
WILHELMINA M. MANZANO, respondents.

 Petitioner is the owner of a 603-square-meter parcel of land, denominated as

Lot 2730-A. Respondents, Manuel A.de Jesus and Wilhelmina M. Manzano,
are the owners of Lot 2732 which is adjacent to Lot 2730-A. The respondents’
lot has no access to the nearest road except through a road which they
constructed over a portion of Lot 2730-A. Instead of a deed of perpetual
easement, it appears that petitioner and respondents executed a Deed of
Absolute Sale on October 20, 1995 over a 175-sq m portion of Lot2730-A, to
be used as an access road 5-meters wide, for a consideration of P20,000.00.

 Almost a year later, or on September 12, 1996, petitioner informed

respondents that he is canceling the deed of sale by way of a Deed of
Cancellation which he executed on his own. When respondents refused to
honor the cancellation, petitioner filed a Complaint for Cancellation of Contract
with the Municipal Circuit Trial Court (MCTC).

 The complaint alleged that, contrary to what was stated in the Deed of
Absolute Sale, respondents constructed an access road 8-m wide (with an
area of 280 sq m); that the respondents have not complied with the conditions
stated in the Deed of Absolute Sale and the Deed of Undertaking attached
thereto; and that respondents have been dumping high piles of gravel, sand
and soil along the access road in violation of the condition in the deed of sale
that the access road will be used only for the purpose of a right of way.

 The MCTC promulgated its decision dismissing the complaint. RTC affirmed
MCTC’s decision. On appeal, CA dismissed the same.

ISSUE:

Whether or not failure on the part of the respondent to comply with the conditions in
the Deed of Absolute Sale constitutes a breach of contract, hence, it is a ground for
the cancellation of the contract.

RULING:
No. the construction of the road beyond the stipulated area does not constitute a
breach of contract. Breach of contract implies a failure, without legal excuse, to
perform any promise or undertaking that forms part of the contract. Although the
contract specifically stated the area covered by the sale, it did not contain a promise
by the respondents that they will only occupy such area. Albeit apparently wrong,
petitioner’s cause of action should not have been based on the contract of sale

Neither could the respondent be faulted for not facilitating he transfer of the title over
the subject area. Respondents did not sign the Deed of Undertaking, and thus, could
not have assumed the obligations contained therein. Moreover, considering that the
respondents specifically denied the existence of the document and petitioner failed
to authenticate it, the RTC was correct in declaring that it has no probative weight.

Besides, rescission of a contract will not be permitted for as light or casual breach
but only for a substantial and fundamental breach as would defeat the very object of
the parties in making the agreement. It must be a breach of faith that destroys or
violates the reciprocity between the parties. The alleged breach by the respondents
was definitely not of such level and magnitude. Most importantly, rescission of a
contract presupposes the existence of a valid and subsisting obligation. The breach
contemplated in Article 1191 is the obligor’s failure to comply with an existing
obligation. It would be useless torescind a contract that is no longer in existence.
Here, wefind that the contract of sale sought to be canceled by thepetitioner does not
exist anymore; hence, the filing of thepetition for cancellation was an exercise in
futilit
BIENVENIDO C. TEOCO and JUAN C. TEOCO, JR., petitioners,
vs.
METROPOLITAN BANK AND TRUST COMPANY, respondent.

Facts:
 Lydia Co, married to Ramon Co, was the registered owner of two parcels of
land situated in Catbalogan, Samar covered by a TCT. Ramon Co, mortgaged
said parcels of land to Metrobank for a sum of P200,000. Said properties were
consequently sold to Metrobank in an extrajudicial foreclosure sale. one year
after the registration of the certificates of sale, the titles to the properties were
consolidated in the name of Metrobank for failure of Ramon Co to redeem the
same within the one year period provided for by law. Ramon Co’s TCTs were
cancelled and a new TCT were issued in favor of Metrobank. Metrobank filed
a petition for the issuance of a writ of possession against Ramon Co and
Lydia Co (the spouses Co). However, since the spouses Co were no longer
residing in the Philippines at the time the petition was led, the trial court
ordered Metrobank, on January 12, 1994 and again on January 26, 1994 to
effect summons by publication against the spouses Co.
 The brothers Teoco led an answer-in-intervention alleging that they are the
successors-in-interest of the spouses Co, and that they had duly and validly
redeemed the subject properties within the reglementary period provided by
law. The brothers Teoco thus prayed for the dismissal of Metrobank’s petition
for a writ of possession, and for the nullification of the TCTs issued in the
name of Metrobank. The brothers Teoco further prayed for the issuance in
their name of new certificates of title.
 Metrobank, in its reply, alleged that the amount deposited by the brothers
Teoco as redemption price was not sufficient, not being in accordance with
Section 78 of the General Banking Act. Metrobank also said the assignment of
the right of redemption by the spouses Co in favor of the brothers Teoco was
not properly executed, as it lacks the necessary authentication from the
Philippine Embassy.
 The trial court was informed that the brothers Teoco had deposited the
amount of P356,297.57 to the clerk of court of the RTC in Catbalogan, Samar.
The trial court ordered Metrobank to disclose whether it is allowing the
brothers Teoco to redeem the subject properties. Metrobank refused to accept
the amount deposited by the brothers Teoco, alleging that they are obligated
to pay the spouses Co’s subsequent obligations to Metrobank as well. The
brothers Teoco claimed that they are not bound to pay all the obligations of
the spouses Co, but only the value of the property sold during the public
auction.
  The trial court reiterated its earlier order directing Metrobank to effect
summons by publication to the spouses Co. Metrobank complied with said
order by submitting documents showing that it caused the publication of
summons against the spouses Co. The brothers Teoco challenged this
summons by publication, arguing that the newspaper where the summons by
publication was published, the Samar Reporter, was not a newspaper of
general circulation in the Philippines. The brothers Teoco furthermore argued
that Metrobank did not present witnesses to identify the documents to prove
summons by publication.
 The RTC rendered its decision in favor of the Teoco brothers, finding that the
Teoco brothers have validly redeemed the parcels of land. That Metrobank
may now withdraw the redemption money deposited by the Teocos with the
clerk of court and it further ordered that the CTCs of Metrobank be cancelled
and a new CTC in favor of the Teoco brothers be issued.
 The CA, however, ruled in favor of Metrobank. CA held that the brothers
Teoco were not able to effectively redeem the subject properties, because the
amount tendered was insufficient, and the brothers Teoco have not sufficiently
shown that the spouses Co’s right of redemption was properly transferred to
them.
Issue:
Whether or not the assignment of right of redemption is admissible in evidence as a
public document?
Held: NO. However, this does not necessarily mean that such document has no
probative value.
There are generally three reasons for the necessity of the presentation of public
documents. First, public documents are prima facie evidence of the facts stated in
them, as provided for in Section 23, Rule 132 of the Rules of Court:
SEC. 23. Public documents as evidence. — Documents consisting of entries in
public records made in the performance of a duty by a public officer are prima facie
evidence of the facts therein stated. All other public documents are evidence, even
against a third person, of the fact which gave rise to their execution and of the date
of the latter.
Second, the presentation of a public document dispenses with the need to prove a
document’s due execution and authenticity.
Third, the law may require that certain transactions appear in public instruments,
such as Articles 1358 and 1625 of the Civil Code.
The exercise by the brothers Teoco of the right to redeem the properties in question
is not precluded by the fact that the assignment of right of redemption was not
contained in a public document. Metrobank never challenged either the content, the
due execution, or the genuineness of the assignment of the right of redemption.
Consequently, Metrobank is deemed to have admitted the same. Having impliedly
admitted the content of the assignment of the right of redemption, there is no
necessity for prima facie evidence of the facts there stated. In the same manner,
since Metrobank has impliedly admitted the due execution and genuineness of the
assignment of the right of redemption, a private document evidencing the same is
admissible in evidence. True it is that the Civil Code requires certain transactions to
appear in public documents. However, 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, is only for convenience; it is not essential
for validity or enforceability.
In the case at bar, Metrobank would not be prejudiced by the assignment by the
spouses Co of their right of redemption in favor of the brothers Teoco. As conceded
by Metrobank, the assignees, the brothers Teoco, would merely step into the shoes
of the assignors, the spouses Co. The brothers Teoco would have to comply with all
the requirements imposed by law on the spouses Co. Metrobank would not lose any
security for the satisfaction of any loan obtained from it by the spouses Co. In fact,
the assignment would even prove to be beneficial to Metrobank, as it can foreclose
on the subject properties anew, provided it proves that the subsequent loans entered
into by the spouses Co are covered by the mortgage contract.
CEBU CONTRACTORS CONSORTIUM CO., Petitioner,
vs.
COURT OF APPEALS and MAKATI LEASING & FINANCE CORPORATION,
Respondents.
Facts:
 MLFC alleges that a lease agreement relating to various equipment was
entered into between MLFC, as lessor, and CCCC, as lessee. The terms and
conditions of the lease were defined in said agreement and in two lease
schedules of payment. To secure the lease rentals, a chattel mortgage, and a
subsequent amendment thereto, were executed in favor of MLFC over other
various equipment owned by CCCC.
 CCCC began defaulting on the lease rentals,6 prompting MLFC to send
demand letters.7 When the demand letters were not heeded, MLFC filed a
complaint for the payment of the rentals due and prayed that a writ of replevin
be issued in order to obtain possession of the equipment leased and to
foreclose on the equipment mortgaged.
 For its part, CCCC alleges that it had a contract with the then Ministry of
Public Highways for the construction of the Iligan-Cagayan de Oro-Butuan
Road. Being in need of additional capital, it approached MLFC for the purpose
of securing a loan. MLFC agreed to extend financial assistance to CCCC but,
instead of a customary loan covered by a security, MLFC induced CCCC to
adopt and apply a sale and lease back scheme. The arrangement provided
for the equipment of CCCC to be made to appear as sold to MLFC and then
leased back to CCCC which will then pay lease rentals to MLFC. The rentals
will be treated as installment payments to repurchase the equipment. It is
CCCC’s claim that the arrangement is nothing more than an equitable
mortgage.
 Pursuant to the sale and lease back scheme, CCCC executed two deeds of
sale over its equipment in favor of MLFC, which were then leased back to
CCCC. To facilitate payment of the rentals, MLFC required CCCC to execute
a deed of assignment of its collectibles from the Ministry of Public Highways.
In addition, CCCC was also required to execute a chattel mortgage over its
other properties as a security.
 CCCC’s position is that it is no longer indebted to MLFC because the total
amounts collected by the latter from the Ministry of Public Highways, by virtue
of the deed of assignment, and from the proceeds of the foreclosed chattels
 were more than enough to cover CCCC’s liabilities. Finally, CCCC submits
that, in any event, the deed of assignment itself already freed CCCC from its
obligation to MLFC.
Issue:
Whether or not respondent court erred in upholding the so-called sale lease
back scheme of the private respondent when the same is in reality nothing but an
equitable mortgage.
Ruling:

The Supreme Court held that When the true intention of the parties to a contract is
not expressed in the instrument purporting to embody their agreement by reason of
mistake, fraud, inequitable conduct or accident, the remedy of the aggrieved party is
to ask for reformation of the instrument under Articles 1359 and 1362 of the Civil
Code, to the end that their true agreement may be expressed therein.24 Under
Article 1144 of the Civil Code, the prescriptive period for actions based upon a
written contract and for reformation of an instrument is ten years.25 The right of
action for reformation accrued from the date of execution of the contract of lease in
1976.26 This was properly exercised by CCCC when it filed its answer with
counterclaim to MLFC’s complaint in 1978 and asked for the reformation of the lease
contract.