Civil vs.

Natural Obligations

Civil obligations are legally enforceable through court action, while natural obligations are not based on
positive law and lack this enforceability. However, if a natural obligation is voluntarily fulfilled, the creditor
can retain what has been delivered.

The binding force of a natural obligation stems from the debtor's conscience, and it becomes
enforceable only upon voluntary fulfillment. Once fulfilled, the creditor can keep the delivered
performance, and the debtor cannot reclaim it.

Conversion of Natural Obligations to Civil Obligations

Certain natural obligations can be converted into civil obligations. For instance:

● A promise to fulfill a natural obligation can be enforced as a civil obligation.

● If a natural obligation is novated (replaced) or ratified, it becomes enforceable in court.

Prescription

Prescription refers to acquiring or losing rights due to the passage of time. In the context of natural
obligations, voluntary fulfillment after prescription transforms the obligation into a natural one. This means
the creditor retains the performance, and the debtor cannot recover it.

Examples of Natural Obligations

1. Voluntary Performance after Prescription: A creditor can keep what was delivered if a debtor
fulfills an obligation after it has prescribed.
Case: Lopez v. Tambunting, G.R. No. L-1821, February 28, 1907
Facts: A debtor voluntarily paid a debt after the statute of limitations had run (meaning the debt
had prescribed). The creditor kept the payment.
Ruling: The Supreme Court upheld the creditor's right to retain the payment, as the debtor's
voluntary fulfillment of the obligation waived the defense of prescription.

2. Reimbursement to a Third Person: If a third party pays the debtor's debt after it has prescribed
and is reimbursed by the debtor, the third person can retain the reimbursement.
Case: National Bank v. Manila Oil Refining & By-Products Co., G.R. No. L-22261, January 31, 1925
Facts: A third party paid a prescribed debt on behalf of the debtor. The debtor later reimbursed the
third party.
Ruling: The Supreme Court held that the third party could keep the reimbursement, as the debtor's
voluntary repayment waived the defense of prescription.

3. Voluntary Performance after Court Action Fails: If a debtor voluntarily fulfills an obligation
despite losing a court case, the creditor keeps the performance.
Case: Manila Railroad Co. v. Compañía Transatlántica, G.R. No. L-11449, November 29, 1918
Facts: A debtor lost a court case but later voluntarily fulfilled the obligation.
 Ruling: The Supreme Court ruled that the creditor could retain the performance, as the debtor's
voluntary fulfillment waived any objections to the judgment.
4. Payment by an Heir: When an heir pays a debt exceeding the value of inherited property, the
creditor retains the payment.
Case: Testate Estate of Mota v. Serra, G.R. No. L-22829, April 27, 1967
Facts: An heir paid a debt of the deceased that exceeded the value of the inherited property.
Ruling: The Supreme Court affirmed that the creditor could retain the payment, even if it exceeded
the heir's share in the estate, as the heir voluntarily assumed the obligation.
5. Payment of a Legacy: If an heir pays a legacy after a will is declared void, the creditor can keep
the payment.
Case: Nepomuceno v. CA, G.R. No. L-62952, October 9, 1985
Facts: An heir paid a legacy (gift under a will) even after the will was declared void.
Ruling: The Supreme Court determined that the payment of the legacy was valid despite the will's
invalidity, as it was a voluntary act by the heir.

Estoppel

Estoppel prevents someone from denying a representation made to another person who relied on it.
Several types of estoppel exist:

1. Estoppel in Pais or by Conduct: Actions or conduct prevent denial of a representation made to

someone who relied on it.
Case: De Castro v. Ginete, G.R. No. L-3529, December 29, 1950
Facts: A landowner allowed another person to possess and cultivate their land for many years. The
landowner later tried to reclaim the land, but the possessor invoked estoppel by conduct.
Ruling: The Supreme Court held that the landowner was estopped from asserting their ownership
rights because their previous actions had led the possessor to believe they could continue using
the land.

2. Estoppel by Silence: Occurs when one person misleads another about ownership or rights over
property, and the other person relies on the misrepresentation.
Case: Spouses Domingo v. Spouses Molina, G.R. No. 158005, April 19, 2006
Facts: One party remained silent while another party made improvements on land they mistakenly
believed was theirs. The silent party later tried to claim ownership of the land.
Ruling: The Supreme Court applied estoppel by silence, ruling that the silent party could not assert
their ownership rights because they had failed to correct the other party's mistaken belief.

3. Acceptance of Benefits: If someone allows another to assume ownership of property for a transfer
and benefits from it, they cannot later deny the transfer.
Case: Fabillo v. IAC, G.R. No. 73214, December 11, 1989
Facts: A person allowed another to possess land and even received rentals from them. Later, the
person tried to deny the validity of the transfer of the land.
 Ruling: The Supreme Court held that the person was estopped from denying the transfer because
they had accepted benefits arising from it.

Technical Estoppels

1. Estoppel by Deed: A party to a deed cannot deny the truth of material facts within the deed
against another party.
Case: Municipality of Hinabangan v. Municipality of Wright, G.R. No. L-12609, March 25, 1918
Facts: Two municipalities disputed the boundary between their territories. One municipality had
previously executed a deed acknowledging the other's claim to the disputed area.
Ruling: The Supreme Court held that the municipality that executed the deed was estopped from
denying the truth of the boundary as stated in the deed.

2. Estoppel by Record: Denial of the truth of matters in judicial or legislative records is not allowed.
Case: Heirs of Romana Saves v. Escolastico Saves, G.R. No. 158590, June 15, 2011
Facts: Heirs disputed the ownership of land, with one party presenting a court decision that
declared them as the rightful owners.
Ruling: The Supreme Court affirmed the decision, applying estoppel by record, as the previous
court's determination of ownership was binding on the parties.

3. Estoppel by Judgment: A party cannot deny facts determined by a competent court.

Case: Republic v. CA and Molina, G.R. No. L-46722, August 31, 1988
Facts: The government sought to expropriate land that had been previously declared in another
court case as belonging to a private individual.
Ruling: The Supreme Court held that the government was estopped from denying the earlier
court's determination of ownership due to estoppel by judgment.

4. Estoppel by Laches: Failing to assert a right within a reasonable time leads to the presumption of
abandonment.
Case: Felix Gochan & Sons Realty Corporation v. Heirs of Isidro Gosuico, G.R. No. 151524,
September 30, 2005
Facts: A party failed to assert their ownership rights over a parcel of land for a considerable period,
during which another party possessed and developed the land.
Ruling: The Supreme Court applied the doctrine of laches, barring the original owner from
asserting their rights due to their unreasonable delay.
 Professional Academic Plans, Inc. vs. Crisostomo

G.R. No. 148599 (March 14, 2005)

Facts:

● Dinnah Crisostomo was a District Manager, later promoted to Regional Manager, at Professional
Academic Plans, Inc. (PAPI), a company selling pre-need educational plans.
● Crisostomo was instrumental in securing a Memorandum of Agreement (MOA) with the Armed
Forces of the Philippines Savings and Loan Association, Inc. (AFPSLAI) in 1988.
● For her efforts, she was granted a franchise commission of 10%, later reduced to 2%, on sales
made under this agreement.
● In 1991, AFPSLAI suspended remittances and then entered into a new MOA with PAPI in 1992.
● Crisostomo's commission was terminated under the new MOA, leading her to file a complaint for
unpaid commissions and damages.

Issue:

● Whether Crisostomo is entitled to her commission under the new MOA, despite not being directly
involved in its negotiation and execution.
● Whether the original MOA was cancelled or merely modified by the new MOA.

Ruling:

● The Supreme Court held that the original MOA was not cancelled but merely modified by the new
MOA. The second MOA did not explicitly cancel the first, and the intent of the parties was to
continue the business relationship with modifications.
● Crisostomo's entitlement to the commission was not solely based on her involvement in the original
MOA's negotiation. The commission was granted as long as she remained with the company and
the agreement with AFPSLAI was in effect.
● The Court affirmed the lower court's decision, entitling Crisostomo to her 2% commission on sales
under the new MOA. However, the awards for moral and exemplary damages were deleted due to
lack of specific findings of bad faith.

Key Legal Principles:

● Mutuality of Contracts (Art. 1308, Civil Code): Contracts cannot be unilaterally renounced;
mutual agreement is required for modification or termination.
● Estoppel: PAPI, having consistently paid Crisostomo's commission under the original MOA, cannot
now deny her entitlement under the modified agreement.
● Moral Damages in Breach of Contract: Awarded only when the breach is wanton, reckless,
malicious, in bad faith, oppressive, or abusive.
 DKC Holdings Corporation vs. Court of Appeals, Victor U. Bartolome and Register of Deeds for
Metro Manila, District III

G.R. No. 118248, April 5, 2000

Facts:

● DKC Holdings Corporation entered into a "Contract of Lease with Option to Buy" with Encarnacion
Bartolome for a parcel of land.
● DKC regularly paid reservation fees to Encarnacion until her death.
● After Encarnacion's death, her sole heir, Victor Bartolome, refused DKC's payments and exercised
self-adjudication over the property.
● DKC attempted to exercise its option to lease, but Victor refused.
● DKC filed a complaint for specific performance against Victor and the Register of Deeds.

Issue: Whether the Contract of Lease with Option to Buy entered into by Encarnacion Bartolome with
DKC Holdings Corporation was terminated upon her death or whether it binds her sole heir, Victor
Bartolome, even after her demise.

Ruling:

● The Supreme Court held that the contract was not terminated upon Encarnacion's death and it
binds her heir, Victor.
● The Court emphasized that contracts take effect not only between the parties but also their assigns
and heirs, except when the rights and obligations are not transmissible by nature, stipulation, or
law.
● In this case, there was no stipulation or law making the rights and obligations intransmissible, and
the nature of the rights and obligations were transmissible.
● The Court also ruled that DKC had complied with its obligations under the contract and validly
exercised its option to lease.
 Lagon vs. Court of Appeals

G.R. No. 119107 (March 18, 2005)

Subject: Tortuous Interference of Contract

Facts:

Jose Lagon purchased two parcels of land in Tacurong, Sultan Kudarat from the estate of Bai Tonina Sepi.
Menandro Lapuz filed a complaint against Lagon, claiming he had a lease contract with Bai Tonina Sepi
over the land since 1964, which was allegedly renewed in 1974. Lapuz accused Lagon of inducing the
heirs to sell the property, thus violating his leasehold rights. Lagon denied these allegations, stating he
was unaware of any lease contract and found no encumbrances on the property's title. The trial court
ruled in favor of Lapuz, but the Court of Appeals modified the decision, focusing on whether Lagon's
purchase constituted tortuous interference.

Issue: Did Lagon's purchase of the property, during the alleged existence of Lapuz's lease contract,
constitute tortuous interference for which Lagon should be held liable for damages?

Ruling:

The Supreme Court held that Lagon could not be held liable for tortuous interference. The Court outlined
the elements of tortuous interference: (a) existence of a valid contract; (b) knowledge of the contract by
the third person; and (c) interference without legal justification or excuse. While the existence of a contract
was seemingly established, the Court found that Lagon had no knowledge of it and conducted his own
investigation, finding no evidence of the lease. Even if he had known, such knowledge alone wasn't
enough to establish liability. The Court emphasized that for tortuous interference, the defendant must
have acted with malice or bad faith, which was not proven in Lagon's case. The Court concluded that
Lagon's purchase was an advancement of his economic interests without malicious intent, thus not
constituting tortuous interference.

Key Principle:

To be liable for tortuous interference of contract, the defendant must not only be aware of the existing
contract but must also act with malice or bad faith in interfering with it. The mere act of purchasing a
property, even if a lease contract exists, does not automatically constitute tortuous interference.
 Emeterio Cui vs. Arellano University

G.R. No. L-15127, May 30, 1961

Facts:

● Emeterio Cui was a law student at Arellano University, where he received scholarships throughout
his studies.
● These scholarships covered his tuition fees, which were returned to him at the end of each
semester.
● Before receiving the scholarships, Cui signed a contract stating that he would not transfer to
another school without refunding the scholarship money.
● Cui transferred to Abad Santos University before completing his final semester at Arellano
University.
● Arellano University refused to release Cui's transcripts of records unless he refunded the
scholarship money.
● Cui paid the amount under protest to be able to take the bar examination.
● Cui filed a case to recover the amount he paid, claiming the contract provision was invalid.

Issue: Is the contract provision requiring Cui to refund the scholarship money if he transfers to another
school valid and enforceable?

Ruling:

● The Supreme Court held that the contract provision was contrary to public policy and therefore null
and void.
● The Court emphasized that scholarships are awarded based on merit and should not be used to
keep students from transferring to other schools.
● The memorandum issued by the Director of Private Schools, stating that scholarships should not
be conditioned on students staying in the same school, was considered a reflection of sound
public policy.
● The Court ordered Arellano University to refund the amount Cui paid, along with interest and costs.

Key Legal Principle:

● Contracts or contract provisions that are contrary to public policy are not valid and enforceable.
● Scholarships are awarded based on merit and should not be used as a tool to restrict students'
freedom to choose their educational institution.
 Malbarossa vs. Court of Appeals

G.R. No. 125761 (April 30, 2003)

Facts:

● Salvador Malbarosa was an officer of several companies owned by S.E.A. Development

Corporation (SEADC).
● SEADC offered Malbarosa an incentive compensation upon his resignation, proposing to transfer a
company car and membership shares to him.
● Malbarosa initially expressed interest but did not immediately accept the offer.
● SEADC later withdrew the offer before Malbarosa formally accepted it.
● Malbarosa claimed he had accepted the offer and refused to return the car, leading SEADC to file a
complaint for recovery of personal property.

Issue: Whether or not a valid contract was formed between Malbarosa and SEADC regarding the
incentive compensation and transfer of the car.

Ruling:

● The Supreme Court held that no valid contract was formed.

● A contract requires the concurrence of offer and acceptance.
● In this case, Malbarosa did not communicate his acceptance of the offer before SEADC withdrew
it.
● The Court emphasized that acceptance must be made known to the offeror for a contract to be
perfected.
● Malbarosa's delayed communication of acceptance and SEADC's prior withdrawal of the offer
prevented the formation of a binding contract.

Key Legal Principles:

● Article 1318, Civil Code: Essential requisites of a contract: consent, object, cause.
● Article 1319, Civil Code: Consent is manifested by the meeting of offer and acceptance.
● Article 1321, Civil Code: The offeror may fix the time, place, and manner of acceptance, all of
which must be complied with.
 Sanchez vs. Rigos G.R. No. L-25494 June 14, 1972

Sanchez v. Rigos

Facts:

● Nicolas Sanchez and Severina Rigos entered into an "Option to Purchase" agreement on April 3,
1961. Rigos agreed to sell a parcel of land to Sanchez for P1,510.00 within two years.
● Sanchez made several tenders of payment within the two-year period, but Rigos rejected them.
● Sanchez then deposited the payment with the Court of First Instance of Nueva Ecija and filed a
case for specific performance and damages.
● The lower court ruled in favor of Sanchez, ordering Rigos to accept the payment and execute the
deed of conveyance. Rigos appealed.

Issue: The main issue was whether the "Option to Purchase" agreement was a valid and binding contract,
considering the provisions of Article 1479 of the Civil Code regarding promises to buy and sell.

Ruling:

● The Supreme Court affirmed the lower court's decision, ruling in favor of Sanchez.
● The Court held that the "Option to Purchase" agreement was a valid contract under Article 1479 of
the Civil Code.
● The Court clarified that while the option itself was not a contract of sale, it became a binding
bilateral contract upon Sanchez's acceptance within the option period.
● The Court emphasized that even if the option lacked consideration, it was still a valid offer, and
upon acceptance, it created a binding contract of sale.
● The Court also discussed the distinction between Articles 1324 and 1479 of the Civil Code,
clarifying that Article 1479, which specifically deals with promises to buy and sell, should be
considered an exception to the general rule in Article 1324.

Key Legal Principles:

● Article 1479 of the Civil Code: This article governs promises to buy and sell, distinguishing
between reciprocally demandable promises and accepted unilateral promises that require distinct
consideration.
● Options and Offers: An option, even without consideration, is a valid offer. Upon acceptance
within the option period, it creates a binding contract.
● Bilateral Contracts: A bilateral contract involves mutual promises, where both parties are
obligated to perform.
 Equatorial Realty Dev. Inc. vs. Mayfair Theater, Inc. (G.R. No. 106063 November 21, 1996)

Facts:

● Carmelo & Bauermann, Inc. (Carmelo) leased portions of its property to Mayfair Theater, Inc. (Mayfair) under
two contracts. Both contracts contained a clause (Paragraph 8) granting Mayfair a 30-day exclusive option
to purchase the leased premises if Carmelo decided to sell.
● Carmelo informed Mayfair of its intention to sell the entire property, and negotiations ensued regarding the
potential sale of the leased premises or the entire property.
● Carmelo sold the entire property to Equatorial Realty Development, Inc. (Equatorial) without giving Mayfair a
chance to exercise its right of first refusal.
● Mayfair sued for specific performance and annulment of the sale, arguing a breach of the lease contract's
option clause.
● The trial court ruled in favor of Carmelo and Equatorial, stating that the option clause lacked consideration
and was therefore not binding.
● The Court of Appeals reversed the trial court's decision, interpreting Paragraph 8 as a right of first refusal
and not an option contract. It ordered Equatorial to sell the property to Mayfair at the same price it had paid
Carmelo.

Issue: The main issue revolves around the interpretation and enforceability of Paragraph 8 in the lease contracts.
Was it an option contract requiring separate consideration, or a right of first refusal inherent to the lease agreement?

Ruling:

● The Supreme Court upheld the Court of Appeals' decision, confirming that Paragraph 8 constituted a right of
first refusal, not an option contract. This distinction is crucial because a right of first refusal is an integral part
of the lease agreement and does not require separate consideration.
● The Court emphasized that the consideration for the lease itself includes the consideration for the right of
first refusal. Mayfair's agreement to lease the premises and pay the agreed rent was sufficient consideration
for Carmelo's promise to offer Mayfair the right of first refusal in case of a sale.
● The Court also found that Carmelo and Equatorial acted in bad faith by circumventing Mayfair's right of first
refusal. As a result, the sale to Equatorial was deemed rescissible, and Mayfair was granted the right to
purchase the property at the same price Equatorial had paid.

Key Legal Principles:

Right of First Refusal vs. Option Contract: The Court clarified the distinction between these two concepts. An
option contract requires a separate consideration and grants the holder the right to buy the property at a
predetermined price within a specific period. A right of first refusal, on the other hand, is often integrated into lease
agreements and gives the lessee the priority right to match any third-party offer to purchase the property.
Consideration: The Court affirmed that in reciprocal contracts like lease agreements, the obligations and promises
of each party serve as consideration for the other. Therefore, the consideration for the lease itself extends to the
right of first refusal embedded within the agreement.
Bad Faith: The Court highlighted the importance of good faith in contractual dealings. Carmelo and Equatorial's
deliberate actions to undermine Mayfair's right of first refusal were deemed acts of bad faith, leading to the
rescission of the sale.
 Spouses Theis vs. Court of Appeals 268 SCRA 167 - G.R. No. 126013 (February 12, 1997)

Facts:

● Calsons Development Corporation mistakenly sold a parcel of land (parcel no. 4) to Spouses Theis
due to an erroneous 1985 survey.
● The intended lots for sale were actually parcels 2 and 3.
● Parcel 3 already had a house built on it, making it an impossible part of the intended transaction
due to the price discrepancy.
● Upon discovering the error, Calsons offered alternative lots (parcels 1 and 2) or double the
purchase price as compensation, but the spouses refused, insisting on parcel 4.
● Calsons filed for annulment of the sale based on the mistake.

Issue: Is the contract of sale voidable due to the mistake in the object of the sale?

Ruling:

● Yes, the contract is voidable. The Supreme Court affirmed the lower courts' decisions, emphasizing
that the mistake in identifying the land (parcel no. 4) was substantial and invalidated Calsons'
consent.
● The mistake fell under Article 1390 of the New Civil Code, which allows for the annulment of
contracts where consent is vitiated by mistake.
● The Court highlighted that the mistake pertained to the substance of the thing being sold (the
specific parcel of land), a key element in the contract.
● The spouses' refusal to accept alternative solutions and their insistence on an already developed
parcel (parcel no. 3) further supported the annulment, as it would have resulted in unjust
enrichment.

Key Legal Principle:

● Article 1390 of the New Civil Code: Contracts are voidable when consent is vitiated by mistake,
among other factors.
● Article 1331 of the New Civil Code: Mistake invalidates consent when it refers to the substance of
the object of the contract or conditions that principally moved the parties to enter the contract.
 Isabel Rubio Alcasid, assisted by her husband Domingo A. Alcasid, petitioners, vs. The Honorable
Court of Appeals and Rufina L. Lim, respondents.

G.R. No. 104751, October 7, 1994

Facts:

● Petitioner Isabel Rubio Alcasid co-owned two parcels of land in Calamba, Laguna.
● Private respondent Rufina L. Lim offered to purchase the property.
● Petitioner agreed to sell her share for P4,500,000.00, contingent on all co-owners selling their
shares.
● Both parties were represented by Atty. Antonio A. Fernandez.
● Petitioner signed a Deed of Sale drafted by Atty. Fernandez, believing all co-owners had agreed to
sell.
● Later, petitioner discovered that the other co-owners had not agreed to sell.
● Petitioner filed a complaint for annulment of the contract of sale, claiming fraud, mistake, and
undue influence.

Issue: Whether the contract of sale is valid despite the allegations of fraud, mistake, and undue influence.

Ruling:

● The Supreme Court held that the contract of sale was valid.
● The Court found no evidence of fraud, as the petitioner was aware that Atty. Fernandez represented
both parties.
● The alleged mistake could have been avoided if the petitioner had verified with her co-owners
about their willingness to sell.
● There was no undue influence, as the petitioner executed the contract of her own free will.

Key Legal Principles:

● Fraud: There is fraud when one party induces the other to enter into a contract through insidious
words or machinations.
● Mistake: Mistake invalidates consent if it refers to the substance of the contract or conditions that
principally moved the parties to enter into it.
● Undue Influence: Undue influence exists when a person takes improper advantage of their power
over another's will, depriving them of reasonable freedom of choice.
DBP vs. Court of Appeals - G.R. No. 138703 (June 30, 2006)

Facts:

● The Development Bank of the Philippines (DBP) granted loans to Philippine United Foundry and
Machineries Corporation and Philippine Iron Manufacturing Company. These loans were secured
by mortgages on the companies' properties.
● The companies encountered financial difficulties and restructured their loans multiple times. The
final restructuring involved foreign currency-denominated loans.
● DBP initiated foreclosure proceedings due to the companies' default. The companies responded by
filing a suit to stop the foreclosure, claiming that DBP was charging an unlawful amount.
● The trial court and the Court of Appeals (CA) ruled in favor of the companies, finding the interest
rates unconscionable and the mortgage invalid due to a lack of consideration.

Issue:

● Whether the companies are liable for the total amount claimed by DBP, including interest and
penalties, or only for the original loan amount.
● Whether the mortgage on the companies' properties is valid.

Ruling:

● The Supreme Court held that the companies are liable for the refinanced and restructured loans, as
these were valid contracts. The Court emphasized the principle of mutuality of contracts, stating
that parties must honor their contractual obligations.
● The Court clarified that the failure of a third party (the Armed Forces of the Philippines) to fulfill a
separate contract does not invalidate the loan agreements between the companies and DBP.
● The Court also determined that the mortgage is valid as it is an accessory contract to the loan. The
validity of the loan automatically upholds the mortgage's validity.
● The case was remanded to the trial court to determine the total amount owed by the companies
based on the agreed-upon interest rates or the legal rate, whichever is lower.

Key Points:

● Mutuality of Contracts: Both parties are bound by the terms of a contract and must fulfill their
obligations.
● Refinancing and Restructuring: These actions modify the terms of an existing loan and create
new obligations that the parties must adhere to.
● Mortgage as Accessory Contract: The validity of a mortgage depends on the validity of the loan
it secures.
● Usury Law: The Court acknowledged the need to determine if the interest rates charged complied
with the Usury Law in effect at the time of the transactions.
 Geraldez vs. Court of Appeals - G.R. No. 108253 (February 23, 1994)

Facts:

Lydia Geraldez (petitioner) filed a lawsuit against Kenstar Travel Corporation (respondent) for breach of
contract. Geraldez purchased a European tour package ("Volare 3") from Kenstar, but was dissatisfied
with the quality of services provided. The issues included the lack of an experienced tour guide,
substandard hotel accommodations, and the failure to visit a promised leather factory. Geraldez claimed
these deficiencies constituted a breach of contract and caused her damages. The trial court ruled in favor
of Geraldez, awarding her moral, nominal, and exemplary damages. The Court of Appeals modified the
decision, removing moral and exemplary damages and reducing nominal damages.

Issue: whether Kenstar acted in bad faith or with gross negligence in fulfilling its contractual obligations,
warranting the award of damages to Geraldez.

Ruling:

The Supreme Court held that Kenstar did act in bad faith. The court found that Kenstar's
misrepresentations about the tour guide's experience, the quality of hotels, and the inclusion of the leather
factory visit amounted to fraudulent inducement. The court emphasized that Kenstar's actions caused
Geraldez anxiety and distress, justifying the award of moral damages. Additionally, the court awarded
exemplary damages to deter similar practices in the tourism industry. The court stressed the importance
of upholding contractual obligations and ensuring consumer protection in tourism services.
The Manila Banking Corporation vs. Edmundo S. Silverio

G.R. No. 132887. August 11, 2005

Facts:

● Purificacion Ver sold two parcels of land to Ricardo C. Silverio, Sr. but the sale was not registered.
● The Manila Banking Corporation (TMBC) obtained a judgment against Ricardo, Sr. and attached
the properties.
● Edmundo S. Silverio, Ricardo, Sr.'s nephew, claimed he bought the properties before the
attachment and sought to cancel the levy.
● TMBC argued the sale to Edmundo was simulated to defraud creditors.

Issue: Was the sale of the properties to Edmundo valid or was it a simulated contract to defraud TMBC,
the creditor?

Ruling:

● The Supreme Court held that the sale was absolutely simulated and therefore void.
● The Court found badges of fraud, such as the lack of proof of payment, Edmundo's evasiveness
about the transaction details, and his failure to assert ownership rights over the properties.
● The Court emphasized that an absolutely simulated contract is void from the beginning and
produces no legal effects.
● As the sale was void, the properties were still considered to belong to Ricardo, Sr. at the time of the
attachment, making TMBC's actions valid.

Key Points on Obligations and Contracts:

● Absolutely Simulated Contracts: These are contracts where the parties have no intention to be
bound and are thus void from the beginning.
● Void Contracts: These contracts have no legal effect and do not transfer ownership.
● Fraudulent Conveyances: Transfers of property made to defraud creditors can be voided.
● Rights of Creditors: Creditors have the right to attach properties of their debtors to satisfy
judgments.
 Umali vs. Court of Appeals G.R. No. 89561 September 13, 1990

Facts:

● The Castillo family owned land in Lucena City, used as security for a loan from the Development
Bank of the Philippines. Facing foreclosure, they partnered with Santiago Rivera to develop the land
into a subdivision.
● Rivera agreed to purchase tractors from Bormaheco to carry out the development.
● To secure the tractor purchase, the Castillos mortgaged their properties to the Insurance
Corporation of the Philippines (ICP), which acted as a surety for Rivera's company, Slobec.
● Slobec defaulted on the tractor payments, and ICP foreclosed on the Castillos' properties.
● The properties were eventually sold to Philippine Machinery Parts Manufacturing Co., Inc. (PM
Parts).
● The Castillos filed a suit to annul the title, claiming fraud and lack of court approval for the
transactions.

Issue: Was the foreclosure of the mortgaged properties by ICP valid, considering the surety bond's
expiration and lack of notice of default?

Ruling:

● The Supreme Court held that the foreclosure was not valid.
● The surety bond issued by ICP had a clear expiration date. After this date, ICP's liability under the
bond ceased.
● Bormaheco failed to notify ICP of Slobec's default within the stipulated time frame, further releasing
ICP from liability.
● The foreclosure by ICP, which occurred after the surety bond's expiration and without proper
notice, was deemed invalid.
● The subsequent sale of the properties to PM Parts was also nullified due to the invalid foreclosure.

Key Points on Obligations and Contracts:

● Suretyship: A surety's liability is strictly limited to the terms of the bond and cannot be extended
beyond its expiration.
● Notice of Default: The failure to provide timely notice of default, as required in the surety bond,
can release the surety from liability.
● Good Faith: The defense of good faith does not apply when a party is aware of the true
circumstances and potential irregularities in a transaction.
 J.L.T. Agro, Inc. v. Balansag

Facts:

● Don Julian Teves was married twice, first to Antonia and then to Milagros. He had children from
both marriages.
● A parcel of land (Lot No. 63) was originally owned by Don Julian and Antonia's conjugal
partnership.
● After Antonia's death, a compromise agreement was reached regarding the partition of Don Julian's
properties.
● The agreement stated that upon Don Julian's death, certain properties, excluding Hacienda
Medalla Milagrosa, would go to his children from the second marriage (Milagros and her children).
● Don Julian, along with his children from the first marriage, assigned Lot No. 63 to J.L.T. Agro, Inc.
● After Don Julian's death, Milagros and her children sold Lot No. 63 to Balansag and Cadayday.
● A dispute arose over the ownership of Lot No. 63, with J.L.T. Agro claiming ownership based on
the assignment and Balansag and Cadayday claiming ownership based on their purchase from
Milagros.

Issue: Whether Don Julian validly transferred ownership of Lot No. 63 to J.L.T. Agro, Inc. during his
lifetime, considering the provisions of the compromise agreement and the nature of the transfer.

Ruling:

● The Supreme Court held that the transfer of Lot No. 63 to J.L.T. Agro, Inc. was invalid.
● The Court emphasized that the compromise agreement, while a valid partition of Don Julian's
properties, only granted an expectancy right to his children from the second marriage. This right
would become ownership upon his death.
● Therefore, at the time of the assignment to J.L.T. Agro, Inc., Don Julian was still the rightful owner
of Lot No. 63 and had the right to dispose of it.
● However, the Court found that the Supplemental Deed, which purported to transfer the property,
was invalid due to lack of consideration and non-compliance with the requirements for a donation.
● As a result, the transfer of Lot No. 63 to J.L.T. Agro, Inc. was deemed null and void, and ownership
remained with Don Julian's estate, from which Balansag and Cadayday derived their claim through
their purchase from Milagros.

Key Legal Principles:

● Future Inheritance: The Court reiterated the principle that future inheritance cannot be the object
of a contract, except in cases expressly authorized by law.
● Preterition: The Court clarified that preterition (the omission of a compulsory heir in a will) was not
applicable in this case as there was no will involved.
● Validity of Contracts and Donations: The Court emphasized the essential requisites of a valid
contract (consent, object, cause) and the specific requirements for a valid donation of immovable
property (public document, acceptance).