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CASE 72 – MIGUEL KATIPUNAN, INOCENCIO VALDEZ, EDGARDO & LEOPOLDO BALGUMA, JR. vs
BRAULIO KATIPUNAN JR.

FACTS:
Respondent, who is an owner of a lot and apartment entered into a Deed of Absolute Sale with the petitioners, involving
the subject property. Later on, respondent filed a complaint for annulment of the Deed of Absolute Sale. He averred that
the petitioners convinced him to work abroad. They even brought him to the NBI and other government offices for the
purpose of securing clearances and other documents which later turned out to be falsified. Through insidious words and
machinations, they made him sign a document purportedly a contract of employment, which document turned out to be
a Deed of Absolute Sale. By virtue of the said sale, petitioners were able to register the title to the property in their
names.

ISSUE:
Whether or not the consent was vitiated with fraud or intimidation.

RULING:
The court gave credit to the findings of Dr. Revilla, a psychiatrist at the PGH. She explained that Braulio reached only
Grade III due to his very low IQ, that he is illiterate, and that he cannot read and is slow in comprehension. His mental
age is only that of a six-year-old child. On the other hand, the documents presented by the appellees in their favor, i.e.,
the deeds of mortgage and of sale, are all in English. There is no showing that the contracts were read and/or explained
to Braulio nor translated in a language he understood.
Art. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully
explained to the former.
Furthermore, if Braulio has a mental state of a six-year-old child, he cannot be considered as fully capacitated. We also
note the admission of defendant-appellee Miguel Katipunan (his brother), that he and Braulio received the
considerations of the sale. There is no reason why Miguel should receive part of the consideration, since he is not a co-
owner of the property. Everything should have gone to Braulio.
Art. 1390. The following contracts are voidable or annullable: (IMVIUF)
1. Those where one of the parties is incapable of giving consent to a contract.
2. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
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, 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. They deprived him of a reasonable freedom of choice. His lack of education, coupled with his mental
affliction, placed him not only at a hopelessly disadvantageous position to enter into a contract, but rendered him
incapable of giving rational consent. Even the consideration, if any, was not shown to be actually paid to respondent.
What Miguel gave respondent was merely loose change grossly disproportionate to the value of his property.
A contract where one of the parties is incapable of giving consent or where consent is vitiated by mistake, fraud, or
intimidation is not void ab initio but only voidable and is binding upon the parties unless annulled by proper Court
action. The effect of annulment is to restore the parties to the status quo ante insofar as legally and equitably possible—
this much is dictated by Article 1398 of the Civil Code. As an exception however to the principle of mutual restitution,
Article 1399 provides that when the defect of the contract consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any restitution, except when he has been benefited by the things or price
received by him.

Case 73 – MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY vs. VIRGINIA CHIONGBIAN

FACTS:
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Subject of the action is a lot adjoining the Lahug Airport, registered in the name of Mactan-Cebu International Airport
Authority. Said lot was expropriated by the Republic of the Philippines for the expansion and improvement of Lahug,
Airport. Later, the assets of the Lahug Airport, including the said were transferred to MCIAA. Lahug Airport, however, was
closed and Chiongbian, the former owner of the lot, filed a case for reconveyance alleging that she was given the right of
repurchase once the land is longer needed for the airport.

ISSUE:
Whether or not the lot in question is subject to a repurchase agreement.

RULING:
In the present case, the terms of the judgment are clear and unequivocal and grant title to Lot No. 941 in fee simple to
the Republic of the Philippines. There was no condition imposed to the effect that the lot would return to Chiongbian
or that she had a right to repurchase the same if the purpose for which it was expropriated is ended or abandoned.
Chiongbian cannot rely on the ruling in MCIAA vs. CA wherein the presentation of parol evidence was allowed to prove
the existence of a written agreement containing the right to repurchase. Said case did not involve expropriation
proceedings but a contract of sale. This pronouncement is not applicable to the present case since the parol evidence
rule which provides that when the terms of a written agreement have been reduced to writing, it is considered as
containing all the terms agreed upon between the parties and their successors-in-interest, no evidence of such terms
other than the contents of the written agreement applies to written agreements and has no application to a judgment of
a court.
Under 1403 of the Civil Code, a contract for the sale of real property shall be unenforceable unless the same, or some
note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore
of the agreement cannot be received without the writing or a secondary evidence of its contents.
The records reveal that MCIAA objected to the purpose for which the testimonies of Chiongbian was offered, i.e., to
prove the existence of the alleged written agreement evidencing a right to repurchase Lot No. 941 in favor of Chiongbian,
for being in violation of the Statute of Frauds. MCIAA also objected to the purpose for which the testimony of Attorney
Manuel Pastrana was offered, i.e., to prove the existence of the alleged written agreement and an alleged deed of sale,
on the same ground. Consequently, the testimonies of these witnesses are inadmissible under the Statute of Frauds to
prove the existence of the alleged sale. Aside from being inadmissible under the provisions of the Statute of Frauds,
Chiongbian's and Bercede's testimonies are also inadmissible for being hearsay in nature.
Chiongbian's testimony shows that she had no personal knowledge of the alleged assurance made by the Republic of the
Philippines that Lot No. 941 would be returned to her in the event that the Lahug Airport was closed. She stated that she
only learned of the alleged assurance of the Republic of the Philippines through her lawyer, Attorney Calderon, who was
not presented as a witness. Same also goes with Bercede.
Pastrana’s testimony claims that subsequent to the execution of the alleged written agreement but prior to the rendition
of judgment in the expropriation case, the Republic and Chiongbian executed a Deed of Sale over Lot No. 941 wherein
Chiongbian sold the aforementioned lot to the Republic of the Philippines. However, Chiongbian never mentioned the
existence of a deed of sale. Had Chiongbian and the Republic executed a contract of sale, the Republic of the
Philippines would not have needed to pursue the expropriation case inasmuch as it would be duplicitous and would
result in the Republic of the Philippines expropriating something it had already owned.
Finally, Chiongbian cannot invoke the modified judgment of the Court of Appeals in the case of Republic of the
Philippines vs. Escaño, where her co-defendants, entered into separate and distinct compromise agreements with the
Republic of the Philippines wherein they agreed to sell their land subject of the expropriation proceedings to the latter
subject to the resolutory condition that in the event the Republic of the Philippines no longer uses said property as an
airport, title and ownership of said property shall revert to its respective owners upon reimbursement of the price paid
therefor without interest. MCIAA correctly points out that since Chiongbian did not appeal the judgment of expropriation
and was not a party to the appeal of her co-defendants, the judgment therein cannot redound to her benefit. And even
assuming that Chiongbian was a party to the appeal’ she was not a party to the compromise agreements entered into by
her co-defendants. A compromise is a contract whereby the parties, by making reciprocal concessions, avoid litigation or
put an end to one already commenced. Essentially, it is a contract perfected by mere consent, the latter being
manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the
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contract. A judicial compromise has the force of law and is conclusive between the parties and it is not valid and binding
on a party who did not sign the same.

Case 74 – JOSEFINA VILLANUEVA-MIJARES etc. vs. PROCERFINA VILLANUEVA etc.

FACTS:
Leon was one of eight children of Felipe Villanueva. Upon Felipe's death, ownership of the land was passed on to his
children. After the death of Leon, it was discovered that the shares of four of the heirs of Felipe, namely, Simplicio,
Nicolasa, Fausta and Maria Baltazar (spouse of Benito), was purchased by Leon as evidenced by a Deed of Sale executed
on 1946 but registered only in 1971. It also came to light that Leon had, executed a sale and partition of the property in
favor of his own children, herein petitioners. Private respondents (heirs of Felipe) filed a case for partition with
annulment of documents and/or reconveyance and damages with the RTC.

ISSUES:
1. Whether or not the appellate the action by the private respondents to recover the property in question is
barred by laches, estoppel, prescription, and res judicata
2. Whether or not the Deed of Sale of is unenforceable against the private respondents for being an unauthorized
contract.

RULINGS:
Laches is negligence or omission to assert a right within a reasonable time, warranting the presumption that the party
entitled to assert it has either abandoned or declined to assert it. Its essential elements are: a) conduct on the part of
the defendant, or of one under whom he claims, giving rise to the situation complained of, b) delay in asserting
complainant’s right after he had knowledge of the defendant’s conduct and after he has an opportunity to sue, c) lack of
knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit,
and d) injury or prejudice to the defendant in the event relief is accorded to the complainant.
In Chavez v. Bonto-Perez, there is no absolute rule on what constitutes laches. It is a creation of equity and applied not
really to penalize neglect or sleeping upon one’s rights but rather to avoid recognizing a right when to do so would result
in a clearly inequitable situation. The question of laches, we said, is addressed to the sound discretion of the court.
At the time of signing of the Deed of Sale, private respondents Procerfina, Prosperidad, Ramon and Rosa were minors .
They could not be faulted for their failure to file a case to recover their inheritance from their uncle Leon, since up to the
age of majority, they believed and considered Leon their co-heir and administrator. It was only in 1975, not in 1948, that
they became aware of the actionable betrayal by their uncle. Upon learning of their uncle’s actions, they filed an action
for recovery. Furthermore, when Felipe Villanueva died, an implied trust was created by operation of law between
Felipe’s children and Leon, their uncle, as far as the 1/6 share of Felipe.
An action for reconveyance of a parcel of land based on implied or constructive trust prescribes in 10 years, the point of
reference being the date of registration of the deed or the date of the issuance of the certificate of title of the
property. Here the questioned Deed of Sale was registered only in 1971. Private respondents filed their complaint in
1975, hence well within the prescriptive period.
A land registration case is an action in rem binding upon the whole world, and considering that the private respondents
failed to object to the registration of the realty in question, then res judicata had set in. However, while a review of the
decree of registration is no longer available after the expiration of the one-year period from entry thereof, an equitable
remedy is still available. Those wrongfully deprived of their property may initiate an action for reconveyance of the
property.
As to the second issue, we find no reversible error in declaring the Deed of Sale unenforceable. There was no question as
to the sale of the shares of Simplicio, Nicolasa, and Fausta, to their brother Leon. But not so with Maria Baltazar
concerning the share of her late husband, Benito, to Leon. Under the law then prevailing at that time, her husband’s
share in the common inheritance pertained to her minor children who were her late husband’s heirs. Article 1529 of the
old Civil Code, which was the prevailing law in 1948 and thus governed the questioned Deed of Sale, clearly provided that
a contract is unenforceable when there is an absence of authority on the part of one of the contracting parties.
Meaning, the nullity of the unenforceable contract is of a permanent nature and it will exist as long as the unenforceable
 JOSEPH ACE LAGURIN 4

contract is not duly ratified. In the instant case, there is no showing of any express or implied ratification of the assailed
Deed of Sale by the private respondents Procerfina, Ramon, Prosperidad, and Rosa. Thus, the said Deed of Sale must
remain unenforceable as to them.

Case 76 – ISAIAS F. FABRIGAS and MARCELINA R. FABRIGAS vs. SAN FRANCISCO DEL MONTE, INC.

FACTS:
Petitioner spouses and respondent entered into an agreement, denominated as Contract to Sell No. 2482-V, whereby the
latter agreed to sell a parcel of land. Spouses Fabrigas shall pay P30,000.00 as downpayment and the balance within ten
years in monthly. Among the clauses in the contract is an automatic cancellation should the purchaser fail to make
payments within 30 days after the due date and will be deemed and considered as forfeited and annulled without
necessity of notice to the purchaser. In the event of such forfeiture, all sums of money paid will be considered and
treated as rentals for the use of said parcel of land. Fabrigas took possession of the property but failed to make any
installment payments on the balance of the purchase price. Del Monte cancelled Contract to Sell No. 2482-V fifteen days
thereafter, but did not furnish petitioners any notice of cancellation. Later on, petitioners entered into another
agreement denominated as Contract to Sell No. 2491-V, covering the same property but under restructured terms of
payment. Under the second contract, the parties agreed on a new purchase price of P131,642.58, the amount of
P26,328.52 as downpayment and the balance to be paid in monthly installments. Spouses Fabrigas made irregular
payments under Contract to Sell No. 2491-V. Del Monte sent a demand letter informing petitioners of their overdue
account and allowed petitioners a grace period of 30 days within which to pay the amount asked to avoid rescission of
the contract. For failure to pay, Del Monte notified petitioners that Contract to Sell No. 2482-V had been cancelled and
demanded that petitioners vacate the property.

ISSUE:
Whether or not the Contract to Sell No. 2482-V extinguished through rescission novated by the subsequent Contract to
Sell No. 2491-V?

RULING:
The Court erred in ruling that Del Monte was well within its right to cancel the contract without the need of notifying
petitioners, instead of applying R.A. 6552. None of Del Monte's demand letters constituted a valid rescission of Contract
to Sell No. 2482-V. They may be credited only with the amount of P30,000.00 paid upon the execution of Contract to Sell
No. 2482-V, which should be deemed equivalent to less than two years' installments. It reads:
SECTION 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period
of not less than sixty days from the date the installment became due.
At the end of the grace period, the seller shall furnish the buyer with a notice of cancellation or demand for rescission
through a notarial act, effective thirty days from the buyer's receipt thereof. It is worth mentioning, of course, that a
mere notice or letter, short of a notarial act, would not suffice. While the Court concedes that Del Monte had allowed
petitioners a grace period longer than the minimum 60-day requirement, it did not comply, however, with the
requirement of notice of cancellation or a demand for rescission. Instead, Del Monte applied the automatic rescission
clause of the contract. Contrary, however, to Del Monte's position which the appellate court sustained, the automatic
cancellation clause is void under R.A. 6552.
Rescission, of course, is not the only mode of extinguishing obligations. Ordinarily, obligations are also extinguished by
payment or performance, by the loss of the thing due, by the condonation or remission of the debt, by the confusion
or merger of the rights of the creditor and debtor, by compensation, or by novation. (PLCMCN)
Novation is the total or partial extinction of an obligation through substitution of a new one. It may either be extinctive
or modificatory. An extinctive novation results either by changing the object or principal conditions (objective or real), or
by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or
personal). Under this mode, novation would have dual functions — one to extinguish an existing obligation, the other to
substitute a new one in its place — requiring four essential requisites: (1) a previous valid obligation; (2) an agreement
of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new
obligation.
 JOSEPH ACE LAGURIN 5

The facts of the case show that Contract to Sell No. 2482-V was subsequently novated by Contract to Sell No. 2491-V.
The execution of Contract to Sell No. 2491-V accompanied an upward change in the contract price, which constitutes a
change in the object or principal conditions of the contract. In order that an obligation may be extinguished by another
which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other. The test of incompatibility is whether or not the two
obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the
latter obligation novates the first.
To dispel the novation, petitioners contend that the subsequent contract is void for two reasons: first, petitioner Isaias
Fabrigas, the husband, did not give his consent thereto, and second, the subsequent contract is a contract of adhesion.
Since only petitioner Marcelina executed Contract to Sell No. 2491-V, the same is allegedly void, petitioners conclude.
Under the Civil Code, any transaction entered by the wife without the court or the husband's authority is unenforceable
in accordance with Article 1317 of the Civil Code. Being an unenforceable contract, Contract to Sell No. 2491-V is
susceptible to ratification. As found by the courts, after being informed of the execution of the contract, the husband,
Isaias Fabrigas, continued remitting payments for the satisfaction of the obligation under Contract to Sell No. 2491-V.
These acts constitute ratification of the contract. Such ratification cleanses the contract from all its defects from the
moment it was constituted.
Anent Del Monte's claim that Contract to Sell No. 2491-V is a contract of adhesion, such characterization does not
automatically render it void. A contract of adhesion is so-called because its terms are prepared by only one party while
the other party merely affixes his signature signifying his adhesion thereto. They are as binding as ordinary contracts.
Parties who enter into such contracts are free to reject the stipulations entirely. There was no clear case of intimidation
or threat in offering the new contract. At most, since she was of sufficient intelligence to discern the agreement, her
signing of Contract No. 2491-V is taken to be valid and binding. The fact that she has paid monthly amortizations
subsequent to the execution of Contract to Sell No. 2491-V, is an indication that she had recognized the validity of such
contract.

Case 77 – RAMON RAMOS vs. HEIRS OF HONORIO RAMOS, SR.

FACTS:
The late Salud Abejuela executed a Deed of Absolute Sale in favor of her son, Ramon Ramos, (petitioner). The surviving
spouse and children of Honorio Ramos, Sr. (respondents) filed with the RTC a suit against petitioner for the reconveyance
of title and partition of the aforementioned lot, contending that Honorio Sr. co-owned the above-mentioned lot with
Ramon Ramos and that the sale was simulated and fictitious. The purpose being only to enable said Ramon Ramos to use
the land as collateral security for a loan as he did use it when he was granted a loan by the bank; that the understanding
and agreement with his parents Lucio and Salud Ramos was that, Ramon Ramos should hold said land in trust for his
brother, Honorio and same should be divided between the two in equal shares; that as proof that the sale was fictitious
and simulated, it was still Lucio Ramos with whom Ramon Ramos lived with, who continued to harvest and enjoy the
fruits of the coconut trees until he died.

ISSUE:
Whether or not the Deed of Absolute Sale executed by Salud Abejuela-Ramos was a real and genuine sale.

RULING:
The Deed of Sale was not simulated. The primary consideration in determining the true nature of a contract is the
intention of the parties which is determined from the express terms of their agreement as well as from their
contemporaneous and subsequent acts. When they have no intention to be bound at all, the purported contract is
absolutely simulated and void. When they conceal their true agreement, it is not completely void and they are bound to
their real agreement, provided it is not prejudicial to a third person and is not intended for any purpose that is contrary
to law, morals, good customs, public order or public policy. A duly executed contract carries with it the presumption of
validity.
 JOSEPH ACE LAGURIN 6

In the case at bar, respondents failed to show simulation. First, the respondents failed to prove the existence of a contra
documento. Second, mere mother-son relationship between the vendor and the vendee does not prove their lack of
intention to be bound by the Deed of Absolute Sale. Not all contracts between family members are fictitious because,
by itself, consanguinity is not proof of simulation. In Suntay vs. CA, the Court said that the relationship between the
buyer and seller may be deemed a token of simulation. But this statement should be understood in the context of the
said case that a Deed of Resale was presented, and that the vendee never exercised acts of ownership over the disputed
land. Moreover, petitioner exercised acts of dominion over the property that is the subject of the present controversy.
Respondents claim that petitioner did not pay any consideration, because he was not yet gainfully employed when the
Deed of Sale was executed. He vehemently disputed this allegation, pointing out that he was already working for a law
firm in the province and earning a decent salary. Since no evidence was presented to show how much the lot was worth,
there is no basis for saying that the price was too low.
The mere allegation that Honorio Sr. and petitioner were co-owners did not confer co-ownership on them. Under the
Rules of Court, a person whose consent as a co-plaintiff cannot be obtained may be impleaded as a defendant. In the
present case, co-ownership cannot be implied from the failure of petitioner to expressly demand the delivery of Lot 2961
solely to him. He did not have to do so, because he was already in possession of it.
The trial court ruled that simulation had not been proven for the following reasons: (1) respondents failed to present a
witness who was present during the execution of the Deed of Sale, and who could have testified that Salud had not
intended to sell the disputed land to petitioner; (2) the existence of the contra documento was not established; and (3)
the testimonies of the children that their mother had told them that the sale was simulated were inadmissible in
evidence for being hearsay.
Suntay v. CA 23 ruled that the most protuberant index of simulation was not the relationship between the ostensible
vendor and vendee. Rather, it was the complete absence, on the part of the vendee, of any attempt in any manner to
assert his rights of ownership over the disputed property. The supposed buyer's failure to take exclusive possession of
the property allegedly sold or, alternatively, to collect rentals is contrary to the principle of ownership. Such failure is a
clear badge of simulation that renders the whole transaction void pursuant to Article 1409 of the Civil Code. In the
present case, however, the evidence clearly shows that petitioner hired tenants to take care of and to harvest coconuts
from Lot 2961. Without any protest from Salud or respondents, he declared the property for taxation and paid realty
taxes on it in his name.
On the other hand, Pureza testified that when petitioner approached her husband, Honorio Sr., to share in paying the
disturbance compensation to a tenant who had mistakenly planted on the disputed property, her husband refused. The
refusal of Honorio Sr. belied respondents' claim of co-ownership. If their father was really a co-owner of the disputed lot,
they should have brought up the fact and insisted on having Lot 2961 declared in the Compromise Judgment as co-owned
by petitioner and Honorio Sr.
Respondents claim that the disputed lot was intended to be given by Salud to petitioner and Honorio Sr. as part of their
inheritance. The settlement of the estate of Salud, therefore, was the most appropriate opportunity for respondents to
establish their claim over the property. Having passed up that chance, laches and estoppel have now set on them. The
notarization of a document does not guarantee its validity, because it is not the function of a notary public to validate
an instrument that was never intended by the parties to have any binding legal effect on them.

Case 78 – EMILIO GONZALES LA'O vs. REPUBLIC OF THE PHILIPPINES and GSIS

FACTS:
The GSIS is the owner of a land with a five-storey building. In 1978, GSIS and the Republic of the Philippines, through the
Office of the Government Corporate Counsel (OGCC), entered into a lease-purchase agreement (first contract). GSIS
agreed to transfer the property to the OGCC for a consideration of P1.5 million, payable in equal yearly amortization-
lease rentals of P100,000 for a period of 15 years. On 1982, GSIS and petitioner executed a lease-purchase agreement
(second contract). GSIS agreed to sell the same property to petitioner for P2,000,000, with a down payment of P200,000
and the balance payable within a period of 15 years at 12% interest per annum, compounded yearly. Under the second
contract, GSIS obligated itself to construct for the OGCC a three-storey building on the Manila Bay reclaimed area or to
make available another property acceptable to the OGCC, to be conveyed to the Republic under the same or mutually
acceptable terms and conditions as those of the first contract. In the meantime, the OGCC was allowed to continue
 JOSEPH ACE LAGURIN 7

occupying the second to the fifth floors of the building at an annual rental of P100,000, payable to petitioner.
Furthermore, petitioner was entitled to lease out the ground floor and collect the corresponding rentals. It appears that
on 1982, then President Ferdinand E. Marcos approved the second contract.

ISSUE:
Whether or not the second contract valid as claimed by petitioner or null and void.

RULING:
Petitioner asserts that it is the Sandiganbayan, not the RTC, which has jurisdiction over this ill-gotten wealth case because
the complaint involved the annulment of a fraudulent conveyance of government property to a Marcos crony.
Petitioner's contention has no merit. While it is true that jurisdiction over the subject matter of a case may be raised at
any stage of the proceedings, it is nevertheless settled that a party may be barred from raising it on the ground of
estoppel.
Now, on the main issue, the second contract was null and void ab initio for being in contravention of Section 3(e) and (g)
of RA 3019, otherwise known as the "Anti-Graft and Corrupt Practices Act". Both the trial and appellate courts found
that the second contract gave petitioner unwarranted benefits and was grossly disadvantageous to the government.
Under Article 1409(7) of the Civil Code, 29 the contract was null and void from the beginning.
The Agreement between petitioner and the GSIS had in fact transferred the economic benefits which the Republic used
to enjoy to petitioner. At the end of 15 years, petitioner shall become the absolute owner of the subject property upon
full payment of the yearly amortizations. At bottom, however, is the fact that, at least for the first [five] years of the
Agreement, petitioner shall not be shelling out of his own pocket the yearly amortization since the same shall be covered
by the annual rental coming from the OGCC and the other tenants thereof. In the meantime, the Republic, thru the
OGCC, shall not only be appropriating additional funds for its annual rental but worse, it was stripped of the opportunity
to become the absolute owner of the subject property. The Court cannot also ignore the marked differences between the
consideration of P2,000,000.00 and the valuations of the subject property in 1982 as appraised by Cuervo Appraisers, Inc.
to a fair market value of P8,005,500.00.
In view of GSIS' undertaking to construct another building for the OGCC just to accommodate the subject Agreement
with the petitioner, the GSIS had imposed additional economic burden upon itself, at the expense of government funds,
in order to meet the terms and conditions of the subject Agreement when the same was not necessary during the
subsistence of the prior agreement.
The foregoing clearly shows that the second contract caused undue injury to the government, gave petitioner
unwarranted benefits and was grossly disadvantageous to the government.
The act of entering into the second contract was a corrupt practice and was therefore unlawful. It was a contract
expressly prohibited by RA 3019. As a result, it was null and void from the beginning under Art. 1409(7) of the Civil Code
As for the forfeiture of the payments made by petitioner, the latter did not raise any substantial argument against it. He
merely stated that there should be no reason why the amounts paid by petitioner should be forfeited in favor of the
Republic since the property was owned by GSIS and the Republic, through the OGCC, was merely a lessee.

Case 79 – ALFRED FRITZ FRENZEL vs. EDERLINA P. CATITO

FACTS:
Petitioner Alfred Fritz Frenzel is an Australian citizen of German descent. He married Teresita Santos, a Filipino citizen but
they were separated without obtaining a divorce. Later on, he met respondent Ederlina Catito, a Filipina who was
married to Klaus Muller, a German national. Eventually, they cohabited together in a common-law relationship. During
the period of their common-law relationship, Alfred acquired in the Philippines real and personal properties. Since Alfred
knew that as an alien, he was disqualified from owning lands in the Philippines, he agreed that only Ederlina's name
would appear in the deeds of sale as the buyer of the real properties, as well as in the title. Alfred and Ederlina's
relationship deteriorated and separated. He demanded the return of all the amounts that Ederlina and her family had
"stolen" and turn over all the properties acquired by him and Ederlina during their coverture. Alfred filed a complaint
 JOSEPH ACE LAGURIN 8

against Ederlina with the Regional Trial Court for specific performance, declaration of ownership of real and personal
properties, sum of money, and damages.

ISSUE:
Whether or not the petitioner is entitled to conveyance of real and personal properties.

RULING:
Lands of the public domain, which include private lands, may be transferred or conveyed only to individuals or entities
qualified to acquire or hold private lands or lands of the public domain. Aliens, whether individuals or corporations,
have been disqualified from acquiring lands of the public domain. Hence, they have also been disqualified from
acquiring private lands.
Even if the sales in question were entered into by him as the real vendee, the said transactions are in violation of the
Constitution; hence, are null and void ab initio. A contract that violates the Constitution and the law, is null and void
and vests no rights and creates no obligations. The petitioner, being a party to an illegal contract, cannot come into a
court of law and ask to have his illegal objective carried out. One who loses his money or property by knowingly engaging
in a contract or transaction which involves his own moral turpitude may not maintain an action for his losses. To him who
moves in deliberation and premeditation, the law is unyielding. The law will not aid either party to an illegal contract or
agreement; it leaves the parties where it finds them. Under Article 1412 of the New Civil Code, the petitioner cannot
have the subject properties deeded to him or allow him to recover the money he had spent for the purchase thereof.
Where the wrong of a party equals that of the other, the defendant is in the stronger position. It signifies that in such a
situation, neither a court of equity nor a court of law will administer a remedy. The rule is expressed in the maxims: EX
DOLO ORITUR ACTIO and IN PARI DELICTO POTIOR EST CONDITIO DEFENDENTIS.
As can be gleaned from the decision of the trial court, the petitioner was fully aware that he was disqualified from
acquiring and owning lands under Philippine law even before he purchased the properties in question. The respondent
was herself married to Klaus Muller, a German citizen. Thus, the petitioner and the respondent could not lawfully join in
wedlock. The evidence on record shows that the petitioner in fact knew of the respondent's marriage to another man,
but nonetheless purchased the subject properties under the name of the respondent and paid the purchase prices
therefor. Even if it is assumed gratia arguendi that the respondent and the petitioner were capacitated to marry, the
petitioner is still disqualified to own the properties in tandem with the respondent.
The petitioner cannot find solace in Article 1416 of the New Civil Code which reads:
Art. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designed
for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered.
The provision applies only to contracts which are merely prohibited, in order to benefit private interests. It does not apply
to contracts void ab initio. The sales of three parcels of land in favor of the petitioner who is a foreigner is illegal per se.
Neither may the petitioner find solace in Rep. Act No. 133, as amended by Rep. Act No. 4882, which reads:
SEC. 1. Any provision of law to the contrary notwithstanding, private real property may be mortgaged in favor of any
individual, corporation, or association, but the mortgagee or his successor-in-interest.
From the evidence on record, the three parcels of land subject of the complaint were not mortgaged to the petitioner by
the owners thereof but were sold to the respondent as the vendee, albeit with the use of the petitioner's personal funds.

Futile, too, is petitioner's reliance on Article 22 of the New Civil Code which reads:
Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into
possession of something at the expense of the latter without just or legal ground, shall return the same to him.
The provision is expressed in the maxim: "MEMO CUM ALTERIUS DETER DETREMENTO PROTEST" (No person should
unjustly enrich himself at the expense of another). An action for recovery of what has been paid without just cause has
been designated as an accion in rem verso. This provision does not apply if, as in this case, the action is proscribed by the
Constitution or by the application of the pari delicto doctrine.

Case 80 – DANILO D. MENDOZA vs. PHILIPPINE NATIONAL BANK, FERNANDO MARAMAG, JR.
 JOSEPH ACE LAGURIN 9

FACTS:
Petitioner Mendoza was granted by respondent Philippine National Bank a P500,000.00 credit line and a P1,000,000.00
Letter of Credit/Trust Receipt line. As security, petitioner mortgaged several parcels of land with improvements and some
machinery and equipment. Later on, petitioner requested PNB for the restructuring of his past due accounts into a five-
year term loan and for an additional LC/TR because of his failure to pay his LC/TR accounts as they became due and
demandable. Respondent PNB finally approved petitioner's proposal. The petitioner claimed that respondent PNB asked
him and his wife to sign two blank promissory note forms. According to him, they were made to believe that the blank
promissory notes were to be filled out by respondent PNB to conform to the 5-year restructuring plan allegedly agreed
upon. The first Promissory Note No. 127/82, covered the principal while the second Promissory Note No. 128/82,
represented the accrued interest. However, petitioner alleged that respondent PNB contravened their verbal agreement
by affixing different terms, different amounts and different rates of interest than that agreed upon. It appeared that the
subject Promissory Notes Nos. 127/82 and 128/82 superseded and novated all prior loan documents signed by petitioner
in favor of respondent PNB. Petitioner failed to pay the subject two (2) Promissory Notes as they fell due.

ISSUE:
Whether or not the proposed five-year restructuring plan of loan was deemed automatically approved by respondent
PNB.

RULING:
Nowhere in those letters is there a categorical statement that respondent PNB had approved the petitioner's proposed
five-year restructuring plan. There is nothing in the record that even suggests that respondent PNB assented to the
alleged five-year restructure of petitioner's overdue loan obligations to PNB. However, the trial court ruled in favor of
petitioner Mendoza, holding that since petitioner has complied with the conditions of the alleged oral contract, the latter
may not renege on its obligation to honor the five-year restructuring period, under the rule of promissory estoppel. Citing
Ramos v. Central Bank, 18 the trial court said:
According to that doctrine, an estoppel may arise from the making of a promise, even though without consideration, if it
was intended that the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be
virtually to sanction the perpetration of fraud or would result in other injustice. In this respect, the reliance by the
promisee is generally evidenced by action or forbearance on his part, and the idea has been expressed that such action
or forbearance would reasonably have been expected by the promissor.
The doctrine of promissory estoppel is an exception to the general rule that a promise of future conduct does not
constitute an estoppel. In some jurisdictions, in order to make out a claim of promissory estoppel, a party bears the
burden of establishing the following elements: (1) a promise reasonably expected to induce action or forbearance; (2)
such promise did in fact induce such action or forbearance, and (3) the party suffered detriment as a result.
It is clear from the foregoing that the doctrine of promissory estoppel presupposes the existence of a promise on the part
of one against whom estoppel is claimed. For petitioner to claim that respondent PNB is estopped to deny the five-year
restructuring plan, he must first prove that respondent PNB had promised to approve the plan in exchange for the
submission of the proposal. As discussed earlier, no such promise was proven, therefore, the doctrine does not apply to
the case at bar.
Since there is no basis to rule that petitioner's overdue loan obligations were restructured to mature in a period of five
years, we see no other option but to respect the two-year period as contained in the two subject Promissory Notes Nos.
127/82 and 128/82 which superseded and novated all prior loan documents signed by petitioner in favor of respondent
PNB. Petitioner claims that the two Promissory Notes were signed by him in blank with the understanding that they were
to be subsequently filled out to conform with his alleged oral agreements. However, we find no sufficient proof that the
subject two promissory were completed irregularly. Besides, it could be gleaned from the record that the petitioner is an
astute businessman who took care to reduce in writing his business proposals to the respondent bank. Plaintiff-appellee
who is a CPA and a Tax Consultant will insist that the details of the two promissory notes he and his wife should be
specific to enable them to make the precise computation in the event of default as in the case at bench. As pointed out
by the Court, PNB testified that the said Promissory Notes were completely filled out when Danilo Mendoza signed them.
 JOSEPH ACE LAGURIN 10

Petitioner contends that respondent PNB's action of withholding 10% from his export proceeds is proof that his proposal
had been accepted and the contract had been partially executed. There is no credible proof that the 10% assignment of
his export proceeds was not part of the conditions of the two-year restructuring deal. Considering that the resulting
amount obtained from this assignment of export proceeds was not even enough to cover the interest for the
corresponding month.
It appears that respondent bank increased the interest rates on the two Promissory Notes without the prior consent of
the petitioner. The petitioner did not agree to the increase in the stipulated interest rate of 21% per annum on
Promissory Note No. 127/82 and 18% per annum on Promissory Note No. 128/82. As held in several cases, the unilateral
determination and imposition of increased interest rates by respondent bank is violative of the principle of mutuality of
contracts ordained in Article 1308 of the Civil Code. Similarly, contract changes must be made with the consent of the
contracting parties.
It has been held that no one receiving a proposal to change a contract to which he is a party is obliged to answer the
proposal, and his silence per se cannot be construed as an acceptance. Estoppel will not lie against the petitioner
regarding the increase in the stipulated interest on the subject Promissory Notes Nos. 127/82 and 128/82 inasmuch as he
was not even informed beforehand by respondent bank of the change in the stipulated interest rates.
Petitioner prays for the release of some of his movables being withheld by PNB, alleging that they were not included
among the chattels he mortgaged to respondent bank. However, petitioner did not present any proof as to when he
acquired the subject movables and hence, we are not disposed to believe that the same were "after-acquired" chattels
not covered by the chattel and real estate mortgages. It is clear, however, from the provision of the said promissory notes
that respondent bank is authorized, in case of default, to sell things of value belonging to the mortgagor which may be
on its hands for deposit or otherwise belonging to me/us and for this purpose. A stipulation in the mortgage, extending
its scope and effect to after-acquired property is valid and binding where the after-acquired property is in renewal of, or
in substitution for, goods on hand when the mortgage was executed, or is purchased with the proceeds of the sale of
such goods.
The challenged decision of the Court of Appeals was affirmed with modification that the increase in the stipulated
interest rates appearing on the two Promissory Notes was declared null and void.