OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
RESCISSIBLE CONTRACTS
ART. 1380. Contracts validly agreed upon may be rescinded in the cases
established by law. (1290)
Art. 1191 (in relation 1192) – more specifically called as resolution
Art. 1380 – rescission proper
We are talking about contracts in cases where it can be rescinded in cases
established by law.
REQUISITES FOR CONTRACTS TO BE RESCINDED:
1. It must be a completely valid and enforceable contract – it must contain all
the essential requisites of a contract and its formality (if it requires formality
for its enforceability)
These are defective contracts.
Rescissible contracts – contracts that are completely valid and enforceable.
It’s just that, one can file an action for its rescission. There is a defect on
account of certain economic injury or lesion.
Can it be convalidated (completely valid and enforceable without being
susceptible to rescission)?
YES. There is a prescriptive period provided for actions that are filed for the
rescission of that contract. By the lapse of that period (4 years), rescissible
contracts can be convalidated. All of the defects will be lost by the lapse of
time.
There is also a possibility that there can be a waiver, condonation, or
renunciation of an action to rescind. If a person condones an economic injury
on their part, that is not ratification, that is a waiver of the right to bring an
action for rescission. Many authors may say that rescissible contracts are
subject to ratification. That is true, but not all rescissible contracts. There are
certain types of rescissible contracts that are subject to ratification.
ART. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom
they represent suffer lesion by more than one-fourth of the value of the
things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer
the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any
other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered
into by the defendant without the knowledge and approval of the litigants
or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to
rescission. (1291a)
Suffering lesion has a particular extent or scope, it’s not just any other
economic injury (because mere inadequacy of the price or cause will not bring
about the invalidity of the contract except when otherwise provided by law).
Instances under the law where the law says that there is specific type of lesion
that can affect the validity of the contract is found in Art. 1381. According to
Art 1381, the scope of lesion must be more than one-fourth.
When we talk about representatives in relation to their absentees, and when
we talk about guardians with respect to their ward, Art. 1381 presumes that
these representatives, and these guardians have authority to administer the
property belonging to their absentees and their wards.
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That embodies or covers mere acts of administration (mere management,
maintenance, upkeep, and taking care of the property). They cannot do acts
of ownership (transfer, convey or introduce burdens of a property such as a
mortage, lease, pledge, etc.). They are not authorized to do acts such as
selling, mortgaging, or donating the property without proper judicial approval.
What if the guardian or the representative does not have the authority of the
ward or the absentee? What if the guardian or representative did not acquire
judicial approval before they made a sale, donation, or mortgage? What if
they did acts of ownership?
The status of the contract is not rescissible. It is unenforceable.
1. Those which are entered into by guardians whenever the wards whom
they represent suffer lesion by more than one-fourth of the value of the
things which are the object thereof;
2. Those agreed upon in representation of absentees, if the latter suffer
the lesion stated in the preceding number;
The guardian here entered into a contract involving a thing of an object which
belongs to the ward upon whom they exercise guardianship over.
It covers contracts entered into by the guardian for and in behalf of the ward
or representatives for and in behalf of the absentee.
What happens when the guardian or the representative himself/herself are
the ones who purchased the property of the ward or the absentee?
The law says “which are entered into.” Art. 1381 paragraphs 1 and 2 we are
talking about instances where guardians sell the property of the absentee.
What is the status of their purchase of the property?
This provided for under Art. 1491.
ART. 1491. The following persons cannot acquire by purchase,
even at a public or judicial auction, either in person or through the
mediation of another:
(1) The guardian, the property of the person or persons who may
be under his guardianship;
(2) Agents, the property whose administration or sale may have
been intrusted to them, unless the consent of the principal has
been given;
(3) Executors and administrators, the property of the estate under
administration;
(4) Public officers and employees, the property of the State or of
any subdivision thereof, or of any government-owned or controlled
corporation, or institution, the administration of which has been
intrusted to them; this provision shall apply to judges and
government experts who, in any manner whatsoever, take part in
the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and
inferior courts, and other officers and employees connected with
the administration of justice, the property and rights in litigation or
levied upon an execution before the court within whose jurisdiction
or territory they exercise their respective functions; this prohibition
includes the act of acquiring by assignment and shall apply to
lawyers, with respect to the property and rights which may be the
object of any litigation in which they may take part by virtue of their
profession;
(6) Any others specially disqualified by law. (1459a)
In Art. 1381, we are talking about contracts that are entered into by the
guardian or by the representative.
What is now the issue with respect to paragraph 1 and 2? Are there instances
where the guardian sold the property of the absentee and they went beyond
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
their authority of doing their acts of administration? Is there a way that these
contracts can be ratified?
With respect to the first and 2nd paragraph, please take note of Art. 1386.
ART. 1386. Rescission referred to in Nos. 1 and 2 of Art. 1381 shall not
take place with respect to contracts approved by the courts. (1296a)
These contracts, which may have been entered into by guardians or
representatives in behalf of their wards or absentees, may be susceptible to
ratification by the court.
3rd paragraph of 1381 - Those undertaken in fraud of creditors when the
latter cannot in any other manner collect the claims due them.
You must remember the different types of fraud, (dolo causante and dolo
incidente). The 3rd paragraph of 1381 is incidental fraud. The law provides
that these contracts are rescissible.
You have to remember Art. 1177 on what are the remedies that can be
exhausted by the creditors. First, make a demand. Second, pursue leviable
property. Third is accion subrogatoria, fourth is accion pauliana.
The 3rd paragraph of 1381 actually talks about accion pauliana, where the
contracts should be rescinded because they are in fraud of creditors.
How do we determine if they are entered into to defraud creditors?
- Explained in Union Bank v. Spouses Ong.
The SC said, in determining whether or not a certain conveying contract is
fraudulent, what comes to mind first is the question of whether the
conveyance was a bona fide transaction, or a trick and contrivance to defeat
the claims of just creditors.
4th paragraph of 1381 - Those which refer to things under litigation if they
have been entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority.
Take note: What is important here is that these contracts under paragraph 4
have been entered into by a certain defendant despite the fact that a case is
pending in court.
Example: You file a case for forcible entry or unlawful detainer involving a
parcel of land. Then, the owner of the parcel of land would like to sell the
property which is a subject matter of a suit, pending litigation. The status of
the contract entered into in favor of the buyer would be rescissible.
To distinguish the 3rd paragraph from the 4th paragraph, take note that in the
3rd paragraph, the purpose of the law is to declare that contract in fraud of
creditors as rescissible—in order to guarantee an existing and just claim of a
creditor. In the 4th paragraph, the purpose is to secure the possible effectivity
of a claim pending in court.
In par. 3, you are talking about a personal right of a creditor to make a demand
or claim against his or her debtor. In par. 4, you are talking about a real right
involving ownership or possession, involving property which is sold, despite
the fact that it is pending litigation.
5th paragraph of 1381 - All other contracts specially declared by law to be
subject to rescission.
Par. 5 is very broad. First, let us take a look at Art. 1382.
ART. 1382. Payments made in a state of insolvency for obligations to
whose fulfillment the debtor could not be compelled at the time they were
effected, are also rescissible. (1292)
Under the fifth instance, it is the law itself that specifically declares these
contracts as rescissible. Examples are those payments made in the state of
insolvency.
Is there a need of judicial declaration of insolvency for these payments under
art 1382 to be rescissible?
- The answer is NO, there is no need for any judicial declaration that you are
in a state of insolvency. By a sheer fact that you are greatly financially
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embarrassed, or that your liabilities are greater than your assets, you are
already in a state of insolvency.
Any payment you make, or conveyance of your property are rescissible,
because it may damage the interest of persons who can pursue those
property which you convey.
INSTANCES WHERE A CONTRACT IS DECLARED BY LAW AS
RESCISSIBLE:
(1) Sale of animals with hidden defects:
What if you purchase an animal through an authorized retailer or a friend and
what if that animal had a hidden defect (e.g. ailing or terminally ill)?
In sale of animals with hidden defects, the remedy on the part of the buyer is
accion redhibitoria, which is actually an action to rescind.
ART. 1579. If the sale be rescinded, the animal shall be returned
in the condition in which it was sold and delivered, the vendee being
answerable for any injury due to his negligence, and not arising
from the redhibitory fault or defect.
(2) Breach of warranty by the seller:
If you’re a seller and in the warranty of certain goods, what if you breach the
warranty? What is the remedy on the part of the buyer?
The buyer may rescind the contract, as provided in Art. 1599 (4).
ART. 1599. Where there is a breach of warranty by the seller, the
buyer may, at his election:
(4) Rescind the contract of sale and refuse to receive the goods or
if the goods have already been received, return them or offer to
return them to the seller and recover the price or any part thereof
which has been paid.
(3) A contract of lease under Art. 1662:
ART. 1662. If during the lease it should become necessary to make
some urgent repairs upon the thing leased, which cannot be
deferred until the termination of the lease, the lessee is obliged to
tolerate the work, although it may be very annoying to him, and
although during the same, he may be deprived of a part of the
premises.
If the repairs last more than forty days the rent shall be reduced in
proportion to the time - including the first forty days - and the part
of the property of which the lessee has been deprived.
When the work is of such a nature that the portion which the lessee
and his family need for their dwelling becomes uninhabitable, he
may rescind the contract if the main purpose of the lease is to
provide a dwelling place for the lessee.
(4) A contract of partnership under Art. 1838:
ART. 1838. Where a partnership contract is rescinded on the
ground of the fraud or misrepresentation of one of the parties
thereto, the party entitled to rescind is, without prejudice to any
other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the
partnership property after satisfying the partnership liabilities to
third persons for any sum of money paid by him for the purchase
of an interest in the partnership and for any capital or advances
contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied,
in the place of the creditors of the partnership for any payments
made by him in respect of the partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud or making
the representation against all debts and liabilities of the
partnership.
(4) Compromise agreements under Art. 2040:
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
ART. 2040. If after a litigation has been decided by a final
judgment, a compromise should be agreed upon, either or both
parties being unaware of the existence of the final judgment, the
compromise may be rescinded.
Ignorance of a judgment which may be revoked or set aside is not
a valid ground for attacking a compromise.
ATTRIBUTES OF AN ACTION FOR RESCISSION:
Rescission under Art. 1191 is a principal action. This means that the moment
that there is a substantial breach in a reciprocal obligation, the injured person
can rescind that contract.
ART. 1383. The action for rescission is subsidiary; it cannot be instituted
except when the party suffering damage has no other legal means to
obtain reparation for the same.
Under Art. 1383, rescission is a subsidiary action. You cannot file an action
for rescission right away. You have to observe the order of preference under
Art. 1177.
1. Make a demand
2. Pursue leviable property
3. File an action for subrogation
4. Impugn contracts which are rescissible
If you are not a defrauded creditor, what is required under the law?
At the minimum, you must make a demand.
NOTE: Art. 1177 is more particularly proper in cases of defrauded creditors.
However, if any other ground is interposed, it is enough that you make a
demand first. If that demand is unheeded, then you can file an action for
rescission under Art. 1383.
Only the party suffering the damage may file an action. The difference with
Art. 1383 is that this injured party is not necessarily a contracting party. It may
be a third person, depending on which ground he falls under Art. 1381.
Art. 1383 also requires that the injured party has no other legal means to
obtain reparation for the same.
What is the extent of this rescission?
Under Art. 1384, it must be to the extent necessary to cover the damages
caused.
ART. 1384. Rescission shall be only to the extent necessary to cover the
damages caused. (n)
Example: A is the debtor of B, the creditor, for the amount of 100k. Despite
demand, no other properties are available and no right to be subrogated is
available.
A only has 100k in the bank. So, A, the debtor, donated it in favor of X. Further,
X divided the 100k to Y and Z (so, 50k each).
Despite the fact that the amount was divided between Y and Z, the extent of
the claim should be the credit or the claim of the creditor, which is 100k.
Example: What if the only property belonging to A is a parcel of land in the
amount of 100k?
So, the creditor wanted to exhaust all the remedies. B, the creditor, can
pursue leviable property under Art. 1177.
Let’s say that A made it seem that the property was sold in favor of X and that
property is already in the amount of 120k because of certain valuation. So,
there is an increase in the value of the property.
What is the remedy on the part of B, the creditor?
The creditor may file an action for the rescission of the contract of sale
between A and X because that contract was undertaken to defraud him.
Can B claim up to the extent of 120k?
No. Under Art. 1384, it is only up to the amount claimed by the creditor. In this
case, it is only up to 100k. So, the contract between A and X may be valid but
only up to the extent of 20k.
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NOTE: The damages caused under this Article are actual damages.
ART. 1385. Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price
with its interest; consequently, it can be carried out only when he who
demands rescission can return whatever he may be obliged to restore.
Neither shall rescission take place when the things which are the object
of the contract are legally in the possession of third persons who did not
act in bad faith.
In this case, indemnity for damages may be demanded from the person
causing the loss. (1295)
Example: X, with respect to A, is a complete stranger. X does not know of any
subsisting obligation that A has with respect to B.
A sold the parcel of land in favor X and X registered it under his name, without
knowledge of any defect in his title.
X further sold it in favor of Y, who was a buyer in good faith. When B filed an
action for rescission of the contract, the property is already registered under
Y’s name.
Can the property given back to B?
No. Despite filing an action for rescission, that property is already in the hands
of a purchaser in good faith. The moment they registered it under their name,
the property cannot be taken away from them.
What is the right of the injured party, or the right of B against A?
Only an action to claim damages. Consequently, rescission is only possible if
the property or subject matter of the contract can still be returned or if there is
a possibility of restitution.
If that property cannot be returned, such that it is already in the hands of an
innocent purchaser of value, the action for rescission is converted to a mere
case for damages. He who demands the return of whatever the subject matter
of the contract, he must have the capability to restore or return it.
Consequently, rescission is only possible if the property or thing that is the is
the subject matter of the contract or agreement can still be returned. Meaning,
there is still a possibility of restitution.
What is the rule when the property cannot be returned such that it is already
registered or it is in the hands of a 3rd person who is in good faith or an
innocent purchaser for value?
It converts the action for rescission to a mere case for damages. It cannot be
anymore an action for rescission but a mere action for damages.
Rule: He who demands the subject matter of an agreement or contract, there
must be capability to restore it or return it. Otherwise, an action for rescission
is not possible, only an action for indemnity.
ART. 1387. All contracts by virtue of which the debtor alienates property
by gratuitous title are presumed to have been entered into in fraud of
creditors, when the donor did not reserve sufficient property to pay all
debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made by
persons against whom some judgment has been rendered in any
instance or some writ of attachment has been issued. The decision or
attachment need not refer to the property alienated, and need not have
been obtained by the party seeking the rescission.
In addition to these presumptions, the design to defraud creditors may be
proved in any other manner recognized by the law of evidence. (1297a)
Art. 1387 provides for the important legal presumptions where contracts are
entered into in fraud of creditors. When these instances exist, I want you
in your exam to identify whether the presumption falls under paragraph
1, 2, or 3 under Art. 1387.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
Par. 1: When the debtor alienates property by gratuitous title are presumed
to have been entered into in fraud of creditors. This is quite logical because
why would you donate something when you knew for a fact that you have
pending debts or obligations?
Par. 2: Alienations by onerous title are also presumed fraudulent when made
by persons against whom some judgment has been rendered in any instance
or some writ of attachment has been issued.
When you say that there is a judgment rendered or an attachment has been
issued, take note, it does not need to refer to the property alienated. It also
does not need to be obtained by the party seeking rescission. Meaning, any
alienation of the debtor’s property is presumed to be made in fraud of
creditors.
Acquisition of things of 3rd person in good faith: Under Art. 1387, it also
talks about acquisition of things with respect to the object of a contract by 3rd
persons. We already said that if an object of a contract is placed into the
possession of a 3rd person who is in good faith, take note that no rescission
is allowed.
However, you have to make a distinction. Because under the law on property,
the rule is different with respect to movables vs immovables.
For example, the property given to a 3rd person in good faith is a movable
property. The mere possession of the 3rd person of that movable property
already gives rise to the presumption that the title of said property belongs to
them. Take note, it is mere possession, even if the property is not registered
under their name, there is a presumption under the law that you have a title
thereto and that title cannot be defeated if you are in good faith.
What if it is an immovable property such as a parcel of land? Take note,
what is required under the Torrens Titling System, the immovable property
must be registered under the name of the 3rd person who bought it in good
faith.
What if the 3rd person in good faith did not register the property under his
name and the creditor will rescind the contract of sale? Can the creditor
reacquire the property?
YES, because with respect to immovable properties, take note, purchasers
who are 3rd person in good faith must have registered that immovable property
under their name. If no registration, then it can be restored back in favor of
the creditor.
Par 3: In addition to these presumptions, the design to defraud creditors may
be proved in any other manner recognized by the law of evidence.
Under the 3rd paragraph of Art. 1387, these are what we call under
jurisprudence as badges of fraud. There are certain contracts that have
attributes of badges of fraud, such that if these instances exist, there is a
presumption under the law and by jurisprudence that these contracts are
entered into to defraud creditors.
In the case of SIGUAN vs. LIM (G.R. No. 134685), the SC discussed the
instances that fall under the 3rd paragraph of Art. 1387.
The following have been denominated by the Court as badges of fraud:
(1) The fact that the consideration of the conveyance is fictitious or is
inadequate;
(2) A transfer made by a debtor after suit has begun and while it is pending
against him;
(3) A sale upon credit by an insolvent debtor;
(4) Evidence of large indebtedness or complete insolvency;
(5) The transfer of all or nearly all of his property by a debtor, especially when
he is insolvent or greatly embarrassed financially;
(6) The fact that the transfer is made between father and son, when there are
present other of the above circumstances; and
(7) The failure of the vendee to take exclusive possession of all the property.
Take note: The above enumeration, however, is not an exclusive list. The
circumstances evidencing fraud are as varied as the men who perpetrate the
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fraud in each case. This Court has therefore declined to define it, reserving
the liberty to deal with it under whatever form it may present itself.
ART. 1388. Whoever acquires in bad faith the things alienated in fraud of
creditors, shall indemnify the latter for damages suffered by them on
account of the alienation, whenever, due to any cause, it should be
impossible for him to return them.
If there are two or more alienations, the first acquirer shall be liable first,
and so on successively. (1298a)
Under Art. 1388, we are talking about alienations made in bad faith. Meaning,
no matter how subsequent it is or no matter how many the conveyances are
(A to B, B to C, C to D, etc.) for as long as those persons who acquire the
property or the object of the contract are in bad faith, they are susceptible to
rescission. A person is in bad faith if he has knowledge about the defect in
the title or about the claim over the subject property or thing.
That is why if there are 2 or more alienations made in bad faith, Art. 1388 is
specific. The first acquirer shall be liable first, and so on successively.
What is the nature of this liability?
Remember, it is for indemnity or damages.
Take note, we are talking about instances where rescission is possible. It
cannot be converted to an action for damages because the property was
acquired by 3rd person in bad faith.
Hence, alongside the remedy for rescission, these persons in bad faith
are also liable for damages.
Because if you remember Art. 1170, those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable for damages.
ART. 1389. The action to claim rescission must be commenced within
four years.
For persons under guardianship and for absentees, the period of four
years shall not begin until the termination of the former's incapacity, or
until the domicile of the latter is known. (1299)
Take note that under Art. 1389, we talk about the prescriptive period for an
action for rescission. It must be commenced within 4 years.
Remember, the 4 year prescriptive period has different reckoning points
depending on the different grounds found under Art. 1381.
Always indicate the reckoning point when talking about prescriptive periods.
Under Art. 1381 par. 1 & 2, the reckoning point of the 4-year prescriptive
period is from the time the incapacity or minority ceases, or when the
absentee reappears.
In Art. 1381 par. 3 & 4, the reckoning point is from the time of its discovery.
In par. 5, the 4-year prescriptive period depends on the period specifically
provided for by law.
KHE HONG CHENG V. CA
355 SCRA 701
Article 1380-1389 – Rescissible Contracts; Ground #3
FACTS: Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan
Shipping Lines. It appears that on October 4, 1985, the Philippine Agricultural
Trading Corporation shipped on board the vessel M/V PRINCE ERIC, owned
by petitioner Khe Hong Cheng, 3,400 bags of copra at Masbate for delivery
to Dipolog City.
The said shipment of copra was covered by a marine insurance policy
issued by American Home Insurance Company (respondent Philam's
assured). M/V PRINCE ERIC, however, sank, resulting in the total loss of the
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
shipment. Because of the loss, the insurer, American Home, paid the amount
of P354,000.00 (the value of the copra) to the consignee.
Having been subrogated into the rights of the consignee, American Home
instituted a case to recover the money paid to the consignee, based on breach
of contract of carriage.
While the case was still pending, or on December 20, 1989, petitioner Khe
Hong Cheng executed deeds of donations of parcels of land in favor of his
children, herein co-petitioners Sandra Joy and Ray Steven.
The RTC ordered Cheng to pay Philippine Agricultural Trading Corporation.
After the said decision became final and executory, a writ of execution was
forthwith issued on September 14, 1995. When the sheriff went to enforce the
alias writ of execution, they discovered that petitioner Khe Hong Cheng no
longer had any property and that he had conveyed the subject properties to
his children.
Respondent Philam filed a complaint for the rescission of the deeds of
donation executed by petitioner Khe Hong Cheng in favor of his children and
for the nullification of their titles. It alleged that Cheng executed the aforesaid
deeds in fraud of his creditors, including respondent Philam.
RTC held that respondent Philam's complaint had not yet prescribed.
According to the trial court, the prescriptive period began to run only from
December 29, 1993, the date of the decision of the trial court.
CA declared that the action to rescind the donations had not yet prescribed.
It ruled that the four year period to institute the action for rescission began to
run only in January 1997, the time when it first learned that the judgment
award could not be satisfied because the judgment creditor, petitioner Khe
Hong Cheng, had no more properties in his name.
ISSUE: When did the four (4) year prescriptive period as provided for in Article
1389 of the Civil Code for respondent Philam to file its action for rescission of
the subject deeds of donation commence to run?
RULING: Article 1389 of the Civil Code simply provides that the action to
claim rescission must be commenced within four years. Since this provision
of law is silent as to when the prescriptive period would commence, the
general rule, i.e, from the moment the cause of action accrues, therefore,
applies. Article 1150 of the Civil Code is particularly instructive:
Art. 1150. The time for prescription for all kinds of actions, when there is no special
provision which ordains otherwise, shall be counted from the day they may be brought.
Indeed, this Court enunciated the principle that it is the legal possibility of
bringing the action which determines the starting point for the computation of
the prescriptive period for the action.
For an accion pauliana (or an action to rescind) to accrue, the following
requisites must concur:
1) That the plaintiff asking for rescission has a credit prior to the alienation,
although demandable later;
2) That the debtor has made a subsequent contract conveying a patrimonial benefit
to a third person;
3) That the creditor has no other legal remedy to satisfy his claim, but would benefit
by rescission of the conveyance to the third person;
4) That the act being impugned is fraudulent;
5) That the third person who received the property conveyed, if by onerous title,
has been an accomplice in the fraud.
To count the four year prescriptive period to rescind an allegedly fraudulent
contract from the date of registration of the conveyance with the Register of
Deeds, as alleged by the petitioners, would run counter to Article 1383 of the
Civil Code as well as settled jurisprudence. It would likewise violate the third
requisite to file an action for rescission of an allegedly fraudulent conveyance
of property, i.e., the creditor has no other legal remedy to satisfy his claim.
An accion pauliana thus presupposes the following:
1) A judgment;
2) The issuance by the trial court of a writ of execution for the satisfaction of the
judgment, and
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3) The failure of the sheriff to enforce and satisfy the judgment of the court.
It requires that the creditor has exhausted the property of the debtor. The date
of the decision of the trial court is immaterial.
As mentioned earlier, respondent Philam only learned about the unlawful
conveyances made by petitioner Khe Hong Cheng in January 1997 when its
counsel accompanied the sheriff to Butuan City to attach the properties of
petitioner Khe Hong Cheng. There they found that he no longer had any
properties in his name. It was only then that respondent Philam's action
for rescission of the deeds of donation accrued because then it could
be said that respondent Philam had exhausted all legal means to satisfy
the trial court's judgment in its favor. Since respondent Philam filed its
complaint for accion pauliana against petitioners on February 25, 1997, barely
a month from its discovery that petitioner Khe Hong Cheng had no other
property to satisfy the judgment award against him, its action for rescission of
the subject deeds clearly had not yet prescribed.
DISCUSSION: In this case, take note that the SC discussed how the action
for rescission is subsidiary. Therefore, it is also otherwise called as an accion
publiciana.
Take note of the requisites of an accion publiciana and the prescriptive period
– when do you reckon the 4 year period from the time within which an action
for rescission may be made?
It is material in this case that this is an action for rescission on the ground that
the deed of donation was allegedly made in fraud of creditors. Because it was
in fraud of creditors, there is a specific prescriptive period under the law. In
this case, it was filed on time.
UNION BANK V. ONG
491 SCRA 581 (2006)
Article 1380-1389 Rescissible Contracts; Ground #3
FACTS: Spouses Alfredo Ong and Susana Ong, respondents own the
majority capital stock of Baliwag Mahogany Corporation (BMC). On October
10, 1990, the spouses executed a Continuing Surety Agreement in favor of
Union Bank to secure a P40,000,000.00 credit line facility made available to
BMC. The agreement expressly stipulated a solidary liability undertaking.
On October 22, 1991, the spouses Ong, for P12,500,000.00, sold their 974-
square meter lot located in Metro Manila, together with the house and other
improvements to their co-respondent, Jackson Lee. The following day, Lee
registered the sale and was then issued Transfer Certificate of Title (TCT). At
about this time, BMC had already availed itself of the credit facilities, and had
in fact executed a total of twenty-two (22) promissory notes in favor of Union
Bank.
On November 22, 1991, BMC filed a Petition for Rehabilitation and for
Declaration of Suspension of Payments with the Securities and Exchange
Commission (SEC). To protect its interest, Union Bank filed an action for
rescission of the sale between the spouses Ong and Jackson Lee for
purportedly being in fraud of creditors.
RTC: On September 27, 1999, the trial court, applying Article 1381 of the Civil
Code rendered judgment in favor of Union Bank and declared the Deed of
Sale executed on October 22, 1991 by the spouses Ong in favor of Lee being
null and void.
CA: In its Decision dated December 5, 2001, the CA reversed and set aside
the trial court's ruling, observing that the contract of sale executed by the
spouses Ong and Lee, being complete and regular on its face, is clothed with
the prima facie presumption of regularity and legality.
ISSUE: WON, the Ong-Lee contract of sale partakes of a conveyance to
defraud Union Bank
RULING: The SC ruled in favor of the Sps. Ong and resolved to deny the
petition.
CONTENTION #1: Union Bank maintains, citing China Banking Corporation
vs. Court of Appeals that the sale in question, having been entered in fraud of
creditor, is rescissible.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
HELD: Contracts in fraud of creditors are those executed with the intention to
prejudice the rights of creditors. They should not be confused with those
entered into without such mal-intent, even if, as a direct consequence thereof,
the creditor may suffer some damage.
In determining whether or not a certain conveying contract is fraudulent, what
comes to mind first is the question of whether the conveyance was a bona
fide transaction or a trick and contrivance to defeat creditors.
To creditors seeking contract rescission on the ground of fraudulent
conveyance rest the onus of proving by competent evidence the existence of
such fraudulent intent on the part of the debtor, albeit they may fall back on
the disputable presumptions, if proper, established under Article 1387 of the
Code.
In the present case, respondent spouses Ong, as the CA had determined,
had sufficiently established the validity and legitimacy of the sale in question.
The conveying deed, a duly notarized document, carries with it the
presumption of validity and regularity. Too, the sale was duly recorded and
annotated on the title of the property owners, the spouses Ong. As the
transferee of said property, respondent Lee caused the transfer of title to his
name.
There can be no quibbling about the transaction being supported by a valid
and sufficient consideration. Respondent Lee’s account, while on the witness
box, about this angle of the sale was categorical and straightforward.
The foregoing testimony made by Jackson Lee readily proves that he, as
purchaser, paid the stipulated contract price to the spouses Ong, as vendors.
Receipts presented in evidence covered and proved such payment.
Accordingly, any suggestion negating payment and receipt of valuable
consideration for the subject conveyance, or worse, that the sale was fictitious
must simply be rejected.
CONTENTION #2: In a bid to attach a badge of fraud on the transaction,
petitioner raises the issue of inadequate consideration, alleging in this regard
that only P12,500,000.00 was paid for property having, during the period
material, a fair market value of P14,500,000.00.
HELD: The existence of fraud or the intent to defraud creditors cannot
plausibly be presumed from the fact that the price paid for a piece of real
estate is perceived to be slightly lower, if that really be the case, than its
market value. To be sure, it is logical, even expected, for contracting minds,
each having an interest to protect, to negotiate on the price and other
conditions before closing a sale of a valuable piece of land. The negotiating
areas could cover various items.
Note that the disparity between the price appearing in the conveying deed
and what the petitioner regarded as the real value of the property is not as
gross to support a conclusion of fraud. What is more, one Oliver Morales, a
licensed real estate appraiser and broker, virtually made short shrift of
petitioners claim of gross inadequacy of the purchase price. Mr. Morales
declared that there exists no gross disparity between the market value of the
subject property and the price mentioned in the deed as consideration.
Withal, the consideration of the sale is fair and reasonable as would justify the
conclusion that the sale is undoubtedly a true and genuine conveyance to
which the parties thereto are irrevocably and undeniably bound.
DISCUSSION ON PRESUMPTIONS: It may be stressed that, when the
validity of sales contract is in issue, two veritable presumptions are relevant:
first, that there was sufficient consideration of the contract and, second, that
it was the result of a fair and regular private transaction. If shown to hold,
these presumptions infer prima facie the transaction's validity, except that it
must yield to the evidence adduced which the party disputing such
presumptive validity has the burden of overcoming.
Unfortunately for the petitioner, it failed to discharge this burden. Its bare
allegation respecting the sale having been executed in fraud of creditors and
without adequate consideration cannot, without more, prevail over the
respondents' evidence which more than sufficiently supports a conclusion as
to the legitimacy of the transaction and the bona fides of the parties.
In turn, the presumption was culled from Article 1387, par. 2, of the Code
pertinently providing that alienation by onerous title are also presumed
fraudulent when made by persons against whom some judgment has been
rendered in any instance or some writ of attachment has been issued. A
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judgment has not been rendered against respondent spouses Ong or that a
writ of attachment has been issued against them at the time of the disputed
sale.
DISCUSSION ON ACCION PAULIANA: Parenthetically, the rescissory
action to set aside contracts in fraud of creditors is accion pauliana, essentially
a subsidiary remedy accorded under Article 1383 of the Civil Code which the
party suffering damage can avail of only when he has no other legal means
to obtain reparation for the same. In net effect, the provision applies only when
the creditor cannot recover in any other manner what is due him.
It is true that respondent spouses, as surety for BMC, bound themselves to
answer for the latters debt. Nonetheless, for purposes of recovering what the
eventually insolvent BMC owed the bank, it behooved the petitioner to show
that it had exhausted all the properties of the spouses Ong. It does not appear
in this case that the petitioner sought other properties of the spouses other
than the subject Greenhills property. Absent proof, therefore, that the spouses
Ong had no other property except their Greenhills home, the sale thereof to
respondent Lee cannot simplistically be considered as one in fraud of
creditors.
Neither was evidence adduced to show that the sale in question peremptorily
deprived the petitioner of means to collect its claim against the Ongs. Where
a creditor fails to show that he has no other legal recourse to obtain
satisfaction for his claim, then he is not entitled to the rescission asked.
DISCUSSION ON RESCISSION: For a contract to be rescinded for being in
fraud of creditors, both contracting parties must be shown to have acted
maliciously so as to prejudice the creditors who were prevented from
collecting their claims. Again, in this case, there is no evidence tending to
prove that the spouses Ong and Lee were conniving cheats. In fact, the
petitioner did not even attempt to prove the existence of personal closeness
or business and professional interdependence between the spouses Ong and
Lee as to cast doubt on their true intent in executing the contract of sale. With
the view we take of the evidence on record, their relationship vis--vis the
subject Greenhills property was no more than one between vendor and
vendee dealing with each other for the first time. Any insinuation that the two
colluded to gyp petitioner bank is to read in a relationship something which,
from all indications, appears to be purely business.
It cannot be overemphasized that rescission is generally unavailing should a
third person, acting in good faith, is in lawful possession of the property, that
is to say, he is protected by law against a suit for rescission by the registration
of the transfer to him in the registry.
As recited earlier, Lee was - and may still be - in lawful possession of the
subject property as the transfer to him was by virtue of a presumptively valid
onerous contract of sale. His possession is evidenced by no less than a
certificate of title issued him by the Registry of Deeds of San Juan, Metro
Manila, after the usual registration of the corresponding conveying deed of
sale.
On the other hand, the bona fides of his acquisition can be deduced from his
conduct and outward acts previous to the sale. As testified to by him and duly
noted by the CA, respondent Lee undertook what amounts to due diligence
on the possible defects in the title of the Ongs before proceeding with the sale.
As it were, Lee decided to buy the property only after being satisfied of the
absence of such defects. There is no evidence extant in the records to show
that Lee had knowledge, prior to the subject sale, of the surety agreement
adverted to. In fine, there is nothing to remotely suggest that the purchase of
the subject property was characterized by anything other than good faith.
CONTENTION #3:Petitioner has made much of respondent Lee not taking
immediate possession of the property after the sale, stating that such failure
is an indication of his participation in the fraudulent scheme to prejudice
petitioner bank.
HELD: We are not persuaded. Lee, it is true, allowed the respondent spouses
to continue occupying the premises even after the sale. This development,
however, is not without basis or practical reason. The spouses' continuous
possession of the property was by virtue of a one-year lease they executed
with respondent Lee six days after the sale.
As explained by the respondent spouses, they insisted on the lease
arrangement as a condition for the sale in question. And pursuant to the lease
contract aforementioned, the respondent Ongs paid and Lee collected rentals
at the rate of P25,000.00 a month. Contrary thus to the petitioners
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
asseveration, respondent Lee, after the sale, exercised acts of dominion over
the said property and asserted his rights as the new owner. So, when the
respondent spouses continued to occupy the property after its sale, they did
so as mere tenants.
While the failure of the vendee to take exclusive possession of the property is
generally recognized as a badge of fraud, the same cannot be said here in
the light of the existence of what appears to be a genuine lessor-lessee
relationship between the spouses Ong and Lee.
CONTENTION #4: Petitioners assertion regarding respondent Lees lack of
financial capacity to acquire the property in question since his income in 1990
was only P346,571.73 is clearly untenable.
HELD: Assuming for argument that petitioner got its figure right, it is clearly
incorrect to measure ones purchasing capacity with ones income at a given
period. But the more important consideration in this regard is the
uncontroverted fact that respondent Lee paid the purchase price of said
property. Where he sourced the needed cash is, for the nonce, really of no
moment.
DISCUSSION: In this case, first, with respect to the issue under Art. 1381 (3),
the mere fact that the purchase price in the contract of sale is based on an
amount lower than fair market value of the property sold is not an indication
of fraud, or that the contract was entered in order to fraud the creditors.
Second, there is no attributable presumption of fraud in relation to Art. 1387
paragraph 2 (if there is a transfer of a property by way of an onerous title and
there is judgment rendered or some writ of attachment has been issued). In
this case, these instances are wanting.
Third, the fact that the vendor remains in possession of the property is not
also a badge of fraud, because, in this case, it is within the stipulations
covered by the contract of lease.
If you look at it, this is a situation called as tradicion brevi manu or transfer by
short hand. Previously, the person who is considered as the owner of that
property and subsequently, remained in the property but under the capacity
as a tenant.
ANCHOR SAVINGS V. FURIGAY
693 SCRA 384 (2013)
Article 1380-1389 Rescissible Contracts; Ground #3
FACTS: On April 21, 1999, ASB filed a verified complaint for sum of money
and damages with application for replevin against Ciudad Transport Services,
Inc, President Furigay. RTC decided in favor of ASB. While Civil Case was
pending, the Furigay donated their registered properties to their minor
children. Claiming that the donation of these properties was made in fraud of
creditors, ASB filed a Complaint for Rescission of Deed of Donation, Title and
Damages, against respondent spouses and children. Instead of filing an
answer, respondents sought the dismissal of the complaint, principally
arguing that the RTC failed to acquire jurisdiction over their persons as well
as subject matter. CA considering the subsidiary nature of the act of
rescission, it found that the ASB had not yet prescribed, but was premature.
It stated that it has not even accrued in the first place, enumerating the
requisites for accion pauliana.
ISSUE: Did the cause of action for rescission arise?
RULING: No, there was no cause of action.
The remedy of rescission is subsidiary in nature; it cannot be instituted except
when the party suffering damage has no other legal means to obtain
reparation of the same.
When Is There Cause of Action for Rescission
Consequently, following the subsidiary nature of the remedy of rescission, a
creditor would have a cause of action to bring for rescission is alleged
following successive measure are taken:
1. Exhaust the properties of the debtor through levying by attachment and
execution upon all the property of the debtor, except such as are exempt by
law from execution;
2. Exercise all the rights and actions of the debtor, save those personal to him
(accion subrogatoria)
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3. Seek rescission of the contracts executed by the debtor in fraud of their
rights (accion pauliana)
Requisites for Accion Pauliana
1. That the plaintiff asking for rescission, has credit prior
to the alienation, although demandable later;
2. That the debtor has made a subsequent contract
conveying a patrimonial benefit to a third person;
3. That the creditor has no other legal remedy to satisfy
his claim, but would benefit by rescission of the
conveyance to the third person;
4. That act being impugned is fraudulent; and
5. That the third person who received the property
conveyed, if by onerous title, has been an accomplice
in the fraud.
In this case, a cursory reading of the allegations of ASB’s complaint would
show that if failed to allege the ultimate facts constituting its cause of action
and prerequisites are complied before the same may be instituted.
ASB without availing first and second remedies that is
exhausting the properties of the Furigay or their transmissible rights and
actions, they simply undertook the third measure and filed an action for
annulment of the donation. This cannot be done.
In all, it is incorrect for ASB to argue that a complaint need not allege all the
elements constituting its cause of action since it would simply adduce proof
of the same during trial. Thus, the complaint is dismissed for failure to
state a cause of action.
DISCUSSION: If you file a complaint, it is important that you must also place
or allege the requisites. Even though rescission would have been proper
because all remedies have been exhausted, and leviable properties have
been pursued, if there was a failure to allege such acts in the complaint, it will
be useless. In this case, compliance of the requisites was not alleged.
Because of such failure to allege such matters in the complaint, there was no
cause of action and thus the action was dismissed.
Furthermore, since rescission under Art. 1381 is subsidiary in nature, you
must exhaust first all other remedies before you resort to rescission, because
accion pauliana is a remedy of last resort.
ADA V. BAYLON
678 SCRA 293 (2012)
Article 1380-1389 Rescissible Contracts; Ground #4
FACTS: Petitioners filed a complaint with the RTC for partition, accounting
and damages against Florante, Rita and Panfila. They alleged that Spouses
Baylon, during their lifetime, owned 43 parcels of land all situated in Negros
Oriental.
After the death of Spouses Baylon, they claimed that Rita took possession of
the said parcels of land and appropriated for herself the income from the
same. Using the income produced by the said parcels of land, Rita allegedly
purchased two parcels of land situated in Dumaguete City. The petitioners
averred that Rita refused to effect a partition of the said parcels of land.
Florante, Rita and Panfila asserted that they and the petitioners co-owned 22
out of the 43 parcels of land mentioned in the latter’s complaint, whereas Rita
actually owned 10 parcels of land out of the 43 parcels which the petitioners
sought to partition, while the 11 parcels of land were owned by Petra Cafino
Adanza, Florante, Meliton Adalia, Consorcia Adanza, Lilia and Santiago
Mendez.
Further, they claimed that Lot No. 4709 and half of Lot No. 4706 were
acquired by Rita using her own money. They denied that Rita appropriated
solely for herself the income of the estate of Spouses Baylon, and expressed
no objection to the partition of the estate of Spouses Baylon, but only with
respect to the co- owned parcels of land.
During the pendency of the partition case, Rita through a Deed of Donation
conveyed Lot 4709 and half of Lot 4706 to Florante. On July 2000, Rita died
intestate and without issue.
Learning of the said donation inter vivos in favor of Florante, the petitioners
filed a Supplemental Pleading praying that the said donation in favor of
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
Florante be rescinded in accordance with Article 1381(4) of the Civil Code.
Alleging that she was already sick and very weak when the Deed of Donation
was supposedly executed and thus could have not validly given her consent
thereto.
Florante and Panfila opposed the rescission of said donation asserting that
Article 1381(4) applies only when there is a prior judicial decree on who
between the contending parties actually owned the properties under litigation.
RTC declared the donation inter vivos rescinded without prejudice to the
shares of Florante and Rita Baylon and included the parcels of land in the
division of property as of Rita Baylon among her heirs; the parties in this case.
The RTC held that the death of Rita during the pendency of the case, having
died intestate and without any issue, had rendered the issue of ownership
insofar as parcels of land which she claims as her own moot since the parties
below are the heirs to her estate. Thus, the RTC regarded Rita as the owner
of the said 10 parcels of land and, accordingly, directed that the same be
partitioned among her heirs. RTC rescinded the donation inter vivos of Lot
No. 4709 and half of Lot No. 4706 in favor of Florante.
Florante sought for a reconsideration, arguing that at the time of Rita’s death
on July 1, 2000, the two lots were no longer part of her estate as the same
had already been conveyed him through a donation inter vivos three years
earlier. Thus, Florante maintained that Lot No. 4709 and half of Lot No. 4706
should not be included in the properties that should be partitioned among the
heirs of Rita. RTC denied MR.
CA reversed and set aside concerning the Deed of Donation. The CA held
that before they can filed for rescission they must first obtain a favorable
judicial ruling that the two lots belonged to the Spouses Baylon and not to
Rita.
The petitioners sought reconsideration of the Decision dated October 26,
2007 but it was denied by the CA.
ISSUE: WON a favorable judicial ruling must first be obtained before
rescission may take place.
RULING: The Court said no.
The Court held that rescission is a remedy granted by law to the contracting
parties, and even to third persons, to secure the reparation of damages
caused to them by a contract, even if it should be valid, by means of
restoration of the things to their condition at the moment prior to the
celebration of the contract.
Rescission is a remedy to make ineffective a contract validly entered into and
therefore obligatory under normal conditions, by reason of external causes
resulting in a pecuniary prejudice to one of the contracting parties or their
creditors.
Contracts which are rescissible are valid contracts having all the essential
requisites of a contract, but by reason of injury or damage caused to either of
the parties therein or to third persons are considered defective and, thus, may
be rescinded.
The kinds of rescissible contracts according to the reason for their
susceptibility to rescission, are the following:
1. Those which are rescissible because of lesion or prejudice;
2. Those which are rescissible on account of fraud or bad faith; and
3. Those which, by special provisions of law, are susceptible to rescission.
Contracts which are rescissible due to fraud or bad faith include those which
involve things under litigation if they have been entered into by the defendant
without the knowledge and approval of the litigants or of competent judicial
authority. To be applicable the requisites are:
1. The defendant, during the pendency of the case, enters into a contract
which refers to the thing subject of litigation;
2. The said contract was entered into without the knowledge and approval of
the litigants or of a competent judicial authority.
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As long as the foregoing requisites concur, it becomes the duty of the court to
order the rescission of the said contract. Article 1381(4) seeks to remedy the
presence of bad faith among the parties to a case and/or any fraudulent act
which they may commit with respect to the thing subject of litigation.
When a thing is the subject of a judicial controversy, it should ultimately be
bound by whatever disposition the court shall render. The parties to the case
are therefore expected, in deference to the court’s exercise of jurisdiction over
the case, to refrain from doing acts which would dissipate or debase the thing
subject of the litigation or otherwise render the impending decision therein
ineffectual.
There is then a restriction on the disposition the parties of the thing that is the
subject of the litigation. Article 1381(4) of the Civil Code requires that any
contract entered into by a defendant in a case which refers to things under
litigation should be with the knowledge and approval of the litigants or of a
competent judicial authority. Doing otherwise is indicative of bad faith for it
undermines the authority of the court to lay down the respective rights of the
parties in a case relative to the thing subject of litigation.
The petitioners had sufficiently established the presence of the requisites for
the rescission of a contract pursuant to Article 1381(4) of the Civil Code.
It is undisputed that, at the time they were gratuitously conveyed by Rita, Lot
No. 4709 and half of Lot No. 4706 are among the properties that were the
subject of the partition case then pending with the RTC.
It is undisputed that Rita, one of the defendants in the partition case with the
RTC, did not inform nor sought the approval from the petitioners or of the RTC
with regard to the donation inter vivos of the said parcels of land to Florante.
Although the gratuitous conveyance of the said parcels of land in favor of
Florante was valid, the donation inter vivos of the same being merely an
exercise of ownership, Rita’s failure to inform and seek the approval of the
petitioners or the RTC regarding the conveyance gave the petitioners the right
to have the said donation rescinded pursuant to Article 1381(4) of the Civil
Code.
The petitioners’ right to institute the action for rescission pursuant to Article
1381(4) of the Civil Code is not preconditioned upon the RTC’s determination
as to the ownership of the said parcels of land.
It bears stressing that the right to ask for the rescission of a contract under
Article 1381(4) of the Civil Code is not contingent upon the final determination
of the ownership of the thing subject of litigation.
The primordial purpose of Article 1381(4) of the Civil Code is to secure the
possible effectivity of the impending judgment by a court with respect to the
thing subject of litigation.
Accordingly, a definitive judicial determination with respect to the thing subject
of litigation is not a condition sine qua non before the rescissory action
contemplated under Article 1381(4) of the Civil Code may be instituted.
Assuming arguendo that a rescissory action under Article 1381(4) of the Civil
Code could only be instituted after the dispute with respect to the thing subject
of litigation is judicially determined, there is the possibility that the same may
had already been conveyed to third persons acting in good faith, rendering
any judicial determination with regard to the thing subject of litigation illusory.
DISCUSSION: Notably, it is immaterial, pending the determination of
ownership of a parcel of land which is the subject matter of a case, even if the
Court would rule that the one who transferred the parcel of land is actually the
owner thereof. The point of the law under Art. 1381 is that one cannot transfer
anything pending litigation regardless, during or after, a judgment has been
pronounced that it was determined that the one who transferred is the owner.
Simply, the fact of determination of ownership is immaterial. Hence, it will not
render the contract as valid.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
EQUATORIAL REALTY V. MAYFAIR
264 SCRA 483 (1996)
Article 1380-1389 Rescissible Contracts; Ground #5
FACTS: Carmelo owned a parcel of land with two-storey building constructed
in Manila. In 1967, Carmelo entered into a Contract of Lease with Mayfair to
lease a portion of Carmelo’s property.
‘A PORTION OF THE SECOND FLOOR of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 1,610 square
meters.
THE SECOND FLOOR AND MEZZANINE of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 150 square
meters,’ for use by Mayfair as a motion picture theater and for a term of
twenty (20) years.
Mayfair constructed on the leased property a movie house
known as ‘Maxim Theatre.’ Two years later, on March 31, 1969, Mayfair
entered into a second contract of lease with Carmelo for the lease of another
portion of Carmelo’s property, to wit:
‘A PORTION OF THE SECOND FLOOR of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 1,064 square
meters.
THE TWO (2) STORE SPACES AT THE GROUND FLOOR and
MEZZANINE of the two-storey building situated at C.M. Recto Avenue,
Manila, with a floor area of 300 square meters and bearing street
numbers 1871 and 1875,’ for similar use as a movie theater and for a
similar term of twenty (20) years. Mayfair put up another movie house
known as ‘Miramar Theatre’ on this leased property.
Both contract of lease provides identically worded paragraph 8 which states
that:
That if the lessor should desire to sell the leased premises, the lessee
shall begiven 30-days exclusive option to purchase the same.
In the event, however, that the leased premise is sold to someone other
than the lessee, the lessor is bound ad obligated, as it hereby binds and
obligates itself, to stipulate in the Deed of Sale thereof that the purchaser
shall recognize this lease and be bound by all the terms and conditions
thereof.
Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry
Yang, President of Mayfair, through a telephone conversation that Carmelo
was desirous of selling the entire Claro M. Recto property. Mr. Pascal told Mr.
Yang that a certain Jose Araneta was offering to buy the whole property for
US$1,200,000 and Mr. Pascal asked Mr. Yang if the latter was willing to buy
the property for P6-7 Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know his decision. On August
23, 1974, Mayfair replied through a letter:
It appears that on August 19, 1974 your Mr. Henry Pascal informed our
clients’ Mr. Henry Yang through the telephone that your company
desires to sell the above-mentioned CM Recto Avenue property. (Attach
paragraph 8)
Carmelo did not reply to this letter. On September 18, 1974, Mayfair sent
another letter to Carmelo purporting to express interest in acquiring not only
the leased premises but ‘the entire building and other improvements if the
price is reasonable.
However, both Carmelo and Equatorial questioned the authenticity of the
second letter.
Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto
Avenue land and building, which included the leased premises housing the
‘Maxim’ and ‘Miramar’ theatres, to Equatorial by virtue of a Deed of Absolute
Sale, for the total
sum of P11,300,000.00.
Action. Mayfair instituted the action for specific performance
and annulment of the sale of the leased premises to Equatorial.
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Carmelo alleged that it had informed Mayfair of its desire to sell and offered
the same to Mayfair, but the latter answered that it was interested only in
buying the areas under lease, which was impossible, since it was not a
condominium.
• That the option to purchase invoked by Mayfair is lack and void for the lack
of consideration.
Equatorial pleaded that the option is void for lack of consideration and is
unenforceable by reason of its impossibility of performance because the
leased premises could not be sold separately from the other portions of the
land
and building.
Pre-Trial Stipulations
1. That there was a deed of sale of the contested premises by Carmelo to
Equatorial.
2. In both contracts the stipulation granting the plaintiff exclusive option to
purchase the leased premises should the lessor desire to sell the same.
3. That the two buildings are not condominium.
4. That the amounts stipulated
5. xxx
6. That there was no consideration specified in the option to
buy embodied in the contract
7. That Carmelo owned the land
8. The leased premises are the portions occupied by the theaters.
9. That what was sold by Carmelo to Equatorial is the land and the two
buildings erected thereon.
TRIAL COURT DECISION: After assessing the evidence, the court decided
to dismiss the complaint and ordering Mayfair to pay Equatorial P35,000 per
month for the use of areas not covered by the contract. P70K and P55K and
dismissing crossclaim.
The trial court adjudged the identically worded paragraph 8 found in both
aforecited lease contracts to be an option clause which however cannot be
deemed to be binding on Carmelo because of lack of distinct consideration
therefor.
The plaintiff cannot compel defendant Carmelo to comply with the promise
unless the former establishes the existence of a distinct consideration. In
other words, the promisee has the burden of proving the consideration.
It follows that plaintiff cannot compel defendant Carmelo &
Bauermann to sell the C.M. Recto property to the former.
COURT OF APPEALS. It reversed the decision directing Mayfair to pay and
return to Equatorial the amount of P11.3M. Court of Appeals differentiated
between Article 1324 and Article 1479 of the Civil Code, analyzed their
application to the facts of this case, and concluded that since paragraph 8 of
the two lease contracts does not state a fixed price for the purchase of the
leased premises, which is an essential element for a contract of sale to be
perfected, what paragraph 8 is, must be a right of first refusal and not an
option contract.
ISSUES: 1. Define the nature, scope and efficacy of paragraph 8 stipulated
in the two contracts of lease.
2. Determine the rights and obligations of Carmelo and Mayfair, as well as
Equatorial in the aftermath of the sale by Carmelo of the entire property to
Equatorial.
RULING: It is Not an Option Clause but a
Contract of A Right of First Refusal
Where a period is given to the offeree within which to accept
the offer, the following rules generally govern:
1. If the period is not itself founded upon or supported by a consideration, the
offeror is still free and has the right to withdraw the offer before its acceptance,
or if an acceptance has been made, before the offeror knew he communicated
the withdrawal to the offeree.
2. If the period has a separate consideration, a contract of option is deemed
perfected, and it would be a breach of that contract to withdraw the offer
during the agreed period. The option however, is an independent contract by
itself, and itis to be distinguished from the projected main agreement which is
yet to concluded. If in fact, the optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
optionee-offeree, the latter may not sue for specific performance on the
proposed contract (‘object’ of the option) since it has failed to reach its own
stage of perfection. The optioner-offeror, however, renders himself liable for
damages for breach of the option.
IN THE CASE: There is nothing in the identical Paragraphs “8” of the June 1,
1967 and March 31, 1969 contracts which would bring them into the ambit of
the usual offer or option requiring an independent consideration.
The Court of Appeals is correct in stating that Paragraph 8 was incorporated
into the contracts of lease for the benefit of
Mayfair which wanted to be assured that it shall be given the
first crack or the first option to buy the property at the price which Carmelo is
willing to accept. It is not also correct to say that there is no consideration in
an agreement of right of first refusal. The stipulation is part and parcel of the
entire contract of lease. The consideration for the lease includes the
consideration for the right of first refusal.
The respondent Court of Appeals was correct in ascertaining the true nature
of the aforecited paragraph 8 to be that of a contractual grant of the right of
first refusal to Mayfair.
What Was Agreed and What was Violated?
What Carmelo and Mayfair agreed to, by executing the two lease contracts,
was that Mayfair will have the right of first refusal in the event Carmelo sells
the leased premises. It is undisputed that Carmelo did recognize this right of
Mayfair, for it informed the latter of its intention to sell the said property
in 1974. There was an exchange of letters evidencing the offer
and counter-offers made by both parties.
Carmelo, however, did not pursue the exercise to its logical end. While it
initially recognized Mayfair’s right of first refusal,
Carmelo violated such right when without affording its negotiations with
Mayfair the full process to ripen to at least an interface of a definite offer and
a possible corresponding acceptance within the “30 day exclusive option” time
granted
Mayfair, Carmelo abandoned negotiations, kept a low profile
for some time, and then sold, without prior notice to Mayfair
the entire CM Recto property to Equatorial.
Buyer in Bad Faith; Rescissible
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of
the property in question rescissible. Equatorial was aware of the lease
contracts because its lawyers had, prior to the sale, studied the said contracts.
As such, Equatorial cannot tenably claim to be a purchaser in good faith, and,
therefore, rescission lies.
While it may be true that the acquisition by third person in lawful possession
is an obstacle for an action for rescission. The rule however is not applicable
for Equatorial here is in bad faith because it was aware of the lease and the
right to first refusal of Mayfair. It also cannot state that it was not aware,
because if it had studied the Contracts of Lease then it would have stumbled
upon paragraph 8.
Carmelo acted in bad faith when it sold the entire property to
Equatorial without informing Mayfair, a clear violation of Mayfair’s rights.
While there was a series of exchanges of letters evidencing the offer and
counter-offers between the parties, Carmelo abandoned the negotiations
without giving Mayfair full opportunity to negotiate within the 30-day period.
Accordingly, even as it recognizes the right of first refusal, this
Court should also order that Mayfair be authorized to exercise its right of
first refusal under the contract to include the entirety of the indivisible
property. The boundaries of the property sold should be the boundaries of
the offer under the right of first refusal.
As also earlier emphasized, the contract of sale between Equatorial and
Carmelo is characterized by bad faith, since it was knowingly entered into in
violation of the rights of and to the prejudice of Mayfair. Equatorial admitted
that its lawyers had studied the contract of lease prior to the sale. Equatorial’s
knowledge of the stipulations therein should have cautioned it
to look further into the agreement to determine if it involved stipulations that
would prejudice its own interests.
Since Mayfair has a right of first refusal, it can exercise the right only if the
fraudulent sale is first set aside or rescinded. The facts of case and
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considerations of justice and equity require that we order rescission
here and now.
The sale of the subject real property by Carmelo to Equatorial
should now be rescinded considering that Mayfair, which had substantial
interest over the subject property, was prejudiced by the sale of the subject
property to Equatorial without Carmelo conferring to Mayfair every opportunity
to negotiate within the 30-day stipulated period.
The damages which Mayfair suffered are in terms of actual injury and lost
opportunities. The fairest solution would be to allow Mayfair to exercise its
right of first refusal at the price which it was entitled to accept or reject which
is P11,300,000.00. This is clear from the records.
According to Law Not on Human Relations
It is Paragraph 8 on the right of first refusal which created the obligation. It
should be enforced according to the law on contracts instead of the panoramic
and indefinite rule on human relations.
HELD: The petition is denied and the Deed of Absolute Sale
between Equatorial and Carmelo is hereby rescinded. Carmelo is ordered
to return to Equatorial Realty the purchase price.
Take note: Compare this case with that of Rosencor v. Inquing.
ROSENCOR V. INQUING
354 SCRA 119 (2001)
Article 1380-1389 Rescissible Contracts; Ground #4
FACTS: Respondents are tenants of a two-storey residential apartment in
Tomas Morato QC. The lease was not covered by any contract. Lessees were
verbally given by the lessors the pre-emptive right to purchase the property in
case of sale.
The original lessors died, and their heir also promised the lessees the same
pre-emptive right to purchase. The new lessors represented by Eufrocina de
Leon demanded the lessees to vacate the property because the building will
allegedly be demolished but after the lessees declined, she sent them a letter
offering to sell the property for 2M. Lessees made a counter offer of 1M but
no reply was made by the lessors.
De leon subsequently informed the lessees that the property was already sold
to Rosencor. Lessees claimed that they were deceived because the property
was already sold to Rosencor before it was offered to them. They offered to
reimburse the payment to the lessors, but the offer was declined as hence,
this petition.
ISSUE: WON the lessors should recognize the pre-emptive right of the
lessees even if it was only given verbally.
HELD: The right of first refusal is not covered by the Statute of Frauds. The
application of such statute presupposes the existence of a perfected contact
which is no applicable in this case. As such, a right of first refusal need not be
written to be enforceable and may be proven by oral evidence.
A right of first refusal is not by any means a perfected contract of sale of real
property. At best, it is a contractual grant, not of the sale of the real property
involved, but of the right of first refusal over the property sought to be sold.
Here, the lessees have proven that the lessors admit the right of first refusal
given to them when the property was offered to them by 2M.
It must be borne in mind that, unlike the case of Equatorial Realty vs. Mayfair,
the right of first refusal involved in the instant case was an oral one given to
respondents by the deceased spouses Tiangco and subsequently recognized
by their heirs. As such, in order to hold that Rosencor were in bad faith, there
must be clear and convincing proof that they were made aware of the said
right of first refusal either by the Inquings or by the heirs of the spouses
Tiangco.
The prevailing doctrine is that a contract of sale entered in violation of right of
first refusal is rescissible. However, this doctrine cannot be applied here
because the vendees (Rosencor) is in good faith. Under Art.1358, rescission
cannot take place when things which are the object of sale is legally in
possession of third person who did not act in bad faith.
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Rosencor could not have acted in bad faith because they are not aware of the
right of first refusal given verbally. Respondents should instead file for
damages.
DISCUSSION: Let’s discuss the case of Mayfair and Rosencor whollistically,
(Romero) First, Art. 1381 (3) or in fraud of creditors is specific to creditors. It
doesn’t talk about a situation that a contract becomes rescissible when there
is a violation of a right of first refusal of the offeree. It’s just not provided in the
law. You cannot invoke Art. 1381 (3) or (5) for that reason. There is no red
letter in the law.

First, Equatorial Mayfair talks about a situation basically asking the question: (Vitug) Rescission in Equatorial Realty vs. Mayfair was incorrect because you
What is the status of the contract if that contract is entered into in violation of have to remember Art. 1383 which talks about the nature of rescission as a
right of first refusal? subsidiary action. In fact, in this case in invoking the first refusal, there was
no allegation that he exhausted all remedies available. Considering the
The SC discussed the difference of option contract and right of first refusal. subsidiary nature of rescission under Art. 1381 in relation to Article 1383, it
cannot be filed right away as a principal action without showing that it
Option contract Right of first refusal exhausted any other remedies first.
Contract Contractual grant
However, there seems to be a lack of discussion in the dissenting opinions
An offer is given in favor of another It is a benefit extend by one party on what should be the proper remedy.
person and there is a sufficient in favor of another person and that
consideration therefor such as person is usually a third party to a For me, in my humble opinion, the contract can still be rescinded in either
money or property. contract of sale, etc. way, but the basis should be Art. 1191, not 1381.

That contract is separate and The consideration is based on the Why?

distinct form any other contract contract upon which that grant is If we’re going to discuss right of first refusal, remember that it is a contractual
that you enter into. made or given. grant. Its consideration is based on the principal contract. It doesn’t have a
separate consideration. So based on that definition alone, for me, if you
violate a right of first refusal, it is a material breach in that contract. And
therefore, since it is a material breach in that contract (example, in the
For example, in the case of Equatorial, there was this right of first refusal (a
Equatorial case, they violated the contract of lease when they conveyed the
right given in favor of the lessee) that in case the lessor will sell the property
property during the subsistence of the lease which amounts to a material
in favor of any other person, the lessee will have first the right to refuse that
breach), the proper remedy may be resolution under Art. 1191.
sale because that property which is being leased by the lessee should be
offered to the lessee first. That is why it is a right of first refusal. You have the
But what is the problem if you are going to argue that it is a material breach
right to first refuse any conveyance of that property.
therefore you can rescind it under 1191?
In this case, such grant was based on a contract of lease, and therefore the
Remember that Art. 1191 can only be resorted to by the injured party who is
consideration for the right of first refusal is not separate. It’s based on the
a contracting party.
consideration of the contract of lease.
Is Mayfair a contracting party to the contract of sale between Carmelo and
Why is this important? What is the status of the contract therefore if there is a
Equatorial?
right of first refusal and a contract was entered into in violation of that right?
No. That’s why Art. 1191 cannot be resorted to in that case. I guess that’s why
According to the SC in the majority opinion, that contract is rescissible,
ultimately the decision was rescission.
because it violates the contractual grant. If a contact of sale or conveyance of
property was made in violation of the offeree’s (lessee’s) right, the right of the
HEIRS OF QUIRONG V. DBP
prejudiced offeree is akin to the rights of creditors. Therefore, the status of a
606 SCRA 543 (2009)
contract in violation of a right of first refusal is rescissble.
Article 1380-1389 Rescissible Contracts; Ground #4
The exception is the case of Rosencor. This was also a sale supposedly made
FACTS: When the late Emilio Dalope died, he left a 589-sq.m. untitled lot in
in violation of a right of first refusal. But what is the distinction between this
Pangasinan to his wife and nine children, one of whom was Rosa Dalope-
case and Equatorial?
Funcion. To enable Rosa and her husband get a loan from the DBP. Felisa
sold the whole lot to the Funcions. With the deed of sale in their favor and the
The right of first refusal in Rosencor was not reduced into writing; it was
tax declaration transferred in their names, the Funcions mortgaged the lot with
merely given orally. Under certain rules on evidence, if there is a benefit or
the DBP.
right given to another person, you have to show proof that that right or benefit
was explained to everyone else dealing with you for you to say that there is
When the Funcions failed to pay their loan, DBP foreclosed the mortgage on
bad faith.
the lot and consolidated ownership in its name. Four years later, DBP
conditionally sold lot to Quirong.
In this case, since the right was only given orally, there was no showing that
the right of first refusal was first explained before the sale was made, etc. And
In their Contract of Sale, Sofia Quirong waived any guarantee against
therefore, the persons to whom the parcel of land was sold cannot be
eviction. The contract provided that the DBP did not guarantee possession of
presumed to be in bad faith. They are presumed to be in good faith in their
the property and that it would not be liable for any lien or encumbrance on the
dealings.
same.
General rule is Equatorial Realty vs. Mayfair. The status of a contract in
Two months after that sale on 1983, the Dalopes filed an action for partition
violation of a right of first refusal is rescissible. Bad faith should also be
and declaration of nullity of documents with damages against the DBP and
evident. Meaning, you know that there is a right of first refusal, but you still
the Funcions.
pursued with the conveyance anyway. If there is no bad faith or the person to
whom the property was sold to did not have any knowledge of the right of first
On December 27, 1984, notwithstanding the suit, the DBP executed a deed
refusal, then it is not rescissible, just like in the case of Rosencor.
of absolute sale of the subject lot in Sofia Quirong’s favor. The deed of sale
carried substantially the same waiver of warranty against eviction and of any
What is the remedy?
adverse lien or encumbrance.
You may file an action for damages.
RTC declared the DBP sale to Quirong valid only with respect to the shares
Remember these two cases because you will encounter them again, and it is
of Felicia and Rosa Funcion. It declared Felisa’s sale to the Funcions, and the
a favorite question in the bar exam.
mortgage to the DBP and sale to Quirong void insofar as they prejudiced the
shares of the eight other children who were entitled to a tenth share in lot.
EQUATORIAL REALTY V. MAYFAIR
Dissenting Opinion (J. Romero & J. Vitug):
When RTC judgment final and the court issued a Writ of Execution, the DBP
resisted the writ by motion to quash by claiming that the decision could not be
Why do I agree more with the dissenting opinion?

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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
enforced because it failed to state by metes and bounds the portions of the
lot that would be assigned to different parties in the case.
Quirong heirs filed for the rescission of contract of sale between Quirong. The
heirs alleged that they were entitled to the rescission of the sale because the
decision stripped them the whole lot that Sofia bought from DBP.
RTC rescinded the sale between Quirong and DBP. On the CA reversed the
RTC decision and dismissed the heirs’ action on the ground of prescription.
The CA concluded that, reckoned from the finality of the December 16, 1992
decision in Civil Case D-7159, the complaint filed on June 10, 1998 was
already barred by the four-year prescriptive period under Article 1389.
ISSUES: 1. WON the Quirong heirs’ action for rescission of respondent DBP’s
sale of the subject property to Sofia Quirong was already barred by
prescription; and
2. WON the heirs of Quirong were entitled to the rescission of the DBP’s sale
of the subject lot to Sofia Quirong as a consequence of her heirs having been
evicted from it.
HELD:
Discussion: The prescriptive period remained to be reckoned from January
28, 1993, the date of such finality.
CONTENTION: The DBP claims that it should be four years as provided under
Article 1389 of the Civil Code of four years. The Quirong heirs, on the other
hand, claim that it should be 10 years under Article 1144 for a written contract.
COURT REPLY: The action was clearly one for rescission; the remedy of
rescission is not confined to the rescissible contracts enumerated under
Article 1381.
Article 1191 gives the party in reciprocal obligations, the option to choose
between fulfillment and rescission.
Article 1191 and Article 1381 As an action based on the binding force of a
written contract, therefore, rescission (resolution) under Article 1191
prescribes in 10 years. Ten years is the period of prescription of actions based
on a written contract under Article 1144.
IN THE CASE: The heirs alleged in their complaint that they were entitled to
the rescission of the contract of sale of the lot between the DBP and Sofia
because the decision in the RTC case deprived the heirs of nearly the whole
of the lot.
But what was the status of the contract at the time of the filing of the contract
for rescission?
Apparently, that contract of sale had been fully performed when Sofia Quirong
paid the full price for the lot and when in exchange the DBP executed the
deed of absolute sale in her favor. There was a turnover of control of the
property from DBP to Sofia Quirong since she assumed under their contract,
the ejectment of squatters or occupants on the lot at her expense.
The cause of action of the Quirong heirs stems from their having been ousted
by final judgment from the ownership of the lot that the DBP sold to Quirong
their predecessor, in violation of the warranty against eviction that commune
with every sale of property or thing.
With the loss of 80% of the subject lot to the Dalopes by reason of the
judgment of the RTC the Quirong heirs had the right to file an action for
rescission against the DBP and that action for rescission which is based on
the subsequent economic loss suffered by the buyer, was precisely the action
that took the Quirong heirs against the DBP.
Consequently, it prescribed as Article 1389 provides in four years from the
time of action accrued. Since it accrued on January 28, 1993 when the
decision of 80% sale was final and executory, but they filed the action on June
10, 1998 they did so beyond the four-year period.
DISCUSSION: Take note, the basis here for rescission is Article 1381 par. (5)
in relation to the provision of Article 1556.
What is the right of the vendees? Should the vendee moves by reason of
eviction from the property or the parcel of land sold to him?
You must know that in relation with Article 1556.
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With respect to the prescriptive period, you have to remember that rescission
under Article 1381 must be read in relation to Article 1389 with respect to its
prescriptive period. Generally, it is four (4) years.
Take note, when shall be the 4 years be reckoned?
Depending on the ground upon which you have a contract rescinded,
prescriptive period will also differ from its reckoning point.
So in this case, the reckoning point is the time of the ouster. The basis of the
rescission here is from the losing property sold to the vendee on the account
of eviction from the property. Meaning, from the time you are evicted or from
the time of your ouster from the property, that is the time that you have
suffered economic injury or lesion. Therefore, that is the time that the 4-year
period be reckoned.
Take note, if you rely on par. 5, it must be the law itself that provide for a
prescriptive period; if it does not, you look at Article 1389—4 years, but the
reckoning point will differ, depending for the basis of rescission.
VOIDABLE CONTRACTS
A voidable or annullable contract is perfectly valid but there are just some
defects in these contracts. This type of contract is valid and enforceable until
they are annulled.
2 REMEDIES FOR VOIDABLE CONTRACTS:
1. Annulment – an action to declare these contracts as void
2. Ratification – cleanses the contract of all its defects as if it is completely
valid from the beginning. If the parties accept the consequences or
effects of a voidable contract, there is ratification. Ratification is only valid
if the other party has acquired knowledge and understanding of the legal
consequences of such defects and still accepts it.
ART. 1390. The following contracts are voidable or annullable, even
though there may have been no damage to the contracting parties:
(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.
These contracts are binding, unless they are annulled by a proper action
in court. They are susceptible of ratification. (n)
Contracts are annullable or voidable despite the absence of damage thereto.
Thus, even though these contracts may incur no damage to anyone of the
contracting parties, as long as they fall under Art. 1390, they are already
considered as voidable contracts. Damage, pecuniary loss, and lesion are
immaterial as to the determination of whether or not a contract is voidable.
Par. 1
(1) Those where one of the parties is incapable of giving consent to a contract;
- This means that when one of the parties is incapacitated to give
consent, the contract is voidable.
If two of the contracting parties are incapable of giving consent, the
contract is unenforceable. (Art.1403, par. 3)
Par. 2
(2) Those where the consent is vitiated by mistake, violence, intimidation,
undue influence or fraud.
- If one’s consent is vitiated, then the contract is voidable.
Unlike an action for rescission, an action to annul a voidable contract is
always judicial. Thus, the parties cannot extra-judicially annul a
contract.
A voidable contract is also susceptible to ratification. If both parties would
know in the contract and still gives such contract the full force and effect, the
contract is deemed ratified. Such ratification can be done extra-judicially,
upon mutual agreement of the parties.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
ART. 1391. The action for annulment shall be brought within four years.
This period shall begin:
In cases of intimidation, violence or undue influence, from the time the
defect of the consent ceases.
In case of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases. (1301a)
Question: If a minor entered into a contract of sale on March 5, 2019, until
when can a minor file an action for annulment of the contract?
Answer: The action for annulment can be filed four years after his incapacity
or minority ceases, it is not reckoned from the date of its execution.
In rescissible contracts, the contract is entered in to by the guardian or
representatives and not by the incapacitated person. In a voidable contract,
the contract is entered into by the incapacitated person himself.
The contracts are entered into by the guardians, or the representatives, and
not by the incapacitated person. Here, were are talking about contracts
entered into by the incapacitated person themselves which render it as
voidable.
From the moment that the incapacity ceases, the running for the four-year
period for an action for annulment will begin.
If the reason why a contract is voidable is due to the fact the consent is
vitiated, the reckoning period depends upon the type of vice of consent.
If it is due to intimidation, violence or undue influence, it is from the moment
the defect of consent ceases.
And if it is due to mistake or fraud, it is from the time of its discovery.
Notably, it should not be reckoned from the execution of the contract.
RULES on RATIFICATION
ART. 1392. Ratification extinguishes the action to annul a voidable
contract. (1309a)
An action for annulment of a contract is mutually exclusive, it cannot go
together with an action for ratification. You cannot have both at the same time.
If one files an action for annulment of a contract, you are saying that the
contract is voidable under Art. 1391. That cannot go hand-in-hand with an
action for ratification. This is because ratification of a contract means you
acknowledge that there is some defect but, despite the defect, the parties
accept the contract.
ART. 1393. Ratification may be effected expressly or tacitly. It is
understood that there is a tacit ratification if, with knowledge of the reason
which renders the contract voidable and such reason having ceased, the
person who has a right to invoke it should execute an act which necessarily
implies an intention to waive his right. (1311a)
The manner by which ratification may be effected can either be expressly or
tacitly.
If it is expressed, it should be noted that parties should have agreed upon the
ratification.
If it is tacit, there are THREE REQUISITES:
1. The contract must be voidable;
2. There must be knowledge of the reason which renders the contract
voidable; and
3. That the reason, or grounds under Article 1391, must have ceased.
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Note: The person who has a right to invoke it should execute an act which
necessarily implies an intention to waive his right. And, the person who has a
right to ratify is the one incapacitated or the one whose consent is vitiated.
ART. 1394. Ratification may be effected by the guardian of the
incapacitated person. (n)
In the case of incapacitated persons, it is not only the incapacitated persons
who may cleanse the contract of its defects but also the guardians.
Incapacitated persons may embrace not only minors but all acts which may
limit one’s capacity to act.
ART. 1395. Ratification does not require the conformity of the contracting
party who has no right to bring the action for annulment. (1312)
Under Art. 1395, the consent of the other contracting party, the one
capacitated or the one whose consent is not vitiated, is not required for the
ratification of the contract.
It is important that there is an agreement or an understanding with respect to
the person who may bring such action.
EFFECT of RATIFICATION
ART. 1396. Ratification cleanses the contract from all its defects from the
moment it was constituted. (1313)
There is a retroactive effect of the cleansing of the contract of all its defects.
So, from the moment of constitution, execution, or meeting of the minds of the
parties, the ratification takes effect.
ART. 1397. The action for the annulment of contracts may be instituted by
all who are thereby obliged principally or subsidiarily. However, persons
who are capable cannot allege the incapacity of those with whom they
contracted; nor can those who exerted intimidation, violence, or undue
influence, or employed fraud, or caused mistake base their action upon
these flaws of the contract. (1302a)
In the case of guarantors or sureties, there is an instance under the law that
may render a certain contract as defective.
For instance, a loan was extended to a minor: the debtor, by a person who
has full legal capacity: the creditor. Here, the minor is a principal party to such
contract. Hence, he can bring an action for annulment of such contract.
In case of default on the part of the minor, the guarantor or the surety shall be
liable for the creditor. These persons who are subsidiarily liable also has the
right to bring an action for annulment.
Under this article, the one who has full legal capacity cannot allege the
incapacity of the other person in order to file an action for annulment. This
also applies to person who vitiated the consent of the other party.
ACTION for ANNULMENT
We have already discussed those contracts which can be considered
annullable or voidable.
We’ve discussed that there are two remedies available for voidable contracts.
1. Annulled by action in court
2. Ratified – cleansed of its defects from the very beginning. It can be
expressed or implied.
Now let us look more closely on the action for annulment.
It is a declaration that the contract is valid until it is annulled. We already
learned in Persons and Family Relations about annullable or voidable
marriages.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
GENERAL RULE: The persons who can file an action for annulment of
the contract are primarily the contracting parties.
Art. 1397 also prohibits certain parties from filing action of annulment:
1. Parties who are capable are prohibited under law to allege the
incapacity of the other party in order to assail its validity. Otherwise,
they could just escape liability therefrom through the expedient
allegation that they contracted with an incapacitated party, e.g. the
other party is insane, a minor, etc. The law does not want
contracting parties to take advantage of incapacitated persons.
Only the incapacitated person can file an action for annulment in this case.
However, they are also incapacitated to sue, so they usually file this action
through their guardian or relatives.
2. Those who exerted intimidation, violence, or undue influence, or
employed fraud, or caused mistake. They cannot cause the vitiation
of the contract and then reap the benefits of escaping liability by
alleging that they exerted intimidation, violence, undue influence,
etc.
Who is the person who can assail the validity of the contract?
It is the person whose consent has been vitiated.
Remember the defects of the will and the vices of consent as this will be also
important in the 4th exam.
EXCEPTION: Aside from the party principally liable, a person subsidiarily
liable may also assail the validity of the contract.
Example: the sureties or guarantors of the incapacitated person or the one
whose consent has been vitiated, since they are subsidiarily liable, they can
assail the validity of the contract.
Remember, unlike rescissible contracts which action for rescission can be
done extrajudicially or outside the court, an action for annulment for
voidable contracts can only be done judicially or inside the courts. The
parties cannot decide for themselves that the contract is null and void;
voidable contracts are valid until they are annulled.
Now let us go to the effects of annulment of a contract.
ART. 1398. An obligation having been annulled, the contracting parties
shall restore to each other the things which have been the subject matter
of the contract, with their fruits, and the price with its interest, except in
cases provided by law.
In obligations to render service, the value thereof shall be the basis for
damages. (1303a)
Here is the rule on mutual restitution of the contracting parties after their
contract is declared null and void.
We have to distinguish between the type of contracts to be annulled. There is
a distinction between contracts which give rise to real obligations and
personal obligations.
In the case of real obligations – annulment of the contract gives rise to an
obligation for the parties to give back to each other those which have been
the objects or things which have been the subject matter of the contract.
Example: A contract of sale where one of the contracting parties is a minor.
There is an action for annulment and the court granted such action. The thing
should be returned by the buyer and the money should also be returned to
the buyer.
In the case of personal obligations – only the value of the services
rendered shall be returned, since services rendered themselves cannot be
returned any more. The thing that you can give as restitution for the party who
has rendered services is only an amount of money which is compensatory
damages or actual damages.
GENERAL RULE: Upon annulment of contract, parties are obliged with
the mutual restitution of the things which are the subject matter of the
contract.
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What are the exceptions? When can a party not be obliged to give back the
subject matter of the obligation?
ART. 1399. When the defect of the contract consists in the incapacity of
one of the contracting parties, the incapacitated person is not obliged to
make any restitution except insofar as he has been benefited by the thing
or price received by him. (1304)
1st – Art. 1399 is very specific. The exception to the rule of mutual restitution
is only applicable in the instance where the contract is voidable because one
of the contracting parties is incapacitated. This will not apply in the scenario
where the consent of one of the contracting parties is vitiated. The incapacity
of one of the parties is the only ground for annulment in which this exception
applies.
2nd – This article presumes that the subject matter of the contract was given
to the incapacitated party and was subsequently lost, for some reason or fault
not attributable to the incapacitated person.
Example: The guardian of the incapacitated person files an action to annul
contract, which was granted. The thing the incapacitated person received was
lost for no attributable reason to him.
Does he have an obligation to return the thing?
No.
How about the monetary equivalent?
No.
The capacitated person must bear the risk of loss, knowing or at least ought
to have known the incapacity of the other contracting party.
Example: Let’s say there is a mentally incapacitated person and B entered
into a Contract of Sale with that person during a lucid interval. B knew that
person is incapacitated because it’s obvious. Nevertheless, B still bought the
1-acre property for only 10K. Thus, there is inadequacy of the price. Later on,
B realized that he doesn’t need the property, so he wants to return it. The
guardian of the incapacitated owner knew that B took advantage of the mental
state of that person hence, the guardian filed an action for annulment of the
contract on the basis that one of the contracting parties is incapacitated. The
court then orders the annulment of that contract.
In the meantime, the incapacitated person burned the 10K purchase price due
to his mental state. Later on, B will say that since there was an annulment of
the contract, he will give back the title to the property and the incapacitated
person shall return the 10K.
Question: Even if it is a generic obligation, is there an obligation on the part
of the incapacitated person to return the purchase price if it has been lost,
misplaced, stolen, or misused (such as in this case)?
No. There is no obligation for restitution.
GENERAL RULE: Restitution is an effect of annulment.
EXCEPTION: With respect to incapacitated persons, there is no obligation to
return those which are the objects of the contract.
EXCEPTION TO THE EXCEPTION: What is that instance where even if that
contract is voidable and even if one of the contracting parties is incapacitated,
the latter is bound to return the object of the contract?
It is when insofar that thing or the price has benefited him. For example, the
price given to the incapacitated person is 10K and the latter used 9K to his
benefit, he is obliged to return the 9K.
What is the effect if there is a failure to make restitution but nevertheless there
is an obligation to make such restitution?
ART. 1400. Whenever the person obliged by the decree of annulment to
return the thing cannot do so because it has been lost through his fault,
he shall return the fruits received and the value of the thing at the time of
the loss, with interest from the same date. (1307a)
Take note, we are talking about normal circumstances here.
Object lost through possessor’s fault
What if that person who has the obligation by degree of annulment to make
restitution cannot do so because it has been lost through his fault?
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
He shall return the fruits received and the value of the thing at the time of the
loss, with interest from the same date that it should be returned. It now
becomes a monetary obligation from obligation to deliver the thing.
ART. 1401. The action for annulment of contracts shall be extinguished
when the thing which is the object thereof is lost through the fraud or fault
of the person who has a right to institute the proceedings.
If the right of action is based upon the incapacity of any one of the
contracting parties, the loss of the thing shall not be an obstacle to the
success of the action, unless said loss took place through the fraud or
fault of the plaintiff. (1314a)
Remember the rules of restitution under Articles 1398 and 1399 as it has a
bearing in 1401.
Object lost through fraud or fault of the person who has the right to
institute an action for annulment (incapacitated person, person whose
consent was vitiated)
Action for annulment shall be extinguished. Take note, the lost must not be
on account of some fortuitous event. It must be on account of fraudulent acts
or fault of the incapacitated person or the person whose consent was vitiated.
Object lost through fortuitous event
What if the cause of action why you are filing the annulment is based on the
incapacity of the any one of the contracting parties and the thing is lost
through a fortuitous event? This is not an obstacle to the success of the action.
Meaning, the contract can still be annulled, and the incapacitated person does
not have the obligation to make restitution because of Art. 1399.
EXCEPTION: Unless said loss took place through the fraud or fault of the
incapacitated person.
REASON: Res perit domino rule – If there was loss through fortuitous event
with no fault on the part of the incapacitated person, the risk of lost on the part
of the capacitated person.
When is an action for annulment extinguished or cannot be pursued?
1. If the action has already prescribed (4 years, depends on the basis)
2. If there is already ratification.
3. Art. 1401
ART. 1402. As long as one of the contracting parties does not restore
what in virtue of the decree of annulment he is bound to return, the other
cannot be compelled to comply with what is incumbent upon him. (1308)
This talks about the same effects in the case of reciprocal obligations that the
other party does not incur in delay except from the time that the other
contracting party carries out that which is incumbent upon him
In this case, if there is a decree of annulment, until the other party will restore
that which is the object of the contract, there is no obligation to return on the
part of the other. The other cannot be required to comply with what is
incumbent upon him if the other party also does not restore or make
restitution. There would be no delay on the part of that person.
SAMONTE V. CA
361 SCRA 473
Article 1390-1402 – Voidable Contracts
FACTS: The parcel of land subject of this dispute is in Agusan, issued in the
names of Apolonia Abao and her daughter Tolero with an area of 12,735. Two
cases were separately filed in the RTC involving the entire lot. Both cases
were filed by the surviving heirs of Abao and Tolero they are respondents.
The first case was an action for quieting of title and recovery of possession of
parcel of land which formed part of property. The defendants named are
Spouses Lacho. The second case is the same action, but it sought the
annulment of several certificates of title. The controversy arose from this
second case.
Plaintiffs claim ownership of the entire lot as one half was registered in the
name of their mother Tolero and the other was in the name of their
grandmother Abao. After Abao died during the Japanese occupation and
Ireneo Tolero died in 1945, they inherited and became owners Lot 216. Thus,
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they questioned the series of the cancellation of the certificate and Deed of
Extrajudicial Settlement and Confirmation of Sale executed by Alupan
adjudicating one-half of the area of Lot 216.
Plaintiffs maintain that Ignacio Atupan is not a son of Abao, but he only grew
up while living with Abao. That when lot 216 was subdivided into two lots, the
plaintiffs or their predecessors-in interest did not sign any document agreeing
as to the manner how Lot 216 was divided into two, nor they have consented
to the partition of the same.
Defendant Samonte claims that he bought portions of the Lot 216 in good
faith as he was made to believe that all the papers in possession of his
vendors were all in order. He has been in open, continuous, adverse and
exclusive possession of the portions of Lot 216 he bought for more than 20
years and have declared the land for taxation purposes.
ISSUES: 1. WON petitioner is a buyer in good faith [NO]
2. WON the action had already prescribed [NO]
RULING: It is not disputed that Ignacio Atupan cased the fraudulent
cancellation of OCT by misrepresenting himself as the sole heir of Abao and
that his affidavit was tainted with fraud because he falsely claimed that he was
the sole heir of Abao when in fact, he merely lived and grew up with her and
that Jadol knew about this fact. And that despite this knowledge they still
presented the affidavit before the Register of Deeds when causing
cancellation.
Based on the foregoing facts, the CA, on appeal, ruled that the cancellation
of OCT No. RO-238(555) and the consequent issuance of TCT No. RT-476
in its place in the name of the Jadol spouses were effected through
fraudulent means and that they (spouses Jadol) not only had actual
knowledge of the fraud but were also guilty of bad faith.
The general rule that the discovery of fraud is deemed to have taken place
upon the registration of real property because it is considered as constructive
notice to all persons does not apply to this case. Instead, the CA correctly
applied the ruling in Adille v. CA which applies in this case.
In Adille, petitioner executed a deed of extrajudicial partition misrepresenting
himself as the sole heir his mother when in fact she had other children. As a
consequence, petitioner therein was able to secure title to the land in his name
alone. His sibling then filed a case for partition on the ground that he was only
a trustee on an implied trust of the property.
Thus, the CA correctly reckoned prescriptive period from the time
respondent had actually discovered the fraudulent act of Atupan which
has found out during the trial of the case, thus the action has not yet
prescribed.
DISCUSSION: This talks about a situation where there was a vitiation of
consent on the ground that there are fraudulent actions present while selling
the property.
When do you reckon the 4-year period to question the validity of this action?
From the discovery of the acts constituting fraud.
Under prescription, as a general rule, a person may rely on the ownership
upon registration reflected on the TCT where a parcel of land is registered
under the Torrens Title System. However, there are some exceptions, such
that, those facts which are existing during the time of the sale that would
impel a person to question the validity of one’s title, especially if the sale
is acquired by way of fraud.
The action for reconveyance of property is important because the property is
sold with respect to vitiated consent due to fraud.
AYSON V. PARAGAS
557 SCRA 50 (2008)
Article 1390-1402 – Voidable Contracts
FACTS: The subject of this controversy is the one-fourth (1/4) portion of,
corresponding to the share of respondent Maxima Paragas in the real
property. The controversy commenced with the filing of an ejectment
complaint by herein petitioner Amado Z. Ayson, as represented by his natural
father Zosimo S. Zareno (Zareno), against respondent-spouses Felix and
Maxima Paragas.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
The Civil Case alleged, among others:
(1) petitioner is the registered owner of the property being occupied by the
respondent-spouses as shown by Transfer Certificate of Title No. 59036
of the Registry of Deeds of Dagupan City in his name;
(2) respondent-spouses are occupying the said land through his tolerance
without rent;
(3) on April 8, 1992, respondent-spouses executed an Affidavit
(4) despite the receipt of the P10,000.00 upon the execution of the Affidavit,
respondent-spouses refused to vacate the land as agreed upon; and
(5) despite demands, respondent-spouses still refused to vacate, thus
constraining him to file the complaint. Aside from respondents vacating
the land, petitioner prayed for the return of the P10,000.00 he paid them;
and the payment of P10,000.00 actual damages, P10,000.00 exemplary
damages, P20,000.00 attorneys fees, and the costs.
Respondent-spouses alleged that Zareno had no personality and authority to
file the case and the filing of the complaint was made in bad faith.
During the preliminary conference, the following admissions were made
By petitioner:
(1) That the defendants (respondent spouses) had been in possession of the
land in question since 1930; and
(2) That the semi-concrete house of the defendants (respondent spouses)
stands on the land in question.
By respondent spouses:
(1) That the defendant (respondent) Felix Paragas had executed an affidavit
on April 8, 1992 wherein he admitted that he is occupying the land by
tolerance of the plaintiff (petitioner) without paying any rental whatsoever
and had agreed to vacate the premises within three (3) months but
refused to vacate later;
(2) That the plaintiff (petitioner) is the registered owner of the land in question;
(3) That there was a demand to vacate the premises; and
(4) That there is a Certification to File Action in Court.
MTCC ruled in favor of petitioner.
Meanwhile, on October 11, 1993, during the pendency of the appeal with the
RTC, respondent-spouses filed against petitioner for declaration of nullity of
deed of sale, transactions, documents and titles with a prayer for preliminary
injunction and damages.
The complaint alleged, inter alia, that respondent Maxima is a co-owner of a
parcel of land, her share having an area of 435.75 square meters. Sometime
prior to April 13, 1955, respondent Felix, then an employee of the defunct
Dagupan Colleges (now University of Pangasinan) failed to account for the
amount of P3,000.00. It was agreed that respondent Felix would pay the said
amount by installment to the Dagupan Colleges.
Pursuant to that agreement, Blas F. Rayos and Amado Ll. Ayson, then both
occupying high positions in the said institution, required respondent-
spouses to sign, without explaining to them, a Deed of Absolute Sale on
April 13, 1955 over respondent Maximas real property under threat that
respondent Felix would be incarcerated for misappropriation if they
refused to do so.
The complaint further alleged that later, respondent-spouses, true to their
promise to reimburse the defalcated amount, took pains to pay their obligation
in installments regularly deducted from the salaries received by respondent
Felix from Dagupan Colleges; that the payments totaled P5,791.69; that
notwithstanding the full payment of the obligation, Amado Ll. Ayson and Blas
F. Rayos did nothing to cancel the purported Deed of Absolute Sale; and that
they were shocked when they received a copy of the complaint for ejectment
filed by petitioner.
ISSUE: WON Deed of Absolute Sale was executed through fraud, making the
said contract merely voidable, and the action to annul voidable contracts
based on fraud prescribed in four (4) years from the discovery of fraud.
RULING: Petitioner insists that the registration of the Deed of Absolute Sale
occurred on May 4, 1955, which operated as constructive notice of the fraud
to the whole world, including respondent-spouses. Thus, petitioner concludes
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that the action had long prescribed when they filed the same on October 11,
1993, since its cause had accrued 38 years ago.
An equitable mortgage is a voidable contract. As such, it may be annulled
within four (4) years from the time the cause of action accrues.
This case, however, not only involves a contract resulting from fraud, but
covers a transaction ridden with threat, intimidation, and continuing undue
influence which started when petitioners adoptive father Amado Ll. Ayson and
Blas F. Rayos, Felixs superiors at Dagupan Colleges, practically bullied
respondent-spouses into signing the Deed of Absolute Sale under threat of
incarceration.
Thus, the four-year period should start from the time the defect in the consent
ceases. While at first glance, it would seem that the defect in the consent of
respondent-spouses ceased either from the payment of the obligation through
salary deduction or from the death of Amado Ll. Ayson and Blas F. Rayos, it
is apparent that such defect of consent never ceased up to the time of the
signing of the Affidavit on April 8, 1992 when Zareno, acting on behalf of
petitioner, caused respondent Felix to be brought to him, and taking
advantage of the latter being unlettered, unduly influenced Felix into
executing the said Affidavit for a fee of P10,000.00.
The complaint praying for the nullity of the Deed of Absolute Sale was filed
on October 11, 1993, well within the four-year prescriptive period.
Regarding the finality of the adjudication of physical possession in favor of
petitioner, it may be reiterated that the right of possession is a necessary
incident of ownership. This adjudication of ownership of the property to
respondent-spouses must include the delivery of possession to them since
petitioner has not shown a superior right to retain possession of the land
independently of his claim of ownership which is herein rejected.
Verily, to grant execution of the judgment in the ejectment case would work
an injustice on respondent-spouses who had been conclusively declared the
owners and thus, rightful possessors of the disputed land
MENDEZONA V. OZAMIZ
376 SCRA 482 (2002)
Article 1390-1402 – Voidable Contracts
FACTS: A suit was instituted on September 25, 1991 by the petitioner
spouses Mario J. Mendezona and Teresita M. Mendezona as initial plaintiff
and in the amended complaint filed on October 7, 1991, herein co-petitioner
spouses Luis J. Mendezona joined as co-plaintiff. In their compliant, the
petitioners as plaintiff therein alleged that petitioner spouses Mario J.
Mendezona and Teresita M. Mendezona petitioner spouses Luis J.
Mendezona and Maricar Mendezona own a parcel of land each in Lahug,
Cebu city with similar areas 3462, 3466 and 3468 square meters covered and
described in TCT Nos 116834, 116835 and 116836. The petitioners ultimately
traced their titles of ownership over their respective properties from a deed of
Absolute Sale executed in their favor by Carmen Ozamiz and in consideration
of P 1,040,000. It appears than on January 15, 1991, the respondents
instituted the petition for guardianship with RTC Oroquieta, City alleging that
Carmen Ozamiz had become disoriented and could not recognize most of her
friends and could no longer take care of her properties by reason of weak
mind and absentmindedness. As guardians Roberto J. Montalvan
and Julio H. Ozamiz filed on August 6, 1991 with the guardianship court
their Inventories and Accounts including the 10,369 square meters Lahug
property. Said Lahug property covered by deed of Absolute Sale dated April
28, 1989 executed by Carmen Ozamiz in favor of petitioners. In their Answer,
respondents opposed the claim of ownership of the Lahug property and
alleged that the titles issued to the petitioners are defective and illegal and the
ownership of said properties was acquired in bad faith and without value
inasmuch as the consideration for the sale is grossly inadequate and
unconscionable. Respondents further alleged that on April 28, 1989 Carmen
Ozamiz was already ailing and not in full possession of her mental faculties;
and that her properties having been placed in administration, she was
in effect incapacitated to contract with petitioners. On September 23, 1992,
the Trial court rendered decision in favor of petitioners. On appeal the Court
of Appeal reversed its decision and ruled that the Absolute Sale dated April
28, 1989 was a simulated contract since the petitioners failed to prove that
the consideration was actually paid.
ISSUE: Whether the Deed of Absolute Sale dated April 28, 1989 was
a simulated contract.
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From the lectures of Atty. Bruneson Alabastro

HELD: The Supreme Court ruled that the contact was not simulated. Contrary doing, and the consideration for the quitclaim is credible and reasonable, the
to the erroneous conclusions of the appellate court, a simulated contract transaction must be recognized as a valid and binding undertaking, as in this
cannot be inferred from the mere non production of checks. It was not the case.
burden of the petitioner to prove so. It is significant that the deed of Absolute
Sale dated April 28, 1989 is a notarized document duly acknowledged before Discussion: This is a situation in which a person is suffering a particular
a notary public. As such, it is in favor of presumption of regularity and it carries disability. Absent any showing that the disability affects the capability of a
the evidentiary weight conferred upon it with respect to its due execution. person to give consent, that disability is immaterial with respect to the issue
Moreover, a person is not incapacitated to contact merely because of of whether or not he is incapacitated to be a contracting party.
advanced years or by reason of physical infirmities. Only when such age or
infirmity impair her mental faculties to such extent as to prevent her from Not every form of affliction will render that person as incapacitated to be a
properly, intelligently, and fairly protecting her property rights is considered contracting party in a contract. In this case, there is an assumption that just
incapacitated. because you suffered cerebral aneurysm, there will be an impairment in your
mental faculties and it will render you incapable to understand the legal
consequences of a contract. This assumption is incorrect.
FAMANILA V. CA
500 SCRA 76 (2006)
Mere disability alone, even with respect to mental faculties, that will not, in
Article 1390-1402 – Voidable Contracts
itself, render you an incapacitated person to enter into a contract.
FACTS: In 1989, respondent NFD International Manning Agents, Inc. hired
In this case, as long as a person remains to be in control or he voluntarily
the services of petitioner Roberto G. Famanila as Messman for Hansa Riga.
enters into a contract, there is no presumption that he becomes incapacitated
by the mere fact that he is afflicted with a disability.
While Hansa Riga was docked at the port and while petitioner was assisting
in the loading operations, the latter complained of a headache. Petitioner
CATALAN V. BASA
experienced dizziness and he subsequently collapsed. Upon examination, it
528 SCRA 645 (2007)
was determined that he had a sudden attack of left cerebral hemorrhage from
Article 1390-1402 – Voidable Contracts
a ruptured cerebral aneurysm.
FACTS: On October 20, 1948, Feliciano Catalan was discharged from active
Dr. Patricia Abesamis declared that he "cannot go back to sea duty and has
military service. The Board of Medical Officers of the Department of Veteran
been observed for 120 days, he is being declared permanently, totally
Affairs found that he was unfit to render military service due to his
disabled."
schizophrenic reaction, catatonic type, which incapacitates him because of
flattening of mood and affect, preoccupation with worries, withdrawal, and
Thereafter, authorized representatives of the respondents convinced him to
pointless speech.
settle his claim amicably by accepting the amount of US$13,200. Petitioner
accepted the offer as evidenced by his signature in the Receipt and Release
On September 28, 1949, Feliciano married Corazon Cerezo.
dated February 28, 1991. His wife, Gloria Famanila and one Richard
Famanila, acted as witnesses in the signing of the release.
On June 16, 1951, a document was executed, titled Absolute Deed of
Donation, wherein Feliciano allegedly donated to his sister Mercedes Catalan
Petitioner filed a complaint with the NLRC, praying for an award of disability
one-half of the real property located at Barangay Basing, Binmaley,
benefits, share in the insurance proceeds, moral damages and attorney’s
Pangasinan. The donation was registered with the Register of Deeds. The
fees.
Bureau of Internal Revenue issued Tax Declaration No. 18080[4] to Mercedes
for the 400.50 square meters donated to her. The remaining half of the
Petitioner claims that he did not sign the Receipt and Release voluntarily or
property remained in Feliciano’s name.
freely because he was permanently disabled and in financial constraints.
These factors allegedly vitiated his consent which makes the Receipt and
On December 11, 1953, Peoples Bank and Trust Company filed Special
Release void and unenforceable.
Proceedings to declare Feliciano incompetent. As a result, Peoples Bank and
Trust Company later renamed as BPI was declared as Feliciano’s guardian.
ISSUE: WON the Receipt and Release is unenforceable on the ground that
Famanila’s consent was allegedly vitiated
On November 22, 1978, Feliciano and Corazon Cerezo donated Lots 1 and 3
of their property to their son Eulogio Catalan. Subsequently, Lot 2 and 4 were
RULING: A vitiated consent does not make a contract void and
likewise donated to their children.
unenforceable. A vitiated consent only gives rise to a voidable
agreement. Under the Civil Code, the vices of consent are mistake, violence,
On March 26, 1979, Mercedes sold the property in issue in favor of her
intimidation, undue influence or fraud. If consent is given through any of the
children Delia and Jesus Basa. The Deed of Absolute Sale was registered
aforementioned vices of consent, the contract is voidable. A voidable contract
with the Register of Deeds of Pangasinan.
is binding unless annulled by a proper action in court.
On April 1, 1997, BPI, acting as Feliciano’s guardian, filed a case for
Petitioner contends that his permanent and total disability vitiated his consent
Declaration of Nullity of Documents, Recovery of Possession and Ownership
to the Receipt and Release thereby rendering it void and unenforceable.
as well as damages against the herein respondents. BPI alleged that the
However, disability is not among the factors that may vitiate consent.
Deed of Absolute Donation to Mercedes was void ab initio, as Feliciano never
Besides, save for petitioner’s self-serving allegations, there is no proof on
donated the property to Mercedes. In addition, BPI averred that even if
record that his consent was vitiated on account of his disability. In the absence
Feliciano had truly intended to give the property to her, the donation would
of such proof of vitiated consent, the validity of the Receipt and Release must
still be void, as he was not of sound mind and was therefore incapable of
be upheld.
giving valid consent.
Moreover, the document entitled receipt and release which was attached by
RTC: On December 7, 1999, the trial court found that the evidence presented
petitioner in his appeal does not show on its face any violation of law or public
by the complainants was insufficient to overcome the presumption that
policy. In fact, petitioner did not present any proof to show that the
Feliciano was sane and competent at the time he executed the deed of
consideration for the same is not reasonable and acceptable.
donation in favor of Mercedes Catalan. Thus, the court declared, the
presumption of sanity or competency not having been duly impugned, the
Not all waivers and quitclaims are invalid as against public policy. If the
presumption of due execution of the donation in question must be upheld.
agreement was voluntarily entered into and represents a reasonable
settlement, it is binding on the parties and may not later be disowned simply
CA: The appellate court affirmed the decision of the trial court and held that
because of change of mind. It is only where there is clear proof that the waiver
the Regional Trial Court did not commit a reversible error in disposing that
was wangled from an unsuspecting or gullible person, or the terms of the
plaintiff-appellants failed to prove the insanity or mental incapacity of late
settlement are unconscionable on its face, that the law will step in to annul
Feliciano Catalan at the precise moment when the property in dispute was
the questionable transaction. But where it is shown that the person making
donated.
the waiver did so voluntarily, with full understanding of what he was

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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
ISSUE: WON the deed of donation executed by Felciano in favor of Mercedes
is void
CONTENTION: Petitioners aver that the presumption of Felicianos
competence to donate property to Mercedes had been rebutted because they
presented more than the requisite preponderance of evidence.
First, they presented the Certificate of Disability for the Discharge of Feliciano
Catalan issued by the Board of Medical Officers of the Department of Veteran
Affairs.
Second, they proved that on December 22, 1953, Feliciano was judged an
incompetent by the Court of First Instance of Pangasinan, and put under the
guardianship of BPI.
RULING: The petition is bereft of merit, and the SC affirm the findings of the
Court of Appeals and the trial court.
A donation is an act of liberality whereby a person disposes gratuitously a
thing or right in favor of another, who accepts it. Like any other contract, an
agreement of the parties is essential. Consent in contracts presupposes the
following requisites: (1) it should be intelligent or with an exact notion of the
matter to which it refers; (2) it should be free; and (3) it should be
spontaneous. The parties' intention must be clear and the attendance of a
vice of consent, like any contract, renders the donation voidable.
In order for donation of property to be valid, what is crucial is the donors
capacity to give consent at the time of the donation. Certainly, there lies no
doubt in the fact that insanity impinges on consent freely given. However, the
burden of proving such incapacity rests upon the person who alleges it; if no
sufficient proof to this effect is presented, capacity will be presumed.
A thorough perusal of the records of the case at bar indubitably shows that
the evidence presented by the petitioners was insufficient to overcome the
presumption that Feliciano was competent when he donated the property in
question to Mercedes. Petitioners make much ado of the fact that, as early as
1948, Feliciano had been found to be suffering from schizophrenia by the
Board of Medical Officers of the Department of Veteran Affairs. By itself,
however, the allegation cannot prove the incompetence of Feliciano.
A study of the nature of schizophrenia will show that Feliciano could still be
presumed capable of attending to his property rights.
According to medical references, in persons with schizophrenia, there is a
gradual onset of symptoms, with symptoms becoming increasingly bizarre as
the disease progresses. The condition improves (remission or residual stage)
and worsens (relapses) in cycles. It has been proven that the administration
of the correct medicine helps the patient. Medications reduce delusions,
hallucinations and incoherent thoughts and reduce or eliminate chances of
relapse.
From these scientific studies it can be deduced that a person suffering from
schizophrenia does not necessarily lose his competence to intelligently
dispose his property. By merely alleging the existence of schizophrenia,
petitioners failed to show substantial proof that at the date of the donation,
June 16, 1951, Feliciano Catalan had lost total control of his mental faculties.
Thus, the lower courts correctly held that Feliciano was of sound mind at that
time and that this condition continued to exist until proof to the contrary was
adduced. Sufficient proof of his infirmity to give consent to contracts was only
established when the Court of First Instance of Pangasinan declared him an
incompetent on December 22, 1953.
It is interesting to note that the petitioners questioned Feliciano’s capacity at
the time he donated the property, yet did not see fit to question his mental
competence when he entered into a contract of marriage with Corazon
Cerezo or when he executed deeds of donation of his other properties in their
favor. The presumption that Feliciano remained competent to execute
contracts, despite his illness, is bolstered by the existence of these other
contracts. Competency and freedom from undue influence, shown to have
existed in the other acts done or contracts executed, are presumed to
continue until the contrary is shown.
Needless to state, since the donation was valid, Mercedes had the right to sell
the property to whomever she chose. Not a shred of evidence has been
presented to prove the claim that Mercedes sale of the property to her children
was tainted with fraud or falsehood.
Transcribed by: Alcoran | Aranjuez | Ballos | Clarabal | Cullo | Delfin | Espinosa | Gulanes | Layog | Paracale | Somcio
DISCUSSION: In this case, the SC talks about the presumption that of a
person’s competency—soundness of mind and freedom from undue
influence. However, take note that there must be clear and convincing
evidence to prove such incapacity. In the absence of showing the required
proof, we enjoy the presumption that a person is competent and free from
undue influence at that time he entered into a contract. These presumptions
are present regardless if the contract is onerous or gratuitous.
UNENFORCEABLE CONTRACTS
Remember that if we arrange the defective contracts on a particular timeline,
the law arranges it according to the degree of defect—from the least to most
defective. From the least: rescissible contracts, to most defective: void
contracts.
So what are the contracts that are unenforceable?
ART. 1403. The following contracts are unenforceable, unless they are
ratified:
(1) Those entered into in the name of another person by one who has
been given no authority or legal representation or who has acted
beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in
this number. In the following cases an agreement hereafter made shall
be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot
be received without the writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a
year from the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage
of another;
(c) An agreement made in consideration of marriage, other than a
mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action,
at a price not less than five hundred pesos, unless the buyer accept
and receive part of such goods and chattels, or the evidences, or
some of them, of such things in action or pay at the time some part of
the purchase money; but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the sale, of
the amount and kind of property sold, terms of sale, price, names of
the purchasers and person on whose account the sale is made, it is a
sufficient memorandum;
(e) An agreement for the leasing for a longer period than one year, or
for the sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a
contract.
Contracts that are unenforceable are not exclusive under this article. This
article is just an enumeration. In the case of Iglesia Filipina
Independentiente vs. Heirs of Isac (GR. 179557, Feb. 3, 2014)
Unenforceable contracts are those which cannot be enforced by proper
action in court unless they are ratified. You cannot sue upon it in court. It
is a completely valid contract—all essential elements of contract are present.
It is susceptible of ratification.
In your Civil Procedure, there is no action to declare a contract as
unenforceable. It's against the very reason why it is unenforceable. In
rescissible contracts, you can file an action of rescission. In voidable
contracts, you can file annulment. In void contracts, you can file declaration
of nullity. But in unenforceable contracts, you cannot do anything about it or
sue upon it in court. The parties as between them, they are bound by the
contract.
In actions, the unenforceability of a contract is usually in the form of defects.
Example: In cases of…
• sum of money
Page 18 of 57
 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
• lease contract for a period of more than 1 year
• loan money through an agent, but the agent has no authority
• contract between two incapacitated persons.
If sued in actions involving these contracts, the plaintiff can sue, but the
defendant could only raise the defense that the action should be dismissed
because those contracts are unenforceable. So the unenforceability of a
contract is not a right of action or a cause of action. It is a defense that can
be raised in court, in order that a contract or any document, for that matter,
will not be used against you.
What does "you cannot be sued upon it in court' mean?
The action will not progress because it can be a defense that a contract is
unenforceable.
INSTANCES THAT A CONTRACT IS UNENFORCEABLE UNDER ART.
1403
Par. 1 - Unauthorized Contract
There are three instances. Those contracts which have been entered into
the name of another person by one who is:
(a) by one who has no authority that has been given to them. Under this, there
is no valid contract of agency. There is no authority vested in an agent. So
voluntarily, there is no authority given by the principal in favor of an agent.
(b) has no legal representation. The law itself provides that there are persons
who can represent others. So if a person is not allowed under the law to
represent others, that person is unauthorized, therefore the contract is
unenforceable.
Example: In the case of billings in the property involving minors, they have
legal guardians.
Legal representation means that the law itself provides that certain persons
can represent others.
(c) those contracts entered into the name of another person by one who has
acted beyond the scope of his powers. It presupposes that a person or an
agent or attorney-in-fact is representative, those persons have previously
been given authority but in the exercise of their authority in carrying out the
contract of agency, they exceed their powers.
Example: Guardians with respect to absentees. They only do the acts of
administration by default.
What if they sold the property of their wards or absentees without prior judicial
authorization?
It is unenforceable, not rescissible. It's not under Art. 1381 because it
presupposes that you have been given authority and in acting out your
authority, the ward or the absentee suffered lesion by more than one-fourth
of the value of the property.
If persons acted beyond their scope of authority, those contracts are deemed
unenforceable.
ART. 1404. Unauthorized contracts are governed by Article 1317 and the
principles of agency in Title X of this book.
Important principles of agency:
ART. 1868. By the contract of agency, a person binds himself to
render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter. (1709a)
ART. 1869. Agency may be express, or implied from the acts of the
principal, from his silence or lack of action, or his failure to repudiate
the agency, knowing that another person is acting on his behalf
without authority.
Agency may be oral, unless the law requires a specific form.
(1710a)
ART. 1870. Acceptance by the agent may also be express or
implied from his acts which carry out the agency, or from his silence
or inaction according to the circumstances. (n)
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• If a person purports to represent you, and as a principal, you do
not want to be represented by that said person, you must
repudiate the same.
• The authority of an agent must be in writing. Otherwise, the sale
is void.
• The contract of agency is representation of the principal through
another with respect to third persons.
Example: The principal acquired an agent to sell his parcel of land. The
prospective buyer enters into a contract of sale with the agent representing
the principal in the amount of 1 million.
There are 2 contracts: Contract of Agency as between the principal and the
agent and the agent and buyer enters into a Contract of Sale.
What happens if the agent does not have any authority?
VALID AS TO THE CONTRACT OF AGENCY; THE CONTRACT OF SALE
IS UNENFORCEABLE BECAUSE THERE IS NO AUTHORITY FROM THE
PRINCIPAL.
What if the agent has an authority but is not in writing?
VALID AS TO THE CONTRACT OF AGENCY, IT MAY BE ORAL AND MAY
BE PERFECTED IN WHATEVER FORM; CONTRACT OF SALE IS VOID,
FORMALITY IS REQUIRED.
What if the agent is given the authority to sell a car?
CONTRACT OF SALE IN A MOVABLE PROPERTY IS VALID.
What if the agent is a minor or is incapacitated?
CONTRACT OF AGENCY IS VOIDABLE BECAUSE ONE OF THE
CONTRACTING PARTY IS INCAPACITATED; CONTRACT OF SALE AS TO
THE MINOR IS VALID, THE ESSENCE OF AGENCY IS THE
REPRESENTATION OF ANOTHER.
• The incapacity is immaterial because the agent has authority. It is
as if the principal is the one who contracted with the buyer.
What if the principal is an insane person and the agent is of sound mind?
CONTRACT OF AGENCY IS VOIDABLE; CONTRACT OF SALE IS
VOIDABLE.
1403(2). NON-COMPLIANCE OF STATUTE OF FRAUDS
The enumeration under 1403 (2) are exclusive what is not found there are not
considered and are excluded.
STATUTE OF FRAUDS
The term is descriptive of statutes which require certain classes of contracts
to be in writing. This statute does not deprive the parties of the right to contract
with respect to the matters therein involved, but merely regulates the
formalities of the contract necessary to render it enforceable.
Purpose of the Statute of Frauds.
It is to prevent fraud and perjury in the enforcement of obligations depending
on their evidence upon the unassisted memory of witnesses by requiring
certain contracts and transactions to be evidenced by a writing signed by the
party to be charged.
CLAUDEL V. CA
G.R. No. 85240
Additional case
The purpose of the Statute of Frauds is to prevent fraud and perjury in the
enforcement of obligations depending for their evidence upon the unassisted
memory of witnesses by requiring certain enumerated contracts and
transactions to be evidenced in Writing.
The provisions of the Statute of Frauds originally appeared under the old
Rules of Evidence. However, when the Civil Code was re-written in 1949 (to
take effect in 1950), the provisions of the Statute of Frauds were taken out of
the Rules of Evidence in order to be included under the title on Unenforceable
Contracts in the Civil Code. The transfer was not only a matter of style but to
show that the Statute of Frauds is also a substantive law.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
That’s why the Statute of Frauds was designed in order to prevent fraudulent
acts from being open to perjury or fraudulent actions on account of the
unassisted actions of the contracting parties and their witnesses.
AGLIBOT V. SANTIA
G.R. No. 185945 DEC. 5, 2012
Contracts are generally obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity are present,
and the Statute of Frauds simply provides the method by which the contracts
enumerated in Art. 1403 (2) may be proved, but it does not declare them
invalid just because they are not reduced to writing. Thus, the form required
under the Statute is for convenience or evidentiary purposes only.
The Statute of Frauds has been placed under the law in order that certain
contracts or documents may be proved a certain way, if you remember that
in relation to 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 in a certain way, that
requirement is absolute and indispensable. In such cases, the right
of the parties stated in the following article cannot be exercised.
(1278a)
The Statute of Frauds is principally a matter of evidence; it is a manner by
which it can prove certain contracts to exist. Therefore, you can enforce them
if they comply with the requirement under the Statute of Frauds.
GENERAL RULE: The Statute of Frauds require that, at the minimum, there
must be a written note or memorandum embodying the essentials of a
contract and signed by the party charged or his agent. It suffices it to make a
verbal agreement as already enforceable.
ART. 1403 (2). The following contracts are unenforceable, unless they are
ratified:
(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party charged, or by his
agent; evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
xxx
At the very least, these contracts must be in writing., even a private one for
them to be within the ambit of the Statute of Frauds. Purely oral or verbal
agreement that does not comply with the Statute of Frauds are unenforceable.
DAVID V. TIONGSON
G.R. No. 108169 AUG. 25, 1999
The rule presupposes the existence of a perfected contract and requires only
that a note or memorandum be executed in order to compel judicial
enforcement thereof.
If there is no contract from the very beginning and it was not reduced into
writing, the status of the contract is void. Because when you say that the
contract is unenforceable, it is valid, it’s just that it cannot be enforced in a
proper action in Court.
If from the very beginning that contract has no consent, object, cause or
consideration, that contract is NOT unenforceable if it doesn’t comply with the
Statute of Frauds. That contract is VOID, because an unenforceable contract
presumes that that contract is valid it’s just that it’s not the required form or
formality required under the Statute of Frauds.
Transcribed by: Alcoran | Aranjuez | Ballos | Clarabal | Cullo | Delfin | Espinosa | Gulanes | Layog | Paracale | Somcio
Finally, the Statute of Frauds is applicable in what we call as executory
contracts. Remember the stages of a contract, we have negotiation or when
the offer is made. Next, perfection of a contract. Afterwards, we have
performance or termination. From the moment of the contract’s perfection,
before the parties carried out anything which was agreed upon in that
contract, the contract is still executory. It means that the parties have not
carried out anything which they have agreed upon in the terms, conditions, or
whatever it is that is in that contract.
Example: The seller and the buyer agreed, I will sell to you my car worth 1.5M,
the buyer consents.
From that moment, the contract is executory. Meaning, the parties are free to
execute or to perform what it is that they agreed upon in that contract. The
moment that one of the parties already carried out that portion of the contract,
we say that at that moment, the contract is partially executed. We have
executory contracts → partially executed contracts → executed contracts.
This is material because the Statute of Frauds’ formality under Art. 1403 (2)
is only applicable in cases where contracts are still executory. Meaning, if
contracts have already been partially executed, it already takes it away from
the ambit of the Statute of Frauds. Even if you do not comply with the required
written memorandum or note, for as long any one of the contracting parties
have carried out partially their undertaking or obligations of the contract, it is
already partially executed, and partially executed contracts take it away from
the ambit of the Statute of Frauds.
Example: There is a contract of sale. In that contract of sale, B is the seller
and X is the buyer. The parties agreed that B will sell his car in favor of X.
Before they executed the necessary forms, the value of the car is 1M. After
they agreed that the seller will sell and the buyer will buy, the buyer will
already give 1 peso down payment.
Even if it’s only 1 peso or even 25₵, the contract is already partially executed,
because the buyer has already carried out part of his obligation which is to
pay the full amount of the purchase price.
Does the fact that the contract of sale of that car is oral and is not reduced to
some written instrument or form, does it render the contract as
unenforceable?
NO. Because the Statute of Frauds is already taken away the moment that
the contract is partially executed. The Statute of Frauds is only applicable to
executory contracts. It only applies to executory contracts precisely because,
let’s say, a lapse of 10 years and you still haven’t performed your undertaking
in the contract, you will eventually forget about it if it is not written. That is why
the Statute of Frauds comes in to prevent fraud or to prevent the unassisted
memory of the contracting parties from defeating the intention of the
agreement.
Article 1403 (2a) An agreement that by its terms is not to be performed
within a year from the making thereof;
From the viewpoint of its demandability, this is an obligation with a period
because it is within a year. This is a resolutory period because it is not to be
done within a year. It is immediately demandable after a year.
This talks about an agreement of preclusion or prohibition that is to be done
within after a year or within a year from the making thereof. You cannot do it
within a year but only after a year.
Example: Options in a lease stating that you are not allowed to sell this to
some other persons within the period of the lease or during the first year of
the lease. That should be in writing. Otherwise, it is unenforceable.
Article 1403 (2b) A special promise to answer for the debt, default, or
miscarriage of another;
This is an instance where we talk about guarantors or sureties. If you answer
for the debt of another or the moment that they default or the moment that
they have miscarriage on their obligation to pay a certain sum of money,
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
contracts of guarantees or sureties must be in writing. Otherwise, they are
unenforceable.
In some books, some authors would say that this is a contract of guarantee
and it’s not applicable in a contract of surety, but we will discover in some
cases that the law doesn’t actually make a distinction.
Anyway, they say that to answer some debt of some person, that is a contract
of guarantee and not necessarily a contract of suretyship.
Article 1403 (2c) An agreement made in consideration of marriage, other
than a mutual promise to marry;
These are donations propter nuptias or donations made in consideration of
marriage. This must be in writing in order at least to be enforceable.
(d) An agreement for the sale of goods, chattels or things in action, at a
price not less than five hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the evidences, or some of
them, of such things in action or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is made
by the auctioneer in his sales book, at the time of the sale, of the amount
and kind of property sold, terms of sale, price, names of the purchasers
and person on whose account the sale is made, it is a sufficient
memorandum;
If it is below 500 pesos there is no need for it to be in writing to be enforceable.
(e) An agreement for the leasing for a longer period than one year, or for
the sale of real property or of an interest therein
Applicable for the leasing of items, objects, properties for a period of more
than 1 year.
For real property, no matter how low the price of the parcel of land may be, a
sale of real property or any interest therein must be in writing for its
enforceability.
(f) A representation as to the credit of a third person.
This is usually the case where a person must make a representation of your
credit, for you to be allowed to loan or borrow a certain money from the bank.
That representation as to the credit of a third person must be in writing.
You must correlate Art. 1403 (2) with Art. 1405 and Art. 1406
ART. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of
article 1403, are ratified by the failure to object to the presentation of oral
evidence to prove the same, or by the acceptance of benefit under them.
Q: How will you ratify the contracts which do not conform with the statute of
frauds?
Remember that ratification may be express or implied. How will it be impliedly
ratified?
A: First, by the failure to object to the presentation of oral evidence to
prove the same. Second, by the acceptance of the benefit under the
contract. By accepting the benefit, it will become partially executed, thus, no
need to comply with the Statute of Frauds.
ART. 1406. When a contract is enforceable under the Statute of Frauds,
and a public document is necessary for its registration in the Registry of
Deeds, the parties may avail themselves of the right under Article 1357.
Remember that there are exceptions under Art. 1358.
ART. 1407. In a contract where both parties are incapable of giving
consent, express or implied ratification by the parent, or guardian, as the
case may be, of one of the contracting parties shall give the contract the
same effect as if only one of them were incapacitated. If ratification is
made by the parents or guardians, as the case may be, of both
contracting parties, the contract shall be validated from the inception.
With respect to Statute of Frauds, there is an extension and that is in the case
of express trusts with respect to immovable property.
Transcribed by: Alcoran | Aranjuez | Ballos | Clarabal | Cullo | Delfin | Espinosa | Gulanes | Layog | Paracale | Somcio
There is a provision under the law on trusts which provides that no express
trust can be proved by parole evidence. The SC also said that this provision
is an extension of the Statute of Frauds. This means that you cannot prove
that a trust exists with respect to an immovable property if it is not reduced
into a writing, even a private one.
ART. 1403. The following contracts are unenforceable, unless they are
ratified:
(3) Those where both parties are incapable of giving consent to a
contract.
In case where both of the parties are incapacitated, and they enter into a
particular contract, the contract is valid but it is unenforceable. Later, one of
them may bring the proper action in court in order to assail the validity of the
contract.
Example: A contract between a minor and a mentally insane a person.
ART. 1408. Unenforceable contracts cannot be assailed by third
persons.
Take note of the difference between a situation where both parties are
incapacitated versus a situation where both of the parties have their consent
vitiated.
Art. 1408 gives you the idea that the persons who may assail the validity of
the contract on the ground that it is unenforceable are only the contracting
parties.
Example: There is a contract of sale involving real property and that sale is
not reduced into writing and it is still executory.
Can third persons claiming rights to that contract of sale assail the validity of
it being unenforceable?
For example, it is a deed of absolute sale with assumption of mortgage. The
bank, in this case, the mortgagee has not given consent to that sale with
assumption of mortgage. Nevertheless, the seller, who has mortgage
subsisting with the bank, still pursued the contract of sale and it was perfected.
Can the bank, who is the mortgagee, assail its validity on the ground that it is
unenforceable?
No, because with respect to the sale, the bank is a third person.
Even if there is a stipulation in favor of third persons – whether accepted or
not, if a sale is unenforceable, its validity cannot be raised by third persons.
Requirements in order for consent, as an element of contract, exist:
1. That consent must have been manifested;
• Consent is manifested by the meeting of the offer and
acceptance upon the object and the cause.
2. That consent must be intelligently given; and
• Such that the person giving it must not be incapacitated.
3. That it must be real.
xxxxxxx
Intelligently giving consent means that the person giving must have full
capacity to act. Meaning, the person has all legal capabilities to bind himself
and to give consent to a particular contract.
The law provides that if both contracting parties are incapacitated, the status
of the contract is unenforceable.
If both contracting parties’ consent is vitiated, the status of the contract
depends on certain circumstances.
For instance, if the consent of both contracting parties are vitiated, such that
they never truly wanted to give consent, the status of the contract is void for
lack of consent.
However, if such consent of both contracting parties are vitiated due to the
fact that they were mistaken and such mistake was substantial, under such
situation, the contract is relatively simulated. And being relatively simulated,
the contract is valid.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
REGAL FILMS V. CONCEPCION
362 SCRA 504 (2001)
Article 1403-1408 – Unenforceable Contracts
FACTS: Gabby Concepcion, entered into a contract with Regal Films.
Petitioner undertook to give two parcels of land to respondents, on top of the
talent fees. The parties renewed the contract undertaking to give respondent
the same parcels of land. Regal films failed to comply with its promise to
convey to lots.
Concepcion and his manager file an action for rescission of contract with
damages. Concepcion contended that he was entitled to rescind the contract,
plus damages, and to be released from further commitment to work.
Petitioner moved for its dismissal stating that there was already amicable
settlement and executed an agreement operating as addendum to the 1991
and 1993 contracts between them and was signed by a representative of the
Regal Films and Solis allegedly acting in representation of Concepcion.
However, Concepcion himself opposed to the motion to dismiss contending
that the addendum was grossly disadvantageous to him and was executed
without his knowledge and consent and that Solis ceased to be his
manager and had no authority to sign addendum.
In 1995, Concepcion stated that he was now willing to honor the addendum
of the 1991 and 1993 contract.
ISSUE: WON the compromise agreement is binding on Concepcion.
RULING: No. The contract falls under Art. 1403, par. 1. Contracts entered
into the name of another person by one who has been given no authority or
legal representation, or who has acted beyond his powers is unenforceable.
In this case, since Solis already cease to become the manager of Concepcion
at the time the compromise agreement was signed, such agreement is
unenforceable.
Moreover, in this case, there was no ratification. Under Art. 1317, you must
make a ratification of the authority of your agent or representative at a time
before you revoke or assail the validity of that person. In this case, the
validity of the compromise agreement was already assailed. You cannot ratify
something which is already legally inexistent. Thus, there was no ratification.
VALENCIA V. LOCQUIAO
412 SCRA 600 (2003)
Article 1403-1408 – Unenforceable Contracts
FACTS: Both cases involve a parcel of land consisting of 4,878 sq.m. in
Pangasinan and were originally owned by spouses Herminigildo and
Raymunda Locquiao. In 1944, executed a Deed of Donation propter nuptias
in Ilocano dialect in favor of their son respondent Benito Locquiao and his
prospective bride denominated as Inventario Ti Sagut.
By the terms of the deed the donees were gifted four parcels of land including
the land, including the land in question, as well as a male cow and 1/3 of the
conjugal house of donor parents in consideration of the impending marriage.
They took vows and the fact of marriage was inscribed in the back of OCT
13833 (subject lot).
Herminigildo and Raymunda died in 1962 and 1968 respectively leaving as
heirs their six children including respondent Benito and petitioner Romana
Valencia. With the permission of Benito and wife, Romana Valencia took
possession and cultivated subject land. When Romana’s husband got sick,
her daughter took possession.
Benito and his wife Tomasa registered the Inventario Ti Sagut with the ROD
Pangasinan in 1970. In due course, the OCT were cancelled in lieu of the TCT
in their names.
In 1973, the heirs of the Locquiao spouses, including Benito and Romana,
executed a Deed of Partition with Recognition of Rights wherein they
distributed among three of them the 12 parcels of land left, excluding the lot
in question and other lots disposed. Contained in the dee was a statement
stating Benito and Marciano Locquiao and heirs of Lucio Locquiao “have The
certification is not sufficient to prove the alleged inexistence or spuriousness
of the challenged document. The CA is correct in pointing out that the mere
absence of the notarial record does not prove that the notary public does not
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have a valid notarial commission and neither does the absence of a file copy
of the document with the archives effect falsification of document.
received our shares in the estates of our parents, by virtue of previous
donations and conveyances,” and for that the heirs of Lucio were not made
part of the deed, all the living children confirmed the previous dispositions and
waived their rights to whomsoever the properties covered were adjudicated.
Later on disagreement among the five group of heirs including Romana
concerning about the distribution of the two lots covered by the deed of
partition, after settling they executed a Deed of Compromise Agreement in
1976, which provided for the redistribution of the two lots. Although not directly
involved in this discord, Benito signed the Compromise Agreement, including
Romana, confirmed all other stipulation in the deed of partition.
In 1983, petitioner Constancia filed an action for annulment of title against
respondents before RTC. Buy was dismissed, and later December that year
respondent Benito Locquiao filed with MTC seeking the ejectment of
Constancia from property and was granted for such.
Romana and Constancia countered with Complaint for the annulment of the
TCT, alleging that the issuance of the TCT was fraudulent; that the Inventario
Ti Sagut was spurious; that the notary public who notarized such had no
authority to do so and that the donation did not observe the form required by
law as there was no written acceptance on the document itself or in a separate
public instrument.
RTC dismissed the complaint for annulment on the grounds of prescription
and laches and ruled the Inventario Ti Sagut as a valid public document to
transmit ownership.
CA affirmed the RTC decision finding that the cause of action already
prescribed and that there was implied acceptance flowing from the very fact
of marriage between respondents together with the registration of the fact of
marriage at the back of OCT constituting substantial compliance.
ISSUE: WON the donation propter nuptias is unenforceable for not following
the formalities.
RULING: The petitioners attacked the validity of instrument stating (1) it is not
authentic, (2) acceptance was not in public document.
To buttress their claim that the document was falsified, the petitioners rely
mainly on the Certification dated July 9, 1984 of theRecords Management and
Archives Office that there was no notarial record for the year 1944 of Cipriano
V. Abenojar who notarized the document on May 22, 1944 and that therefore
a copy of the document was not available.
The Court held that the certification is not sufficient to prove the alleged
inexistence or spuriousness of the challenged document. The CA is correct
in pointing out that the mere absence of the notarial record does not prove
that the notary public does not have a valid notarial commission and neither
does the absence of a file copy of the document with the archives effect
falsification of document.
Further, the Court ruled that the failure of the notary public to furnish a copy
of the deed to the appropriate office is a ground for disciplining him, but
certainly not for invalidating the document or for setting aside the transaction
therein involved.
Moreover, the heirs of the Locquiao spouses, including Romana referred in
the deed of partition and the compromise agreement to the previous
donations made by the spouses in favor of some of the heirs. As found by
RTC, Benito was not allotted any share in the deed of partition precisely
because he received his share by virtue of previous donations. The exclusion
of the subject property in the deed of partition dispels any doubt as to the
authenticity of the earlier Inventario Ti Sagut.
Unlike ordinary donations, donations propter nuptias are those made before
the celebration of marriage in consideration of the same in favor of one or
both future spouses. The distinction is crucial because the two classes of
donations are not governed by the same rules, especially about the formal
essential requisites.
Under the Old Civil Code, donations propter nuptias must be made in a public
instrument in which the property donated must be specifically described.
However, Article 1330 of the same Code provides that "acceptance is not
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From the lectures of Atty. Bruneson Alabastro
necessary to the validity of such gifts". In other words, the celebration of the
marriage between the beneficiary couple, in tandem with compliance with the
prescribed form, was enough to effectuate the donation propter nuptias under
the Old Civil Code.
Under the New Civil Code, Article 127 thereof provides that the form of
donations propter nuptias are regulated by the Statute of Frauds. Article 1403,
paragraph 2, which contains the Statute of Frauds requires that the contracts
mentioned thereunder need be in writing only to be enforceable. However, as
provided in Article 129, express acceptance "is not necessary for the validity
of these donations." Thus, implied acceptance is sufficient.
It is settled that only laws existing at the time of the execution of a contract
are applicable thereto and not later statutes unless the latter are specifically
intended to have retroactive effect.
Consequently, it is the Old Civil Code which applies in this case since the
donation propter nuptias was executed in 1944 and the New Civil Code took
effect only on August 30, 1950. Therefore, applying Article 1330 of the Old
Civil Code in the determination of the validity of the questioned donation, it
does not matter whether or not the donees had accepted the donation. The
validity of the donation is unaffected in either.
Even if the provisions of the New Civil Code were to be applied, the case of
the petitioners would collapse just the same. As earlier shown, even implied
acceptance of a donation propter nuptias suffices under the New Civil Code.
With the genuineness of the donation propter nuptias and compliance with
the applicable mandatory form requirements fully established, petitioners’
hypothesis that their action is imprescriptible cannot take off. Viewing
petitioners’ action for reconveyance from whatever feasible legal angle, it is
barred by prescription.
DISCUSSION: It was contended that one must reckon when an action was
filed to question the validity of the donation. Here, such action was made
where the governing law is already the New Civil Code. Therefore, there was
an allegation that the Statute of Frauds should be followed with respect to the
formalities that should be observed.
However, such contention is not correct. This is because the donation was
made during the time where the governing law is the Old Civil Code.
Moreover, the governing law at the time of donation would determine the
validity, enforceability of such donation.
Hence, in assailing the validity of donation propter nuptias, one must reckon
it from the time when it was executed or perfected and not during the
time an action or complaint was filed.
LITONJUA V. FERNANDEZ
427 SCRA 478 (2004)
Article 1403-1408 – Unenforceable Contracts
FACTS: In 1995, Mrs. Alimario and Fisico who worked as brokers offered to
sell to the petitioners Litonjua the parcels of land. The petitioners were shown
a locator plan and copies of titles showing that the owners were represented
by Mediatrix Fernandez and Eleosida. The brokers told the petitioners that
they were authorized by Fernandez to offer properties for sale. The
petitioners, thereafter, made two ocular inspection of the property, they saw
people gathering coconuts.
In November 1995, the Litonjuas met with Fernandez and the two brokers
they agreed that the Litonjuas would buy the property consisting of 36,742
sq.m., for the price of P150 per square meter, or the total sum of P5M. They
also agreed that the owners would shoulder the capital gains tax, transfer tax
and the expenses for the documentation. They agreed to meet on December
8, 1995 to finalize the sale.
It was agreed upon that on said date, Fernandez would present an SPA
executed by the owners of the property, authorizing her to sell the
property for an in their behalf, and to execute a Deed of Sale thereon. It
was also agreed that they would remit the purchase price to the owners,
through Fernandez.
However, only Fisico attended the meeting. He informed the petitioners the
Fernandez were encountering some problems with the tenants and was trying
to work out a settlement with them. After a few weeks of waiting, the
petitioners wrote Fernandez demanding finalization.
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When they received no response, they sent her another letter
asking for the Deed of Absolute Sale to be executed in accordance with their
verbal agreement on November 1995. They also demanded the turnover of
the subject properties them. Upon receipt of the above letter, Fernandez
wrote the petitioners on 1996, and clarified her stand:
1) It is not true I agreed to shoulder registration fees and other
miscellaneous expenses, etc. I do not recall we ever discussed
about them. Nonetheless, I made an assurance at that time that
there was no liens/encumbrances and tenants on my property (TCT
– 36755).
2) It is not true that we agreed to meet on December 8, 1995 in
order to sign the Deed of Absolute Sale. The truth of the matter
is that you were the one who emphatically stated that you would
prepare a Contract to Sell and requested us to come back first week
of December as you would be leaving the country then. In fact, what
you were demanding from us was to apprise you of the status of
the property, whether we would be able to ascertain that there are
really no tenants. Ms. Alimario and I left your office, but we did not
assure you that we would be back on the first week of
December.
Unfortunately, some people suddenly appeared and claiming to be "tenants"
for the entire properties (including those belonging to my other relatives.)
Another thing, the Barangay Captain now refuses to give a certification that
our properties are not tenanted.
Thereafter, I informed my broker, Ms. Lulu Alimario, to relay to Mr. Agapito
that due to the appearance of "alleged tenants" who are demanding for
a one-hectare share, my cousin and I have thereby changed our mind
and that the sale will no longer push through. I specifically instructed her
to inform you thru your broker that we will not be attending the meeting to
be held sometime first week of December.
In view thereof, I regret to formally inform you now that we are no longer
selling the property until all problems are fully settled. We have not
demanded and received from you any earnest money, thereby, no obligations
exist. In the meantime, we hope that in the future we will eventually be able
to transact business since we still have other properties in San Pablo City.
On April 1996, the Litonjuas filed the Complaint for Specific Performance with
Damages against Fernandez and the registered owners of the property.
Fernandez claimed the while they Litonjuas offered to buy the property during
the meeting in 1995, she did not accept the offer, thus no verbal contract to
sell was ever perfected. She specifically alleged that the said contract to sell
was unenforceable for the failure to comply with the Statute of Frauds.
She also maintained that the even if there was commitment, it
was not binding for there was absence of consideration distinct and separate
from the price.
Trial Court declared Fernandez and other respondents in default for their
failure to file their responsive pleading within the reglementary period. The
court rendered judgment in favor of the Litonjuas. CA reversed and set
aside such ruling.
ISSUES: 1. WON there was a perfected contract of sale between the parties.
2. WON the contract falls under the coverage of the statute of frauds.
3. WON the defendants declared in default are benefited by the CA decision.
No Perfected Contract of Sale
CONTENTION: Petitioners assert that there was a perfected contract of sale
between them and the owners through respondent Fernandez. They contend
that the perfection of the said contract is evidence by the 1996 Letter of
Fernandez.
They argue that such is a sufficient note or memorandum of the perfected
contract, thus removing it from the coverage of the statute of Frauds, for the
letter specifically refers to a sale which they agreed to initially but which the
latter withdrew because of the emergence of the tenants.
COURT REPLY: The contention is bereft of merit. The letter is hardly the note
or memorandum contemplated under Art. 1403(2)(e) of the New Civil Code.
Page 23 of 57
 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
The letter can hardly be said to constitute the note or memorandum
evidencing the agreement as it is very clear that
the seller did not accept the conditions that she will be the
one to pay the registration fees and miscellaneous expenses and
therein denied that she committed to execute the deed of sale. The letter
stated the reasons that are beyond the control of them why the sale could no
longer push.
There is no documentary evidence on record that the respondents
authorized Fernandez to sell their properties.
ART. 1878. A special power of attorney is necessary to enter into any contract
by which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration, or to create or convey real rights
over immovable property, or for any other act of strict dominion. Any sale of
real property by one purporting to be the agent of the registered owner without
any authority therefor in writing from the said owner is null and void. The
declarations of the agent alone are generally insufficient to establish the fact
or extent of her authority.
IN THE CASE: The only evidence adduced by the Litonjuas to prove
authorization is the testimony of Antonio Litonjua that
Fernandez openly represented herself to be representative of
respondent-owners, and she promised to present an SPA. However, this was
belied when Fernandez testified that there
was no authority given to her yet.
The petitioners cannot feign ignorance of her lack of authority to sell the
properties. It must be stressed that the petitioners are noted businessmen
who ought to be very familiar with the intricacies of business transactions,
such as the sale of real property.
When dealing with an agent, they have the burden to ascertain not only the
fact of agency but also the nature and extent of authority and the burden is
for them to prove it. In this case, there were no authority given to Fernandez.
The Letter is Not a Sufficient Note or Memorandum
Contrary to their contention, the letter is not a note or memorandum within the
context of Article 1403(2) because it does not contain the following:
(a) All the essential terms and conditions of the sale of the properties;
(b) An accurate description of the property subject of the sale, and,
(c) The names of the owners of the properties.
IN THE CASE: It was noted that the Litonjuas were uncertain as to the specific
area of the property they were seeking to buy. The failure of respondent
Fernandez to object to parole evidence to prove (a) the essential terms and
conditions of the contract asserted by the petitioners and, (b) her authority to
sell the properties for the respondents-registered owners did not and should
not prejudice the respondents-owners who had been declared in default.
DISCUSSION: In this case, remember that not just any note or memorandum
can be sufficient to comply with the Statute of Frauds. There are specifications
which must be indicated in that note or memorandum to be sufficient evidence
or to prove the existence of a contract, for the purpose of its enforceability
under Art. 1403 (2).
In this case, the Court found the correspondence between Litonjua and
Fernandez to be insufficient. They have not even agreed as to what was the
object of the contract of sale.
It also lacked the essential terms and conditions of the contract of sale. There
was no showing that there was a specific subject matter of the contract–there
was no specific description of the parcel of land that was supposed to be the
object of the contract. If the subject property is not described, there is no
object. No object, no contract from the very beginning.
As a general rule, exchange of letters or correspondence may be used as a
basis to prove the existence of a contract. However, in this case, the
correspondence between Fernandez and Litonjua was insufficient to establish
the sale of the parcel of land. They did not even know the specific areas that
were involved–what area or portion of the parcel of land was involved. They
cannot prove the existence of contract of sale, thus, no contract.
Take note of the details or specifications that must be indicated in the note or
memorandum to comply with the statute of frauds to prove the existence of a
contract.
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GOZUN V. MERCADO
511 SCRA 305 (2006)
Article 1403-1408 – Unenforceable Contracts
FACTS: In the local election of 1995, Mercado vied for governor in Pampanga
and upon his request, Gozun, owner of JMG Publishing House, submitted to
Mercado draft samples and price quotation of campaign materials.
Upon Gozun’s claim, Mercado’s wife had told him that Mercado already
approved his price quotation and that he could start printing and hence printed
such. Given the urgency and limited time to do the job order, Gozun availed
the service of other printing presses owned by his daughter and mother
respectively. Gozun delivered the campaign materials to Mercado’s
headquarters.
On March 31, 1995, Mercado’s sister in law, Lilian Soriano, obtained from
Gozun a cash advance of P253K for the allowance of pollwatchers attending
a seminar and other expenses. Lilian acknowledge on Gozun’s 1995 diary
receipt of the amount. Gozun soon sent a SOA for the amount of P2M
detailing the amount for printing and cash advance by Lilian.
Mercado’s wife partially paid P1M and issued a receipt. However, despite
repeated demands and promise to pay, Mercado failed to settle the balance
of his account to Gozun. Them being compadres, waited for more than three
years for respondent to honor his promise but to no avail, compelling
petitioner to endorse the matter to his counsel who sent respondent a demand
letter. Respondent failed to heed.
Gozun filed a complaint for collection of Sum of money plus inflationary
adjustment and Attorney’s Fees.
Mercado denied having transacted with Gozun or entering into any contract
for the printing of campaign materials. He alleged that the materials were
donations from his family, friends and political supporters. He added that all
contracts involving his personal expenses were coursed through and signed
by him to ensure compliance with pertinent election laws.
Mercado claimed that Gozun was his over-all coordinator in charge of the
conduct of seminar for volunteers and other matters, and that his campaign
manager, Juanito "Johnny" Cabalu (Cabalu), who was authorized to approve
details with regard to printing materials, presented him some campaign
materials, those were partly donated.
When confronted about the official receipt issued to his wife acknowledging
her payment to JMG Publishing House of P1M, Mercado claimed that it was
his first time to that receipt and that it was just to compensate him for a job
well done.
CA held that there was no evidence to support claim that Lilian was authorized
by Mercado to borrow money on his behalf and that the acknowledgement
receipt signed by Lilian did not specify in what capacity she received money
thus applying Article 1317, the claim of P253K was unenforceable.
ISSUE: WON the claim of Gozun is unenforceable.
HELD: By the contract of agency, a person binds himself to render some
service or to do something in representation or on behalf of another, with the
consent or authority of the latter.
Contracts entered into in the name of another person by one who has been
given no authority or legal representation or who has acted beyond his powers
are classified as unauthorized contracts and are declared unenforceable
unless they are ratified.
Generally, the agency may be oral, unless the law requires a specific form.
However, a special power of attorney is necessary for an agent to, as in this
case, borrow money, unless it be urgent and indispensable for the
preservation of the things which are under administration. Since nothing in
this case involves the preservation of things under administration, a
determination of whether Soriano had the special authority to borrow money
on behalf of Mercado is in order.
Here, Gozun failed to categorically state however, whether the loan was made
on behalf of Mercado or of his wife. While Gozun claims that Lilian was
authorized by Mercado, the statement of account states that the amount
received by Lilian was made in behalf of “Mrs. Annie Mercado.” The receipt
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From the lectures of Atty. Bruneson Alabastro
did not specify for what reason and for what capacity did Lilian Soriano
received the money.
Nowhere in the note can it be inferred that Mercado himself was connected
with the transaction. It bears noting that Lilian signed in the receipt in her
name alone, without indicating therein that she was acting for Mercado. She
thus bound herself in her personal capacity and not as an agent of anyone for
that matter.
Thus, as a rule in the law of agency, in order to bind the principal by a
mortgage on real property executed by an agent, it must upon on its face, be
made, signed and sealed in the name of the principal otherwise it will bring
agent.
Regarding the two other publishing companies, petitioner explains that he
was the one who personally and directly contracted with respondent and he
merely subcontracted the two printing establishments in order to deliver on
time the campaign materials ordered by respondent.
Respondent counters that the claim of sub-contracting is a change in
petitioner’s theory of the case which is not allowed on appeal.
Gozun is indeed the real party in this case for only the contracting parties are
bound by the stipulations in the contract. In sum, Mercado has still the
obligation to pay the total cost of printing but not the amount advanced by
Gozun to Lilian Soriano.
DISCUSSION: In this case, we’re talking about agents. Take note that in one
of the principles in agency, an agent is given or vested with authority to
transact for and behalf of the principal by way of SPA. Lacking that SPA, you
cannot say that you are given that authority to transact for another. Usually, if
that’s the case, when you represent another person but sign under your own
name, you only bind yourself; you cannot bind the person purportedly your
principal.
Why?
It’s very important to remember that apart from the existence of an SPA to
prove the power vested upon you, when the agent signs for and behalf of the
principal, it must not be made only with the authority given by the principal
(meaning you present the SPA), but the agent must also disclose the
principal. Meaning, the agent should not be signing or executing contracts
under his/her own name.
If the agent enters into certain contracts signed under his/her own name,
he/she binds himself on their own, not their principal.
Take note:
(1) Present existence of authority (ex. SPA)
(2) Disclose the principal/in what capacity are you representing
CABALES V. CA
511 SCRA 305 (2007)
Article 1403-1408 – Unenforceable Contracts
FACTS: Rufino Cabales died on 1966 leaving a parcel of land in Leyte to his
surviving wife Saturnina and five children. In 1971, brothers and co-owners
Bonifacio, Albino and Alberto sold the subject property to Dr. Corrompido for
P2,000 with right to repurchase within 8 years. The three siblings divided the
proceeds of the sale among themselves of P666.6 each.
In August 1971, Alberto secured a note (vale) from Corrompido in the amount
of P300. In 1972, Alberto died leaving his wife and his son Nelson Cabales
which is the petitioner in this case.
In 1975, within the 8-year redemption period, Bonifacio and Albino tendered
payment of P666.6 each to Dr. Corrompido, but Dr. Corrompido only released
the document of sale with pacto de retro after Saturnina paid for the share of
her deceased son, Alberto, including his "vale" of ₱300.00.
Dr. Corrompido only released the document of sale with pacto de retro after
Saturnina paid for the share of her deceased son, Alberto, including his "vale"
of ₱300.00.
On even date, Saturnina and her four (4) children Bonifacio, Albino, Francisco
and Leonora sold the subject parcel of land to respondents-spouses Jesus
and Anunciacion Feliano for ₱8,000.00. The Deed of Sale provided in its last
paragraph, thus:
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It is hereby declared and understood that the amount of TWO THOUSAND
TWO HUNDRED EIGHTY SIX PESOS (P2,286.00) corresponding and
belonging to the Heirs of Alberto Cabales and to Rito Cabales who are still
minors upon the execution of this instrument are held in trust by the VENDEE
and to be paid and delivered only to them upon reaching the age of 21.
In 1985, ROD Leyte issued OCT in favor of Felianos. On December 30, 1985
Saturnina and her four children executed an affidavit to the effect that Nelson
would only receive the amount of P176.34 from respondents-spouses when
he reaches the age of 21 considering that Saturnina paid Dr. Corrompido
₱966.66 for the obligation of petitioner Nelson’s late father Alberto, i.e.,
₱666.66 for his share in the redemption of the sale with pacto de retro as well
as his "vale" of ₱300.00.
In 1986, 24-year-old petitioner Rito Cabales acknowledged receipt of the sum
of P1,143 from Feliano representing his share in the property.
In 1988, Saturnina died. Nelson, then residing in Manila went back to his
father’s hometown in Southern Leyte.
In 1995, contending that they could not have sold their shares in subject
property when they were minors; they filed to the RTC of Maasin for
redemption of the subject land and damages.
In their answer, respondents-spouses maintained that petitioners were
estopped from claiming any right over subject property considering that (1)
petitioner Rito had already received the amount corresponding to his share of
the proceeds of the sale of subject property, and (2) that petitioner Nelson
failed to consign to the court the total amount of the redemption price
necessary for legal redemption. They prayed for the dismissal of the case on
the grounds of laches and prescription.
RTC ruled against petitioners, it held that
1. Alberto, or by his death, any of his heirs including Nelson lost their right to
subject land when not one of them repurchased such from Dr. Corrompido;
2. Saturnina was effectively subrogated to the rights and interests of Alberto
when she paid for Alberto’s share as well as his obligations to Dr. Corrompido;
3. Petitioner Rito had no more right to redeem his share to redeem his share
to subject property as the sale by Saturnina, his legal guardian pursuant to
Section 7, Rule 93 of the Rules of Court, was perfectly valid; and it was shown
that he received his share of the proceeds of the sale on July 24, 1986, when
he was 24 years old.
CA modified RTC decision it held that sale by Saturnina was unenforceable
but effectively ratified by petitioner Rito’s receipt of the proceeds on July 24,
1986. Saturnina was not subrogated to the rights and directed Nelson to pay
Saturnina’s estate. It denied redemption for it was not made within the period.
ISSUE: WON the contract of sale as to the pro-indiviso share of petitioner
Rito is unenforceable.
RULING: [YES]
Rights of Petitioners to the Subject Land
When Rufino Cabales died intestate, his wife Saturnina and his six children
survived and succeeded him. But before partition of the subject land was
effected, Alberto died. By operation of law, his rights and obligations to
the 1/7 of the land are transferred to his legal heirs.
Rights to the Parties and the Two Sales
The first sale with pacto de retro to Dr. Corrompido by the brothers and the
co-owners Bonifacio, Albino and Alberto was valid but only as to their pro-
indiviso shares to the land. When Alberto died prior to repurchasing his
share, his rights and obligations were transferred to and assumed by his heirs,
namely his wife and his son, petitioner Nelson. But the records show that it
was Saturnina, Alberto’s mother, and not his heirs, who repurchased for him.
As correctly ruled by the Court of Appeals, Saturnina was not subrogated to
Alberto’s or his heir’s rights to the property when she repurchased the share.
When Saturnina redeemed for Alberto’s heirs who had then acquired his pro-
indiviso share in subject property, it did not vest in her ownership over such
share the she redeemed. But she had the right to be reimbursed for the
redemption price and held a lien until reimbursed. The result is that the heirs
of Alberto; his wife and his son Nelson, retained ownership.
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From the lectures of Atty. Bruneson Alabastro
Upon redemption from Dr. Corrompido, the subject property was resold to
respondents-spouses by the co-owners. Petitioners Rito and Nelson were
then minors and as indicated in the Deed of Sale, their shares in the proceeds
were held in trust by respondents-spouses to be paid and delivered to them
upon reaching the age of majority.
As to Rito the contract of sale was unenforceable. The father, or in his
absence the mother is considered the legal administrator of the property
pertaining to the child under his or her parental authority without need of giving
a bond in case the amount of the property does not exceed two thousand.
(Art. 320 and 326)
Saturnina was clearly petitioner Rito’s legal guardian without necessity of
court appointment considering that the amount of his property or one-seventh
of subject property was ₱1,143.00, which is less than two thousand pesos.
The legal guardian has only plenary power of administration over the minor’s
property. It does not include the power of alienation for such requires judicial
authority.
Thus, when Saturnina, as legal guardian of Rito, sold his pro-indiviso share
in the land, she did not have the legal authority to do so.
Unenforceable but was Ratified
Accordingly, the contract of sale as to the pro-indiviso share of petitioner Rito
was unenforceable. However, when he acknowledged receipt of the proceeds
of the sale on July 24, 1986, petitioner Rito effectively ratified it. This act of
ratification rendered the sale valid and binding as to him.
Sale on Nelson was Void
He was a minor at the time of the sale. Saturnina or any and all the other co-
owners were not his legal guardians with judicial authority to alienate or
encumber his property. It was his mother who was his legal guardian and, if
duly authorized by the courts, could validly sell his undivided share to the
property. She did not.
Necessarily, when Saturnina and the others sold the subject property in its
entirety to respondents-spouses, they only sold and transferred title to their
pro-indiviso shares and not that part which pertained to petitioner Nelson and
his mother. Consequently, petitioner Nelson and his mother retained
ownership over their undivided share of subject property.
But may the petitioners redeem the subject land?
Clearly, legal redemption may only be exercised by the co-owner or co-
owners who did not part with his or their pro-indiviso share in the property
held in common. As demonstrated, the sale as to the undivided share of
petitioner Rito became valid and binding upon his ratification on July 24, 1986.
As a result, he lost his right to redeem subject property.
However, as likewise established, the sale as to the undivided share of
petitioner Nelson and his mother was not valid such that they were not
divested of their ownership thereto. Necessarily, they may redeem the
subject property from respondents-spouses. But they must do so within
thirty days from notice in writing of the sale by their co-owners vendors.
Thirty Period Has Lapsed to Redeem
In the instant case, the right of redemption was invoked not days but years
after the sale were made in 1978. We are not unmindful of the fact that
petitioner Nelson was a minor when the sale was perfected. Nevertheless,
the records show that in 1988, petitioner Nelson, then of majority age, was
informed of the sale of subject property.
Moreover, it was noted by the appellate court that petitioner Nelson was
likewise informed thereof in 1993 and he signified his intention to redeem
subject property during a barangay conciliation process. But he only filed the
complaint for legal redemption and damages on January 12, 1995, certainly
more than thirty days from learning about the sale. In the face of the
established facts, petitioner Nelson cannot feign ignorance of the sale
of subject property in 1978.
To require strict proof of written notice of the sale would be to countenance
an obvious false claim of lack of knowledge thereof, thus commending the
letter of the law over its purpose, i.e., the notification of redemptioners. The
Court is satisfied that there was sufficient notice of the sale to petitioner
Nelson.
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Petitioner Nelson, as correctly held by the Court of Appeals, can no
longer redeem subject property. But he and his mother remain co-
owners thereof with respondent’s spouses. Accordingly, title to subject
property must include them.
The petition is denied. The decision of CA is affirmed with modification. A new
certificate of title in the name of respondents-spouses Jesus and Anunciacion
Feliano for the 6/7 portion, and petitioner Nelson Cabales and his mother for
the remaining 1/7 portion, pro-indiviso.
DISCUSSION: We are talking about a case where a certain property is
supposedly given to a minor child. As we know, in the meantime of the
minority, administration of property belongs to his/her legal guardians. In this
case, we are talking about a fraud in a pro-indiviso share. Now, since there is
co-ownership, the property was sold by the mother.
So, in that contract of sale, can it be allowed? Is it valid?
Yes, because contract of sale is a consensual contract—as long there is
consent, object, or consideration.
But the question is: can it be enforced? Or is it binding as to the legal rights
of the minor?
The answer is NO.
Take note that—if guardian with respect to ward, representative with respect
to absentee, parent with respect to a minor—if they wanted to sale a property,
they must have to secure a judicial authority.
Why?
Selling, transferring, conveying properties are acts of dominion or ownership.
Guardians, under the law, are only clothed with authority to administer such
property—only maintenance.
So why is that the contract of sale is unenforceable and not rescissible? As
you remember in Article 1381 under par. 1 and 2, there is no authority, right?
But in this case, it exceeds her authority or her power afforded to her by law,
so it is unenforceable under Art. 1403 par. (1).
PEÑALBER V. RAMOS
511 SCRA 305 (2009)
Article 1403-1408 – Unenforceable Contracts
FACTS: Lina Peñalber is the mother of Leticia and the mother in law of
Quirino Ramos, Bartex is a corporation which bought from Ramos and Leticia
one of the two properties in this case.
In 1987, Lina filed before RTC for Declaration of Nullity of Deeds and Titles,
Reconveyance and Damages with WPI against the respondent Ramos and
others.
First Cause of Action
Lina alleged in her complaint that she was owner of a parcel of land in Ugac,
Cagayan, a residential house and a warehouse were constructed on the said
parcel of land which she claimed to own (Ugac Properties). She averred that
in the middle of 1986, she discovered that the title for such was cancelled and
a TCT was issued in the name of spouses Ramos.
Upon verification, Lina learned that the basis for the cancellation of her title
was a Deed of Donation of a Registered Land which she purportedly
executed in favor of the respondent spouses Ramos on 1983. Lina insisted
that her signature of such was a forgery as she did not donate any property
to respondent spouses Ramos. When she confronted the spouses of the
donation, they pleaded that they would just pay for the Ugac properties in the
amount of P1 Million. She agreed to such proposition.
In 1987, she found out that the respondent spouses Ramos were selling the
Ugac properties to respondent Bartex. She then sent her son Johnson to
caution respondent Bartex that the spouses Ramos were not the lawful
owners of the said properties. Lina also warned the spouses Ramos not to
sell the Ugac properties anymore, otherwise, she would file action. The
respondent Ramos assured her that they would do no such thing. As a
precaution, Lina executed an Affidavit of Adverse Claim over the properties
on 1987 and caused such to be annotated on the same day. Despite the
warnings however, the spouses Ramos still executed in favor of Bartex a
Deed of Absolute Sale over the Ugac properties for a total price of P150,000
as a result, a title was issued in the name of respondent Bartex.
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Second Cause of Action
In 1982, Lina allowed the Spouses Ramos to manage the hardware store. In
1984, Mendoza put the property up for sale.
As Lina did not have enough cash to buy the property, Lina entered into a
verbal agreement with respondent Spouses Ramos with the following terms:
(1) The lot would be bought by Ramos in behalf of Lina;
(2) The consideration of P80K be paid from the accumulated earnings of the
store;
(3) Since Ramos have the better credit standing, they would be made to
appear in the Deed of Sale as the vendees so that the title be issued in their
named could be used by them to secure a loan with which to build a bigger
building and expand the business of Lina.
In accordance with such agreement, the Ramos entered into a contract of
sale with Mendoza over the Bonifacio property thus a TCT was issued in
the name of the respondent Ramos.
Lina insisted that they Ramos spouses were merely trustees of the Bonifacio
property; thus, they were under a moral and legal obligation to reconvey title
over the property to her. Lina therefore prayed that she be declared the owner
of the Bonifacio property.
ISSUE: 1. Whether the existence of a trust agreement between her and
respondent spouses Ramos was clearly established. [YES]
2. Whether such trust agreement was valid and enforceable. [YES]
RULING: From the allegations of Lina, there was a verbal trust agreement
in the nature of an express trust of allowing Ramos to acquire title but to
hold such property for her benefit. Given that the alleged trust concerns an
immovable property, however, spouses Ramos counter that the same is
unenforceable since the agreement was made verbally and no parol evidence
may be admitted proving the existence of an express trust concerning an
immovable property, or any interest therein.
However, the spouses were deemed to have waived their objection to
the parol evidence as they failed to timely object when petitioner
testified on the said verbal agreement.
Even though an express trust concerning an immovable fall under the
Statute of Frauds, but the parties made no objection to the admissibility
of the oral evidence to support the contract thus it was just as binding.
DISCUSSION: In the Statute of Frauds, Article 1403 (2) is not exclusive.
By way of extending the Statute of Frauds, we have Article 1443. No express
trusts concerning an immovable or any interest therein may be proved by
parol evidence.
In this case, the trust agreement was not reduced into writing. They only
verbally agreed to the said trust.
Is that allowed? NO, as a general rule.
However, was it objected to? NO. Since it was not objected to, you waived
your objection, and thus, the said express trust over the immovable property
can be proven even by parol evidence.
GR: Writing
XPN: Disproved orally; not objected to
GONZALES V. PEREZ
605 SCRA 47 (2009)
Article 1403-1408 – Unenforceable Contracts
Certain formalities must be observed for particular purposes, that is for the
validity of the contract or for the enforceability of a contract and in order that
may acquire greater convenience or efficacy as against third persons.
What if convenience aspect has not been observed or the sale of real
properties is not reduced into a public instrument, will that negate the
enforceability of the contract of sale?
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No. It will not negate the enforceability of the contract of sale because the
requirements of Art. 1358 of the New Civil Code is only for convenience and
not for its enforceability or validity.
In order that a sale of real property to be considered as enforceable what is
the minimum requirement?
The minimum requirement so that the sale of property may be valid or
enforceable, it only need to be in writing or to be subscribed by the parties. It
should be in writing at least in a private instrument.
HELD: A sale of real property, though not consigned in a public instrument or
formal writing, is, nevertheless, valid and binding among the parties, for the
time-honored rule is that even a verbal contract of sale of real estate produces
legal effects between the parties.
Although a conveyance of land is not made in a public document, it does not
affect the validity of such conveyance. Article 1358 does not require the
accomplishment of the acts or contracts in a public instrument in order to
validate the act or contract but only to insure its efficacy.
Under Article 1403(2), the sale of real property should be in writing and
subscribed by the party charged for it to be enforceable. In the case before
the Court, the Deed of Sale between Pedro and Marcos is in writing and
subscribed by Pedro and his wife Francisca; hence, it is enforceable under
the Statute of Frauds.
However, not having been subscribed and sworn to before a notary public,
the Deed of Sale is not a public document and, therefore, does not comply
with Article 1358 of the Civil Code.
Nonetheless, it is a settled rule that the failure to observe the proper form
prescribed by Article 1358 does not render the acts or contracts enumerated
therein invalid. It has been uniformly held that the form required under the
said Article is not essential to the validity or enforceability of the transaction,
but merely for convenience.
DISCUSSION: In this case, I want to emphasize that the Supreme Court is
very specific that it is a time-honored rule or a well-settled rule that even
an oral contract involving immovable properties, it is valid even if it is
orally made. It’s just that the requirement that it is in writing is necessary for
purposes of the enforceability of this contract of sale; and you have to
remember that the Statute of Frauds comes in otherwise, your failure to
observe that formality will render the contract as unenforceable. Even if it is
valid and binding as between the parties.
NERI V. HEIRS OF YUSOP UY
683 SCRA 553 (2012)
Article 1403-1408 – Unenforceable Contracts
FACTS: This case is a petition for review on certiorari by petitioners:
Napoleon, Alicia, Visminda, Rosa, Douglas, Eutropia, and Victoria seeking to
reverse and set aside the Decision of the CA which annulled the Decision of
the RTC of Davao del Norte, and entered a new one dismissing P’s complaint
for annulment of sale and damages against herein respondent.
During the lifetime of Ps’ mother, Anunciacion, she and her 2nd husband,
Enrique, acquired several homestead properties. When Anunciacion died,
however, Enrique in his personal capacity and as natural guardian of his minor
children Rosa and Douglas, together with, Napoleon, Alicia and Visminda
executed an Extra-Judicial Settlement of the Estate with Absolute Deed of
Sale (1979) adjudicating among themselves the said homestead properties,
and thereafter, sold the properties to the late spouses Uy for a consideration
of 80,000.
On 1996, the children of Enrique filed a complaint for annulment of the said
sale against spouses Uy, assailing the validity of the sale for having been sold
within the prohibited period. And, also, for having been executed without the
consent or approval of Eutropia, Victoria, Rosa and Douglas; thus, depriving
the latter siblings of their legitime.
Uy countered that the sale took place beyond the 5 year prohibitory period
from the issuance of the homestead patents. They also denied that Eutropia
and Victoria were excluded from the Extra-judicial settlement and sale of the
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From the lectures of Atty. Bruneson Alabastro
subject properties, and interposed further the defense of prescription and
laches.
RTC rendered a Decision annulling the Extra-judicial settlement of estate with
Absolute Deed of Sale. It ruled that the sale is void because Eutropia and
Victoria were deprived of their hereditary rights and that Enrique had no
judicial authority to sell the shares of his minor children, Rosa and Douglas.
On appeal, however, CA reserved and set aside RTC decision. Hence this
appeal.
ISSUE: Whether Enrique, as guardian of his children and co-owner (with his
children), can sell their co-owned property
HELD: No, as to the shares of the minor children because as a natural
guardian, he is merely clothed with powers of administration.
Doctrine: Parents should apply for judicial guardianship in order for them to
sell properties of their children.
*Even the parents of their minor children are bound to post bond.*
With respect to Rosa and Douglas who were minors at the time of the
execution of the settlement and sale, their NATURAL GUARDIAN and father,
Enrique, represented them in the transaction. However, on the basis of the
laws prevailing at that time, Enrique was merely clothed with POWERS OF
ADMINISTRATION and bereft of any authority to dispose of their 2/16 shares
in the estate of their mother, Anunciacion.
Power of dominion, is granted by law only to a JUDICIAL GUARDIAN of the
ward’s property and even then only with court’s prior approval secured in
accordance with the proceedings set forth by the Rules.
Exception: RATIFICATION
Consequently, the disputed sale entered into by Enrique in behalf of his minor
children without the proper judicial authority, unless ratified by them upon
reaching the age of majority, is unenforceable in accordance with Art. 1317
and 1403(1) of the Civil Code.
Records, however, show that Rosa had ratified the extrajudicial settlement of
the estate with absolute deed of sale. The same, however, is not true with
respect to Douglas for lack of evidence showing ratification.
THEREFORE, the extrajudicial settlement with sale is invalid and not binding
on Eutropia, Victoria and Douglas. Consequently, spouses Uy or their
substituted heirs became pro indiviso co-owners of the homestead properties
with Eutropia, Victoria and Douglas, who retained title to their respective
shares.
BUCTON V. RURAL BANK OF EL SALVADOR
717 SCRA 278
Article 1403-1408 – Unenforceable Contracts
FACTS: Petitioner Nicanora G. Bucton filed a case Annulment of Mortgage,
Foreclosure, and Special Power of Attorney (SPA) against Erlinda
Concepcion (Concepcion) and Rural Bank of El Salvador.
Bucton alleged that Concepcion obtained a loan in the amount of ₱30,000.00
from respondent bank; that as security for the loan, Concepcion mortgaged
Bucton’s house and lot to respondent bank using an SPA allegedly executed
by petitioner in favor of Concepcion; that Concepcion failed to pay the loan;
and that Bucton’s house and lot were foreclosed.
Bucton maintains that the signatures in the SPA were forged and that she
could not be held liable for the loan as it was obtained by Concepcion in her
own personal capacity, not as an attorney-in-fact of petitioner.
Respondent bank, on the other hand, relies on the presumption of regularity
of the notarized SPA. It insists that it was not negligent as it inspected the
property before it approved the loan, unlike petitioner who was negligent in
entrusting her title to Concepcion.
ISSUE: WON the real estate mortgage was entered into by Concepcion in her
own personal capacity (YES).
RULING: In order to bind the principal by a deed executed by an agent, the
deed must upon its face purport to be made, signed and sealed in the name
of the principal. In other words, the mere fact that the agent was authorized
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to mortgage the property is not sufficient to bind the principal, unless the deed
was executed and signed by the agent for and on behalf of his principal.
In this case, the authorized agent failed to indicate in the mortgage that she
was acting for and on behalf of her principal. The real estate mortgage
explicitly shows on its face that it was signed by Concepcion in her own name
and in her own personal capacity. In fact, there is nothing in the document to
show that she was acting or signing as an agent of petitioner. Thus, consistent
with the law on agency and established jurisprudence, Bucton cannot be
bound by the acts of Concepcion.
In light of the foregoing, there is no need to delve on the issues of forgery of
the SPA and the nullity of the foreclosure sale. For even if the SPA was valid,
the real estate mortgage would still not bind petitioner as it was signed by
Concepcion in her personal capacity and not as an agent of petitioner. Simply
put, the Real Estate Mortgage is void and unenforceable against Bucton.
DISCUSSION: This involves the enforceability of a real estate mortgage. You
have to make a distinction between the enforceability of the loan agreement
and the enforceability of the real estate mortgage.
In this case, the loan was completely valid. However, with respect to the issue
on what properties may be foreclosed by the bank in case of default or
nonpayment, this is where it was material to determine who were the
contracting parties in the real estate mortgage.
The SC found that Concepcion, who was the agent, was actually given
authority. What made it defective was that the agent did not disclose that he
was signing for and in behalf of the principal, and in representative capacity.
SC ruled that it was as if Concepcion signed in her own name and in her own
capacity. Therefore, she is liable with respect to the foreclosure of the real
estate mortgage.
Take note that Art. 1403 (1) is primarily governed by the principles under the
law on agency.
In this case, what is the effect that there was forgery in the SPA (special power
of attorney)?
It casts doubt on the authority, but it does not mean that the authority did not
exist.
Remember that a contract of agency is purely consensual. The absence or
existence of the SPA, which is a document in writing, is immaterial. By the
fact that the contract of agency is perfected by mere consent, you are already
given authority.
But is that sufficient in order for the contract to be completely valid and
binding?
No. According to the SC, if you are an agent and you want to contract for and
in behalf of your principal, you must disclose that you are signing for your
principal in a representative capacity. Otherwise, if you sign under your own
name, there is a presumption that you are entering into the contracting in a
personal capacity.
In this case, the SC said that the real estate mortgage is unenforceable
against the principal. Therefore, the one personally liable would be the agent.
UNIVERSITY OF MINDANAO V. BANGKO SENTRAL PILIPINAS
778 SCRA 458 (2016)
Article 1403-1408 – Unenforceable Contracts
FACTS: For the year 1982, the Board of Trustees of University of Mindanao
(UM) was chaired by Guillermo B. Torres. His wife, Dolores P. Torres, sat as
the school's Assistant Treasurer.
Before 1982, Guillermo and Dolores incorporated and operated two (2) thrift
banks— FISLAI and DSLAI. Guillermo chaired both thrift banks, while Dolores
acted as DSLAI's President and FISLAI's Treasurer.
Upon Guillermo's request, the Bangko Sentral ng Pilipinas (BSP) issued a
P1.9 million standby emergency credit to FISLAI. The release of the credit
was evidenced by three (3) promissory notes signed by Guillermo and co-
signed by either his wife, Dolores, or Edmundo G. Ramos, Jr.
On May 25, 1982, UM's Vice President for Finance, Saturnino Petalcorin,
executed a deed of real estate mortgage over UM's property in Cagayan de
Oro City (TCT No. T-14345) in favor of BSP with the mortgage to serve as
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From the lectures of Atty. Bruneson Alabastro
security for FISLAI's Php I.9 Million loan. It was allegedly executed on UM's
behalf.
As proof of his authority to execute a real estate mortgage for UM, Saturnino
Petalcorin showed a Secretary's Certificate signed on April 13, 1982 by UM's
Corporate Secretary, Aurora de Leon. The mortgage was annotated on TCT
No. T-14345.
On October 21, 1982, BSP granted FISLAI an additional loan of P620,700.
Saturnino Petalcorin executed another deed of real estate mortgage,
allegedly on behalf of UM, over its two properties in Iligan City (TCT Nos. T-
15696 and T-15697). This mortgage served as additional security for FISLAI's
loans.
FISLAI and DSLAI underwent rehabilitation and were merged, with DSLAI as
the surviving corporation.
DSLAI later became known as Mindanao Savings and Loan Association, Inc.
(MSLAI). However, MSLAI failed to recover from its losses and was liquidated
on May 24, 1991.
In 1999, BSP sent a letter to UM, informing it that the bank would foreclose
its properties if MSLAI's total outstanding obligation of P12,534,907.73
remained unpaid. In reply, the UM Vice President for Accounting, Gloria
Detoya, denied that UM's properties were mortgaged. It also denied having
received any loan proceeds from BSP.Hence, UM filed two Complaints for
nullification and cancellation of mortgage.
RTC: The RTC Cagayan de Oro rendered a Decision in favor of UM and
annulled the real estate mortgage for lack of authority. Aurora de Leon
testified that UM's Board of Trustees did not issue a board resolution that
would support the Secretary's Certificate she issued and that she signed the
Secretary's Certificate only upon Guillermo B. Torres' orders. The RTC of
Iligan City similarly annulled the real estate mortgages executed over UM's
Iligan properties and declared the same unenforceable under Article 1403 of
the Civil Code.
CA: The Court of Appeals, however, ruled in favor of BSP and held that the
Secretary's Certificate "clothed Petalcorin with apparent and ostensible
authority to execute the mortgage deed on its behalf.” BSP merely relied in
good faith on the Secretary's Certificate and UM is estopped from denying
Petalcorin's authority. The CA also observed that the annotations on UM's
certificates of title operate as constructive notice to it that its properties were
mortgaged and that its failure to disown the mortgages for more than a decade
was implied ratification
ISSUE: WON the mortgages executed by Saturnino Petalcorin were
unenforceable for lack of authority.
RULING: The SC resolved to grant the petition.
I. Corporate acts are not ultra vires if within its express powers or when
necessary and incidental to carry out a corporation's purposes
Corporations are artificial entities granted legal personalities upon their
creation by their incorporators in accordance with law. Unlike natural persons,
they have no inherent powers. Third persons dealing with corporations cannot
assume that corporations have powers. It is up to those persons dealing with
corporations to determine their competence as expressly defined by the law
and their articles of incorporation. Parties dealing with corporations cannot
simply assume that their transaction is within the corporate powers. The acts
of a corporation are still limited by its powers and purposes as provided in the
law and its articles of incorporation.
A corporation may exercise its powers only within those definitions. Corporate
acts that are outside those express definitions under the law or articles of
incorporation or those "committed outside the object for which a corporation
is created" are ultra vires.
The only exception to this, rule is when acts are necessary and incidental to
carry out a corporation's purposes, and to the exercise of powers conferred
by the Corporation Code and under a corporation's articles of incorporation.
This exception is specifically included in the general powers of a corporation
under Section 36 of the Corporation Code.
II. Execution of the mortgage contract was ultra vires (Securing loans of
third persons is not among the purposes for which UM was established)
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Petitioner UM does not have the power to mortgage its properties in order to
secure loans of other persons. It is not a corporation engaged in the business
of securing loans of others. Securing FISLAI's loans by mortgaging UM's
properties does not appear to have even the remotest connection to the
operations of UM as an educational institution. Securing loans is not an
adjunct of the educational institution's conduct of business. It does not appear
that securing third-party loans was necessary to maintain UM's business of
providing instruction to individuals.
We do not doubt the existence of the presumptions of "good faith" or "regular
performance of official duty," yet these presumptions are disputable and may
be contradicted and overcome by other evidence. In this case, the
presumption that the execution of mortgage contracts was within UMs
corporate powers does not apply. Securing third-party loans is not connected
to UM's purposes as an educational institution.
III. Contracts entered into by persons without authority from the
corporation shall generally be considered ultra vires and unenforceable
against the corporation
Being a juridical person, UM cannot conduct its business, make decisions, or
act in any manner without action from its Board of Trustees. The Board of
Trustees must act as a body in order to exercise corporate powers. Individual
trustees are not clothed with corporate powers just by being a trustee. Hence,
the individual trustee cannot bind the corporation by himself or herself.
The corporation may, however, delegate through a board resolution its
corporate powers or functions to a representative, subject to limitations under
the law and the corporation's articles of incorporation. The relationship
between a corporation and its representatives is governed by the general
principles of agency. Hence, without delegation by the board of directors or
trustees, acts of a person—including those of the corporation's directors,
trustees, shareholders, or officers—executed on behalf of the corporation are
generally not binding on the corporation.
The mortgage contracts executed in favor of BSP do not bind UM They were
executed without authority from UM. In particular, UM did not authorize
Saturnino Petalcorin to mortgage its properties on its behalf. There was no
board resolution to that effect. Thus, the mortgages executed by Saturnino
Petalcorin were unenforceable
A contract entered into in the name of another by one who has no authority
or legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is revoked by the other
contracting party. (Art 1317, Civil Code)
The unenforceable status of contracts entered into by an unauthorized person
on behalf of another is based on the basic principle that contracts must be
consented to by both parties. Consent of a person cannot be presumed from
representations of another, especially if obligations will be incurred as a result.
Thus, authority is required to make actions made on his or her behalf binding
on a person. Contracts entered into by persons without authority from the
corporation shall generally be considered ultra vires and unenforceable
against the corporation.
However, personal liabilities may be incurred by directors who assented to
such unauthorized acts and by the person who contracted in excess of the
limits of his or her authority without the corporation's knowledge.
IV. Corporate acts that are merely beyond the powers of the corporation
may be ultra vires only, but not void, and thus, subject to ratification
Unauthorized acts that are merely beyond the powers of the corporation
under its articles of incorporation are not void ab initio. Corporate acts may
be ultra vires but not void. Corporate acts may be capable of ratification.
A distinction should be made between contracts which are illegal and those
which are merely ultra vires. The former contemplates the doing of an act
which is contrary to law, morals, or public order, or contravene some rules of
public policy or public duty, and are, like similar transactions between
individuals, void. They cannot serve as basis of a court action, nor acquire
validity by performance, ratification, or estoppel. Mere ultra vires acts, on the
other hand, or those which are not illegal and void ab initio, but are not merely
within the scope of the articles of incorporation, are merely voidable and may
become binding and enforceable when ratified by the stockholders.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
Thus, even though a person did not give another person authority to act on
his or her behalf, the action may be enforced against him or her if it is shown
that he or she ratified it or allowed the other person to act as if he or she had
full authority to do so.
V. Ratification of unauthorized acts cures the earlier defect and makes
the act valid and enforceable
Ratification is a voluntary and deliberate confirmation or adoption of a
previous unauthorized act. It.converts the unauthorized act of an agent into
an act of the principal. It cures the lack of consent at the time of the execution
of the contract entered into by the representative, making the contract valid
and enforceable. It is, in essence, consent belatedly given through express or
implied acts that are deemed a confirmation or waiver of the right to impugn
the unauthorized act. Ratification has the effect of placing the principal in a
position as if he or she signed the original contract.
Ratification by a corporation of an unauthorized act or contract by its officers
or others relates back to the time of the act or contract ratified, and is
equivalent to original authority;" and that "[t]he corporation and the other party
to the transaction are in precisely the same position as if the act or contract
had been authorized at the time." The language of one case is expressive:
"The adoption or ratification of a contract by a corporation is nothing more nor
less than the making of an original contract. The theory of corporate
ratification is predicated on the right of a corporation to contract, and any
ratification or adoption is equivalent to a grant of prior authority
Implied ratification may take the form of silence, acquiescence, acts
consistent with approval of the act,, or acceptance or retention of benefits.
However, silence, acquiescence, retention of benefits, and acts that may be
interpreted as approval of the act do not by themselves constitute implied
ratification. For an act to constitute an implied ratification, there must be no
acceptable explanation for the act-other than that there is an intention to adopt
the act as his or her own. It cannot be inferred from acts that a principal has
a right to do independently of the unauthorized act of the agent.
No implied ratification of the mortgage by UM
No act by UM can be interpreted as anything close to ratification. It was not
shown that it issued a resolution ratifying the execution of the mortgage
contracts. It was not shown that it received proceeds of the loans secured by
the mortgage contracts.
There was also no showing that it received any consideration for the execution
of the mortgage contracts. It even appears that petitioner was unaware of the
mortgage contracts until respondent notified it of its desire to foreclose the
mortgaged properties.
Ratification must be knowingly and voluntarily done. UM's lack of knowledge
about the mortgage executed in its name precludes an interpretation that
there was any ratification on its par
VI. BSP cannot claim to be a mortgagee in good faith (failure to exercise
extraordinary due diligence required of banks)
The banking institution is "impressed with public interest" such that the
public's faith is "of paramount importance."
Thus, banks are required to exercise the highest degree of diligence in their
transactions.
In China Banking Corporation v. Lagon, this court found that the bank was not
a mortgagee in good faith for its failure to question the due execution of a
Special Power of Attorney that was presented to it in relation to a mortgage
contract. Banks are expected to exercise more care and prudence than
private individuals in their dealings, even those that involve registered lands,
for their business is affected with public interest
For its failure to exercise the degree of diligence required of banks, BSP
cannot claim good faith in the execution of the mortgage contracts with
Saturnino Petalcorin. BSP's witness, Daciano Paguio, Jr., testified that there
was no board resolution authorizing Saturnino Petalcorin to act on behalf of
UM. BSP did not inquire further as to Saturnino Petalcorin's authority. Banks
cannot rely on assumptions. This will be contrary to the high standard of
diligence required of them.
Transcribed by: Alcoran | Aranjuez | Ballos | Clarabal | Cullo | Delfin | Espinosa | Gulanes | Layog | Paracale | Somcio
DISCUSSION: The powers of a corporation can be divided into 3 aspects.
1. Expressed powers: provided by the law under the Corporation Code
2. Implied powers: can be documented based on the articles or by-laws of
the corporation
3. Incidental powers: these refers to the powers of a corporation incidental
to existence
You have to remember that corporations or juridical persons, in general, only
exist by legal fiction, they can only carry out or perform certain contracts or
acts through the warm bodies that represent them (members of the Board or
the shareholders).
As a general rule, the power of a corporation to carry out certain actions
must be inherent in the manner of their organization. In this case, said
rule was not followed because UM, being an educational institution inherently
cannot have the power to mortgage its properties.
Does it mean that they cannot mortgage their properties?
The SC said that this power which is incidental to its operations can be
delegated to its representatives, and this delegation must be made through a
Board Resolution.
If a corporation wants to carry out certain actions, it must be authorized by the
Board of Directors. The BOD or BOT must create a Board Resolution which
authorizes certain persons or officers to perform acts for and in behalf of the
corporation. This is where the authority is vested.
Where does a secretary’s certificate come in?
The corporate secretary issues the secretary’s certificate which indicates that
a Board Resolution actually exists and such authority was given to a person.
In this case, what was only presented is the Secretary’s Certificate in order to
prove the authority of Saturnino to mortgage the properties. The UM asserted
that they never executed this Board Resolution from the very beginning. That
is why the SC said that the Secretary’s Certificate was void because the
supporting Board Resolution was never presented. It was even deemed to be
inexistent.
Hence, without the required Board Resolution, no authority was given to a
person to represent the corporation. If no authority was given to represent the
corporation, it is unenforceable.
NATIVIDAD V. NATIVIDAD
785 SCRA 239 (2016)
Article 1403-1408 – Unenforceable Contracts
FACTS: Sergio Natividad obtained a loan from DBP, as a security for the
loan, he mortgaged two parcels of land, one of which was co-owned and
registered in his name and that of his siblings namely Leandro, Domingo, and
Adoracion. Sergio died without being able to pay his obligations with the DBP.
Since the loan was nearing its maturity, Leandro paid for Sergio’s obligation.
Since such payment of Leandro was not reimbursed, it was verbally agreed
that Sergio’s share in the lot will be assigned in favor of Leandro. Domingo
was tasked to facilitate the transfer of ownership but Domingo died without
being able to cause such transfer. Demands were made by Leandro to cause
the transfer but respondents refused to honor their undertaking. Petitioner
relied on the document denominated as “Extrajudicial Settlement Among
Heirs”. Leandro also argued that the Statute of Frauds is not applicable since
there was already a partial execution.
ISSUES: 1. WON the verbal agreement to assign the subject property to
Leandro is binding.
2. WON there is partial execution of the alleged agreement
RULING: 1. No. There is nothing in the said document which would indicate
that the respondents agreed to the effect that the subject properties shall be
transferred in the name of Leandro as reimbursement for his payment of
Sergio’s loan obligation with the DBP.
2. There is no partial execution of any contract whatsoever because petitioner
failed to prove, in the first place that there was a verbal agreement that was
entered into. There is nothing to execute since there is no agreement.
DISCUSSION: This case talks about dation in payment, because instead of
the payment of money to Leandro as reimbursement, it was agreed that
Sergio’s share in the property will be assigned to him. Dation in payment
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
partakes the nature of a sale. The act of transferring or assigning the property
in payment of an existing monetary obligation already partakes the nature of
a sale. Thus, since it partakes the nature of a sale, the moment you make a
transfer or conveyance, you must follow the statute of frauds [Art. 1403, par
2(e)]. Otherwise, that transfer or conveyance will be considered as
unenforceable.
VOID and INEXISTENT CONTRACTS
These are the type of contracts which are most defective. This is because
void and inexistent contracts are those which, from the very beginning,
produces no legal effect. Further, they cannot bind parties as they don’t have
any legal existence. The void status of the contract retroacts to the time of
inception.
The following are the types of void contracts. However, the enumeration
under Article 1409 is not exhaustive as there are other grounds as provided
for by law.
ART. 1409. The following contracts are inexistent and void from the
beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object
of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived.
1. Those whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy;
Since it violates the principle of autonomy of contracts, these said
contracts cannot be said to be legally existent.
2. Those which are absolutely simulated or fictitious
Article 1345 and Article 1346. In the case of absolutely simulated
contracts where there is no intention to be bound at all, such renders the
contract as void. Whereas, if the simulation is only relative, the contract is
valid.
Paragraphs 3 to 6 talk about the absence of the elements of a contract.
3. Those whose cause or object did not exist at the time of the
transaction
The cause or object must be determinate or, at least, determinable.
4. Those whose object is outside the commerce of men
The object must be licit or legal.
5. Those which contemplate an impossible service
Impossibility of service can either be physical or legal.
6. Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained;
If the principal object of the contract is deleted because of the underlying
condition or principal object cannot be ascertained by the parties, it cannot
be performed by the parties in any way.
Example: If the parties try to agree upon a conditional obligation or obligation
with a period. But, in truth, the condition is legally impossible from happening.
Hence, it is where the principal object cannot be ascertained because the
underlying condition is impossible. And, because of the lack of object or
consideration, the contract is void.
Transcribed by: Alcoran | Aranjuez | Ballos | Clarabal | Cullo | Delfin | Espinosa | Gulanes | Layog | Paracale | Somcio
7. Those expressly prohibited or declared void by law.
We have a lot of laws which talk about void contracts.
Note: ART. 5. Acts executed against the provisions of mandatory or
prohibitory laws shall be void, except when the law itself authorizes their
validity.
Art. 5 declares acts against mandatory or prohibitory laws as void.
Nevertheless, when the law recognizes some residual legal effects, then
under the law itself, they can be given effect or consequence.
Example: Under Article 96 of the Family Code, general rule: any act of
conveyance of conjugal property without consent of the wife, the status
of the sale is void. So, the sale is void under mandatory law, except there is
a legal consequence-–the transaction shall be construed as a continuing offer
on the part of the consenting spouse and the buyer, and may become a
perfected contract upon the consent of the other spouse or authorization by
the court before it is withdrawn by either offerors. In this case, strictly
speaking, the contract is not ratified as there is no perfected contract in the
first place.
So, hypothetical case, husband sells property to a third person without written
consent of the wife. The status is void. But under the law, that will be
construed as a continuing offer on the part of the husband and the 3rd person
(offerors).
If later on, the wife accepts or gives written consent, is it considered ratified?
No. When the wife gives the written consent, that is the only time that the
contract is perfected. It is the only time when all the elements of a contract
exist–the consent, the object, and the cause. So, even though the contract
was not valid and inexistent before the written consent, there is a valid
continuing offer as authorized under that law.
Again, contracts against mandatory or prohibitory laws are void, unless the
law authorizes certain legal effects or consequences therefrom.
Remember, since the contracts under Art. 1409 are void they can never be
ratified.
What defective contracts can be ratified?
Either voidable or unenforceable contracts.
The waiver of the right to set up defense of illegality of the contract is also
void, meaning the waiver itself is void.
Prescription of void contracts.
ART. 1410. The action or defense of the declaration of the inexistence of a
contract does not prescribe.
Unlike those contracts which are rescissible and voidable which are subject
to certain prescriptive periods, an action for the declaration of the inexistence
of a void contract is imprescriptible. It does not prescribe. Void contracts can
be assailed anytime. Even after 50 years, you can still file an action.
However, if there are certain legal consequences or effects, these legal
effects must be recognized. For example, husband and wife sells to 3rd person
property without husband’s written consent. Status: void.
But what if before action for nullity, 3rd person already sold property to 4th
person, and that he already registered property under his name? Who is a
buyer in good faith?
Under the law, title of the property registered under a buyer in good faith
cannot be annulled. Contracts creating real rights are subject to Mortgage law
and PD 1529. The remedy for the husband who did not give his consent is an
action to ask back the monetary equivalent of the property as against the 3rd
person.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
ART. 1411. When the nullity proceeds from the illegality of the cause of
the cause or object of the contract, and the act constitutes a criminal
offense, both parties being in pari delicto, they shall have no action
against each other, and both shall be prosecuted. Moreover, the
provisions of the Penal Code relative to the disposal of effects or
instruments of a crime shall be applicable to the things or the price of the
contract.
This rule shall be applicable when only one of the parties is guilty; but the
innocent one may claim what he has given and shall not be bound to
comply with his promise. (1305)
In pari delicto rule – a situation where the contract is null and void because of
the illegality of its cause or object.
When only one of the parties is guilty of the illegality of the cause or object,
with respect to the innocent party, he may claim what he has given, and shall
not be bound to comply with his promise.
When both are guilty, no action shall arise as against each other, and both
shall be prosecuted. They will be left by the law as is. The court will not
adjudicate as to their rights. This is without prejudice to their criminal liability.
ART. 1412. If the act in which the unlawful or forbidden cause consists
does not constitute a criminal offense, the following rules shall be
observed:
(1) When the fault is on the part of both contracting parties, neither
may recover what he has given by virtue of the contract, or
demand the performance of the other’s undertaking;
(2) When only one of the contracting parties is at fault, he cannot
recover what he has given by virtue of the contract, or ask for
the fulfillment of what has been promised him. The other, who
is not at fault, may demand the return of what he has given
without any obligation to comply with his promise. (1306)
So we distinguish between 1411 and 1412. In 1411, the act in which the
unlawful or forbidden causes consists constitutes a crime. Meanwhile in 1412,
it is not; it may be contrary to public policy, customs, etc, but the cause is still
forbidden. When both are at fault, the courts will leave them as is. When only
one is at fault, he may not recover what he has given nor demand
performance of the other’s undertaking. This will be discussed in Tingalan vs
Melliza.
What are the exceptions of in pari delicto principle? When will the courts not
leave them as is, one party may recover from the other?
These provisions are found in Art. 1413-1419.
ART. 1413. Interest paid in excess of the interest allowed by the usury
laws may be recovered by the debtor, with interest thereon from the date
of the payment.
Note that the prevailing legal rate is 6% per annum.
According to jurisprudence, what is the maximum interest that the parties can
agree on? Considering the annual, is it void/usurious?
Nevertheless, the law requires that if the interest is paid and it is in excess of
those allowed by law, that may be recovered by the debtor with interest
thereon from the date of payment.
In this case, even if the contract is void because it is usurious or exorbitant,
the law allows that the debtor can nevertheless recover the excess.
ART. 1414. When money is paid or property delivered for an illegal
purpose, the contract may be repudiated by one of the parties before the
purpose has been accomplished, or before any damage has been
caused to a third person. In such case, the courts may, if the public
interest will thus be subserved, allow the party repudiating the contract to
recover the money or property.
Transcribed by: Alcoran | Aranjuez | Ballos | Clarabal | Cullo | Delfin | Espinosa | Gulanes | Layog | Paracale | Somcio
This is self-explanatory. This happens in situations where there is an illegal
purpose or cause, and because of such illegality, certain money has been
paid or delivered. If that contract is repudiated by anyone of the parties, the
in pari delicto rule will not become applicable. The one repudiating that
contract may recover the money or property he has given on account thereto.
But when should the repudiation happen?
Before the purpose was accomplished or before any damage has been
caused to a third person. Otherwise, the general rule of in pari delicto applies.
Leave the parties as is. Here, only the party repudiating the contract can
recover such money or property.
ART. 1415. Where one of the parties to an illegal contract is incapable of
giving consent, the courts may, if the interest of justice so demands allow
recovery of money or property delivered by the incapacitated person.
When you look at this contract, it would seem that there is an inconsistency.
For example, on account of the incapacity of that person, that person is hard-
pressed to enter into an illegal contract (ex. shipment of other persons to
another country, sale of organs, etc), it renders that contract illegal on the
ground of absence of object. The courts may allow the recovery of the money
or property given by the incapacitated person on account thereto.
In short, there is a void or illegal contract even if one of the contracting parties
is incapacitated.
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.
This talk about situations where we have prohibitory laws. Here the contract
may be declared as void, and the plaintiff may recover what he has paid or
delivered. This will be illustrated in the cases later.
When you speak of prohibitory laws, these are designed to protect the interest
of certain persons. (Ex. sale of property of indigenous people) Under the
Constitution, there are specific requirements that must be observed if
ancestral property would be sold to other persons. If such property is sold to
other persons without following the requirements under the IPRA Law and
pertinent laws on indigenous people, such contract of sale is void. It is against
public policy to take advantage of the rights of the indigenous people.
Segue, what is the distinction between congressional oversight and
congressional overreach?
This is not found in our jurisprudence but of the US. General rule, there are
the three branches of government where they function separately except in
cases where they can oversee each other in the form of checks and balance.
That is congressional oversight.
Congressional oversight – the right of congress to oversee the affairs of the
executive
Congressional overreach – (Trump’s argument that what their Congress is
doing is no longer in aid of legislation) encroaching on the president’s rights
to execute laws; violation of the checks and balance between the three
independent branches
ART. 1417. When the price of any article or commodity is determined by
statute, or by authority of law, any person paying any amount in excess
of the maximum price allowed may recover such excess.
It follows the same principle of unconscionable interest.
An article or commodity which is determined by statute or by authority of law
as an amount which is excessive, then you can recover the excess amount.
Our law on trade is actually always an arm’s length, so it depends on the price
agreed by the parties as against each other. Suppletorily, we can apply this
provision of law with respect to competition law under Article 1417—you can
recover the excess amount of the maximum price that you paid for. In
competition law, certain intellectual property is covered by this law. It is
prohibited for certain persons to sell a product if you also have to buy a
product in return.
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From the lectures of Atty. Bruneson Alabastro
Example: You cannot buy product A if you also do not purchase product B.
So that is against competition law because it restrains trades.
ART. 1418. When the law fixes, or authorizes the fixing of the maximum
number of hours of labor, and a contract is entered into whereby a
laborer undertakes to work longer than the maximum thus fixed, he may
demand additional compensation for service rendered beyond the time
limit.
This is something of an obligation to do. If you did not give something or you
pay for a service that was rendered, since that contract is void because it
violates the labor code, you cannot take back the services already rendered.
We can only be compensated or given additional compensation for the excess
or remuneration to that effect.
Hours of Labor
This concerns hours of labor. It should be noted that the 8-hour Labor Law
applies only to employments in industry or occupation performed for profit or
gain.
So, when the minimum hours of work are fixed, you can demand for overtime
pay.
May overtime pay be waived?
It depends. If for service rendered, yes. But if you are still going to render
service. No, that is against the law.
ART. 1419. When the law sets, or authorizes the setting of a minimum
wage for laborers, and a contract is agreed upon by which a laborer
accepts a lower wage, he shall be entitled to recover the deficiency.
This talks about a situation where you violate the minimum wage law.
Minimum wage is determined per region. Per region, there is a tripartite wage
board that determines the particular minimum wage in a particular region.
In case you pay an employee lower than the required minimum wage, take
note that it does not make the contract of employment as void; the worker can
only recover the deficiency.
ART. 1420. In case of a divisible contract, if the illegal terms can be
separated from the legal ones, the latter may be enforced.
This article talks about the Doctrine of Separability. If prestation is capable
of partial performance, that obligation is divisible obligation; if not or by the
intention of the parties they agreed that it is not, then it is an indivisible
obligation. Not all divisible contracts contain divisible obligation.
Illegal Terms of a Contract
The contract may be indivisible or divisible:
(a) If indivisible the whole contract is void, even if only some terms are illegal.
(b) If divisible, the legal terms may be enforced if same can be separated from
the illegal terms.
As a rule, the provisions of the article must be applied if there are several
stipulations in the contract—some of which are valid and some void. If the
stipulations can be separated from each other, then those which are void will
not have any effect, but those which are valid will be enforced. In case of
doubt, the contract must be considered as divisible or inseparable.
Rule of divisibility in this article, however, has two exceptions:
1. When the nature of the contract requires divisible;
2. When the intention of the parties is that the contract be entire.
Application of Doctrine of Separability
KOPPEL INC. V. MAKATI ROTARY CLUB FOUNDATION, INC.
(GR. 198075, SEPT. 4, 2013)
The SC discussed an arbitration clause in a lease contract. In a contract of
lease, that is a contract separate and distinct from arbitration agreement. An
arbitration agreement can be embedded in that lease contract.
Transcribed by: Alcoran | Aranjuez | Ballos | Clarabal | Cullo | Delfin | Espinosa | Gulanes | Layog | Paracale | Somcio
In this case, the lease contract was assailed to be void.
Issue: WON the arbitration agreement is also void as the lease contract is
embedded in this agreement.
Ruling: [NO]
Under the doctrine of separability, an arbitration agreement is considered an
independent clause of the main contract. Being a separate contract, the
arbitration agreement may thus be invoked, regardless of possibility or
invalidity of the main contract.
Intention of the Parties
The rule of divisibility and partial enforceability stated in this Article must yield
to the contrary intention of the parties. Despite divisibility, the entire contract
will be void if it is clear that the parties would have not entered into it without
the void part. Thus, if illegality affects an essential part, the entire is void.
Nullity of the principal includes the accessory.
ART. 1421. The defense of illegality of contracts is not available to third
persons whose interests are not directly affected.
Defense of Illegality Not Generally Available Third Persons
Even if a contract is illegal, the defense of illegality may be set up only by
those whose interest are directly affected.
Nullity of Defense
The right to set-up the nullity of a void or non-existent contract is not limited
to the parties, as in the case of annullable or voidable contracts. It is extended
to third persons who are directly affected by the contract. Thus, where a
contract is absolutely simulated, third persons who may be prejudiced may
set up its non-existence.
Third persons whose interest is served by the nullity of the contract may attack
it, especially creditors of those who dispose of their property under a void
contract. The creditor may attach the property thus alienated, asserting the
nullity of the alienation.
Example: Contract with stipulations in Pour Autrui, Contract of Suretyship,
Guarantor who is included in a contract who is subsidiarily liable upon the
default thereto. They may raise the defense of nullity so that they will be
considered liable under the terms and conditions of a contract.
ART. 1422. A contract which is the direct result of a previous illegal
contract, is also void and inexistent.
If you are a product of subsequent contract or illegal contract and the law does
not give any legal effect to that contract, that contract is inexistent.
Contract That Is the Direct Result of a Previous Illegal Contract
Precisely because the previous contract might either be one that has an illegal
object or an illegal cause or forbidden cause. In short, the contract that will
arise from such forbidden contract would be void and inexistent.
Example: A promised to give B a car as a reward after B has killed C. Later,
after the killing, the contract was changed to a lease of a big house for a
certain period. The second contract here is the direct result of a previous
illegal contract and is, therefore, null and void.
Remember: The illegality of the accessory contract does not necessarily
affect the legality or illegality of the principal contract. In penal clauses,
the invalidity of the penal clause will not bring about the invalidity of the
main or principal obligations. So it follows the same principle.
Osmeña v. Commission on Audit City of Cebu appropriated P5,000,000 for
the construction of a modern slaughterhouse but the allocation exceeded the
budget. The construction company that won the bidding had already started
the building the slaughterhouse, and it demanded for the payment of what it
had constructed.
The parties and the City of Cebu arrived at a compromise agreement, the
obligation as demanded by the construction is about P2,500,000 so they
arrived at about P1,500,000 as compromise and it was questioned. The
compromise agreement is void because it is a derivative of a void contract.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
RAMIREZ V. RAMIREZ
485 SCRA 92 (2006)
Article 1409-1422 – Void Contracts
FACTS: Potenciano Ramirez filed a complaint against Ma. Cecilia before
RTC Olongapo. Potenciano claimed the Ma. Cecilia caused the execution of
a Deed of Donation and Waiver of Possessory Rights to acquire
ownership over the land and improvement. Using the Deed of Donation,
respondent allegedly had the cancellation of the deeds and able to transfer
such titles to name.
The Deed of Donation and Waiver of Possessory Rights were allegedly
executed by Potenciano and his wife, Dolores in 1995 but it was shown in the
death certificate that Dolores already died in 1991 and thus could not have
executed such documents. Potenciano also repudiated other signatures
appearing on the two documents that were allegedly his and insisted that he
did not intend to transfer the properties to respondent.
In Maria Cecilia’s answer, she alleged that her father, Potenciano would not
have filed the case were it not for the fact that he remarried despite his age of
84 years. She further claimed that it was her father’s idea to cause the
preparation of the Deed of Donation and Waiver of Possessory Rights to save
on expenses for publication and inheritance taxes.
RTC ruled that the signature of Dolores was a forgery but on the Waiver of
Possessory rights was genuine. It also found that they were both in pari delicto
as participants to the forgery and ruled that they must bear the consequences
of their acts.
CA held the both signatures were forgeries and held both parties in pari
delicto.
ISSUE: WON the parties are in pari delicto. [YES]
RULING:
Doctrine of In Pari Delicto, Applicable is 1411 not 1412
As one of the modes of acquiring ownership, donations inter vivos are
covered. The Court agrees that the both of them are in pari delicto. But both
courts erred in applying Article 1412 of the Civil Code, for it refers to a situation
where the cause is unlawful or forbidden but does not constitute a violation of
the criminal laws. What applies is Article 1411, because the act constituted a
criminal offense.
IN THE CASE: Petitioners alleged that the signatures of Dolores on the Deed
of Donation and on the Waiver of Possessory Rights are a forgery. Ma. Cecilia
does not deny this allegation. Forging a person’s signature is a felony
under the RPC. Thus, the act of forging the signature of Dolores constitutes
a criminal offense under the terms of Article 1411 of the Civil Code.
Twin elements for the application of in pari delicto doctrine:
1. The nullity of the contract proceeds from an illegal cause or object;
2. The act of executing said contract constitutes a criminal offense (for Article
1411).
Object and cause are two separate elements of a donation and the illegality
of either element gives rise to the application of in pari delicto.
• Object is legal, the properties which are the subject matter the donation.
• Cause, which moved the parties to execute the Deed of Donation, which
was the motive behind the forgery is the desire to evade the payment of
publication expenses and inheritance taxes, which became due upon
the death of Dolores was illegal.
Undeniably, the documents were executed for an illegal cause, thus
completing all the requisites for the application for Article 1411, thus, no one
can ask positive relief from court, they are left as they are. PETITION
DENIED.
DISCUSSION:
Take note: The Supreme Court said that it does not fall under Art. 1412.
Instead, it is under Art. 1411 because of the criminal nature of acts constituting
forgery. It falls under falsification of documents [RPC].
The illegality of the cause or object is also required for applicability of Art.
1411. In this case, it was very perverse that the parties wanted to evade the
appropriate payment of taxes. Pari delicto is applicable.
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MODINA V. CA
317 SCRA 697 (1999)
(Landmark case)
Article 1409-1422 – Void Contracts
FACTS: The parcels of land in question are those under the name of Ramon
Chiang. He theorized that subject properties were sold to him by his wife,
Merlinda. Subsequently sold by CHIANG to the petitioner Serafin Modina.
MODINA brought a Complaint for Recovery of Possession with Damages
against the private respondents, Ernesto Hontarciego, Paul Figueroa and
Teodoro Hipalla
Upon learning of such complaint, MERLINDA presented a Complaint-in-
intervention, seeking the declaration of nullity of the Deed of Sale between
her husband and MODINA on the ground that the titles of the parcels of land
in dispute were never legally transferred to her husband. Fraudulent acts were
allegedly employed by him to obtain a Torrens Title in his favor. However, she
confirmed the validity of the lease contracts with the other private
respondents.
ISSUE: WON the Deed of Sale executed in favor of Modina is void.
Modina argues that the Deed of Sale is null and void but on the ground that
it is violative of Article 1490 which provides the husband and the wife cannot
sell property to each other, except: (1) when a separation of property was
agreed upon in the marriage settlements; or (2) when there has been a judicial
separation of property under Art. 191. He further argues that what should
apply is Article 1412 or in pari delicto rule which provides that the principle
of in pari delicto non oritur actio denies all recovery to the guilty parties
inter se (among themselves). It applies to cases where the nullity arises from
the illegality of the consideration or the purpose of the contract. When two
persons are equally at fault, the law does not relieve them. The exception to
this general rule is when the principle is invoked with respect to inexistent
contracts
In this case MERLINDA, did not aver the Article 1490 as a ground to nullify
subject Deed of Sale. In fact, she denied the existence of the Deed of Sale in
favor of her husband. In the said Complaint, her allegations referred to the
want of consideration of such Deed of Sale. She did not put up the defense
under Article 1490, to nullify her sale to her husband CHIANG because such
a defense would be inconsistent with her claim that the same sale was
inexistent.
HELD: Under Article 1409 of the New Civil Code, enumerating void contracts,
a contract without consideration is one such void contract. One of the
characteristics of a void or inexistent contract is that it produces no effect. So
also, inexistent contracts can be invoked by any person whenever juridical
effects founded thereon are asserted against him. A transferor can recover
the object of such contract by accion reivindicatoria and any possessor may
refuse to deliver it to the transferee, who cannot enforce the transfer.
It bears emphasizing that as the contracts under controversy are inexistent
contracts within legal contemplation, Articles 1411 and 1412 of the New Civil
Code are inapplicable. In pari delicto doctrine applies only to contracts
with illegal consideration or subject matter, whether the attendant facts
constitute an offense or misdemeanor or whether the consideration involved
is merely rendered illegal.
Since one of the characteristics of a void or inexistent contract is that it does
not produce any effect, MERLINDA can recover the property from MODINA
who never acquired title thereover.
DISCUSSION: With respect to that void sale, it means that it cannot give rise
to a right of the sale because the sale is void for lack of consideration. It means
it has no legal consequence whatsoever.
What about the allegation that there is a purchaser in good faith?
It found that there were circumstances known to MODINA which rendered
their transaction fraudulent under the attendant circumstances.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
As a general rule, in a sale under the Torrens system, a void title cannot give
rise to a valid title. The exception is when the sale of a person with a void title
is to a third person who purchased it for value and in good faith.
A purchaser in good faith is one who buys the property of another without
notice that some other person has a right to or interest in such property and
pays a full and fair price at the time of the purchase or before he has notice
of the claim or interest of some other person in the property.
In the case under scrutiny, petitioner cannot claim that he was a purchaser in
good faith. There are circumstances which are indicia of bad faith on his part,
to wit: (1) He asked his nephew, Placido Matta, to investigate the origin of the
property and the latter learned that the same formed part of the properties of
MERLINDAs first husband; (2) that the said sale was between the spouses;
(3) that when the property was inspected, MODINA met all the lessees who
informed that subject lands belong to MERLINDA and they had no knowledge
that the same lots were sold to the husband.
It is a well-settled rule that a purchaser cannot close his eyes to facts which
would put a reasonable man upon his guard to make the necessary inquiries,
and then claim that he acted in good faith. His mere refusal to believe that
such defect exists, or his willful closing of his eyes to the possibility of the
existence of a defect in his vendors title, will not make him an innocent
purchaser for value, if it afterwards develops that the title was in fact defective,
and it appears that he had such notice of the defect as would have led to its
discovery had he acted with that measure of precaution which may
reasonably be required of a prudent man in a like situation.
Thus, petitioner cannot claim that the sale between him and MODINA falls
under the exception provided for by law.
__________________________________
In this case, we are talking about the applicability or the inapplicability of
Article 1411 and 1412. Take note of that, especially if the illegality of the
contract is because of want or absence of consideration which declares the
contract as void.
More importantly, something that is discussed in this case, something that
you will again revisit in Property or Law on Sale. Take note that in a case of a
sale, a void title cannot give rise to any valid title. Since the contract is
void, it produces no legal effect, it is inexistent from the very beginning.
Nevertheless, it was discussed in Modina that there is an exception to this
where you are a purchaser in good faith. Meaning, you have not acquired
facts or information that would render your title thereto defective.
If you are a purchaser in good faith, you can acquire a valid title even if
previously, it came from a void sale. Nevertheless, according to the Supreme
Court, despite that exception, in cases of innocent purchasers in good faith or
for value, in this case, there is a willful closing of the eyes as to the defects of
the contract. Because circumstances existed which warranted a question to
the validity of the contract but they did not do so. In that case, there is no
purchaser in good faith in this case.
DOMINGO V. CA
367 SCRA 368 (2001)
Article 1409-1422 – Void Contracts
FACTS: Paulina Rigonan owned three (3) parcels of land located at Ilocos
Norte, including the house and warehouse on one parcel. She allegedly sold
them to private respondents, the spouses Felipe and Concepcion Rigonan,
who claim to be her relatives.
In 1966, herein petitioners Eugenio Domingo, Crispin Mangabat and Samuel
Capalungan, who claim to be her closest surviving relatives, allegedly took
possession of the properties by means of stealth, force and intimidation, and
refused to vacate the same.
Consequently, on February 2, 1976, respondent Felipe Rigonan filed a
complaint for reinvindicacion against petitioners in the Regional Trial Court of
Ilocos Norte. They alleged that they were the owners of the three parcels of
land through the deed of sale executed by Paulina Rigonan on January 28,
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1965 and that since then, they had been in continuous possession of the
subject properties.
However, the petitioners contended that the alleged deed of absolute sale
was void for being spurious as well as lacking consideration. They said that
Paulina Rigonan did not sell her properties to anyone. As her nearest
surviving kin within the fifth degree of consanguinity, they inherited the three
lots and the permanent improvements thereon when Paulina died in 1966.
RTC: On March 23, 1994, the trial court rendered judgment in favor of the
petitioners. They are declared, by virtue of intestate succession, the lawful
owners and possessors of the house including the bodega and the three (3)
parcels of land in suit and the alleged deed of sale is hereby declared null and
void and fake
CA: On August 29, 1996, the CA reversed the trial court’s decision and
declared the respondents, Felipe Rigonan and Concepcion Rigonan are
declared the owners of the properties under litigation
ISSUE: WON, the deed of sale is void for lack of consideration
RULING: The SC ruled in the negative.
First, note that private respondents as plaintiffs presented only a carbon copy
of this deed. When the Register of Deeds was subpoenaed to produce the
deed, no original typewritten deed but only a carbon copy was presented to
the trial court. Although the Court of Appeals calls it a duplicate original, the
deed contained filled in blanks and alterations. None of the witnesses directly
testified to prove positively and convincingly Paulina’s execution of the
original deed of sale.
The carbon copy did not bear her signature, but only her alleged thumbprint.
Juan Franco testified during the direct examination that he was an
instrumental witness to the deed. However, when cross-examined and shown
a copy of the subject deed, he retracted and said that said deed of sale was
not the document he signed as witness. He declared categorically he knew
nothing about it.
We note that another witness, Efren Sibucao, whose testimony should have
corroborated Atty. Tagatag’s, was not presented and his affidavit was
withdrawn from the court, leaving only Atty. Tagatag’s testimony, which aside
from being uncorroborated, was self-serving.
Secondly, we agree with the trial court that irregularities abound regarding the
execution and registration of the alleged deed of sale. On record, Atty.
Tagatag testified that he himself registered the original deed with the Register
of Deeds. Yet, the original was nowhere to be found and none could be
presented at the trial. Also, the carbon copy on file, which is allegedly a
duplicate original, shows intercalations and discrepancies when compared to
purported copies in existence. The intercalations were allegedly due to blanks
left unfilled by Atty. Tagatag at the time of the deeds registration. The blanks
were allegedly filled in much later by a representative of the Register of
Deeds. In addition, the alleged other copies of the document bore different
dates of entry: May 16, 1966, 10:20 A.M. and June 10, 1966, 3:16 P.M. and
different entry numbers: 66246, 74389 and 64369.
The deed was apparently registered long after its alleged date of execution
and after Paulina’s death on March 20, 1966. Admittedly, the alleged vendor
Paulina Rigonan was not given a copy.
Furthermore, it appears that the alleged vendor was never asked to vacate
the premises she had purportedly sold. Felipe testified that he had agreed to
let Paulina stay in the house until her death.
In Alcos v. IAC, 162 SCRA 823 (1988), the buyers immediate possession and
occupation of the property was deemed corroborative of the truthfulness and
authenticity of the deed of sale. The alleged vendors continued possession of
the property in this case throws an inverse implication, a serious doubt on the
due execution of the deed of sale. Noteworthy, the same parcels of land
involved in the alleged sale were still included in the will subsequently
executed by Paulina and notarized by the same notary public, Atty. Tagatag.
These circumstances, taken together, militate against unguarded acceptance
of the due execution and genuineness of the alleged deed of sale.
Thirdly, we have to take into account the element of consideration for the sale.
The price allegedly paid by private respondents for nine (9) parcels, including
the three parcels in dispute, a house and a warehouse, raises further
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
questions. Consideration is the why of a contract, the essential reason which
moves the contracting parties to enter into the contract. On record, there is
unrebutted testimony that Paulina as landowner was financially well off. She
loaned money to several people. We see no apparent and compelling reason
for her to sell the subject parcels of land with a house and warehouse at a
meager price of P850 only.
In the present case, at the time of the execution of the alleged contract,
Paulina Rigonan was already of advanced age and senile. She died an
octogenarian on March 20, 1966, barely over a year when the deed was
allegedly executed on January 28, 1965, but before copies of the deed were
entered in the registry allegedly on May 16 and June 10, 1966.
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.
The unrebutted testimony of Zosima Domingo shows that at the time of the
alleged execution of the deed, Paulina was already incapacitated physically
and mentally. She narrated that Paulina played with her waste and urinated
in bed. Given these circumstances, there is in our view sufficient reason to
seriously doubt that she consented to the sale of and the price for her parcels
of land. Moreover, there is no receipt to show that said price was paid to and
received by her. Thus, we are in agreement with the trial courts finding and
conclusion on the matter:
The whole evidence on record does not show clearly that the fictitious
P850.00 consideration was ever delivered to the vendor. Undisputably, the
P850.00 consideration for the nine (9) parcels of land including the house and
bodega is grossly and shockingly inadequate, and the sale is null and void ab
initio.
DISCUSSION: First, you must remember that if a deed of sale purports to
have consideration, but in truth, no money has been paid as consideration for
the sale such as in this case, that is an evidence that there might be lack or
total absence of consideration.
If you can remember, inadequacy of the price does not affect the validity of
the sale except as provided under the law or fraud or mistake is present. In
this case, it was clear according to the SC that the gross inadequacy of the
price would show that Paulina did not give her consent to the alleged sale
because her incapacity precluded her of the understanding about the alleged
sale and the consideration thereof.
YU BUN GUAN V. ONG
367 SCRA 559 (2001)
Article 1409-1422 – Void Contracts
FACTS: Yu Bun Guan (P) and Elvira Ong (R) were married on April 30, 1961.
Before their separation in 1992, they executed a simulated Deed of Sale on a
property located at J.P. Rizal. This property (Title No. 26795) was bought by
Elvira Ong out of her personal fund in 1968. She agreed to execute the Deed
of Sale on Yu Bun’s promise that he would construct a commercial building
for the benefit of the children. 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. He did not pay the
consideration of PhP 200,000.00, which was the ostensible valuable
consideration. On the contrary, she paid for the capital gains tax and all the
other assessments even amounting to not less than P60, 000.00, out of her
personal funds. 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 owners copy of the title to him.
However, Yu Bun refused to perform his promise and threatens Elvira on
delivering to him the owner’s copy of the title, which she averred. Petitioner
filed a Petition for Replacement of owner’s duplicate title. He made it appear
that the title was lost or misplaced. The Court granted the petition and a new
copy of the title was issued. Upon discovery, Elvira immediately executed an
Affidavit of Adverse Claim and asked the Court that the sale of the property
be declared null and void.
Petitioner avers his wife’s claim and contends that property was bought with
his own money. He was not allowed to purchase it due to his nationality, as
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such, they simulated a sale to reflect the true ownership. He also asserted
that respondent was in pari delicto* being privy to the simulated sale. RTC
declared that the property was the paraphernal property of respondent and
that the rule of in pari delicto was not applicable in the case as it would apply
only to existing contracts with an illegal cause or object, not to simulated or
fictitious contracts or to those that were inexistent due to lack of an essential
requisite such as cause or consideration. It declared the Deed of Sale void for
having it simulated and executed during the marriage of the parties. CA
upheld the ruling of the RTC.
ISSUE: WON the Deed of Sale was valid contract
HELD: No.
The Court affirmed the ruling of the RTC and CA that the property was a
paraphernal property of Elvira Ong and the Deed of Sale executed between
them was void. Citing Rongavilla vs CA, the Court ruled that a deed of sale,
in which the stated consideration had not in fact been paid, is null and void. A
contract of purchase and sale is null and void and produces no effect
whatsoever where the same is without cause or consideration in that the
purchase price which appears thereon as paid has in fact never been paid by
the purchaser to vendor. It is clear that the Deed of Sale was completely
simulated and hence, void and without legal effect.
No portion of the PhP 200,000.00 consideration stated in the contract was
ever paid. 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. Moreover, the principle of in pari delicto does
not apply in this case because the Deed of Sale was void.
* in pari delicto - when two parties are equally at fault, the law leaves them
as they are and denies recovery by either one of them
BAUTISTA V. BAUTISTA
529 SCRA 187 (2007)
Article 1409-1422 – Void Contracts
FACTS: Teodora Rosario was the owner of a parcel of land in Pangasinan
and died intestate in 1970, leaving behind her spouse Isidro and five children,
Teofilo, Alegria, Angelica, Pacita and Gil Bautista.
In 1981, Isidro and four of his five children (except Teofilo) executed a Deed
of Extrajudicial Partition of the property in which Isidro waived his share in
favor of his four children, Teofilo was excluded from the partition.
• Alegria and Angelica (who acquired ½ of the property) sold such share
to Pedro and Pacita, and later conveyed to Tamondong.
In 1994, Teofilo filed a complaint against his siblings Alegria and Angelica and
others for annulment of documents, partition, recovery of ownership,
possession and damages.
In his complaint, he claim that his co-heirs defrauded him of his rightful share
of his property and that the deed of sale was fictitious as it was impossible for
her to have executed the same in Manila for she was already ill (Pacita).
Pedro and Tamondong raised the defense that they were buyers in good faith.
ISSUES: 1.) WON the partition was valid.
2.) WON the cause of action of Teofilo has prescribed.
RULING: 1.) The partition in the present case was void because it excluded
an heir who was entitled to the share in the partitioned property. No
extrajudicial settlement shall be binding upon any person who has not
participated therein or had no notice thereof.
2.) As the partition was a total nullity, it is considered
imprescriptible. An action against void contract does not prescribe.
The deed of extra-judicial partition in the case at bar being invalid, the action
to have it annulled does not prescribe. Since the deed of extra-judicial partition
is invalid, it transmitted no rights to Teofilo’s co-heirs.
Consequently, the subsequent transfer by Angelica and Alegria of ½ of the
property to Pacita and her husband Pedro, as well as the transfer of ½ of the
property to Cesar Tamondong is invalid, hence, conferring no rights upon the
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
transferees under the principle of nemo dat quod non habet or one cannot
give what he does not own.
DISCUSSION: The parties in the extrajudicial partition must have a hand or
participation in the partition. Otherwise, they cannot acquire anything. Thus,
in this case, having not participated in the partition of their property which was
co-owned, such partition is invalid.
In effect, if an extrajudicial partition or any contract is considered as void, it
does not have any legal effect. In this case, such partition could not have
transferred to the heirs any right since there is nothing to transfer because
there was no partition to speak of.
HULST v. PR BUILDERS
532 SCRA 74 (2007)
Article 1409-1422 – Void Contracts
FACTS: Jacobus Bernhard Hulst (petitioner) and his spouse Ida Johanna
Hulst-Van Ijzeren (Ida), Dutch nationals, entered into a Contract to Sell with
PR Builders, Inc. (respondent), for the purchase of a residential unit in
respondent's townhouse project.
When PR Builders failed to comply with its verbal promise to complete the
project by June 1995, the spouses Hulst filed before the Housing and Land
Use Regulatory Board (HLURB) a complaint for rescission of contract with
interest, damages and attorney's fees
Meanwhile, spouses Hulst divorced. Ida assigned her rights over the
purchased property to petitioner Jacobus Hulst.
On January 26, 1999, upon petitioner's motion, the HLURB Arbiter issued an
Alias Writ of Execution. The Sheriff levied on PR Builders’ 15 parcels of land.
Two days before the scheduled public auction, PR Builders filed an Urgent
Motion to Quash Writ of Levy with the HLURB on the ground that the Sheriff
made an overlevy since the aggregate appraised value of the levied
properties is P83,616,000.00, based on the Appraisal, which is over and
above the judgment award.
Absent any restraining order from the HLURB, the Sheriff proceeded to sell
the 15 parcels of land. Holly Properties Realty Corporation was the winning
bidder for all 15 parcels of land for the total amount of P5,450,653.33.
Four months later, the HLURB Arbiter and HLURB Director issued an Order
setting aside the sheriff's levy on respondent's real properties.
ISSUE: WON Hulst and his wife are foreign nationals who are disqualified
under the Constitution from owning real property in their names.
RULING: The capacity to acquire private land is made dependent upon the
capacity to acquire or hold lands of the public domain. Private land may be
transferred or conveyed only to individuals or entities "qualified to acquire
lands of the public domain." The 1987 Constitution reserved the right to
participate in the disposition, exploitation, development and utilization of lands
of the public domain for Filipino citizens or corporations at least 60 percent of
the capital of which is owned by Filipinos. Aliens, whether individuals or
corporations, have been disqualified from acquiring public lands;
hence, they have also been disqualified from acquiring private lands.
Since petitioner and his wife, being Dutch nationals, are proscribed under the
Constitution from acquiring and owning real property, it is unequivocal that
the Contract to Sell entered into by petitioner together with his wife and
respondent is void. Under Article 1409 (1) and (7) of the Civil Code, all
contracts whose cause, object or purpose is contrary to law or public policy
and those expressly prohibited or declared void by law are inexistent and void
from the beginning. Article 1410 of the same Code provides that the action or
defense for the declaration of the inexistence of a contract does not prescribe.
A void contract is equivalent to nothing; it produces no civil effect. It does not
create, modify or extinguish a juridical relation.
Generally, parties to a void agreement cannot expect the aid of the law; the
courts leave them as they are, because they are deemed in pari delicto. This
rule, however, is subject to exceptions that permit the return of that which may
have been given under a void contract to:
(a) the innocent party (Arts. 1411-1412, Civil Code);
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(b) the debtor who pays usurious interest (Art. 1413, Civil Code);
(c) the party repudiating the void contract before the illegal
purpose is accomplished or before damage is caused to a third
person and if public interest is subserved by allowing recovery
(Art. 1414, Civil Code);
(d) the incapacitated party if the interest of justice so demands (Art.
1415, Civil Code);
(e) the party for whose protection the prohibition by law is intended if
the agreement is not illegal per se but merely prohibited and if public
policy would be enhanced by permitting recovery (Art. 1416, Civil
Code); and
(f) the party for whose benefit the law has been intended such as in
price ceiling laws (Art. 1417, Civil Code) and labor laws (Arts. 1418-
1419, Civil Code).
It is significant to note that the agreement executed by the parties in this case
is a Contract to Sell and not a contract of sale. A distinction between the two
is material in the determination of when ownership is deemed to have been
transferred to the buyer or vendee and, ultimately, the resolution of the
question on whether the constitutional proscription has been breached.
In a contract of sale, the title passes to the buyer upon the delivery of the thing
sold. The vendor has lost and cannot recover the ownership of the property
until and unless the contract of sale is itself resolved and set aside. On the
other hand, a contract to sell is akin to a conditional sale where the efficacy
or obligatory force of the vendor's obligation to transfer title is subordinated to
the happening of a future and uncertain event, so that if the suspensive
condition does not take place, the parties would stand as if the conditional
obligation had never existed.
Since the contract involved here is a Contract to Sell, ownership has not
yet transferred to the petitioner when he filed the suit for rescission.
While the intent to circumvent the constitutional proscription on aliens owning
real property was evident by virtue of the execution of the Contract to Sell,
such violation of the law did not materialize because petitioner Hulst caused
the rescission of the contract before the execution of the final deed
transferring ownership.
Thus, exception (c) finds application in this case. Under Article 1414, one
who repudiates the agreement and demands his money before the illegal act
has taken place is entitled to recover. Petitioner Hulst is therefore entitled to
recover what he has paid, although the basis of his claim for rescission, which
was granted by the HLURB, was not the fact that he is not allowed to acquire
private land under the Philippine Constitution. But petitioner is entitled to the
recovery only of the amount of P3,187,500.00 (the amount of the purchase
price of the real property paid by petitioner to respondent under the Contract
to Sell.) No damages may be recovered on the basis of a void contract; being
nonexistent, the agreement produces no juridical tie between the parties
involved.
No discussion for this case. Take note that the illegality of the object of the
contract was on the ground that it violates the Constitution.
QUIMPO V. BELTRAN
545 SCRA 174 (2008)
Article 1409-1422 – Void Contracts
FACTS: Eustaquia Perfecto-Abad (Eustaquia) was the owner of several
parcels of land in Goa, Camarines Sur.
In 1948, Eustaquia died intestate leaving these parcels of land to her
grandchild and great grandchildren, namely, Joaquin Quimpo and
respondents Consuelo, Ireneo, Danilo, Marites, Anita and Helen, all
surnamed Abad.
In 1966, Joaquin and respondents undertook an oral partition of parcel III (San
Jose property) and parcel IV. Half of the properties were given to Joaquin and
the other half to the respondents. However, no document of partition was
executed, because Joaquin refused to execute a deed. Consuelo and Ireneo
occupied their respective shares in the San Jose property, and installed
several tenants over their share in parcel IV. Joaquin, on the other hand,
became the administrator of the remaining undivided properties and of the
shares of respondents Danilo, Marites, Anita and Helen, who were still minors
at that time.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
In 1989, Danilo, Marites, Anita and Helen wanted to take possession of the
portions allotted to them, but Joaquin prevented them from occupying the
same. Joaquin also refused to heed respondents demand for partition of
parcels I and II, prompting respondents to file a complaint for judicial partition
and/or recovery of possession with accounting and damages with the
Regional Trial Court (RTC) of Camarines Sur.
Joaquin denied the material allegations in the complaint and asserted
absolute ownership over parcels III and IV, claiming that he purchased these
lands from Eustaquia in 1946, evidenced by deeds of sale executed on
August 23, 1946 and December 2, 1946. He, likewise, claimed continuous,
peaceful and adverse possession of these lots since 1946, and alleged that
Consuelo’s occupation of the portion of the San Jose property was by mere
tolerance.
During the pendency of the case, Joaquin died. Accordingly, he was
substituted by his wife and his children.
RTC: On 1996, the RTC rendered a Decision in favor of respondents,
declaring them as co-owners of all the properties left by Eustaquia. It rejected
Joaquins claim of absolute ownership over parcels III and IV, and declared
void the purported deeds of sale executed by Eustaquia for lack of
consideration and consent. The court found that at the time of the execution
of these deeds, Joaquin was not gainfully employed and had no known source
of income. Likewise, Eustaquia could not have possibly given her consent to
the sale because she was already 91 years old at that time.
CA: Affirmed the RTC ruling. Sustaining the RTC, the CA declared that it was
plausible that Eustaquias consent was vitiated because she was then 91
years old and sickly. It was bolstered by the fact that the deeds of sale only
surfaced 43 years after its alleged execution and 23 years from the time of
the oral partition.
ISSUE: WON the deed of sale executed by Eustaquia and Joaquin is valid.
CONTENTION: The Quimpos insist on the validity of the deeds of sale
between Joaquin and Eustaquia. Specifically, they contend that the notarized
deeds of sale and the tax declarations should have adequately established
Joaquins ownership of parcels III and IV.
RULING: The contention has no merit.
The stated consideration for the sale are P5,000.00 and P6,000.00,
respectively, an amount which was so difficult to raise in the year 1946. The
Abads established that at the time of the purported sale Joaquin Quimpo was
not gainfully employed. He was studying in Manila and Eustaquia was the one
supporting him; that when Eustaquia died two (2) years later, Joaquin was not
able to continue his studies. The Quimpos failed to override this. Except for
the unpersuasive testimony of Joaquins daughter, no other testimonial or
documentary evidence was offered to prove that Joaquin was duly employed
and had the financial capacity to buy the subject properties in 1946.
In Rongavilla v. Court of Appeals, the SC held that a deed of sale, in which
the stated consideration has not been paid, is a false contract; that it is void
ab initio.
Furthermore, Ocejo v. Flores, the SC ruled that a contract of purchase and
sale is null and void and produces no effect where it appears that the same
is:
• without cause or consideration or
• the purchase price which appears thereon as paid
• but which in fact has never been paid by the purchaser to the
vendor.
Likewise, the SC noted that Eustaquia was 91 years old, weak and senile, at
the time the deeds of sale were executed. In other words, she was already
mentally incapacitated by then, and could no longer be expected to give her
consent to the sale.
The Quimpos also presented Tax Declaration to substantiate Joaquin’s claim
of absolute dominion over parcels III and IV. But we note that these tax
declarations are all in the name of Eustaquia Perfecto-Abad. These
documents, therefore, do not support their claim of absolute dominion.
Besides, the fact that the disputed property may have been declared for
taxation purposes in the name of Joaquin Quimpo does not necessarily prove
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ownership for it is well settled that a tax declaration or tax receipts are not
conclusive evidence of ownership.
DISCUSSION: In this case, it talks about the absence of consideration in
order prove the validity of the sale. When you look at Domingo v. CA and
Quimpo v. Beltran, mere incapacity on the part of the contracting parties will
not automatically render the contract as voidable if the incapacity would show
that such contracting party could not have given consent at all.
To distinguish, if one talks about voidable contracts such as when one of the
contracting parties are incapacitated to give consent, the issue is that one of
the contracting parties was able to give consent and it is just that they are
incapacitated under the law in doing so. But, if the incapacity is such that it
renders the contracting party impossible to give consent, it shows lack of
consent and such renders the contract void.
ALINAS V. ALINAS
551 SCRA 154 (2004)
Article 1409-1422 – Void Contracts
FACTS: Spouses Onesiforo and Rosario Alinas (petitioners) separated in
1982. They left behind two lots, Lot 1 (with a bodega) and Lot 2 with the house
of the petitioner.
The petitioners herein entrusted their properties to Victor and Elena Alinas
(respondents) with the agreement that any income from rentals of their
properties should be remitted to the SSS and to the Rural Bank of Oroquieta
as such rentals were believed sufficient to pay off petitioners’ loans. Lot 1 was
mortgaged to SSS; while Lot 2 was mortgaged to RBO. Onesiforo alleges that
he left blank papers with his signature to facilitate administration. However, in
1993, petitioners discovered that the two lots were already in the name of the
respondents.
Lot 1 with a Bodega. It was shown that it was extrajudicially foreclosed and
that TCT was issued to RBO and it executed a Deed of Installment Sale to
respondents.
Lot 2 with a House. It was also foreclosed by SSS and issued a certificate of
sale was issued. However, pursuant to the SPA signed by Onesiforo in favor
of Victor, then Victor was able to redeem the Lot 2 for sum of P111K.
Onesiforo’s signature also appears in Deed of Absolute Sale selling Lot 2 to
respondent.
There was also an Agreement, that was notarized stating that Onesiforo
acknowledged that Victor used his own money to redeem Lot 2 from the SSS
making Victor the owner of the lot. In the same Agreement, petitioner
Onesiforo waived whatever rights, claims, interest he or his heirs, successors
and assigns have or may have over the subject property. This prompted the
petitioners to filed to the RTC a complaint for recovery of possession and
ownership of their conjugal properties.
RTC declared that the respondents were the owner of Lot 1 but the petitioners
the owner of Lot 2 and ordered the petitioners to pay respondents the
redemption price. CA affirmed.
ISSUE: WON respondents are the owners of Lot 2 when they merely
redeemed the property and therefore mere trustees of the real owners of the
property.
RULING: The records are indeed bereft of proof to support the allegations of
the petitioners that they left the care and administration of their respondent
spouses and that there is an agreement regarding the remittance of the rental
income.
As to the Lot 1 with Bodega
The facts show that the petitioners did not question the foreclosure.
Ownership of the lot has been given to the RBO
upon foreclosure sale and registration and subsequently sold the lot with
improvements to the respondents. The sale was made also after the
redemption period; thus, this property was acquired by the respondent
spouses over the lot from RBO not from petitioners.
As to the Lot 2 with House
The Court finds that the CA erred in applying the principle of equity declaring
that the sale is valid as to Onesiforo’s one-half share of the property.
Page 38 of 57
 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
Although petitioners were married before the Family Code, the sale in
question took place in 1989, thus the rules under
Conjugal Partnership under the Family Code applies.
ARTICLE 124. The administration and enjoyment of the conjugal partnership
shall belong to both spouses jointly. x x x
In the event that one spouses is incapacitated or otherwise unable to
participate of the conjugal properties, the other spouses may assume sole
powers of administration. These powers do not include the powers of
disposition or encumbrance which must have the authority of the court
or the written consent of the other spouses. In the absence of such
authority or consent the disposition or
encumbrance shall be void.
Thus, pursuant to Article 124 of the Family Code and jurisprudence, the sale
of petitioners’ conjugal property made by petitioner Onesiforo alone is void in
its entirety.
The respondent’s spouses were well aware that Lot 2 was a conjugal property
and that the disposition was made by Onesiforo alone without the consent of
his wife, as they knew that petitioners merely separated, and the sale
documents do not bear the signature of petitioner Rosario.
The fact that Onesiforo executed two documents which is the Deed of
Absolute Sale and Agreement shows that they had full knowledge of the
severe infirmities of the sale. Verily the sale of Lot 2 is entirely null and
void. However, under the principle of unjust enrichment, they should
reimburse the respondent spouses of the redemption price paid for Lot 2 with
legal interest from time of complaint. PETITION PARTLY GRANTED.
DISCUSSION: This is something you already learned in your Persons and
Family Relations. So as we know, in Void Sales, when the law itself provides
that a sale is void, then it is void. In this case, the law that provides the sale
is void is the Family Code.
Now I want you to take note that in this case, there was no showing that the
wife consented to the sale and the Court also emphasized that there is a
particular formality required by the Family Code, and that formality is that
consent should be written. The sale in this case partakes a formal contract
because there is a formality to be observed required by the FC for its validity.
Apart from there was no showing of consent, even if there is consent, it should
be in writing.
LANDBANK V. POBLETE
691 SCRA 613 (2013)
Article 1409-1422 – Void Contracts
FACTS: On 1997, Poblete obtained a loan worth P300k from Kapantay Multi-
Purpose. She mortgaged her Lot No.29 located in Occidental Mindoro,
Kapantay, in turn, used the subject property as collateral under its Loan
Account with Land Bank-Sablayan Branch.
After a year, Poblete instructed her son-in-law Domingo Balen to look for a
buyer for the Lot No. 29 in order to pay her loan and he referred Angelito
Joseph Maniego. Both parties agreed that the lot shall amount to P 900k but
in order to reduce taxes they will execute a P 300k agreed price appearing in
the Deed of Absolute Sale dated November 9, 1998. In the Deed, Poblete
specifically described herself as a widow. Balen, then, delivered the Deed to
Maniego. Instead of paying the price, Maniego promised in an affidavit dated
November 19, 1998 stating that the said amount will be deposited to her Land
Bank Savings Account but he failed to do so.
On August 1999, Maniego paid Kapantay’s Loan Account for P448,202.08
and on subsequent year he applied for a loan worth P1M from Land Bank
using the subject property as a collateral with a condition that the title must
be first transferred on his name. On August 14, 2000, the Registry of Deeds
issued TCT No. T-20151 in Maniego’s name pursuant to a Deed of Absolute
Sale with the signatures of Mrs. Poblete and her husband dated August 11,
2000 and Maniego successfully availed the Credit Line Agreement for P1M
and a Real Estate Mortgage over TCT No. T-20151 on August 15, 2000. On
November 2002, Land Bank filed an Application for an Extra-judicial
Foreclosure against the said Mortgage stating that Maniego failed to pay his
loan.
Poblete filed a complaint for nullification of the Deed of Absolute Sale dated
August 11, 2000 and TCT No. T-20151, Reconveyance of the Title and
Damages with a Prayer for Temporary Restraining Order and/or Issuance of
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Writ of Preliminary Injunction against Maniego, Landbank and the Register of
Deeds.
Poblete claimed that Deed bearing her signature and her deceased husband
was a forgery. Poblete presented the death certificate of her husband dated
1996 showing that the signatures in 2000 were forgeries. Landbank claimed
that it was a mortgagee in good faith.
The judgment of RTC, affirmed by the CA upon appeal, favors the plaintiff
Poblete. Hence, this petition.
ISSUE: WON the Deed of Sale over the Lot No. 29 was null and void.
RULING: It is a well-entrenched rule, as applied, by the CA, that a forged or
fraudulent deed is a nullity and conveys no title. Moreover, where the deed of
sale states that the purchase price has been paid but in fact has never been,
the deed is void ab initio for lack of consideration. Since the deed, is void, the
title is also void. Since the land title of Maniego has been declared void by
final judgment, the REM over it is also void. This is without prejudice, however,
to the right of Maniego to recover from Poblete what he paid to Kapantay for
the account of Poblete, otherwise there will be unjust enrichment by Poblete.
It is essential that the mortgagor be the absolute owner of the mortgage;
otherwise, the mortgage is void. The doctrine ―the mortgagee in good
faith as a rule does not apply to banks which are required to observe a higher
standard of diligence. A bank cannot assume that, simply because the title
offered as security is on its face, free of any encumbrances or lien, it is
relieved of the responsibility of taking further steps to verify the title and
inspect the properties to be mortgage.
The records do not even show that Land Bank investigated and inspected the
actual occupants. Land Bank merely mentioned Maniego’s loan application
upon his presentation of OCT No. P-12026, which was still under the name of
Poblete. Land Bank even ignored the fact that Kapantay previously used
Poblete’s title as collateral in its loan account with Land Bank.
Furthermore, only one day after Maniego obtained TCT No. P-20151 under
his name, Land Bank and Maniego executed a Credit Line Agreement and
Real Mortgage. It appears that Maniego’s loan was already completely
processed while the collateral was still in the name of Poblete. Where said
mortgagee acted with haste in granting the mortgage loan and did not
ascertain the ownership of the land being mortgaged, it cannot be considered
innocent mortgagee.
The pari delicto rule provides ―when two parties are equally at fault, the law
leaves them as they are and denies recovery by either one of them. This court
adopt the decisions of RTC and CA that only Maniego is at fault.
Finally, on the issue of estoppels and laches, such question were not raised
before the trial court. It is settled that an issue which are neither alleged in the
complaint nor raised during the trial cannot be raised for the time on appeal.
The issue on the nullity of Maniego’s title had already been foreclosed when
this Court denied Maniego’s petition for review in the Resolution dated 13 July
2011, which became final and executory on 19 January 2012. It is settled that
a decision that has acquired finality becomes immutable and unalterable and
may no longer be modified in any respect, even if the modification is meant to
correct erroneous conclusions of fact or law and whether it will be made by
the court that rendered it or by the highest court of the land. This is without
prejudice, however, to the right of Maniego to recover from Poblete what he
paid to Kapantay for the account of Poblete, otherwise there will be unjust
enrichment by Poblete.
DISCUSSION: We’re talking about two distinct contracts here:
First, the contract of sale. There is a lack of consideration, such that the sale
purports to have paid a price for the consideration of the property sold, but in
truth there was no payment made. That is an indication that there is a lack of
consideration in that sale.
Hold on to this thought that you must distinguish the status of the contract if
there is a failure to pay. In this case, it would seem that the failure to pay
rendered the contract void. The answer is no. The failure to pay is only an
incident that brought about the truth that indeed the sale had no consideration
at all.
Remember that failure to pay the purchase price renders the contract
rescissible (Art. 1191 or Art. 1380?). More importantly here, we are talking
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
about the status of the REM that was entered into as security for the loan
made with Landbank.
According to SC, when you look at the validity of the mortgage, the law
requires that the mortgagor must have ownership or at least a title to the
property. Otherwise, it will render the contract void.
Just remember that ownership of the mortgaged property is essential to
the validity of a contract of mortgage.
In this case, there was no showing at all that Maniego had a valid title nor was
he the owner of the property.
The next question is: despite the contract of mortgage being void, can
Landbank argue that it is a mortgagee in good faith?
Remember that, even if contracts are void, it is without prejudice to the
recognition of the law that along the way, persons who are in possession of
properties or may claim rights thereto may validly possess or own such
properties in some capacity. (ex. buyers in good faith, innocent purchasers
for value) That same principle is applicable to mortgagees in good faith.
However, Landbank was not a mortgagee in good faith. According to the SC,
considering that Landbank is a bank, there was no showing that it exercised
extraordinary diligence required of a bank in ascertaining the ownership of the
property given in security of the loan. There was gross negligence on the part
of Lanbank.
With respect to the in pari delicto rule, it cannot be applicable because only
Maniego was maneuvering the sale.
GONZALO V. TARNATE
713 SCRA 224 (2014)
Article 1409-1422 – Void Contracts
Rule: The doctrine of in pari delicto which stipulates that the guilty parties to
an illegal contract are not entitled to any relief, cannot prevent a recovery if
doing so violates the public policy against unjust enrichment.
FACTS: DPWH awarded the contract for improvements of the Mt. Province –
Benguet Road (project) in the total amount of P7M to Gonzalo Construction.
Gonzalo subcontracted to respondent Tarnate, Jr., the supply of materials
and labor for the project under the latter’s business as JNT Aggregates.
In furtherance of the agreement, Gonzalo executed on April 6, 1999 a Deed
of Assignment whereby he as contractor, assigns to Tarnate an amount
equivalent of 10% of the total collection from DPWH for the project. This 10%
retention fee was the rent for Tarnate’s equipment that had been utilized in
the project.
In the deed of assignment, Gonzalo further authorized Tarnate to use the
official receipt of Gonzalo in the processing of the documents relative to the
collection of 10% retention fee and in encashing the check to be issued by
DPWH for such. The deed of assignment was sent to the DPWH.
During the processing of the documents for the retention fee, however,
Tarnate learned that Gonzalo had unilaterally rescinded the deed of
assignment by means of a cancellation filed in the DPWH and that the 10%
retention fee was disbursed in the name of Gonzalo.
Tarnate demanded the payment of the retention fee from Gonzalo but to no
avail. Thus, he brought the suit against Gonzalo for recovery of such retention
fee.
Gonzalo admitted to the deed and the authority to Tarnate, but averred that
the project was cancelled by DPWH. Thus, he revoked such deed of
assignment. He insisted that the deed of assignment could not stand
independently due to its being a mere product of the subcontract that had
been based on his contract with the DPWH; and that Tarnate, having been
fully aware of the illegality and ineffectuality could not go to court with unclean
hands.
CONTENTION OF GONZALO: Stated that the subcontract and the deed of
assignment being specifically prohibited by law, had no force and effect, that
upon finding both him and Tarnate guilty, the in pari delicto doctrine must
apply.
ISSUE: WON Tarnate could recover the 10% retention fee from Gonzalo.
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RULING: Yes, on the basis of unjust enrichment. The petition of Gonzalo is
hereby denied.
Subcontract and Deed of Assignment Void
There is no question that every contractor is prohibited from subcontracting
with or assigning to another person any contract or project he has with DPWH
unless the DPWH Secretary has approved the subcontracting or assignment,
pursuant to Section 6 of PD 1594. The illegality of the subcontract necessarily
affects the deed of assignment because an illegal agreement could not give
birth to a valid contract.
Parties are In Pari Delicto; Exception is Unjust Enrichment
Tarnate had voluntarily entered into the agreements with Gonzalo, and he
admitted that he did not participated in the bidding because he knew that he
was not authorized to contract with the DPWH. According to Article 1412(1)
of the Civil Code, the guilty parties to an illegal contract cannot recover from
one another.
Nonetheless, the application of the doctrine of in pari delicto is not
always rigid. An accepted exception arises when its application
contravenes well-establish public policy. Unjust enrichment exists
when a person unjustly retains a benefit at the loss of another, or when
a person retains money or property of another against the fundamental
principles of justice, equity and good conscience.
There is no question that Tarnate provided the equipment, labor and materials
for the project in compliance with the obligations under the contract and the
deed of assignment, and that it was Gonzalo as the contractor who received
the payment for his contract with the DPWH as well as the 10% retention fee
which should have been paid to Tarnate.
Considering that Gonzalo refused despite demands to deliver to Tarnate the
stipulated 10% retention fee, he would be unjustly enriched at the expense of
Tarnate, if the latter was to be barred from recovering because of the rigid
application of the doctrine of in pari delicto. Thus, Gonzalo is liable to pay
Tarnate in the amount of P233K or the 10% retention fee.
Award of Moral Damages, Fees, and Expenses Inappropriate
We have ruled that no damages may be recovered under a void contract,
which, being non-existent, produces no juridical tie between the parties
involved. It is notable, too, that the RTC and the CA did not spell out the
sufficient factual and legal justifications for such damages to be granted.
Interest should be awarded however from the time of demand because it
would be a travesty of the justice to which Tarnate was entitled for having
suffered too long from Gonzalo’s unjust enrichment. PETITION DENIED.
DISCUSSION: In this case, the agreements of the said project arose from the
violation of a presidential decree which requires the DPWH must give the
approval—the secretary specifically.
In this case, such approval was not secured and, therefore, the sub-
contracting and contracting agreements were completely void. Now, anything
arising from those contracts such in this case, are illegal.
Take note also that in pari delicto rule, there are exceptions. One of this is to
allow recovery if public policy is violated. The SC found the reason of unjust
enrichment. Gonzalo is liable to pay Tarnate the amount of the 10% or 233K
in order to avoid completely unjust enrichment
CABRERA V. YSAAC
740 SCRA 612 (2014)
Article 1409-1422 – Void Contracts
FACTS: The Heirs of Ysaac co-owned a parcel of land in Naga, one of the
co-owners is respondent Henry Ysaac. Henry leased out portions of the
property to several lessees, Cabrera one of the lessees.
In 1990, Henry needed money and offered to sell the 95 sq.m. area being
leased by Cabrera. Cabrera told him that the area was too small for his needs
for there was no parking space. Thus, Henry expanded his offer to include
two adjoining lands that Henry was then leasing. Henry however warned
Cabrera that the sale for those two could only proceed if the two families agree
to it.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
Cabrera accepted the new offer. They settled on the price of P250 per square
meter, but Cabrera could only pay in full after his retirement in 1992.
According to Cabrera, Henry informed him that the families that were leasing
on the lots purported to be included in the sale were no longer interested. In
1992, when Henry was in US, Juan tried to pay rest of the purchase price to
his wife, but the latter refused to accept.
Cabrera alleged that Henry approached him, requesting to reduce the area of
the land because part of it was to be made walkway and that a family was
there occupying that was difficult to eject. Cabrera agreed to the proposal thus
another survey was one. However, the counsel of Henry sent the counsel of
Cabrera that Henry is formally rescinding the contract for failure to pay the
balance of the purchase price of the land and the payments were to be applied
as payment for overdue rent.
Upon going to Henry’s residence, Henry stated that he could no longer sell
the property because the new administrator of the property was his brother,
Franklin Ysaac. Due to Cabrera’s inability to enforce the sale he filed a case
for specific performance claiming for execution of the sale.
However, before the RTC can decide the case, the Heirs under the
administration of Franklin, sold their property to Naga City on 1997 and was
made into a project for urban poor.
RTC ruled that the sale was duly rescinded when Cabrera filed to pay the
balance of the purchase price. CA ruled that the sale was not correctly
rescinded, and that Naga City had a preferential right under the rules on
double sales.
ISSUE: WON there was a valid contract of sale. [NO]
Ruling: There Was No Valid Contract of Sale; Co-Ownership
A contract is a meeting of minds between two persons whereby one binds
himself with respect to the other, to give something or to render some service.
A contract of sale is perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price. The object of
a valid sale contract must be owned by the seller or at the least authorized
to sell the object.
Specific Rules when Seller Co-Owns Object of Contract
As a general rule, a sale of a portion of the property is considered as an
alteration of the thing owned in common, and such disposition requires the
unanimous consent of the other co-owners. However, the rules also allow
the co-owner to alienate his or her part of the co-ownership.
If alienation precedes partition:
The co-owner cannot sell a definite portion of the land without consent of the
co-owners, he or she could only sell the undivided interest over the co-owned
property. This undivided interest is also known as proportionate share.
Definite portion means specific metes and bounds of a co-owned property.
IN THE CASE: The object of the sale contract was a definite portion and
that at the time of the sale it was still held in common. The rules allow Henry
to sell his undivided share, but it was shown that the object of the sale was a
definite portion thus he had no right to sell. As such, Henry had no right to sell
the parcel of land as determined by the petitioners. The determination of those
metes and bounds are not binding to the co-ownership hence, cannot be
subject to sale, unless consented by all co-owners.
At best, the agreement is a contract to sell not a contract of sale. A co- owner
could enter into a contract to sell a definite portion of the property subject
to a suspensive condition of the partition of the property, and that the
other co-owners shall agree that the subject of contract to sell vests in favor
of the co-owner’s buyer.
Moreover, the absence of a contract of sale means that there is no source
of obligations for Cabrera as seller or as buyer, rescission is impossible
because there is no contract to rescind. The question of double sale was moot
and academic as there was no valid sale between Cabrera the sale to the
Naga City was valid, there is only one valid sale.
DISCUSSION: There is a difference between a sale of property when it is co-
owned. There must be a distinction between the sale of the actual, definite
portions of the property (tangible). According to the Supreme Court, what the
law requires is, in case of the sale of a definite portion of a parcel of land, it
requires the unanimous consent of all of the shares.
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Why?
Co-owners can only do acts of administration with respect to the co-owned
property. They cannot do any acts of ownership, precisely because it is c-
owned. In selling the property, which is an act of ownership, it requires the
unanimous consent of all the co-owners. Otherwise, the sale if a definite
portion is VOID.
Exceptions: ONLY APPLICABLE TO THE PRO INDIVISO SHARE AND
NOT DEFINITE PORTIONS; valid as to the share or interest of an owner in
the said co-owned property.
LOPEZ V. DBP
741 SCRA 153 (2014)
Article 1409-1422 – Void Contracts
FACTS: Gregoria Lopez owned a 2,734-square-meter property in Bustos,
Bulacan. She died on March 19, 19226 and was survived by her three sons:
Teodoro Lopez, Francisco Lopez, and Carlos Lopez.
Teodoro, Francisco, and Carlos died. Only Teodoro was survived by children:
Gregorio, Enrique, Simplicio, and Severino.
Petitioners in this case are Simplicio substituted by his daughter Eliza Lopez,
and the heirs of Gregorio and Severino. Enrique is deceased.
Petitioners discovered that before Enrique died, he executed an affidavit of
self-adjudication declaring himself to be Gregoria Lopez’s only surviving heir,
thereby adjudicating upon himself the land in Bulacan. He sold the property
to Marietta Yabut.
Sometime in 1993, Marietta obtained a loan from Development Bank of the
Philippines (DBP) and mortgaged the property to DBP as security with an
agreement that the land shall be brought under the Torrens system because
at that time of the Deed of Sale between Enrique and Marietta, the property
was still covered by the tax declaration in the name of heirs of Lopez. It was
only on July 26, 1993, that an original certificate of title was issued in
Marietta’s name.
Marietta and DBP "executed a supplemental document dated 28 February
1995 placing the subject [property]within the coverage of the mortgage."
In 1996, Marietta failed to pay the loan obligation. Thus, DBP instituted
foreclosure proceedings where it was declared as the highest bidder. The
Certificate of Sale was registered with the Register of Deeds on 11 September
1996. The title to the property was consolidated in favor of DBP.
On December 27, 2005, the RTC ruled in favor of petitioners. Itfound that the
affidavit of self-adjudication and the deed of absolute sale did not validly
transfer to Marietta the title to the property. Enrique could not transfer three-
fourths of the property since this portion belonged to his co-heirs. It also found
that Marietta was not an innocent purchaser for value because when the deed
of absolute sale was executed, the property was only covered by a tax
declaration in the name of the heirs of Gregoria Lopez.
The CA reversed the decision of the Regional Trial Court in the decision
promulgated on May 8, 2009. It held that DBP was a mortgagee in good faith
with the absence of any evidence to show that the DBP was ever privy to the
fraudulent execution of the late Enrique Lopez’ affidavit of Adjudication over
the subject land, the right of the former over the same must be protected and
respected by reason of public policy.
ISSUE: WON the transfer of title to Marietta and gradually to DBP was valid.
HELD: We have consistently upheld the principle that "no one can give what
one does not have." A seller can only sell what he or she owns, or that which
he or she does not own but has authority to transfer, and a buyer can only
acquire what the seller can legally transfer.
This principle is incorporated in our Civil Code. It provides that in a contract
of sale, the seller binds himself to transfer the ownership of the thing sold,
thus:
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
Art. 1458. By the contract of sale, one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent.
The seller cannot perform this obligation if he or she does not have a right to
convey ownership of the thing. Hence, Article 1459 of the Civil Code provides:
Art. 1459. The thing must be licit and the vendor must have a right to transfer
the ownership thereof at the time it is delivered.
In this case, Gregorio, Simplicio, Severino, and Enrique became co-owners
of the property, with each of them entitled toan undivided portion of only a
quarter of the property.
Enrique’s right to the property was limited to his one-fourth share, he had no
right to sell the undivided portions that belonged to his siblings or their
respective heirs. Any sale by one heir of the rest of the property will not affect
the rights of the other heirs who did not consent to the sale. Such sale is void
with respect to the shares of the other heirs.
A sale in excess of a corresponding share is void.
In relation to the affidavit of self-adjudication, it is invalid for the simple reason
that it was false. At the time of its execution, Enrique’s siblings were still alive
and entitled to the three-fourth undivided share of the property. The affidavit
of self-adjudication did not have the effect of vesting upon Enrique ownership
or rights to the property.
The issuance of the original certificate of title in favor of Marietta does not cure
Enrique’s lack of title or authority to convey his co-owners’ portions of the
property. Issuance of a certificate of title is not a grant of title over petitioners’
undivided portions of the property.
Marietta could acquire valid title over the whole property if she were an
innocent purchaser for value. An innocent purchaser for value purchases a
property without any notice of defect or irregularity as to the right or interest
of the seller. He or she is without notice that another person holds claim to
the property being purchased.
However, Marietta is not a purchaser in good faith because at the time of the
sale, the property was still unregistered. What was available was only a tax
declaration issued under the name of "Heirs of Lopez."
At the very least, the unregistered status of the property should have
prompted Marietta to inquire further as to Enrique’s right over the property.
She did not. Hence, she was not an innocent purchaser for value. She
acquired no title over petitioners’ portions of the property.
As to the validity of the mortgage, the Court held that ne of the requisites of a
valid mortgage contract is ownership of the property being mortgaged. Article
2085 of the Civil Code enumerates the requisites of a mortgage contract: Art.
2085.
The following requisites are essential to the contracts of pledge and
mortgage:
(1) That they be constituted to secure the fulfilment of a principal
obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing
pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be
legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the
latter by pledging or mortgaging their own property.
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Applying this provision and having established that Marietta acquired no valid
title or ownership from Enrique over the undivided portions of the property,
this court finds that no valid mortgage was executed over the same property
in favor of DBP. Without a valid mortgage, there was also no valid foreclosure
sale and no transfer of ownership of petitioners’ undivided portions to DBP. In
other words, DBP acquired no right over the undivided portions since its
predecessor-in-interest was not the owner and held no authority to convey
the property.
Citing Blanco v. Esquierdo, DBP argued that since it did not participate in the
dealings between Enrique and Marietta, it should be considered as an
innocent mortgagee for value.
DBP's reliance on Blanco is misplaced. In Blanco, the certificate of title had
already been issued under the name of the mortgagor when the property was
mortgaged to DBP. This is not the situation in this case.
To reiterate, the protection accorded to mortgagees in good faith cannot be
extended to mortgagees of properties that are not yet registered or registered
but not under the mortgagor's name.
Deed of Real Estate Mortgage is also void.
DISCUSSION: As a rule, you have to remember the essential elements of a
contract of mortgage, because there are specific elements to that type of
contract. One of which is that it must contain all the essential elements of a
contract – consent, object, cause, or consideration.
More importantly, there must be ownership of the property mortgaged on the
part of the mortgagor. Absence of such ownership means that such person
does not have free disposal of the thing due. Therefore, absent those
requirements, that mortgage contract is void.
Also take note of the requirements of mortgagees in good faith. It has been
repeated by Landbank and Lopez v. DBP that even if contracts are void,
persons who are innocent or who are in good faith may claim a valid title in
terms of real property such as lien in case of mortgagees in good faith.
But, did DBP measure up to the requirement in being a mortgagee in good
faith? The answer is no. Because at the time of securing the mortgage, it was
very clear that ownership over the property mortgage was already in question.
Given that the defect of the title or the ownership is very apparent from the
beginning or at the time of the execution of the mortgage contract, it cannot
be said that they are mortgagees in good faith. They cannot claim any interest
or title to the mortgage.
TINGALAN V. MELLIZA
760 SCRA 514 (2015)
Article 1409-1422 – Void Contracts
FACTS: A free patent was issued under the name of petitioner Anastacio on
October 4, 1976. On March 28, 1977, by virtue of a Deed of Absolute Sale,
Anastacio sold the land to respondent spouses Melliza in violation of the
prohibition in Section 118 of the Public Land Act. Thereafter, the spouses
exercised acts of ownership towards the land. It was only 23 years later when
one Elena Tunanan filed an adverse claim over the subject property.
Petitioner Anastacio countered and demanded that respondent-spouses
vacate the property but the latter refused. In 2001, Anastacio filed an Action
to Quiet Title and Recovery of Possession against Spouses Melliza and
Tunanan. The trial court as well as the Court of Appeals dismissed the case
holding that it was barred by laches due to the 24 year delay of petitioner
Anastacio in filing the petition.
ISSUES: 1.) Whether the Deed of Sale executed between petitioner
Anastacio and respondent spouses Melliza is valid.
2.) Whether the institution of the action to annul the Deed of Sale has already
been barred by laches.
RULING: The contract of sale entered into between petitioner Anastacio and
respondent-spouses on March 28, 1977 is null and void from inception for
being contrary to law and public policy. As a void contract – it is imprescriptible
and not susceptible of ratification.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
The law is clear under Section 118 of the Public Land Act, as amended, that
unless made in favor of the government or any of its branches, units or
institutions, lands acquired under free patent or homestead provisions shall
not be subject to any form of encumbrance for a term of five years from and
after the date of issuance of the patent or grant.
The foregoing provision of law unambiguously classifies the subject contract
of sale executed on March 28, 1977 as unlawful and null and void ab initio for
being in violation of Section 118, i.e., entered into within the five-year
prohibitory period. This provision of law is clear and explicit and a contract
which purports to alienate, transfer, convey or encumber any homestead
within the prohibitory period is void from its execution. The Court has held in
a number of cases that such provision of law is mandatory with the purpose
of promoting a specific public policy to preserve and keep in the family of the
patentee that portion of the public land which the State has gratuitously given
to them.
xxx
A void contract produces no legal effect whatsoever in accordance with the
principle “quod nullum est nullum producit effectum.” It could not transfer title
to the subject property and there could be no basis for the issuance of a title
from petitioner Anastacio’s name to the names of respondent-spouses. It is
not susceptible of ratification and the action for the declaration of its absolute
nullity is imprescriptible. It was therefore error for both courts a quo to rule
that “[p]etitioner’s failure to act on such considerable time has already barred
him by estoppel and laches.”
FILINVEST LAND V. ADIA
775 SCRA 494 (2015)
Article 1409-1422 – Void Contracts
FACTS: The respondents were the registered owners of various parcels of
land in Cavite, these properties were awarded to them pursuant to the CARL.
In 1995, Filinvest acquired possession of these properties. Each of the
respondents executed a Sinumpaang Salaysay entitled Pagbibitaw ng
Karapatan (affidavits). Based on these, the respondents relinquished all their
rights over the properties for valuable consideration.
The respondents alleged that they surrendered their properties with the
understanding that Filinvest would develop these into a residential
subdivision, pursuant to a JVA.
They also entrusted their duplicate original copies of the TCTs to Filinvest
because they were told that these would be used in the preparing of the
development plans. The respondents added that they were even given money
to find their own place while the development was taking place.
The respondents repeatedly requested Filinvest to return their TCT copies
and to give them copy of the JVA. Since the development had not yet begun,
they also sent a letter to Filinvest to allow them temporarily to return, they
received no response and instead Filinvest began to fence the area and
prohibited entry which prompted them to file an adverse claim.
Filinvest argued that respondents haver relinquished their rights over the
property; that no joint venture agreement (JVA) was signed; and that all of the
respondents signed the affidavits under which possession was validly
transferred to Filinvest.
De Guzman testified that the sale with Filinvest did not push through because
the properties were covered by the CARL (Comprehensive Agrarian Reform
Law). Under its Section 27, the properties cannot be sold within 10 years thus
instead of a sale she negotiated a transfer of possession until such time sale
could be made.
ISSUE: WON Filinvest is the lawful possessor of the property.
RULING: The affidavits are void for violating Section 27 of the CARL.
Since the properties involved were awarded pursuant to CARL, its provisions
apply here. Section 27 of the CARL prohibits the sale, transfer, or conveyance
of the properties within ten years, subject to four exceptions which do not
apply to this case.
In the present case, the parties do not dispute that the transfers occurred
within the ten-year period. Filinvest contends, however, that only transfer of
ownership is prohibited, not of possession.
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However, the affidavits, as worded, totally waive or transfer the respondents'
rights and interests over the properties. The CA correctly observed that the
affidavits do not only assign possessory rights, but perpetually surrender the
respondents' ownership rights. Furthermore, De Guzman admitted that the
affidavits were deliberately designed to circumvent the proscription under
RA6657.
Clearly, the transfers of the properties, through the affidavits, violate Section
27 of the CARL. Under our established rulings, these affidavits or waivers are
void.
Because the transfers made to Filinvest in 1995 are void, Filinvest cannot
claim rightful possession over the properties. The respondents are the
awardees based on the CARL and should be recognized as the lawful
possessors.
The pari delicto exception does not apply in this case.
To elaborate, Article 1416 of the Civil Code provides an exception to the pari
delicto doctrine. Under this article, the plaintiff may recover what he paid or
delivered pursuant to a void contract if the following requisites are met:
(a) the contract is not illegal per se but merely prohibited;
(b) the prohibition is for the plaintiff’s protection; and
(c) public policy will be enhanced by his recovery.
These requisites are present in this case.
On the first requisite, the affidavits here are merely prohibited. A contract is
illegal per se if, by universally recognized standards, it is inherently bad,
improper, immoral, or contrary to good conscience.
Ordinarily, affidavits or contracts of sale are lawful. Only Section 27 of the
CARL made them unlawful.
On the second requisite, the prohibition under Section 27 of the CARL is
meant to protect the farmer-beneficiaries. Section 2 of the CARL explains that
the agrarian reform program is founded on the landless farmers' right to own
land. Thus, their protection must be given utmost importance.
On the third requisite, public policy will be promoted by allowing the
respondents to recover their land. The CARL distributes agricultural land to
landless farmers to improve their quality of life. Returning the land to them will
enhance this public policy of agrarian reform.
Thus, the respondents may recover the subject properties.
DISCUSSION: In this case, the property involved is in violation of the
Comprehensive Agrarian Reform Law, which provides that transfers involving
property covered by the CARL are void if they are made within the 10-year
prohibitory period.
Violations of CARL are not illegal per se. These are merely prohibited
because it goes against public policy.
There was an allegation that what was conveyed in the affidavit was only
possession and not ownership. It was argued that what the law prohibits was
to transfer ownership and that Filinvest allegedly could not claim ownership.
However, a perusal of the affidavit showed that all the benefits and rights were
transferred in favor of Filinvest. Therefore, it is not mere possession, but
ownership.
TAN V. HOSANA
783 SCRA 87 (2016)
Article 1409-1422 – Void Contracts
FACTS: The respondent Jose G. Hosana married Milagros C. Hosana
(Milagros) on January 14, 1979.During their marriage, Jose and Milagros
bought a house and lot located at Tinago, Naga City.
On January 13, 1998, Milagros sold to the petitioner Tomas P. Tan, Jr.
(Tomas) the subject property, as evidenced by a deed of sale executed by
Milagros herself and as attorney-in-fact of Jose, by virtue of a Special Power
of Attorney (SPA) executed by Jose in her favor.
The Deed of Sale stated that the purchase price for the lot was P200,000.00.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro

On October 19, 2001, Jose filed a Complaint for Annulment of Hence, a void document is admissible as evidence because the purpose of
Sale/Cancellation of Title/Reconveyance and Damages against Milagros and introducing it as evidence is to ascertain the truth respecting a matter of fact,
Tomas.The complaint was filed before the Regional Trial Court (RTC), Branch not to enforce the terms of the document itself.
62, Naga City. In the complaint, Jose averred that while he was working in
Japan, Milagros, without his consent and knowledge, conspired with Tomas It is also settled in jurisprudence that with respect to evidence which appears
to execute the SPA by forging Jose's signature making it appear that Jose to be of doubtful relevancy, incompetency, or admissibility, the safer policy is
had authorized Milagros to sell the subject property to Tomas. to be liberal and not reject them on doubtful or technical grounds, but admit
them unless plainly irrelevant, immaterial, or incompetent; for the reason that
In his Answer, Tomas maintained that he was a buyer in good faith and for their rejection places them beyond the consideration of the court, if they are
value.11 Before he paid the full consideration of the sale, Tomas claimed he thereafter found relevant or competent. On the other hand, their admission, if
sought advice from his lawyer-friend who told him that the title of the subject they turn out later to be irrelevant or incompetent, can easily be remedied by
lot was authentic and in order.12 Furthermore, he alleged that the SPA completely discarding them or ignoring them.
authorizing Milagros to sell the property was annotated at the back of the title.
In the present case, the deed of sale was declared null and void by positive
provision of the law prohibiting the sale of conjugal property without the
RTC: The RTC decided in favor of Jose and nullified the sale of the subject spouse's consent. It does not, however, preclude the possibility that Tomas
property to Tomas. The RTC held that the SPA dated June 10, 1996, wherein paid the consideration stated therein. The admission of the deed of sale as
Jose supposedly appointed Milagros as his attorney-in-fact, was actually null evidence is consistent with the liberal policy of the court to admit the evidence:
and void. which appears to be relevant in resolving an issue before the courts.

CA: The CA affirmed the RTC ruling that the deed of sale and the SPA were An offer to prove the regular execution of the deed of sale is basis for
void. the court to determine the presence of the essential elements of the sale,
including the consideration paid.
ISSUE: WON a null and void document cannot be used as evidence.
Tomas argues that the Deed of Sale was not specifically offered to prove the
RULING: actual consideration of the sale and, hence, cannot be considered by the
The force and effect of a void contract is distinguished from its court. Tomas is incorrect.
admissibility as evidence.
The deed of sale in the present case was formally offered by both parties as
The petitioner argues that the CA erred in relying on the consideration stated evidence.57 Tomas, in fact, formally offered it for the purpose of proving its
in the deed of sale as basis for the reimbursable amount because a null and execution and the regularity of the sale.
void document cannot be used as evidence.
The offer of the deed of sale to prove its regularity necessarily allowed the;
We find no merit in the petitioner's argument. lower courts to consider the terms written therein to determine whether all the
essential elements59 for a valid contract of sale are present, including the
A void or inexistent contract has no force and effect from the very consideration of the sale. The fact that the sale was declared null and void
beginning.47 This rule applies to contracts that are declared void by positive does not prevent the court from relying on consideration stated in the deed of
provision of law, as in the case of a sale of conjugal property without the other sale to determine the actual amount paid by the petitioner for the purpose of
spouse's written consent.48 A void contract is equivalent to nothing and is preventing unjust enrichment.
absolutely wanting in civil effects.49 It cannot be validated either by
ratification or prescription.50 When, however, any of the terms of a void Hence, the specific offer of the Deed of Sale to prove the actual consideration
contract have been performed, an action to declare its inexistence is of the sale is not necessary since it is necessarily included in determining the
necessary to allow restitution of what has been given under it regular execution of the sale.

It is basic that if a void contract has already "been performed, the restoration The consideration stated in the notarized Deed of Sale is prima
of what has been given is in order."52 This principle springs from Article 22 of facie evidence of the amount paid by the petitioner.
the New Civil Code which states that "every person who through an act of
performance by another, or any other means, acquires or comes into The notarized deed of sale is a public document and is prima facie evidence
possession of something at the expense of the latter without just or legal of the truth of the facts stated therein.
ground, shall return the same." Hence, the restitution of what each party has
given is a consequence of a void and inexistent contract. Prima facie evidence is defined as evidence good and sufficient on its face.
Such evidence as, in the judgment of the law, is sufficient to establish a given
While the terms and provisions of a void contract cannot be enforced since it fact, or the group or chain of facts constituting the party's claim or defense
is deemed inexistent, it does not preclude the admissibility of the contract as and which if not rebutted or contradicted, will remain sufficient.
evidence to prove matters that occurred in the course of executing the
contract, i.e., what each party has given in the execution of the contract. In the present case, the consideration stated in the deed of sale
constitutes prima facie evidence of the amount paid by Tomas for the transfer
Evidence is the means of ascertaining in a judicial proceeding the truth of the property to his name. Tomas failed to adduce satisfactory evidence to
respecting a matter of fact, sanctioned by the Rules of Court.53 The purpose rebut or contradict the consideration stated as the actual consideration and
of introducing documentary evidence is to ascertain the truthfulness of a amount paid to Milagros and Jose.
matter at issue, which can be the entire content or a specific provision/term in
the document. The deed of sale was declared null and void by a positive provision of law
requiring the consent of both spouses for the sale of conjugal property. There
The deed of sale as documentary evidence may be used as a means to is, however, no question on the presence of the consideration of the sale,
ascertain the truthfulness of the consideration stated and its actual payment. except with respect to the actual amount paid. While the deed of sale has no
The purpose of introducing the deed of sale as evidence is not to enforce the force and effect as a contract, it remains prima facie evidence of the actual
terms written in the contract, which is an obligatory force and effect of a valid consideration paid.
contract. The deed of sale, rather, is used as a means to determine matters
that occurred in the execution of such contract, i.e., the determination of what As earlier discussed, Tomas failed to substantiate his claim that he paid to
each party has given under the void contract to allow restitution and prevent Milagros the amount of P700,000.00, instead of the amount of P200,000.00
unjust enrichment. stated in the deed of sale. No documentary or testimonial evidence to prove
payment of the higher amount was presented, apart from Tomas' sole
Evidence is admissible when it is relevant to the issue and is not excluded by testimony. Tomas' sole testimony of payment is self-serving and insufficient
the law of these rules.54There is no provision in the Rules of Evidence which to unequivocally prove that Milagros received P700,000.00 for the subject
excludes the admissibility of a void document. The Rules only require that the property.
evidence is relevant and not excluded by the Rules for its admissibility.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
Hence, the consideration stated in the deed of sale remains sufficient
evidence of the actual amount the petitioner paid and the same amount which
should be returned under the principle of unjust enrichment.
Unjust enrichment exists "when a person unjustly retains a benefit at the loss
of another, or when a person retains money or property of another against the
fundamental principles of justice, equity, and good conscience."62 The
prevention of unjust enrichment is a recognized public policy of the State and
is based on Article 22 of the Civil Code.
The principle of unjust enrichment requires Jose to return what he or Milagros
received under the void contract which presumably benefitted their conjugal
partnership.
Accordingly, the CA correctly ordered Jose to return the amount of
P200,000.00 since this the consideration stated in the Deed of Sale and given
credence by the lower court. Indeed, even Jose expressly stated in his
comment that Tomas is entitled to recover the money paid by him in the
amount of P200,000.00 as appearing in the contract.
DISCUSSION: Remember that although as a rule, a contract of sale is
consensual, there are exceptions provided for by the law and that is a formal
contract. It means that it must observe certain formalities for its validity such
as the sale of a conjugal party. In this case, without the written consent on the
part of anyone in the spouses, that sale is void.
More importantly, if a sale of a parcel of land or real property or any interest
therein, if made through an agent, remember that the authority of such agent
must be in writing. Otherwise, the sale is void.
Next, the validity or invalidity of a contract is a separate and distinct issue from
its admissibility. It is not excluded by the Rules of Court that you can present
that document as proof. In this case, the SC ruled that despite the invalidity
of the deed of sale, it can be taken as an evidence as proof that indeed
all essential elements of the contract are not existent.
PEÑA V. DELOS SANTOS
785 SCRA 440 (2016)
Article 1409-1422 – Void Contracts
FACTS: Jesus Delos Santos and Rosita Delos Santos Flores were judgment
awardees of the 2/3 portion of four adjoining lots in Boracay. Peña averred
that he is the transferee of the alleged allotments over the subject lots. He
claimed that he bought the same from Atty. Robiso who acquired the
properties from Jesus and Rosita through assignment and sale. It was shown
that Atty. Robiso sold the lots to Peña thru a Deed of Absolute Sale. The
plaintiffs opposed his motion claiming that the conveyance was null and void
for being a prohibited transaction because the latter was their counsel in the
case.
It was shown that Atty. Robiso was indeed engaged by Jesus and Rosita to
be the counsel in their case. Under the
Agreement and Undertaking where Atty. Robiso bound himself to render his
legal services in connection with Jesus and Rosita’s involvement as party-
litigants and that Atty. Robiso undertook to advance his own funds for all
expenses and costs he may incur in relation to the case. In consideration
thereof, Jesus and Rosita obliged themselves to give or pay to him as
contingent professional fees the 2000 sq.m. of any and all lands that the
courts will award to them.
RTC ruled that Jesus and Rosita that conveyance was valid since it was not
made during the pendency of litigation but after judgment has been rendered.
But the CA reversed the judgment ruling that the case was still pending when
the Deeds of sale was executed.
ISSUES: 1.) WON the deeds of conveyance between Atty. Robiso and
Jesusa and Rosita were valid since it was executed long after the decision
became final and executory.
2.) WON the action for the declaration of nullity of the contract should be in a
separate contract.
RULING: 1.) No. Article 1491(5) of the Civil Code expressly prohibits lawyers
from acquiring property or rights that may be the object of any litigation in
which they may take part by their profession.
A property is in litigation if there is a contest or litigation over it in court or
when it is subject of a judicial action over the subject lots was still in the
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appellate proceedings stage when they were conveyed to Atty. Robiso. The
two deeds of sale were all execute long before termination of the proceedings.
In this case, since the property conveyed to Atty. Robiso by Jesus and Rosita
was still the object of litigation, the deeds of conveyance executed by the latter
are deemed inexistent. Article 1409 applies, this being so, Atty. Robiso could
not have transferred a valid title in favor of Peña over the lots awarded to
Jesus and Rosita. Thus, the petitioner has no legal standing.
2.) There is no need to bring a separate action for the declaration of the
subject deeds of conveyance as void. 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 and cannot be validated by prescription or ratification.
The need to bring a separate action for declaration of nullity applies only
if the void contract is no longer full
executory. If the contract is still fully executory, no party need bring an
action to declare its nullity; but if any party should bring an action to
enforce it, the other party can simply set up the nullity as a defense.
DISCUSSION: How do you distinguish a contract which is void for being
violative of 1491(5) than that of a rescissible contract under 1381(4)?
In 1491(5), what is considered as void is when lawyers purchase property
which is pending litigation. It is because of the underlying policy that lawyers
should not acquire interest over properties which are the subject matter of the
suit, over and beyond the interest of their client.
On the other hand, 1381(4) only talks about the general sale or transfer of
property which makes it rescissible. It applies to anyone, and not just judges,
lawyers, etc.
Art. 1381(4) specifically talks about rescissible contract which involve the sale
of property, while Art. 1491(5) talks about the purchase of lawyers of property
pending litigation.
Finally, 1381(4) talks about the sale without the consent of the defendants or
without the authorization of the court. In 1491(5), such consent is immaterial.
In the same manner, 1381 par. 1 & 2 should also be distinguished with Art
1491(1).
If it is the guardian that sells the property of the ward and that guardian has
authority, but the ward suffers lesion by more than one-fourth of the value of
the property, such sale is rescissible. However, in 1491(1), what is prohibited
is when the guardians purchase the property of their ward during the
subsistence of the guardianship. The amount of lesion is immaterial.
Take note of Art. 1491 for the exam.
FULLIDO V. GRILLI
785 SCRA 278 (2016)
Article 1409-1422 – Void Contracts
FACTS: In 1994, Grilli (an Italian national), met Fullido in Bohol and courted
her. In 1995, Grilli decided to build a residential house where they would stay
whenever he would be vacationing in the country. Grilli financially assisted
Fullido in procuring a lot. They constructed a house funded by Grilli. In 1998,
Grilli and Fullido executed a Contract of Lease and a MOA and an SPA to
define their respective rights over house and lot.
Lease Contract
Grilli as the lessee, would rent the lot, in the name of Fullido, for a period of
fifty years to be automatically renewed for another fifty years upon its
expiration for P10,000 for the whole term; and that Fullido as the lessor, was
prohibiting from selling, donating, encumbering lot without written consent of
Grilli.
Memorandum of Agreement
There is an acknowledgement that Grilli paid for the purchase price of the
house, that the ownership was to reside with Grilli; and that should the
common-law relationship be terminated, Fullido could only sell house and lot
whomever Grilli desired.
Special Power of Attorney
This allowed Grilli to administer, manage, and transfer the house and lot on
behalf of Fullido. After 16 years, their relationship turned sour, they both
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
charged each other with infidelity, there was issue to who should leave the
property.
Grilli’s Position
Grilli discovered the Fullido was pregnant and at first, she told him that the
child she was carrying was his, after delivery of the said child, it became
apparent that was not his based-on time of his physical presence in the
country, the baby’s physical features and that Fullido later on admitted.
He let Fullido stay out of generosity, but later Fullido became more hostile and
difficult to handle. She was not able to maintain the property to keep in good
conditions, after demands to leave, she refused to leave which prompted him
to file the unlawful detainer complaint.
Fullido’s Position
Sometime in 1995, Grilli offered to build a house for her on a parcel of land
she exclusively owned which is to become their conjugal abode. Fullido
claimed that their relationship as common-law spouses ended when she
found out that Grilli had found a new and younger woman and that he began
to threaten and physically hurt her by knocking her head and choking her.
She asserted that even if Grilli funded construction, she exclusively owned
lot.
MCTC dismissed the case because Fullido could not be ejected for she was
a co-owner. RTC reversed stating that Grilli had exclusive right to use and
possess the house and lot by the lease. CA held that it was a possession that
it was an ejectment case the only issue to be resolved would be the physical
possession of the property.
ISSUE: WON the Contract of Lease and MOA were null and void the could
not be sourced for Grilli’s de facto possession.
RULING: A review of the relevant jurisprudence reveals that the Court did not
hesitate to set aside a void contract even in an action for unlawful detainer.
Clearly, contract may be declared void even in a summary action for unlawful
detainer because, void contract does not produce any legal effect and cannot
be source of any rights. To emphasize, void contracts may not be invoked as
defense in any court proceeding even in an
ejectment suit.
The constitutional prohibition is shown that alienation is only limited to Filipino
Citizens, thus any transfer of lands to public aliens is considered against the
constitution. This prohibition is not limited to sale of lands to foreigners. It also
covers leases amounting to transfer of all or substantially all the rights
of dominion.
As held in Philippine Banking Corporation v. Lui She, if an alien is given not
only a lease of, but also an option to buy a piece of land by virtue of which the
Filipino owner cannot sell or otherwise dispose of his property, to last for 50
years renewable for the same, then it becomes clear that the agreement is
considered as a virtual transfer of ownership.
PD 471 was enacted to regulate lease of lands to aliens, it provides for a
maximum period allowable for the duration of leases of private lands to aliens
or alien-owned corporations which is 25 years renewable for another period
of 25 years thus any contract in violated shall be null and void ab initio.
Here, the court finds that the Lease Contract and the MOA are null and void
for virtually transferring the reigns of the land to a foreigner.
The lease in favor of Grilli was for a period of 50 years, automatically extended
for another 50 years upon expiration of the original period which prohibited
Fullido from alienating such land to anyone without the written consent of Grilli
for only the amount of P10,000. Through this, Grilli would technically occupy
the land for 100 years and she is powerless to dispose the same.
It is clear that the lease contract and MOA operated to strip Fullido of any
dignified right over her own property the term of lease for 100 years is in
excess of PD 471.
The court rules that Grilli has no cause of action for unlawful detainer against
Fullido. As can be gleaned, the complainant for an unlawful detainer must be
the one who must have some right of possession over the property.
Here, the lease and MOA are found to be null and void for being
unconstitutional, hence as void contracts which cannot be source of rights,
Grilli had no possessory right over the subject land. A person who does not
have any right over a property from the beginning cannot eject another.
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Doctrine of In Pari Delicto cannot apply even though Fullido and Grilli are both
parties to a void contract, Fullido is not barred to file the petition because the
issue involved a public policy involving foreign ownership of lands.
The said constitutional provision would be defeated and its continuous
violation sanctioned if the lands continue to remain in the hands of the
foreigner. PETITION GRANTED.
DISCUSSION: Even if the action filed before the Court does not question the
validity of the contract, if the contract is void, it can be questioned in the case.
When the contract is void, it is subject to attack collaterally. Meaning, even if
the action wasn’t specifically to question the validity of the contract, the courts
may pass upon this issue in order to ultimately adjudicate the right of the
parties.
As a general rule, the validity or invalidity of the contract should not be
assailed if the action instituted by the parties was not specifically to question
the validity of the contract. Nevertheless, if there is an adjudication that the
contract is void, void contracts may be attacked collaterally. Meaning, the
issue on its validity may be passed upon.
Here, the Court also held that the in pari delicto rule should not be applicable
if public policy will not be served. If in truth that this is a case where it transfers
a land in favor of a foreigner and the in pari delicto rule will be applied, it would
be against the prohibition under the Constitution.
NICOLAS V. MARIANO
785 SCRA 440 (2016)
Article 1409-1422 – Void Contracts
FACTS: Leonora Mariano was awarded a land grant from the NHA project of
the Barrio Project which she built on the lot a five-unit apartment which she
leases out to tenants.
The grant however was subject to a mortgage stating that the property cannot
be mortgaged within 5 years from such
without prior written consent and authority from the NHA.
NHA held the delivery of the original title to Mariano and given her the
photocopy of such conditioned upon the full payment of the mortgaged loan.
It was shown that the obligation remained unpaid.
Despite such, Mariano obtained a loan from Nicolas for an amount of P100K
and to secure such loan, she executed a mortgage contract over the same
property comprising the one half portion of the property, this first loan
however, defaulted.
Mariano defaulted in the payment, executed in favor of Nicolas another
second mortgage which is the Sanglaan ng Lupa at Bahay, this time
mortgaging the property and improvements thereon for a consideration.
Mariano still defaulted on her obligation in 2000, because of this she executed
a Deed of Absolute Sale or Real Property conveying to Nicolas the
ownership and the improvements thereof for the amount of P600K.
It was discovered however, that Nicolas was already collecting rents which
amount also to P600K thus the case filed to the RTC.
Mariano sought to be released from the second mortgage agreement and to
stop Nicolas from further collecting upon her credit through the rentals from
her apartments claiming that she has fully paid her debt, and she also prays
for damages for such specific performance, damages, with prayer for
issuance of TRO and later for Permanent Mandatory Injunction.
RTC ruled in favor of Mariano stating that what was entered
was a mere mortgage not a sale of real property, for the deed was void for
lack of consent and of consideration.
CA affirmed holding that deed was void, not because of absence of elements
but due to fact that Mariano was not yet owner when he sold the property for
the sale was in violation of the grant.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
ISSUE: WON the Deed of Absolute Sale was properly
executed by Mariano in favor of Nicolas is void.
The Deed of Absolute Sale is Void
While the title to the TCT is in the name of Mariano, she had
not completed installment payments to the NHA; this fact is not disputed;
Mariano also admits such, she even conceded that she was not yet the owner
of the property Thus, if she never became the owner of the subject property,
she could not have validly
mortgage and sell the same to Nicolas.
Placing a parcel of land under the mantle of the Torrens system does not
mean that ownership thereof can no longer be disputed.
The title is only the best proof of ownership, but the certificate of title cannot
always be rendered as conclusive proof of the ownership, the registration only
confirms ownership and it cannot be used to divest lawful owners.
Nicolas not a Mortgagee or Buyer in Good Faith
Nicolas is charged with knowledge of the circumstances
surrounding the subject property because the original owner of the TCT was
not in Mariano’s possession and only had the photocopy thereof, it is only
natural for a mortgagee or buyer to demand the presentation of the original
owner’s copy of the certificate of the title.
The dorsal side with annotations constitutes sufficient warning as to the
subject property’s condition at the time, because if Nicolas exercised
negligence he would have discovered that Mariano was delinquent in the
payment of the installments to the NHA.
In Pari Delicto Doctrine Applies
Mariano cannot recover damages on account of her claimed losses arising
from her entering into contract with Nicolas, she knew that she is not the
owner and not fully paid the prices she is as guilty as Nicolas for mortgaging
and selling a property not hers. The courts will leave them as they were at
time of filing. PETITION DENIED.
DISCUSSION: This case talks about the disposition of real property.
Remember under the principle of nemo dat non quod habet, you cannot give
what is not yours. You cannot sell or encumber what does not belong to you,
especially in the case of a mortgage contract, in which one of the essential
requisites thereto is that the property mortgaged must be OWNED by the
mortgagor. In this case, lack or absence of ownership renders that contract of
mortgage void.
More importantly, this case illustrates the in pari delicto rule.
STONE V. CATTLEYA LAND
802 SCRA 173 (2006)
Article 1409-1422 – Void Contracts
FACTS: Cattleya entered into a contract of Conditional Sale with the Tecson
spouses covering nine parcels of land involving the subject property.
However, neither the Contract of Conditional Sale nor the Deed of Absolute
could be annotated on the title covering the subject property because the
Registry of Deeds Bohol stated that it was improper to do so because of the
writ of attachment annotated on the title of the property in connection to a Civil
Case.
Despite lifting of the attachment however, Cattleya still did not succeed in
having the Deed of Absolute Sale registered and in having title transferred to
its name because the owner’s copy to the title of the subject property because
such title was destroyed in a fire in Bohol.
This claim by the Tecson spouses turned out to be false because upon
checking the Registry of Deeds of Bohol, the owner’s copy of the TCT had in
fact been presented by Taina-Manigque Stone (Taina) with a deed of sale
from the Tecson spouses, in favor of Taina covering the subject property.
It appears that Taina’s then common-law husband Mike Stone (Mike) decided
to buy a portion of the beach lot and met with Tecson and the latter agreed to
sell them a portion. There was an initial downpayment for a portion of a beach
lot but did not ask for a receipt for this initial downpayment. A Deed of
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Absolute Sale was executed in favor of such subject portion in favor of Taina
in 1987. In 1986, Taina and Mike got married. After learning that the Tecson
are now filing for a second owner’s copy (due to the first one falsely alleged
to be lost in a fire) she filed a notice of Adverse Claim. Thus, in 1995 she
sought to have her Deed of Absolute Sale registered such and presented the
real owner’s copy and a TCT was issued in the name of Taina. This prompted
Cattleya to file a civil case.
RTC Bohol ruled in favor of Cattleya finding that the sale by Tecson to
Cattleya and to Taina stone was a double sale. CA affirmed with
modifications.
ISSUE: WON the sale of land by Tecson spouses to Mike, a foreigner,
although made in Taina’s name was valid and if there were double sales.
RULING:
Constitutional Prohibition to Foreign Ownership of Lands;
Taina as Mere Dummy Still Renders Contract Void
Taina herself admitted that it was really Mike who paid with his own funds the
subject lot and that was the real purchaser. It shows that when it was
proclaimed that Taina was the buyer of the property it was simply because
she and Mike wanted to skirt or circumvent the constitutional prohibition of
foreign ownership of lands.
A scrutiny of the records would show that the Taina was only a dummy for
Mike Stone who is a foreigner. Even if the Deed of Absolute Sale is in the
name of Taina Stone that does not change the fact that the real buyer was
Mike a foreigner. The appellant herself had admitted in court that the buyer
was Mike Stone and at the time of the negotiation she was not yet legally
married to Mike Stone, they cannot do indirectly what is prohibited directly by
law.
Given the fact that the sale by Tecson spouses to Taina was as Mike’s dummy
was shown to be totally abhorrent to the constitution it is thus void ab initio.
There is no double sale. In the first place, there is no double sale to speak of.
Art. 1544 of the Civil Code, which provides the rule on double sale, applies
only to a situation where the same property is validly sold to different vendees.
In this case, there is only one sale to advert to, that between the spouses
Tecson and respondent.
In the Muller case, by entering into a contract knowing that it was illegal, no
implied trust created and no reimbursement for his expenses can be allowed
to allow such would countenance indirect controversion of the constitutional
prohibition. To allow recovery in this case would mean that the alien would be
able to benefit from such illegal act.
Thus, in the instant case, respondent cannot seek reimbursement on the
ground of equity where it is clear that he willingly and knowingly bought the
property despite the constitutional prohibition. Further, the distinction made
between transfer of ownership as opposed to recovery of funds is a futile
exercise on respondent’s part. To allow reimbursement would in effect permit
respondent to enjoy the fruits of a property which he is not allowed to own.
Thus, it is likewise proscribed by law.
DISCUSSION: I guess this is already familiar to you because in Persons and
Family Relations, you are already familiar with Muller vs. Muller. More or less,
it’s the same with that case.
I just want to point out that whether or not you are talking about a direct or
indirect violation of the Constitution such as in the case of Muller, Fullido, and
Stone, take note that such contract is void.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
NATURAL OBLIGATIONS
Take note that obligations in general, may be classified into two as regulated
by the New Civil Code: (1) Civil Obligation; (2) Natural Obligation. In some
books, there is also what we call as Moral Obligations—arises from concepts
of morality, religiousity, etc.
ART. 1423. Obligations are civil or natural. Civil obligations give a right
of action to compel their performance. Natural obligations, not being
based on positive law but on equity and natural law, do not grant a right
of action to enforce their performance, but after voluntary fulfilment by the
obligor, they authorize the retention of what has been delivered or
rendered by reason thereof. Some natural obligations are set forth in the
following articles.
FOUR TYPES OF OBLIGATIONS UNDER JURIDICAL SCIENCE:
1. Moral obligations – which are duties of conscience completely outside
the field of law.
2. Natural obligations – which are not sanctioned by any action but have a
relative juridical effect.
3. Civil obligations – which are juridical obligations which apparently are in
conformity with positive law but are susceptible of being annulled.
4. Mixed obligations – which have full juridical effect.
However, jurisprudence has reduced this classification into two—natural and
civil obligations. The civil obligations include mixed.
ART. 1424. When a right to sue upon a civil obligation has lapsed by
extinctive prescription, the obligor who voluntarily performs the contract
cannot recover what he has delivered or the value of the service he has
rendered.
Take note that in this article, you must correlate it with Art. 1112—when is
there a renunciation or implied waiver of prescription. A prescription may be
tacitly renounced when the renunciation results from act which imply the
abandonment of the right acquired. There must be a distinction. If a person
knows that a debt has prescribed but, nevertheless, they acknowledged the
existence of that debt and promises to pay for it, there is an implied
renunciation of prescription, that is Art. 1112.
But here, you're talking about a situation under Art. 1424 that a debtor knows
that a debt is already prescribed, but nevertheless, VOLUNTARILY PAYS for
the debt without acknowledging its existence. So since you're not
acknowledging its existence and you voluntarily pay for it, despite the lapse
of time under the law, that is a mere natural obligation. And as a consequence,
you are precluded from taking back what you have already given on the
services already rendered.
ART. 1425. When without the knowledge or against the will of the debtor,
a third person pays a debt which the obligor is not legally bound to pay
because the action thereon has prescribed, but the debtor later voluntarily
reimburses the third person, the obligor cannot recover what he has paid.
Now, there is a difference on whether or not the debtor consented. IF the
debtor consented, there is beneficial reimbursement and that is why it gives
rise to a civil obligation. But here, the obligor is not legally bound to pay
anymore on account of the lapse of time, because the action has already
prescribed. Nevertheless, the debtor voluntarily pays the third person. So the
obligor cannot recover what he has paid.
ART. 1426. When a minor between eighteen and twenty-one years of
age who has entered into a contract without the consent of the parent or
guardian, after the annulment of the contract voluntarily returns the
whole thing or price received, notwithstanding the fact that he has not
benefited thereby, there is no right to demand the thing or price thus
returned.
Restitution by a Minor.
After a decree of annulment of a contract, Art. 1398 of the Civil Code provides
that there should be mutual restitution. When the ground for annulment
however, is the incapacity of the plaintiff, Art. 1399 of the Civil Code provides
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the plaintiff is bound to make restitution except to the extent that he was
benefited by such. If there was no benefit derived by the incapacitated party,
he is not legally obliged to make restitution.
However, he has a natural obligation to do so, under this article, if he
voluntarily makes restitution, he cannot recover what he has delivered if he is
a minor over eighteen years of age.
Illustration: A, a minor, entered into a contract with some sui juris, without
consent of his parents. In said contract, A received a car. This car was
afterwards destroyed by fortuitous event. Later when contract was annulled,
A returned voluntarily the value of the car although he had not profited or
benefited a single centavo from the car.
Has he now the right to demand that the price be returned?
No more.
ART. 1427. When a minor between eighteen and twenty-one years of
age, who has entered into a contract without the consent of the parent or
guardian, voluntarily pays a sum of money or delivers a fungible thing in
fulfillment of the obligation, there shall be no right to recover the same
from the obligee who has spent or consumed it in good faith.
Payment by a Minor.
Here, the creditor who has spent or consumed the object in good faith is not
required to restore. Good faith of the obligee must be present at the time of
the spending or consuming.
This article deals with voluntary payment by a minor over eighteen years of
age under an annullable contract. There is no natural obligation in the
situation contemplated by this article—the obligation here is a civil obligation,
which exists and is enforceable, unless set aside. It is not the voluntary
payment that prevents recovery under this article, but the fact that the
obligee/creditor has consumed or spent the thing or money is good faith.
This article simply creates an exception to the general rule in restitution in
case the contract is annulled. Generally, upon the annulment of the contract,
the party who contracted with the minor must return whatever he may have
received under the contract, but he is exempted from this obligation to restore.
If the payment was made by a minor over eighteen years old, and the thing
or money paid was consumed or spent by the former in good faith.
Nature of the Thing.
The code uses the term fungible, but it means that the thing is consumable.
However, even if the thing delivered is not consumable, the debtor still cannot
recover if the thing is no longer in the possession of the creditor who has acted
in good faith, who may have alienated it or lost it without fault. The right to
recover presupposes the existence of the thing.
ART. 1428. When, after an action to enforce a civil obligation has failed,
the defendant voluntarily performs the obligation, he cannot demand the
return of what he has delivered or the payment of the value of the
service he has rendered.
Natural obligations are the same under Art. 1424 and Art. 1428. Distinguish
them on the principle of solutio indebiti. In payment by mistake, it is a civil
obligation. It arises from quasi-contracts.
Winner in an Action to Enforce a Civil Obligation
Here the defendant may have realized that he should have lost the case,
instead of winning it, thus the existence of the article.
Illustration: Suppose A owes B P500,000. B brings a suit against A, but B
loses the case for insufficient evidence. No appeal is made from the decision,
and the judgment becomes final. Later, A paid B voluntarily the debt.
May A now recover from B what he (A) has paid?
No.
ART. 1429. When a testate or intestate heir voluntarily pays a debt of the
decedent exceeding the value of the property which he received by will
or by the law of intestacy from the estate of the deceased, the payment
is valid and cannot be rescinded by the payer.
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 OBLIGATIONS & CONTRACTS (3rd EXAM TSN)
From the lectures of Atty. Bruneson Alabastro
So correlate it with Art. 1178. Remember that rights in an obligation upon the
debt of debtor, take note, all the rights and obligation concomitant in a civil
obligation can be transmitted to the heirs. In Art. 1178, there is an instance
that a heirs cannot be liable of the value of property more than what they have
acquired from the decedent.
What if, nevertheless, despite the value of what they inherited, they cannot
recover whatever they have paid?
That is a natural obligation.
ART. 1430. When a will is declared void because it has not been
executed in accordance with the formalities required by law, but one of
the intestate heirs, after the settlement of the debts of the deceased, pays
a legacy in compliance with a clause in the defective will, the payment is
effective and irrevocable.
Take note, if you will not follow the formalities provided for by the law for the
validity of a notarized will, the lack or absence of such formalities, it will render
the will as null and void.
What is the effect?
Since the will is null and void, any disposition of property in that will cannot be
given effect, because the will cannot also be given effect.
Payment of Legacies despite the Fact that Will is Void.
If the will is void, the legacy would also be void, and the deceased is
considered to have died without a will. This is the reason for the existence of
the Article.
Wills, Legacy, and Devise Wills are classified into (1) notarial and (2)
holographic.
A HOLOGRAPHIC WILL HAVE THREE ELEMENTS:
1. It must be entirely handwritten by the testator;
2. Each page must be dated;
3. Each page must be signed.
Any alteration must be with a signature, otherwise it shall be void. Thus, if one
of the pages is not dated, then the holographic will shall be void. Upon probate
to the court, and the court finding the failure to date on page, the court shall
declare such will void. Therefore, the stipulations in the will no longer govern
the distribution of the estate of the deceased.
Legacy and Device, Defined.
• A legatee is a person who will receive a legacy which is a personal movable
property. The legatee refers to a person who inherits under a will but who may
or may not be related to the decedent, but not all the time.
• A devisee is a person who will receive a devise which is a real property
usually refers to anyone who receives real property by being named in a
decedent's will whether they are related or not—such as a friend.
Note that when the will is held to be void, the heirs can now ignore the
provisions concerning the legacy due to the will having been found to be void.
Art. 1430 applies when, despite such defective will, one of the intestate heirs,
after settlement of the debts of the deceased pays a legacy in compliance
with a clause in a defective will, is considered to be effective and irrevocable.
Illustration: Suppose A, B, and C are heirs of deceased X. The deceased left
a will containing a stipulation in favor of D which was a legacy. However, the
court declared the will void because one of the pages was not signed by the
testator. But B and C chose to honor the legacy, A did not want to. But he was
forced by B and C. Therefore, A’s consent was vitiated. A died a year later.
The heirs of A, Y, and R filed a petition for rescission because the consent of
A was vitiated by force.
Being the heirs of A, will the action prosper?
No. Because even they are successors-in-interest, the vice that was
employed upon A is personal upon A, they merely have an inchoate right over
the thing that was delivered to D as a legacy at the time of the delivery. The
action is for A but not to the heirs both Y and R.
Illustration: In a will defective for lack of the needed legal formalities, X, a
friend, was given a legacy. The legacy is void, and the whole estate should
go to the intestate heirs. If, however, the intestate heirs give X the legacy,
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they cannot get it back now, provided that the debts of the deceased have
been settled.
ESTOPPEL
Estoppel, actually is a concept of equity. It is a concept under common law.
Our law regulating civil relations between persons recognizes that by equity,
estoppel can preclude or even can give effect to certain obligations depending
on circumstances. Take note that, primarily, estoppel is a matter of preclusion.
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.
Estoppel may be defined in general terms as a condition by virtue of which an
admission or representation is rendered conclusive upon the person making
it, and it cannot be denied and be disproved as against the person relying
thereon.
Now what regulates estoppel?
It is primarily the New Civil Code.
ART. 1432. The principles of estoppel are hereby adopted insofar as they
are not in conflict with the provisions of this Code, the Code of Commerce,
the Rules of Court and special laws.
So the principle of estoppel is a principle of equity. It is equity, a common law
which regulates the applicability of estoppel.
So why do we have this provision in the NCC?
Principle of estoppel only insofar as they are not in conflict with the provisions
of the NCC, Code of Commerce, RoC and special laws.
So in this case, it only recognizes the principle of estoppel already existing on
account of equity. Strictly speaking, the NCC is not the only source of
estoppel. The NCC only recognizes the existence of estoppel which arises
from the principle of equity.
This article was illustrated in the case of Heirs of Hermosilla vs. Sps.
Remoquillo.
HERMOSILLA V. REMOQUILLO
513 SCRA 403 (2007)
Article 1431-1439 – Estoppel
FACTS: On August 1931, the Republic of the Philippines acquired through
purchase the San Pedro Tunasan Homesite. Hermosilla, who was occupying
a lot in such until his death in 1964, caused the subdivision of lot to two, Lot
12 and Lot 19.
In 1962, Apolinario Hermosilla executed a Deed of Assignment transferring
possession of Lot 19 in favor of his grandson, respondent Jaime Remoquillo.
As the Land Tenure Administration later found that Lot 19 was still available
for disposition to qualified applicants, Remoquillo, being its actual occupant,
applied for its acquisition before the LTA on 1963.
On 1963, Apolinario converted Lot 12 to his son Salvador Hermosilla, Jaime’s
uncle. Salvador later filed an application to purchase Lot 12 which was
awarded to him by the defunct Land Authority on 1971.
In 1972, Jaime and Salvador forged a Kasunduan ng Paglipat ng Karapatan
sa Isang Lagay ng Lupang Solar (Kasunduan) whereby Jaime transferred the
ownership of Lot 19 in favor of
Salvador.
On 1986, Lot 19 was awarded by NHA to Jaime to which he and his wife were
issued a Title for such property.
On 1992, the petitioners filed an action for Annulment of Title on the ground
of fraud against Jaime and his spouse before the RTC, alleging that by the
1972 Kasunduan, Jaime conveyed to his uncle Salvador Lot 19.
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RTC found the Kasunduan a perfected contract of sale, there being a meeting
of the minds upon an identified object and upon a specific price, and that
ownership was transferred.
CA reversed such holding the Kasunduan void for the time of its execution,
the Republic of the Philippines was still the owner of Lot 19 thus no right was
transmitted, because Jaime was only awarded the property only on 1986 and
the Kasunduan was executed only in 1972. It also held that the action has
prescribed due to the four years has passed.
ISSUES: WON principles of estoppel is applicable. [NO]
WON the Kasunduan is a valid contract. [NO]
RULING: It is undisputed that petitioners’ houses occupy that questioned
property and the respondents have not been in possession thereof.
Since there was no actual need to reconvey the property as petitioners
remained in possession thereof, the action is in a nature of quieting the title,
it is having been filed to enforce an alleged implied trust after Jaime refused
to segregate title over Lot 19.
One who is in actual possession of a piece of land claiming to be the owner
thereof may wait until his possession is disturbed or his title is attacked before
taking steps to vindicate his right. From such, this type of action is
imprescriptible.
The Kasunduan was executed in 1972 by Jaime in favor of Salvador the Lot
19, which is still owned by the Republic. Nemo dat quod non habet, Jaime
could not have transferred anything to Salvador via the Kasunduan.
The principles of estoppel apply insofar as they are not in conflict with the Civil
Code, Code of Commerce, Rules of Court and special laws.
The Land Authority Administrative Order No. 4 proscribes the conveyance
or privilege or preference to purchase a land from the San Pedro Tunasan
Homesite before it is awarded to a tenant or bona fide occupant. Thus,
petitioners’ insistence on any right to the property under the Kasunduan fails.
The transfer became one in violation of law and therefore void ab initio. The
appellant acquired no right over the lot from some contract void ab initio.
Estoppel will not apply for it cannot be predicated on an illegal act, it is
generally considered that as between the parties to a contract, validity to it
cannot be given if its prohibited by law or against public policy.
The action for reconveyance based on fraud must be proved by clear and
convincing evidence and this burden they failed to prove. PETITION DENIED.
DISCUSSION: This was a case which violates a special law. For having
violated a special law, principles of estoppel will not apply in this case.
Nevertheless, it was obvious that the Kasunduan is void for lack of licit object.
It is not appropriable. It pertains to a property that is owned by the State.
ART. 1433. Estoppel may be in pais or by deed.
KINDS OF ESTOPPEL:
1. Estoppel by laches
2. Estoppel by deed or by record
3. Estoppel in pais (by conduct)
(1) Estoppel in pais is one which arises by his acts, representations,
admissions, or even by his silence when he sought to speak up,
intentionally or through culpable negligence induces another to believe
certain facts exist and such rightfully relies and acts on such belief. As a
consequence of which, he would be prejudiced if the former is permitted
to deny the existence of such facts. You are precluded from doing acts
you have already admitted or represented to others. This specifically
pertains to conduct of persons.
(2) Estoppel by deed or by record is anything in writing or by record which
shows that you made certain representations, and persons have relied
upon it, the one making those representations by deed or by record is
precluded from representing otherwise or estopped.
• Deed - written document or record.
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(3) Estoppel by laches pertains to effect of delay. It is one which is
predominantly cited or referred to in jurisprudence.
• Prescription pertains to fact of delay.
ACCESSORIES SPECIALISTS V. ALABANZA
559 SCRA 550 (2008)
Article 1431-1439 – Estoppel
FACTS: Erlinda Alabanza in behalf of Jones Alabanza filed a complaint
against Accessories Specialists (ASI), Tadahiko Hashimoto for non-payment
of salaries, separation pay and 13th month pay.
Erlinda alleged that her husband Jones was the Vice President, Manager and
Director of ASI. Jones rendered outstanding services however on 1997,
Jones was compelled by Hashimoto to file his involuntary resignation
claiming ASI suffered losses due to lack of market and debts.
At time of his resignation, Joes had unpaid salaries of 18 months equivalent
to P396K and $38K and he was not paid the separation pay of 21 years of
service worth P462K and $45K, and 13th month pay. Jones demanded
money claims from ASI but ASI informed him that they will settle his money
claims thereafter. Jones patiently waited by after several demands, ASI failed
and Jones died on 2002 failing to receive the same.
On the other hand, ASI contend that Jones had voluntarily resigned and
that cause of action has already prescribed under Article 291 of the Labor
Code.
ISSUE: WON the cause of action of Erlinda has already prescribed. [NO]
WON estoppel is applied. [YES]
RULING: Based on the findings, it was ASI which was responsible for the
delay in the institution of the complaint, when Jones filed he immediately
asked for payment of his money claims.
However, the management of ASI promised him that he would be paid
immediately after the claims of the rank-and-file employees had been paid.
Jones relied on this representation, this promise was never fulfilled even
until the death of Jones. Thus, as an exception under Article 291 of the Labor
Code is the principle of promissory estoppel.
Promissory Estoppel, Concept and Elements
This may arise from the making of a promise, even though without
consideration, if it was intended that the promise should be relied upon, as in
fact it was relied upon, and if a refusal to enforce would virtually sanction the
perpetration of fraud or would result in other injustice.
Promissory estoppel presupposes the existence of a promise on the part of
one against whom estoppel is claimed. The promise must be plain and
unambiguous and sufficiently specific so that the court can understand the
obligation assumed and enforce the promise according to its terms.
To make out a claim of promissory estoppel, a party bears the burden of
establishing the following elements:
1. That a promise was reasonable 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.
All the requisites are present in this case. Jones relied on the promise of ASI
that he would be paid as soon as the claims of all the rank and file employees
had been paid. If not for this promise he had held on to until the time of his
death, there is no reason for Jones to delay filing the complaint before the
Labor Arbiter.
Thus, the Court finds ample justification not to follow the prescriptive period
imposed under Article 291 of the Labor Code. Great injustice will be
committed if we will brush aside the employee’s claims on a mere technicality,
especially when it was petitioner’s own action that prevented respondent from
interposing the claims within the required periods.
DISCUSSION: One example of estoppel by conduct or estoppel in pais is
Promissory Estoppel. Here, the Supreme Court defined promissory
estoppel as that of making a promise even though without consideration. It
was intended that that promise should be relied upon, as in fact it was relied
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upon, and refusal to enforce it would virtually sanction the perpetration of
fraud which would result to another person’s injustice. So, that could not be
allowed.
As you compare this with unilateral promises in civil obligations in a contract,
unilateral promises cannot be enforced because that is a mere offer unless
there is an acceptance thereto, then there is no valid and binding contract.
Nevertheless, you have this principle of promissory estoppel, where a person
has made a promise and another person has relied on that promise, not
necessarily that that promise has any consideration thereto. Promissory
estoppel will become applicable.
Take note of the elements of promissory estoppel
1) a promise was 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.
ESTOPPEL BY DEED
It is defined as a type of technical estoppel, by virtue of which, a party to a
deed and its privies are precluded from asserting as against the other and his
privies any right or title in the novation of the deed or from denying any
material fact to asserted in a document, deed, or record.
Anything which is asserted in a document is presumed to be those assertions
exactly. You cannot represent another matter which is totally contrary to the
matters in a deed or in any particular record.
PRISMA CONSTRUCTION V. MENCHAVEZ
614 SCRA 590 (2010)
Article 1431-1439 – Estoppel
FACTS: Pantaleon, the President and Chairman of the Board of PRISMA,
obtained a P1,000,000.00 loan from the respondent, with a monthly interest
of P40,000.00 payable for six months, or a total obligation of P1,240,000.00
to be paid within six (6) months. The petitioners failed to completely pay the
loan within the stipulated six (6)-month period.
As of January 4, 1997, the petitioners had already paid a total of
P1,108,772.00. However, the Menchavez found that Prisma still had an
outstanding balance of P1,364,151.00 as of January 4, 1997, to which it
applied a 4% monthly interest. Thus, on August 28, 1997, the respondent filed
a complaint for sum of money with the RTC to enforce the unpaid balance,
plus 4% monthly interest, P30,000.00 in attorney’s fees, P1,000.00 per court
appearance and costs of suit.
In their reply, Prisma admitted the loan of P1,240,000.00, but denied the
stipulation on the 4% monthly interest, arguing that the interest was not
provided in the promissory note. Pantaleon also denied that he made himself
personally liable and that he made representations that the loan would be
repaid within six (6) months.
RTC found that Menchavez issued a check of 1M in favor of Prisma, and
ordered Prisma to pay the amount of 3.5M plus interest.
CA found that the parties agreed to the 4% monthly interest based on the
Board Resolution that authorized Pantaleon to transact the loan with an
agreed interest of not more than 4% per month or 48% per annum.
Menchavez contended that Prisma is already estopped from disputing the 4%
monthly interest beyond the 6-month stipulated period since they agreed to
pay the interest on the PN and the Board Resolution.
ISSUE: WON Prisma is estopped from disputing the 4% monthly interest rate
beyond the 6-month stipulated period since they agreed to pay this interest
under the Promissory Note and Board Resolution.
RULING: NO. We cannot apply the doctrine of estoppel in the present case
since the facts and circumstances, as established by the record, negate its
application. Under the promissory note, what the petitioners agreed to was
the payment of a specific sum of P40,000.00 per month for six months not a
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4% rate of interest per month for six (6) months on a loan whose principal is
P1,000,000.00, for the total amount of P1,240,000.00. We note that this
agreed sum can be computed at 4% interest per month, but no such rate of
interest was stipulated in the promissory note; rather a fixed sum equivalent
to this rate was agreed upon.
We find that the interest of P40,000.00 per month corresponds only to the six
(6)-month period of the loan, or from January 8, 1994 to June 8, 1994, as
agreed upon by the parties in the promissory note. Thereafter, the interest on
the loan should be at the legal interest rate of 12% per annum, consistent with
our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.
The board resolution, on the other hand, simply authorizes Pantaleon to
contract for a loan with a monthly interest of not more than 4%. This resolution
merely embodies the extent of Pantaleon’s authority to contract and does not
create any right or obligation except as between Pantaleon and the board.
Again, no cause exists to place the petitioners in estoppel.
Thus, no reason exists to place the petitioners in estoppel, barring them from
raising their present defenses against a 4% per month interest after the six-
month period of the agreement.
DISCUSSION: When you talk about estoppel by deed or by record, you only
focus on the deeds, documents, and writings executed.
In this case, there was no showing that any one of the deeds presented in this
case showed exactly the matters involved in the interest. It was not provided
for in the PN. More importantly, it was not provided for in the Board
Resolution. So, estoppel by deed cannot become applicable, or it does not
set in order to preclude the matter regarding the stipulated interest.
DIZON V. VETERANS BANK
605 SCRA 441 (2009)
Article 1431-1439 – Estoppel
FACTS: Petitioner Rogelio Dizon and his wife Corazon were the owners of
three parcels of land located in Angeles City, Pampanga covered by Transfer
Certificate of Title (TCT) Nos. T-12567, T-35788 and T-29117-R (3793). On
September 26, 1979, the Spouses Dizon mortgaged these lots to herein
respondent Philippine Veterans Bank (PVB) as security for a credit
accommodation which they obtained from PVB. The Spouses Dizon failed to
pay their obligation. As a consequence, PVB extrajudicially foreclosed the
mortgage and was able to acquire the subject properties at public auction
conducted on December 8, 1983. Subsequently, a Certificate of Sale was
issued in favor of PVB which was registered with the Register of Deeds of
Angeles City on November 22, 1984.
Sometime in June 1986, PVB filed with the Regional Trial Court (RTC) of
Angeles City a Petition for the Issuance of Owner's Duplicate Certificate of
Title covering the subject lots.
RTC rendered judgment in favor of PVB. On appeal, however, the CA
reversed the decision of the RTC and dismissed PVB's petition for the
issuance of a writ of possession.
Petitioner contends that the petition filed by respondent bank has prescribed,
citing Article 1142 of the Civil Code which states that [a] mortgage action
prescribes in ten years.
ISSUE: WON the petition filed by bank has prescribed.
RULING: It is true that, under Article 1142 of the Civil Code, an action to
enforce a right arising from a mortgage should be enforced within ten (10)
years from the time the right of action accrues; otherwise, it will be barred by
prescription and the mortgage creditor will lose his rights under the mortgage.
It is clear that the actions referred to under Article 1142 of the Civil Code are
those that necessarily arise from a mortgage. In the present case, however,
PVB's petition for the issuance of an owner's duplicate certificate of title
already arises from its right as the owner of the subject properties and no
longer as a mortgagee. The mortgage contract respondent entered into with
petitioner had already been foreclosed, the properties sold and the sale in
favor of PVB registered with the Register of Deeds of the Province of
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Cagayan. Hence, since the petition filed by PVB is not a mortgage action, the
provisions of Article 1142 of the Civil Code do not apply.
The Court cannot follow the logic in petitioner's arguments considering that,
in the first place, he and his wife were the ones who submitted the titles to
PVB. Now that PVB seeks to obtain a duplicate copy of the titles covering the
subject properties which it legally acquired, petitioner has made a complete
turnaround and now assails the authenticity of these titles which he and his
wife used to obtain their loan. Nonetheless, petitioner is estopped from doing
so.
Settled is the rule that a person, who by his deed or conduct has induced
another to act in a particular manner, is barred from adopting an inconsistent
position, attitude or course of conduct that thereby causes loss or injury to the
latter. The doctrine of estoppel is based upon the grounds of public policy, fair
dealing, good faith and justice, and its purpose is to forbid one to speak
against his own act, representations, or commitments to the injury of one to
whom they were directed and who reasonably relied thereon.
Article 1431 of the Civil Code states that [t]hrough 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.
The essential elements of estoppel are:
(1) conduct of a party amounting to false representation or concealment of
material facts or at least calculated to convey the impression that the facts
are otherwise than, and inconsistent with, those which the party
subsequently attempts to assert;
(2) intent, or at least expectation, that this conduct shall be acted upon by, or
at least influence, the other party; and
(3) knowledge, actual or constructive, of the real facts.
In the present case, petitioner may not renege on his own acts and
representations to the prejudice of respondent bank, which has relied on
them. Since petitioner entered into a binding contract on his own volition using
the titles which he now assails, he is therefore estopped from questioning the
authenticity of these documents which paved the way for the consummation
of the contract from which he derived benefit.
DISCUSSION: Here, the Supreme Court said Dizon entered into a binding
contract in his own volition, using the title which she now assails to be
completely void. That’s why estoppel applies as to Dizon.
In this case, take note of the essential elements of estoppel. Here, there was
a representation made by Dizon with respect to the bank that there are titles
which can be made sufficient as collaterals for a mortgage. Later on, Dizon
tries to assail the validity of these certificates altogether to escape the liability
with respect to the bank. That cannot be allowed.
Estoppel has already set. Not because of the deed, but because of the
conduct of Dizon saying that on account of these titles he can bind himself to
a mortgage to make those properties as securities for the debt for the bank.
All of those are the reasons why estoppel will become applicable.
Primarily, it’s on account of the conduct-–the representation that these deeds
are true and valid, regardless of the contents of those transfers of certificates.
HOJAS V. AMANAH BANK
697 SCRA 505 (2013)
Article 1431-1439 – Estoppel
FACTS: Spouses Rubin and Portia Hojas (petitioners), alleged that on April
11, 1980, they secured a loan from respondent Philippine Amanah Bank
(PAB) in the amount of ₱450,000.00; that this loan was secured by a
mortgage, covering both personal and real properties; that they made various
payments; and that PAB, however, did not properly credit their payments.
Sps. Hojas further averred that for failure to pay the loan, PAB applied for the
extrajudicial foreclosure of the mortgaged real properties of petitioners; and
that, in the public auction conducted, PAB acquired said real property.
It was further alleged that the OIC President of PAB, wrote Roberto Hojas
(Roberto), petitioners’ son, informing him that although the one-year
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redemption period would expire on April 21, 1988, by virtue of the bank’s
incentive scheme, the redemption period was extended until December 31,
1988; and that despite said letter from the OIC-President, the OIC of the
Project Development Department of PAB wrote Rubin Hojas that the real
properties acquired by PAB would be sold in a public bidding before the end
of August, 1988.
ISSUE: WON Amanah Bank has the right to sell the property in a public sale.
RULING: 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 on it. Thus, in order for this doctrine to operate, a
representation must have been made to the detriment of another who relied
on it. In other words, estoppel would not lie against one who, in the first place,
did not make any representation.
In this case, a perusal of the letter, on which petitioners based their position
that the redemption period had been extended, shows otherwise. The letter
was very clear. It was about the availment of the liberalized payment scheme
of the bank. It was never extended. The opportunity given to the petitioners
was to avail of the liberalized payment scheme which program would expire
on December 31, 1988. As explained the OIC of the Project Development
Department of PAB, it was to give a chance to previous owners to repossess
their properties on easy term basis, possibly by condonation of charges and
penalties and payment on instalment. The letter of the OIC President was an
invitation to the petitioners to come to the bank with their proposal. It appears
that the petitioners could not come up with a proposal acceptable to the bank.
Here, there is no estoppel to speak of. The letter does not show that the
Bank had unqualifiedly represented to the Hojases that it had extended the
redemption period to December 31, 1988. Thus, the Hojases have no basis
in positing that the public sale conducted on November 4, 1988 was null and
void for having been prematurely conducted.
DISCUSSION: In this case, the issue is whether or not Amanah Bank is
estopped based on the letter purportedly referring to the extension or leniency
of the redemption period. According to the SC, there can be no estoppel by
deed, because in that letter, there was no indication of any unqualified
representation as to the extension of the redemption period. So, that
redemption period will be determined by law.
The principle of estoppel by deed here is in relation to the bank’s alleged
representation as included in the letter. Regardless of the nature of the deed,
whether it is notarized or a private instrument, it is immaterial because it can
be discussed under the principle of estoppel by deed.
GO V. BANKO SENTRAL NG PILIPINAS
762 SCRA 344 (2015)
Article 1431-1439 – Estoppel
FACTS: On February 13, 1998, herein respondent Orient Commercial
Banking Corporation (OCBC) declared a bank holiday on account of its
inability to pay all its obligations to depositors, creditors and petitioner Bangko
Sentral ng Pilipinas (BSP).
OCBC for rehabilitation with the monetary board and was placed under
receivership and the Philippine Deposit Insurance Corporation (PDIC) was
designated as receiver. PDIC took over all the assets, properties and
operations of OCBC. Respondent Jose C. Go, the principal and biggest
stockholder of OCBC with affiliate companies, challenged the action of PDIC
but was dismissed. Receiver PDIC proceeded with the liquidation of OCBC.
BSP filed a complaint for sum of money with preliminary attachment against
the respondents OCBC seeking to recover deficiency obligation owed by
OCBC.
The parties entered into a compromise agreement:
C. Additional Properties for Execution
i) To ensure payment of the monthly amortizations due under this
Compromise Agreement, defendants Ever Crest Golf Clob Resort, Inc.,
and Mega Heights, Inc., have agreed to have its real properties with
improvements covered by TCT Nos. T-68963, T-6890, T-68966 and TD
ARPN-AA- 1702 00582 and AA-17023-005 shall be subject of existing
writ of attachment to secure the faithful payment of the outstanding
obligation herein mentioned, until such obligation shall have been fully
paid by defendants to plaintiff.
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ii) That all the corporate approvals for the execution of this Compromise
agreement by Ever Crest Golf Club Resort, Inc., and Mega Heights, Inc.,
consisting of stockholders resolution and Board of Directors approval
have already been obtained at the time of the execution of this
Agreement.
iii) Failure on the part of the defendants to fully settle their outstanding
obligations and to comply with any of the terms of this Compromise
Agreement shall entitle the plaintiff to immediately ask for a Writ of
Execution against all assets of the Ever Crest Golf Club Resort, Inc.,
and Mega Heights, Inc., now or hereafter arising upon the signing of this
Compromise Agreement.
However, the controversy was not laid to rest by the execution of the
compromise agreement because Go did not comply with its provisions. This
prompted Bangko Sentral to move for the execution of the compromise
agreement against the properties of Ever Crest Golf Club Resort, Inc. (Ever
Crest) and Mega Heights, Inc. (Mega Heights) which were levied upon by the
sheriff.
The petitioners and Ever Crest argue that the issuance of the order of
execution was tainted with grave abuse of discretion because the execution
was directed against the properties of Ever Crest despite Ever Crest being
neither a defendant in the cases between Bangko Sentral and Go, nor a
signatory to the compromise agreement.
ISSUE: WON the petitioners and Ever Crest could assail the enforcement of
judgment against the assets of Ever Crest.
RULING: The petitioners and Ever Crest themselves firmly committed in the
compromise agreement, supra, to have their properties with their
improvements be made subject to the writ of attachment in order "to secure
the faithful payment of the outstanding obligation herein mentioned, until such
obligation shall have been fully paid by defendants to plaintiff," and expressly
assured Bangko Sentral in the same compromise agreement that "all the
corporate approvals for the execution of this Compromise agreement by Ever
Crest Golf Club Resort, Inc., and Mega Heights, Inc., consisting of
stockholders resolution and Board of Directors approval have already been
obtained at the time of the execution of this Agreement."
They warranted in the compromise agreement that: "Failure on the part of
the defendants to fully settle their outstanding obligations and to comply with
any of the terms of this Compromise Agreement shall entitle the plaintiff to
immediately ask for a Writ of Execution against all assets of the Ever Crest
Golf Club Resort, Inc., and Mega Heights, Inc., now or hereafter arising upon
the signing of this Compromise Agreement."
By such express commitments, the petitioners and Ever Crest were
estopped from claiming that the properties of Ever Crest and Mega
Heights could not be the subject of levy pursuant to the writ of execution
issued by the RTC. In other words, they could not anymore assail the RTC for
authorizing the enforcement of the judgment on the compromise agreement
against the assets of Ever Crest.
Here, the petitioners are estopped by deed by virtue of the execution of
the compromise agreement. They were the ones who had offered the
properties of Ever Crest to Bangko Sentral, and who had also assured that all
the legalities and formalities for that purpose had been obtained. They should
not now be allowed to escape or to evade their responsibilities under the
compromise agreement just to prevent the levy on execution of Ever Crest’s
properties.
The petitioners as well as Ever Crest and Mega Heights were contractually
prohibited from challenging the levy on the assets of Ever Crest. Through the
compromise agreement, the petitioners warranted that they would defend
Bangko Sentral's title and peaceful possession of such levied properties
against all claims of third persons. Their warranty was expressly made
applicable to the properties subject of the dacion as well as to the properties
of Ever Crest and Mega Heights subject of the preliminary attachment.
Considering that the petitioners asserted that Ever Crest was a third party or
stranger to the compromise agreement, they were contractually mandated to
resist the adverse claim of Ever Crest and to defend the validity and efficacy
of the levy on execution. As such, they could not validly raise any issue that
would defeat the rights of Bangko Sentral in such properties.
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DISCUSSION: In this case, they question the levying of the properties on
account of lack of privity of the contract specifically the compromise
agreement.
Can that be made?
The answer is no. According to the SC, they are all estopped by the deed
which is the compromise agreement executed by them. They were the one
who assured the legalities and formalities for the levying of the properties and
its purpose. They are now precluded from representing otherwise.
xxxxxxx
Principle of Laches (third type of Estoppel):
The failure, neglect, or unreasonable unexplained length of time to do that by
exercising due diligence could or should have been done earlier. It is the
negligence or omission to assert a right within a reasonable time, warranting
a presumption under the law that the party entitled to such right either
abandon or completely decline to assert that right.
NESTOR CABRERA V. ARNEL CLARIN
810 SCRA 563 (2016)
Article 1431-1439 – Estoppel
FACTS: The instant petition originated from a Complaint for accion
publiciana with damages filed before the RTC by Cabrera against
respondents Arnel Clarin (Clarin) and wife, et. al. Cabrera alleged that he is
the lawful and registered owner of a parcel of agricultural land located at
Barangay Maysulao, Calumpit, Bulacan.
He was in actual and physical possession of the land until he discovered the
encroachment of respondents sometime in December 2005. By means of
fraud, strategy and stealth, respondents usurped and occupied portions of the
said property. He made numerous oral and written demands to vacate the
premises but the respondents refused to heed. They also tailed to settle
amicably when the case was brought before the barangay for conciliation.
In their Motion to Dismiss, respondents claimed that the complaint failed to
state the assessed value of the property which is needed in determining the
correct amount of docket fees to be paid.
Also, Cabrera did not fulfill an essential condition prior to the filing of the
complaint which was submission of a government approved technical survey
plan to prove the alleged encroachment.
Cabrera anchors his claim of ownership in the certificate of title registered in
his and his father Ciriaco Cabrera's name. Cabrera did not aver that it was his
portion of property that respondents have intruded as there was no proof of
partition of the property since his father who was an American citizen died in
the United States of America.
In a Decision dated May 30, 2012, the RTC ruled in favor of Cabrera.
Aggrieved, respondents elevated the case before the CA which then reversed
and set aside the decision of the RTC.
ISSUE: WON estoppel bars respondents from raising the issue of lack of
jurisdiction.
RULING: Cabrera alleges that the CA erred in concluding that the RTC has
not acquired jurisdiction over the action in the instant case being contrary to
the doctrine of estoppel as elucidated in Honorio Bernardo v. Heirs of
Villegas. Estoppel sets in when respondents participated in all stages of the
case and voluntarily submitting to its jurisdiction seeking affirmative reliefs in
addition to their motion to dismiss due to lack of jurisdiction.
We are not persuaded. It is axiomatic that the nature of an action and the
jurisdiction of a tribunal are determined by the material allegations of the
complaint and the law at the time the action was commenced.
A court's jurisdiction may be raised at any stage of the proceedings, even on
appeal for the same is conferred by law, and lack of it affects the very authority
of the court to take cognizance of and to render judgment on the action.[24] It
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From the lectures of Atty. Bruneson Alabastro
applies even if the issue on jurisdiction was raised for the first time on appeal
or even after final judgment.
The exception to the basic rule mentioned operates on the principle of
estoppel by laches whereby a party may be barred by laches from invoking
the lack of jurisdiction at a late hour for the purpose of annulling
everything done in the case with the active participation of said party invoking
the plea.
In the oft-cited case of Tijam v. Sibonghanoy, the party-surety invoked the
jurisdictions of both the trial and appellate courts in order to obtain affirmative
relief, and even submitted the case for final adjudication on the merits. It was
only after the CA had rendered an adverse decision that the party-surety
raised the question of jurisdiction for the first time in a motion to dismiss
almost fifteen (15) years later.
Hence, the Court adjudicated a party estopped from assailing the court's
jurisdiction, to wit:
[a] party cannot invoke the jurisdiction of a court to secure affirmative
relief against his opponent and, after obtaining or failing to obtain such relief,
repudiate or question that same jurisdiction. . . ., it was further said that the
question whether the court had jurisdiction either of the subject matter of the
action or of the parties was not important in such cases because the party is
barred from such conduct not because the judgment or order of the court is
valid and conclusive as an adjudication, but for the reason that such practice
cannot be tolerated - obviously for reasons of public policy.
However, it was explicated in Calimlim v. Ramirez that Tijam is an
exceptional case because of the presence of laches. Thus:
The lack of jurisdiction of a court may be raised at any stage of the
proceedings, even on appeal. This doctrine has been qualified by recent
pronouncements which stemmed principally from the ruling in the cited case
of Sibonghanoy. It is to be regretted, however, that the holding in said case
had been applied to situations which were obviously not contemplated
therein.
The exceptional circumstance involved in Sibonghanoy which justified the
departure from the accepted concept of non-waivability of objection to
jurisdiction has been ignored and, instead a blanket doctrine had been
repeatedly upheld that rendered the supposed ruling in Sibonghanoy not as
the exception, but rather the general rule, virtually overthrowing altogether the
time-honored principle that the issue of jurisdiction is not lost by waiver or by
estoppel.
In Sibonghanoy, the defense of lack of jurisdiction of the court that rendered
the questioned ruling was held to be barred by estoppel by laches. It was
ruled that the lack of judsdictiou having been raised for the first time in a
motion to dismiss filed almost fifteen (15) years after the questioned ruling
had been rendered, such a plea may no longer be raised for being barred by
laches.
In the case of La Naval Drug Corporation v. Court of Appeals, We illustrated
the rule as to when jurisdiction by estoppel applies and when it does not, as
follows:
Lack of jurisdiction over the subject matter of the suit is yet another matter.
Whenever it appears that the court has no jurisdiction over the subject matter,
the action shall be dismissed (Section 2, Rule 9, Rules of Court). This defense
may be interposed at any time, during appeal.
Such is understandable, as this kind of jurisdiction is conferred by law and not
within the courts, let alone the parties, to themselves determine or
conveniently set aside. In People vs. Casiano (111 Phil. 73, 93-94), this
Court, on the issue or estoppel, held:
The operation of the principle of estoppel on the question of jurisdiction
seemingly depends upon whether the lower court actually had jurisdiction or
not. If it had no jurisdiction, but the case was tried and decided upon the
theory that it had jurisdiction, the parties are not barred, on appeal, from
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assailing such jurisdiction, for the same 'must exist as a matter of law, and
may not be conferred by consent of the parties or by estoppel.
However, if the lower court had jurisdiction, and the case was heard and
decided upon a given theory, such, for instance, as that the court had no
jurisdiction, the party who induced it to adopt such theory will not be permitted,
on appeal, to assume an inconsistent position - that the lower court had
jurisdiction. Here, the principle of estoppel applies. The rule that jurisdiction is
conferred by law, and does not depend upon the will of the parties, has no
bearing thereon.
Application:
Guided by the abovementioned jurisprudence, this Court rules that
respondents are not estopped from assailing the jurisdiction of the RTC over
the subject civil case. Records reveal that even before filing their Answer,
respondents assailed the jurisdiction of the RTC through a motion to dismiss
as there was no mention of the assessed value of the property in the
complaint.
We note that the RTC anchored its denial of respondents' motion to dismiss
on the doctrine enunciated in a 1977 case - that all cases of recovery of
possession or accion publiciana lie with the RTC regardless of the value -
which no longer holds true. Thereafter, the respondents filed their Answer
through an omnibus motion to set aside order of default and to admit Answer.
Anent the issue of the CA's failure to consider the tax declaration annexed in
the Appellee's Brief, Cabrera insists that its attachment in his Brief without
objection from the other party sealed the issue of the RTC's jurisdiction, and
cured the defect of failure to allege the assessed value of the property in the
complaint as provided in Section 5, Rule 10 of the Rules of Court.
Such averments lack merit. The Rules of Court provides that the court shall
consider no evidence which has not been formally offered. A formal offer is
necessary because judges are mandated to rest their findings of facts and
their judgment only and strictly upon the evidence offered by the parties at the
trial. Its function is to enable the trial judge to know the purpose or purposes
for which the proponent is presenting the evidence.
Conversely, this allows opposing parties to examine the evidence and object
to its admissibility. Moreover, it facilitates review as the appellate court will not
be required to review documents not previously scrutinized by the trial
court. We relaxed the foregoing rule and allowed evidence not formally
offered to be admitted and considered by the trial court provided the following
requirements are present, viz.: first, the same must have been duly identified
by testimony duly recorded and, second, the same must have been
incorporated in the records of the case.
Based on the petitioner's admission, he presented the Tax Declaration 2006-
07016-00394 dated November 13, 2006 purporting to prove the assessed
value of the property for the first time on appeal before the CA in his
Brief. There was no proof or allegation that he presented the same during the
trial or that the court examined such document.
Since the tax declaration was never duly identified by testimony during the
trial albeit incorporated in the Appellee's Brief, the CA will not be required to
review such document that was not previously scrutinized by the RTC. As the
assessed value is a jurisdictional requirement, the belated presentation of
document proving such value before the appellate court will not cure the
glaring defect in the complaint. Thus, jurisdiction was not acquired.
We find Cabrera's application of Section 5, Rule 10 of the Rules of Court to
support his claim that failure of the respondents to object to his presentation
of the tax declaration before the CA constitutes an implied consent which then
treated the issue of assessed value as if it had been raised in the pleadings
specious.
Such rule contemplates an amendment to conform to or authorize
presentation of evidence before the trial court during the trial on the merits of
the case.
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It bears emphasis that the ruling in Tijam establishes an exception which is to
be applied only under extraordinary circumstances or to those cases similar
to its factual situation. The general rule is that the lack of a court's jurisdiction
is a non-waivable defense that a party can raise at any stage of the
proceedings in a case, even on appeal; the doctrine of estoppel, being the
exception to such non-waivable defense, must be applied with great care and
the equity must be strong in its favor.
All told, We find no error on the part of the CA in dismissing the Complaint for
lack of jurisdiction and for not reviewing the document belatedly filed.
Consequently, all proceedings in the RTC are null and void. Indeed, a void
judgment for want of jurisdiction is no judgment at all, and cannot be the
source of any right nor the creator of any obligation. All acts performed
pursuant to it and all claims emanating from it have no legal effect.
DISCUSSION: Is laches correct in this case?
The SC said no. The question of jurisdiction can be raised at any time. Even
in this case, it was raised early on, in the motion to dismiss. In Civil Procedure,
from the time that you file a complaint, the defendants have two options: file
an answer or motion to dismiss within 15 days from the time they received
summons.
From that time, early on, from their filing of motion to dismiss, the court
observed that they asserted lack of jurisdiction very early. Because of the
early invocation, it cannot be said that the parties are estopped by laches.
ART. 1434. When a person who is not the owner of a thing sells or
alienates and delivers it, and later the seller or grantor acquires title
thereto, such title passes by operation of law to the buyer or grantee.
Example: Suppose A wants to sell a parcel of land in favor of B and the sale
is subject to a suspensive condition or period. Before the happening of the
event which is the condition or the arrival of the period, this sale is not yet in
full force between the parties.
What if in the meantime, the B, the buyer who has no title or whatsoever to
the property sold by A, tries to sell the property to X?
In truth, even if B is not the owner of the parcel of land and he transferred the
land to X on July 30, 2018 while the condition or period only happened on Jan
1, 2019, can X later on, on Jan 1, 2019 assail the validity of the sale on
account of nemo dat quod non habet?
The answer is NO, because under Art. 1434 such title—the title of A to B to
X—passes by operation of law. So by operation of law, on Jan 1, 2019, it is
as if from the very beginning, on July 30, 2018, B has a title to that property
and he could transfer the property in favor of X.
ART. 1435. If a person in representation of another sells or alienates a
thing, the former cannot subsequently set up his own title as against the
buyer or grantee.
This article refers to estoppel in a representative capacity or estoppel through
agents.
Example: P is a principal and A is the agent. With respect to X, who is the
buyer of a car allegedly owned by P?
Since P is abroad, he wants to sell his car through A. A had full authority and
capacity to sell the car for and in behalf of P, in favor of X. After the sale, it
turned out that the property was actually owned by A.
Q: Can A assail the validity of the contract?
A: No. There is estoppel through agents in this case.
If a person in representation of another sells or alienates a thing, the agent
cannot take back the representation that he is only an agent when he was
actually the owner thereof. Estoppel would bar the agent from setting up his
own title against the buyer or principal.
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ART. 1436. A lessee or a bailee is estopped from asserting title to the
thing leased or received, as against the lessor or bailor.
Q: When does Art. 1436 apply?
Take note that the ones precluded from asserting a title to the property is the
lessee or the bailee. Such lessee or bailee is estopped from claiming that they
could acquire a title to these properties leased or given to them, greater than
the title they acquired through the lessor or bailor.
Example: A boarder for 50 years in a boarding house cannot acquire title over
the boarding house. Aside from staying there by mere tolerance, the boarder
is estopped under Art. 1436.
ART. 1437. When in a contract between third persons concerning
immovable property, one of them is misled by a person with respect to
the ownership or real right over the real estate, the latter is precluded
from asserting his legal title or interest therein, provided all these
requisites are present:
(1) There must be fraudulent representation or wrongful concealment
of facts known to the party estopped;
(2) The party precluded must intend that the other should act upon the
facts as misrepresented;
(3) The party misled must have been unaware of the true facts; and
(4) The party defrauded must have acted in accordance with the
misrepresentation.
Art. 1437 refers to estoppel by silence or inaction.
Under this article, all you have to remember is the fraudulent representation
or wrongful concealment.
Example: If you are at the other end of a contract, where you are the one
being misrepresented to, if you have knowledge with the matters which are
allegedly fraudulent representation or wrongful concealment, can estoppel
apply against the person making such misrepresentation?
No. Estoppel by silence is only applicable in cases where persons should
have been misled on account of a fraudulent misrepresentation or wrongful
concealment of material facts, such that if you have knowledge about these
matters, you are not estopped.
ART. 1438. One who has allowed another to assume apparent ownership
of personal property for the purpose of making any transfer of it, cannot,
if he received the sum for which a pledge has been constituted, set up
his own title to defeat the pledge of the property, made by the other to a
pledgee who received the same in good faith and for value.
This Article refers to Estoppel by acceptance of benefits.
Art. 1438 arises by accepting benefits derived from a certain act or transaction
intentionally or through culpable negligence, induces another to believe
certain facts to exist and such other person relies and acts on such belief as
a consequence—of which he would be prejudiced if the former is prohibited
to deny the existence of such facts.
If you accepted the benefit under a particular transaction or undertaking, you
are precluded from saying otherwise such as that the property given was only
given in pledge.
LIM V. QUEENSLAND TOKYO
317 SCRA 696 (2002)
Article 1431-1439 – Estoppel
FACTS: Queensland is a duly licensed broker engaged in the trading of
commodities futures with full membership and with a floor trading right at the
Manila Futures Exchange, Inc.
In 1992, Shia, a market analyst and trader for Queensland, was introduced to
Jefferson Lim. Shia suggested that Lim invest in the FOREX Market. Before
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From the lectures of Atty. Bruneson Alabastro
investing, Lim requested Shia for proof that FOREX was lucrative. They
conducted mock tradings and it showed profitability.
Thus, Lim invested with a marginal deposit of $5,000 in manager’s check, the
amount
Because Queensland dealt in pesos only, it had to convert such check to
pesos it amounts to P125K, to accommodate the request to trade right away,
it advanced the P125K from its own funds while waiting for the clearing of the
manager’s check. Thereafter, a deposit notice in the amount of P125K was
issued to Queensland and sent to Lim received such and he signed the
Customer’s Agreement which provides:
XXX
Upon signing of this Agreement, I shall deposit an initial margin either by
personal check, manager’s check or cash. In the case of the first, I shall
not be permitted to trade until the check has been cleared by my
bank and credited to your account.
XXX
During the first day of trading with Queensland, Lim made a net profit of P6K,
Lim was elated and thus he agreed to continue trading. However, during the
second day, they lost P44K.
Meanwhile Queensland learned that it would take 17 days to clear the
manager’s check given by Lim thus upon the request of the management,
Shia returned the check to petitioner who informed Shia that Lim would rather
replace managers’ check with a travelers checks.
Shia went with Lim to the bank to purchase a traveler’s check, but Shia
noticed that the traveler’s check was not indorsed but Lim told Shia that
Queensland could sign the indorsee portion. Because Shia trusted Lim’s good
credit rating and of ignorance, he brought back the check to the office
unsigned. Due to a busy Friday, the check was kept in the drawer in
Queensland’s consultant and it was later deposited to Citibank.
On October 26, 1992, Shia informed Lim that they incurred a floating loss of
P44K on October 23 and told Lim that they can still recover by unlocking the
floating loss on Friday.
On October 27, Citibank informed Queensland that the traveler’s check could
not be cleared unless it was duly signed by Lim, the original purchaser of the
check, thus it was returned to Lim for signing. But Lim aware of his P44K loss,
demanded for liquidation of his account and said he would get back what was
left of his investment.
Meanwhile, Lim signed only one portion of the traveler’s checks leaving the
other blank. Lim refused to talk, Shia made follow-ups for to petitioner for
settlement, because of this disregard there was demand letters sent but was
unheeded. Lim assailed the validity of the customer’s check.
ISSUE: WON Lim is estopped in questioning the validity of the Customer
Agreement.
HELD: The essential elements to the doctrine of estoppel are the
following enumerated:
1. Conduct of a party amounting to false representation or concealment of
material facts or at least calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party subsequently
attempts to assert;
2. Intent, or at least expectation, that his conduct shall be acted upon by, or
at least influence, the other party;
3. Knowledge, actual or constructive, of the real facts.
In this case, It is uncontested that Lim signed the Customer’s Agreement
knowing fully well the nature of the contract he was entering into. It was
notarized.
Lim paid his investment deposit to Queensland in the form of a manager’s
check. All these are indicia that Lim treated the Customer Agreement as valid.
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On Lim’s part there was misrepresentation of acts. He replaced the manager’s
check with an unendorsed traveler’s check, instead of cash, while
assuring Shia that Queensland can sign the indorsee portion thereof,
and it turned out that only Lim (as original purchaser) could sign the
check. When the check was returned to him for signature, he refused to sign,
and it was shown that he used the traveler’s check for his travel expenses.
Lim availed himself of the benefits of the Customer Agreement which he now
impugns. Even before the deposit was converted in to cash, he started trading
and made a profit of P6K and continued availing of said agreement, although
this time he had a floating loss of P44K. While he claimed that he had not
authorized respondent to trade on those dates, this claim is belied by his
signature in the order forms. Clearly, by his own acts, petitioner is estopped
impugning the validity of the Customer’s Agreement. For a party to a contract
cannot deny the validity thereof after enjoying its benefits without
outrage to one’s sense of justice and fairness.
It appears that the reason for backing out of the agreement is that he began
incurring losses from the trade. However, this alone is insufficient to nullify
the contract. Notably in the Customer’s Agreement, Lim has been forewarned
of the high risk involved in FOREX investment.
DISCUSSION: In this case, we are talking about a special type of contract—
spot and future currency contracts, which are derivative financial instruments.
And the nature of such contracts are based on speculations based on the
fluctuations in the market where you can either have marginal gain or marginal
loss. Here, they were basically trading on risk.
If on one end you are starting to take benefits, but on the other end you’re
already losing because of this investment, are you allowed to assail the
validity of this customer agreement which allowed you to trade and enter in
the market?
The Court said NO.
You are already estopped because you have already accepted the benefits
concomitant customer agreement. With such, one is precluded from assailing
the validity of customer agreement.
ASILO, JR. V. BOMBASI
645 SCRA 41 (2011)
Article 1431-1439 – Estoppel
FACTS: Marciana obtained a lease contract with the Municipality of
Nagcarlan whereby allowing her the use and enjoyment of property of a lot
and a store for 20 years from 1978 – 1998, extendible for another 20 years. It
provided that Marciana can build a firewall and that in case of the modification
of the public market, she or her heirs would be given preferential rights. Upon
her death, Visitacion (private respondent) took over the store when her
mother died in 1984.
In 1986 a fire razed the public market of Nagcarlan. Upon Visitacion’s request
for inspect the store in fact stood strong. The store continued to operate under
1993.
On September 1993, she received a letter from Mayor Comendador directing
her to demolish her store within 5 days from notice. Attached to the letter were
copies of Sangguniang Bayan Resolution and a Memorandum issued by
prosecutor.
• Giving power to Mayor Comendador to cause demolition of the properties in
the lot for a new municipal public market.
• Filing an unlawful detainer to those who cause delay.
Visitacion wrote a reply stating the lease is still valid and binding, she will
accede to the demolition if she is given the same area or if not an unlawful
detainer case.
Municipal Administrator Paulino S. Asilo, Jr. (Asilo) also sent a letter to
Visitacion informing her of the impending demolition of her store the next day.
Within the same day, Visitacion wrote a reply letter to Asilo, alleging that there
is no legal right to demolish the store in the absence of a court order and that
the Resolutions did not sanction the demolition of her store but only the filing
of an appropriate unlawful detainer case against her.
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She further replied that if the demolition will take place, appropriate
administrative, criminal and civil actions will be filed against Mayor
Comendador, Asilo and all persons who will take part in the demolition.
However, on October 1993, Comendador relying on the strength of the
Sangguniang Bayan resolutions authorized the demolition of the store with
Asilo, Jr. and Angeles supervising the work, the estimated cost of the
demolished property was around P437K.
Sandiganbayan Proceedings. The Spouses Bombasi (including Visitacion)
filed a criminal complaint against the respondents for violation of Section 3(e)
of RA 3019 (Angeles and Mayor Comendador died during the pendency of
the criminal case). Sandiganbayan found Comendador and Asilo, Jr. guilty
beyond reasonable doubt.
Just because it is an instrumentality of the government, it does not mean
estoppel does not apply to it. Further, prescription does not lie against the
state. However, such prescription does not include estoppel. Hence,
estoppel can be applied against the state.
The Court even held that it was immaterial that the Mayor died. This is
because the representation binds, not only the Mayor, but also the
municipality.
xxxxxxx
ART. 1439. Estoppel is effective only as between the parties thereto or their
successors in interest.

Asilo on an MR stated the he has no liability for he was just following the order Under this Article, estoppel does not apply only to the person making the
of Mayor Comendador and just complied with such. However, the SB denied representation but also to their successors in interest. Hence, it strongly
this stating that there was finding of bad faith in the implementation of the applies to heirs and assigns. Meaning, persons claiming rights from the
commission of the offense charged. Asilo cannot base a lawful order as much decedent who are estopped are equally estopped from going against the very
as the order of demolition was patently illegal. representations or admissions made by the decedent or predecessors-in-
interest.
ISSUE: WON the municipality is estopped from assailing the validity of the
store.
That is why estoppel will not only bind parties but also successors-in-interest.
RULING: The Supreme Court ruled that the demolition of the plaintiff’s store
was carried out without a court order and notwithstanding the restraining order -END OF OBLICON-
which the plaintiff was able to obtain. The demolition was attended by evident
bad faith as there is nothing in the two resolutions which gave the accused
the authority to demolish the store.

The defense that the store was a public nuisance cannot prosper because
first and foremost the store was not a nuisance because the building had not
been affected by the 1986 fire.

A closer look at the Sangguniang Bayan resolution, these do not justify

demolition, what they merely contain the power to file for an unlawful detainer
case in case of resistance to obey the demolition order or to demolish the
building using legal means. Clearly, the demolition was herein without legal
order.

Furthermore, the Municipality of Nagcarlan, Laguna, as represented by the

then Mayor Comendador, was placed in estoppel after it granted yearly
business permits in favor of the Spouses Bombasi.
Art. 1431 of the New Civil Code provides that, 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.
The representation made by the municipality that the Spouses Bombasi had
the right to continuously operate its store binds the municipality. It is utterly
unjust for the Municipality to receive the benefits of the store operation and
later claim the illegality of the business.

The bad faith of the petitioners completes the elements of the criminal offense
of violation of Sec. 3(e) of Republic Act No. 3019. The same bad faith serves
as the source of the civil liability of Asilo, Angeles, and Mayor Comendador.

Due to death of Mayor Comendador, his criminal liablity is extinguished.

Respondents are hereby declared solidarily liable to the Spouses Bombasi
for temperate damages in the amount of ₱200,000.00 and moral damages in
the amount of ₱100,000.00.

DISCUSSION: In this case is an illustration of estoppel by acceptance of

benefits.

On one hand, the municipality represented to the Sps. Bombasi that they can
continue to operate the store as long as they pay the necessary fees that will
be imposed upon them. Moreover, in relation to such, the municipality will
issue them business permits.

Later on, the municipality tries to close down the store because, allegedly, it
was in violation of the law.

Can such be allowed?

The Court said No. The municipality is estopped from accepting the benefits
on account of the payments made by the Sps. Bombasi in its favor. After
accepting the benefits, the municipality, later on, cannot assail the validity of
the operations of the Sps. Bombasi.

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